With McLeod Russel out of CIRP, lenders may restart debt resolution process

Lenders to McLeod Russel India, the country’s largest bulk tea producer, are likely to move forward with the debt resolution process with the company out of the clutches of corporate insolvency resolution process (CIRP).

Sources close to the development said, barring a few banks, most had signed intercreditor agreement (ICA). “The other banks are also on board now,” they said.

There are about 10 banks in the consortium and a meeting is slated towards the end of the week.

Sources indicated that the techno economic viability (TEV) study would have to be updated. In addition, credit rating of the company would have to be obtained for implementation of the debt resolution plan recommended by SBI Capital Markets.

McLeod Russel owes banks about Rs 1,800 crore. With unpaid interest, the amount would be around Rs 2,300-2,400 crore.

As part of the resolution, banks would restructure debt of Rs 1,800 crore. For the unpaid interest, there could be some other instrument. Promoters would also have to infuse equity, a part of which could come from the sale of tea gardens.

McLeod had sold about 17 estates between year ending March 31, 2019 and March 31, 2020 to pare debt and realized around Rs 764 crore.

However, discussions with banks for a comprehensive debt restructuring under June 7, 2019 circular of the Reserve Bank of India (RBI) started later and has been in the works for a while. The process was paused after the National Company Law Tribunal (NCLT) admitted an application for insolvency resolution initiated by financial creditor, Techno Electric & Engineering, on August 6 and an interim resolution professional (IRP) was appointed.

But McLeod settled with Techno and the NCLT accepted an application for withdrawal under Section 12A on September 3. The suspended board of directors and the company were relieved from the clutches of CIRP and the IRP was discharged from his functions.

One of the banks had also moved the NCLT. But the petition was dismissed by the tribunal as it became infructuous after the company was admitted for CIRP on account of the Techno application, which was subsequently withdrawn.

The group has been saddled with debt problems for a while now. Lenders were in the process of restructuring the debt of McNally Bharat Engineering Company, too. McLeod’s debt in FY21 was more than Rs 2,000 crore.

In a letter to shareholders, Aditya Khaitan, chairman, McNally Bharat said, “The debt restructuring plan has progressed with support of our lenders and we are at the verge of getting it approved by the 2nd quarter of this financial year. Debt restructuring is extremely crucial for your company to get back on the sustainable growth path.” The message was part of McNally Bharat’s annual report for 2020-2021.

Debt resolution

McLeod Russel owes banks about Rs 1,800 crore

Total amount at Rs 2,300-2,400 crore with unpaid interest

Proposal with lender includes a combination of capital infusion by promoters and restructuring of balance debt