Lenders to troubled McLeod Russel go to SBI Caps for loan restructuring

Lenders to financially troubled McLeod Russel, the tea growing entity which is part of the Khaitans’ Williamson Magor group, have asked SBI Caps to formulate a plan to tide over the company’s debt woes, said two people familiar with the development.
 
According to sources, some of the options being evaluated by SBI Caps are debt refinance and restructuring. The collective exposure of the consortium that has lent to the company is Rs 2,000 crore. Sources said a significant part of McLeod’s debt would come for repayment in the next three to six months.
 
According to a senior official at a public sector bank, “The debt problem at McLeod is turning out to be serious and the lenders thought the best way to deal with it would be to approach an external agency, to come out with a feasible solution.” The company’s share price on the BSE was Rs 142.1 on July last year; on Thursday, it was Rs 10.85. The lenders have started invoking pledged shares and the company has faced several credit rating downgrades.

 

The promoters’ holding in McLeod was 42.71 per cent as of end-March; it is now 32.36 per cent, after the lenders invoked the pledged shares. To tide over the financial crisis, McLeod has been selling its tea estates in India and Africa; it is estimated to have realised Rs 900 crore from this. In the process, it lost its crown as the world’s largest tea producer, to Goodricke Group’s parent, Camellia. However, its bankers feel it still has good tea estates, aiding a potential turnaround. “Given the fact that the company has (this) good asset base, the lenders are quite optimistic about the stalemate being resolved soon,” a source said.

 
A similar restructuring of loans is being considered by the lenders for another Williamson Magor entity, McNally Bharat Engineering.
 
McLeod’s auditor, Deloitte Haskins and Sells, has said that as of end-March, inter-company deposits (ICDs) worth nearly Rs 1,745 crore were given to promoter group companies and others, all of which are doubtful on recovery, considering the financial condition of the promoter group and other companies to which these were given. However, adds the auditor, McLeod did not make any formal accounting provision for the ICDs and the interest accruing on these.
 
Moreover, Deloitte noted, the Rs 1,745 crore was in excess of the limits on lending prescribed under legal provisions. Approval from members of the company is a requisite and this had not been obtained.

 
Ratings agency ICRA has already downgraded McLeod’s term loans, as well as fund-based bank facilities, from A to BBB with a negative outlook. Non-fund based bank facilities have been revised from ICRA A2-plus to ICRA A3.
 
ICRA has said it expects input cost pressure to keep the operating profitability under stress, despite the cost control exercises undertaken.
 
In the past financial year, McLeod reported an 82.3 per cent fall in net profit to Rs 38.8 crore. Total income declined by around 100 per cent, to Rs 1,960 crore.
 
Eveready Industries, another Williamson Magor entity, has got a downgrade from India Ratings and Research.