Lenders take forward their resolution plan for McLeod Russel outside NCLT

Led by ICICI Bank, the largest lender, they have asked LSI Financial Services to do a feasibility study on the health gardens and the firm's EBITDA prospects

Taking forward their plan to formulate a resolution plan for McLeod Russel outside the scope of NCLT, the company's lenders, led by ICICI Bank, which has the largest exposure, have appointed LSI Financial Services to undertake a techno-economic feasibility study based on which the creditors will decide the way forward.

The study primarily focusses on the health of the gardens, and will include McLeod's current and potential level of earnings before interest, tax, depreciation and amortisation (EBITDA), if the creditors to the stressed Williamson Magor Group (WMG) group agree to recast the debt of Rs 1,700 crore.

“The first level of assessment has been completed and a preliminary report has been submitted to the lenders. They are interested in knowing about the EBITDA level and the potential,” Rajya V Kajaria, managing director at LSI Financial, told Business Standard.

To work out McLeod's potential EBITDA, the consultant is considering the cost austerity measures such as trimming the workforce in the gardens and the replantation exercise that McLeod had undertaken over the past few years.

Although Kajaria refused to share details of the current EBITDA level, sources said that it is below the industry average of 8-10 per cent, but given its strong focus on exports and other factors, it may improve.

“Without restructuring the debt, it will be hard for McLeod to improve its EBITDA”, Kajaria said.

The stressed company is already replanting the gardens in a move that is expected to improve the yield per hectare. Cost austerity measures like workforce reduction is expected to help improve margins.

Sources said that currently, of the total production of about 58 million kg (mkg), McLeod exports 22 per cent, while a similar amount is sold privately. The rest of the produce is auctioned.

“The idea is to increase focus on the export market which is more lucrative,” the sources said.

LSI has only considered tea plantation and production as the key operational areas and supplementary income sources such as tea tourism have not been considered.

A source close to these developments said that a resolution plan outside the scope of NCLT might entail a mix of tea garden sale and debt restructuring.

According to sources close to the development, of the various options being mulled is a plan to restructure the terms of loans amounting to Rs 800 crore, extending the tenure of repayment and sale of gardens, which could yield Rs 200-400 crore.

LSI is awaiting a report from SBI Caps after the submission of which, the final findings will be delivered to the banks. SBI Caps has been appointed by the lenders to come up with a debt restructuring plan that will be based on LSI's findings.

Earlier, Aditya Khaitan, chairman at McLeod, said that various steps to overcome the current financial situation, such as reduction in operational costs, monetising group assets (including holding of other group companies) and the proposal for restructuring the borrowings, are under consideration> He said the resolution process of stressed assets has already been initiated by the bankers and an inter-creditor agreement (ICA) is under consideration.

However, while an ICA is being looked into, a banker to McLeod has already filed a petition with the Kolkata bench of NCLT calling for the commencement of insolvency proceedings against the WMG company.

McLeod’s Q2 financial performance continued to be under stress despite positive earnings. Inter-corporate deposits amounting to Rs 2,846 crore, given to various group companies, remained unpaid, creating a mismatch between the company's current resources and its commitments and obligations, and igt liquidity position. This, in turn, has made it difficult for the company to service its short-term and long-term debt.

Earlier this month, McLeod shareholders had defeated all of the company’s special resolutions, including borrowing and lending money beyond permissible limits.

Besides, while hearing an appeal from IL&FS against Williamson Magor & Co, the Calcutta High Court had passed an ad-interim (temporary) order of injunction restraining Williamson Magor, McLeod and Eveready (all WMG entities) from transferring, alienating, or encumbering any of their tangible or intangible assets till the application of IL&FS is disposed of.

Key points

- Lenders, led by ICICI Bank appoint SBI Caps to come up with resolution plan

- LSI Financial Services submits first-level assessment on McLeod’s EBITDA position

- Resolution plan may entail sale of tea estates, debt restructuring

- McLeod’s total debt is around Rs 1,700 crore
 

Current EBITDA level of McLeod is below industry average of 8-10 per cent