While reassuring shareholders of his commitment to stave off the present financial crisis at McLeod Russel, Aditya Khaitan, chairman, said lending to group entity McNally Bharat Engineering had been a “mistake”.
Shareholders at the annual general meeting (AGM) repeatedly questioned Khaitan on the rationale for issuing inter-corporate deposits (ICDs) to McNally Bharat, whose repayment has since become uncertain. To which, he admitted: “It was a mistake. The firm that was lent to was in serious trouble and the mistake we made was to see whether that company could turn around...It (McNally) was in the infrastructure space and we believed India would need infrastructure and we felt it (McNally) could be the next business and growth for the group (Williamson Magor). Unfortunately, the time it took for that company to revive and grow has taken a toll on this company (McLeod Russel) and the group.”
Shareholders said McNally's failure to repay the borrowings direly affected McLeod’s financial position, leading to sale of assets and its share price dropping to an all-time low of Rs 11-12. Promoters pledging had also increased and the lenders had started invoking these pledges. “Did we give our money to McNally? You transferred the cash to McNally. Is this how you reward trust?” an annoyed shareholder asked.
Khaitan told them group-level restructuring was on, involving debt recasting, sale of assets and bringing in strategic investors. McLeod’s total debt is Rs 1,700 crore; McNally’s is estimated at Rs 1,500 crore.
While the tea arm of the Williamson Magor Group had begun selling its estates to raise capital for servicing the loans, the Kolkata Bench of the NCLT issued a temporary stay on any further sale, after one of McLeod’s financial creditors petitioned to recover its dues.
Eveready Industries, flagship entity of WMG, is in talks with investors for a strategic sale. Asked about the negotiations for Eveready’s battery and flashlight business’ sale to Duracell, Khaitan said, “Discussions are still on and so I cannot comment on the development.” Eveready’s managing director, Amritanshu Khaitan, who is also on the board of McLeod, was not present at the AGM. Eveready has sold two land parcels to raise money for paring its own debt.
In a filing with the BSE, Eveready said, “As a part of business strategy, various strategic options, joint ventures, commercial arrangements involving the company are evaluated and considered from time to time. However, as of this time, no definitive decision around any such possible options has been made by the company”.
McNally, the troubled engineering entity of WMG, has signed an agreement with a consortium of investors led by Turbovent Industries for infusion of Rs 150 crore, subject to approval of a resolution plan outside the scope of NCLT.
Also, ICICI, lead banker to McLeod, has appointed SBI Caps to come up with a proposal to recast the company’s debt. This would include reducing of interest rates and converting short-term debt into long-term ones.
Shareholders noted several directors who were on the board of McLeod had resigned. And, asked Khaitan to withdraw a resolution proposing to waive the recovery of Rs 2.66 crore which McLeod paid to Aditya Khaitan in 2016-17. Khaitan said McLeod had stopped further lending to McNally. Each WMG entity would have to chart their own individual paths. ICDs given by McLeod to promoter group and some other firms amounted to Rs 2,846 crore as on end-June. The share prices of McLeod fell by 1.2 per cent on the BSE to close at Rs 11.23; Eveready’s fell by 5 per cent to Rs 70.5. Those of McNally also went south, by 4.9 per cent to Rs 4.5.
Deloitte Haskins & Sells had earlier resigned as McLeod's auditor, after giving an adverse opinion. As of end-March, it had said, current liabilities exceeded current assets by Rs 1,436 crore.
In 2018-19, it added, the company was unable to discharge its obligations on repayment of loans and settlement of other financial and non-financial liabilities, including statutory ones.