M K Shah offers to buy McLeod Russel's tea estates without hostile bid

Offer for company under debt resolution doesn't seek to exclude its promoters, the Khaitan family: Source

M K Shah Exports has offered to buy the tea estates of McLeod Russel India as part of a proposal to the company’s lenders.

M K Shah, one of the largest tea producers in India, last week sent a non-binding letter of intent (LOI) to the lenders indicating an interest in acquiring some estates of McLeod Russel for up to Rs 550 crore..

A debt resolution for McLeod Russel is under discussion between the promoters (Khaitans) and banks. M K Shah’s offer is aimed at aiding the resolution. “The broad contours are that M K Shah is interested in the plantations and not interested in a hostile bid,” a source close to the development said.

While the offer is for buying select tea estates of McLeod and not taking over the company, the source said that it was “early days” and an outcome would depend on the banks. “Ultimately, the creditors will decide.”

M K Shah was not interested in taking any action where the promoters are out of the picture, said the source. M K Shah in 2018 bought eight estates from McLeod Russel, which made the sale to pare debt.

McLeod, the country’s largest bulk tea producer, has a crop of 44 million kg (mkg) across 31 estates in Assam and two in Dooars in West Bengal. With its estates in Africa, Vietnam and India, the company’s total production is about 73 mkg.

M K Shah’s approach to lenders of McLeod came days after Carbon Resources sent a non-binding LOI to the banks for debt resolution that entailed an upfront payment of Rs 1,245 core of outstanding bank debt of Rs 1,650 crore and acquiring a controlling stake in McLeod.

The amount includes Rs 300 crore of equity infusion by Carbon Resources and Rs 945 crore of fresh debt, which is likely to be raised on the books of McLeod. Secured lenders would be paid off in full and the balance would go to pay unsecured lenders.

Carbon Resources, which is into manufacturing input materials for ferro alloys, steel and aluminium industries, also picked up a 5.03 per cent stake in McLeod. The promoter holding in McLeod at the end of June stood at 6.25 per cent.

Debt resolution for McLeod Russel has been under discussion between the promoters and banks since 2019-20.

The discussions were paused last year when an application by a financial creditor for initiating corporate insolvency resolution process (CIRP) against McLeod was admitted by the New Delhi Bench of the National Company Law Tribunal (NCLT). But McLeod settled with the creditor and the application was withdrawn. Debt resolution discussions with banks resumed thereafter.

According to the company’s latest annual report, as part of the debt restructuring process, the valuation of tea estate and other assets are in process. The lenders appointed credit rating agencies for assessing the possible credit rating of the company on the implementation of the resolution plan, which is under process.

However, lenders also have two LOIs—from Carbon Resources and M K Shah—to consider now.