Troubled bulk tea producer McLeod Russel has submitted a fresh debt resolution plan to lenders after its plan for a one-time settlement (OTS) backed by garden sale to Calcutta’s Carbon Resources failed to cut ice with bankers.
The company submitted the reworked proposal which involves staggered payment in contrast to an OTS to a consortium of banks at the end of January. This is the third attempt by the Khaitan family, promoters of McLeod, to resolve the outstanding debt problem, which has been plaguing the planter since 2018.
India’s largest bulk tea producer owes about Rs 1,700 crore (in principal) to lenders. It had initially submitted a debt resolution plan, prepared by investment banker SBI Capital Markets, to lenders. In 2023, it came up with a OTS payment proposal of Rs 1,030 crore to settle the entire amount outstanding against bank loans, including interest.
The bulk of the OTS money was to come from electrode paste maker Carbon Resources, which was willing to buy 15 gardens in Assam capable of producing 18 million kg tea annually. However, banks failed to reach a consensus among themselves and the validity of the offer lapsed on September 30.
“Given that market conditions have deteriorated and tea prices have come off substantially in 2023, an OTS based on a large chunk of garden sale is not a viable option any more. It may now be prudent to opt for staggered payments,” a source in the company explained.
Milestone payments over a period of time (5-7 years) will also allow flexibility to the promoter of the company to arrange funds, which could be met by an asset sale, induction of financial/strategic partner or other means. A fresh valuation of the assets of the company, in the light of the depressed tea market, is under preparation as well.
“We will await a response from the banks and accordingly the structure of the debt relief package is going to work out,” the source added.
McLeod published third quarter results, which showed a 28.64 per cent drop in revenue from operations, reflecting a sharp decline in bulk tea prices.
Loss for the quarter ended December 31 accelerated to Rs 81.68 crore compared with Rs 70.79 crore in Q3FY23, while revenue slid to Rs 348.62 crore in Q3FY24 from Rs 488.59 crore in Q3FY23.
While McLeod’s negotiations with a section of lenders are on, two banks — IndusInd and State Bank of India — have gone to the National Company Law Tribunal (NCLT) seeking insolvency. However, their exposure to McLeod is about Rs 55 crore and Rs 65 crore, respectively.
