McLeod-Carbon pact period ends as debt restructuring talk with banks linger

As discussions on debt restructuring of the financially distressed McLeod Russel are going on with banks, the exclusivity period for the sale of its tea gardens to electrode paste maker Carbon Resources has ended. According to sources close to the development, the exclusivity period for Carbon Resources was till September-end and there was an understanding between the companies till the end of December.

However, the exclusivity period came to an end as clarity from the banks on debt restructuring was awaited, they said.

In August 2023, McLeod reached an understanding with Carbon Resources for the sale of tea estates. The size of the deal pegged at Rs 700 crore was to enable a one-time settlement (OTS) that McLeod promoters proposed to banks. The promoters of the country’s largest bulk tea producer had made an OTS offer of Rs 1,030 crore to lenders against the entire outstanding loan and interest. The principal debt with banks was said to be Rs 1,600-1,700 crore.

However, rising wages and falling tea prices took a toll on the industry, prompting lenders to re-validate the valuation of the company to arrive at the current valuation.

Carbon Resources sources said that no headway was being made with the OTS. In the meantime, lack of investment was impacting the asset quality, they said, adding that market conditions were also adverse. McLeod has a production of about 43 million kilogrammes across 31 estates in Assam and two in Dooars, West Bengal.

Tea prices in 2023 took a hit and the increased cost of production made it a difficult year for the industry. The average for Assam CTC was Rs 208.23 per kg in 2023 against Rs 213.47 per kg in 2022; the average for Assam orthodox was Rs 220.13 per kg in 2023 compared to Rs 289.90 per kg in 2022. Moreover, geopolitical tensions impacted exports.

McLeod’s revenues for the quarter that ended September stood at Rs 365.88 crore, down by 13.92 per cent. Profit at Rs 61.15 crore was down by 53.23 per cent.

Sources close to McLeod said that while the enthusiasm in the buying community had tapered due to market conditions, there was interest in the company’s gardens. The company is expected to re-engage with buyers once clarity over debt restructuring emerges.

Bankers to McLeod Russel had signed an inter-creditor agreement (ICA) for arriving at and implementing a debt resolution in terms of the Reserve Bank of India circular dated June 7, 2019, in November 2021. However, for the debt restructuring, a consensus among banks was required. But two banks had moved the National Company Law Tribunal for debt resolution under the Insolvency and Bankruptcy Code (IBC).

McLeod Russel India

Production of 43 million kiligrammes from 33 estates

Assam – 31 estates

Dooars (West Bengal) – 2