Anticipating a difficult resolution for the Assam Company India Ltd, which is facing insolvency proceedings in the Guwahati bench of NCLT, the company’s resolution professional, T Kannan has asked for an extension till July 23 from the tribunal to complete the process.
The problem is on account of the debt structure of the company. Sources suggest that the maximum debt has been taken by the company for the oil business whose assets currently have negligible liquidation value. On the other hand, its only assets are the 14 tea gardens which can fetch a liquidation value of Rs 2.8-3.5 billion but then the debt is minimal for the tea business.
“This will put the bidders under dilemma as the primary assets (tea gardens) have negligible debt while the acquirer has to pay the creditors for assets (oil business) which is practically non-existent,” a source told Business Standard.
The total debt of the company stands at Rs 14.10 billion and it is anticipated that the 12 financial lenders, including SREI, which pulled up Assam Company to NCLT in October last year, will have to take huge haircut on their admissible claim.
Kannan had appointed Khaitan & Company for counsel which advised him not to accept split bids for the resolution plans from the bidders.
“In case the tea and oil entities are separated for resolution plan, there will be bidders for the tea business but then there will be a dearth of bidders for the oil business”, the source told this newspaper.
Kannan had called for lenders’ meeting previously on different instances but an expression of interest is yet to be floated.
“I have asked for an extension of the resolution process to the Guwahati bench of NCLT as this sale may take time to complete”, Kannan said.
On the other hand, he has been able to raise interim finance twice – first Rs 100 million from SREI and secondly Rs 320 million from Dhunseri Petrochem & Tea Ltd at a 16 per cent rate of interest. Most of these interim finance has been used to pay the workers in the tea estates and maintain the gardens.
However, although the sale is going to be difficult on account of the spread of debt in the company and the asset valuation, sources said that apart from the Indian firms - Dhunseri Petrochem & Tea and Warren Tea – one tea manufacturer from London in the UK and another tea maker from Singapore has shown preliminary interest in buying the company undergoing bankruptcy proceedings.
Both the foreign tea firms have gardens in Africa and Sri Lanka.
Besides, forensic audit of Assam Company’s accounts is also underway at the behest of Allahabad Bank, one of the financial lenders.
A tea industry official opined that although Assam Company’s tea business looks attractive for a takeover, the oil business can be a drag as most of the major tea companies either don’t have an existing line of oil business or isn’t interested to enter either. Dhunseri, however, has a foreign subsidiary, Dhunseri Petrochem & Tea Pte. Ltd which is into the oil business.
Assam Company entered the oil business in 2010 in a 40:60 partnership with Canoro Resources Limited in the Amguri oilfield in Assam. However, soon, the central government terminated the partnership and therafter, a legal tussle ensued which was finally resolved in February last year after the Arbitral Tribunal Board declared Assam Company as the sole owner of the oilfield besides ordering monetary compensation.
Nevertheless, operations in the oilfield didn’t commence leaving the tea business as the only revenue generator for the potentially insolvent firm.
Sources said industry biggies like McLeod Russel, Goodricke India or Tata Global Beverages, who are currently prioritising retail sales, may not be interested to bid.
Kannan said Srei Infrastructure had given a Rs1 billion loan to Gujarat Hydrocarbons and Power SEZ, a Assam Company subsidiary with the parent being the guarantor. Upon non-payment of the total outstanding, now amounting to Rs. 5.95 billion, the parent was dragged to NCLT.
Set up in 1839, Assam Company is India’s first tea plantations enterprise and also the pioneer in oil exploration in Assam way back in 1889.