National Asset Reconstruction Co Ltd (NARCL) has emerged as the sole bidder to take over the outstanding lenders’ debt of McLeod Russel India Ltd (MRIL) with an offer of ₹700 crore.
The Khaitan family-promoted bulk tea producer owed ₹1,104.69 crore in principal to a clutch of lenders led by ICICI Bank. NARCL’s offer represents a 36.6 per cent haircut for the banks which have been looking for ways to restructure McLeod’s debts for six years.
After receiving the NARCL proposal, the banks mandated PNB Investment Services Ltd to carry out an auction under the Swiss challenge method on an all-cash basis to find an offer better than it already had, as per RBI’s master directions on transfer of loan exposure, dated September 24, 2021.
The starting price for the first challenger bid was set at ₹735 crore — 5 per cent more than the reserve price, which is the NARCL offer. However, the auction elicited no response.
It would now be up to the existing nine banks who have loan exposures to McLeod to decide whether to go ahead with the anchor bid of NARCL, which is also backed by PSBs.
In McLeod, RBL Bank, HDFC Bank and Axis Bank have the highest exposures to the tea producer. Yes Bank, which also had a sizeable exposure to the Khaitan company, had previously assigned its loan to a private ARC, JC Flower. Cumulatively, the total principal outstanding of all banks and ARC is ₹1,461.06 crore as on June 30, 2024.
Tea industry observers say that if banks agree to NARCL’s offer of ₹700 crore, it would be a step forward in the resolution of McLeod’s woes. The promoter family would be able to negotiate with a fewer number of lenders, which could potentially allow a faster resolution. Sources said banks may come to a decision on the assignment of loan by the end of this quarter.
With 31 gardens in Assam and two in Bengal, McLeod is India’s largest bulk tea producer with saleable production at 39.19 million kg in FY24, employing over 50,000.
Long road
McLeod had previously extended loans and advances to support its group companies, especially McNally Bharat Engineering Co Ltd. However, it could not recover the loans as MBECL went into bankruptcy.
In addition, due to adverse industry cycle (low tea prices amidst rising input cost), McLeod incurred losses leading to a gradual build-up of statutory dues. McLeod’s loan was classified as non-performing assets on the books of lead banks and other lenders from October 30, 2019.
The company managed to elicit interest from Calcutta-based electrode paste maker Carbon Resources which offered to support the promoters in proposing a one-time settlement (OTS) to banks. The ₹1,030-crore OTS offer expired as lenders could not come to a decision.
Frustrated at the delay which coincided with a downcycle, Carbon moved out from the scene. Meanwhile, a number of banks and some other non-banking lenders also filed bankruptcy cases against McLoed. However, no corporate insolvency resolution process has started against the tea producer.
