The Williamson Magor group-owned McLeod Russel India Limited (MRIL), the largest bulk tea producer in the country, has been in severe financial distress -- a classic example of being in a debt trap for excessive betting with one’s fortune. The company had been lending to the ailing McNally Bharat Engineering – a group company -- beyond its financial means and has ended up in a serious financial mess, with its debt today becoming larger than its total asset value. MRIL has been struggling to work on restructuring debt with lenders for the last few years. The tea producer had defaulted on the repayment of the principal and interest to its lenders. To add to its woes, it is now facing hostile takeover too. Last month, Carbon Resources, a company which is not in the tea business, had sent a non-binding letter of intent to the lenders to acquire a controlling stake in the company. The offer came after Carbon Resources picked up over 5 per cent stake of the tea company from the open market – a move to gain confidence of the stakeholders of debt-laden tea major and show that it is keen to revive the company from the financial mess. “We believe tea is a good business and entry into the tea segment with MRIL will be an ideal opportunity for us,” says Abhinav Jalan, director, Carbon Resources, commenting on its plan to foray into the tea business. “MRIL has good assets in the industry; its problems are not related to tea business. We are ready to settle all the debts and manage the company efficiently.” The Giridih (Jharkhand)-based Rs2,400 crore Carbon Resources group is a leading producer of critical carbonaceous raw materials and has its corporate office in Kolkata. Carbon Resources has suggested an upfront payment of Rs1,245 crore to the creditors. “The secured creditors will get cent per cent dues, which is about Rs650 crore, while unsecured lenders would get Rs600 crore out of Rs1,100 crore – they will need to take a 45 per cent haircut. This will be a win-win situation for the lenders,” says Jalan. ICICI, SBI, Indian Bank, Axis Bank, UCO Bank, Punjab National Bank, IndusInd Bank, RBL Bank, Yes Bank and HDFC Bank are the lenders to MRIL. The company’s current debt stands at Rs1,700 crore. The Khaitans holds just over 6 per cent stake in the company and is vulnerable to takeover attempts. Bad business judgement Incidentally, earlier this year, the Khaitans had lost control of Eveready Industries, the country’s largest dry cell battery-maker, to the Burmans, who own Dabur India. As and when the Khaitans had pledged their shares for funds, the Burmans have been scooping up Eveready shares from the market. In 2020, they became the largest shareholders of Eveready, as the Khaitans’ shares, pledged with the banks, were sold in the market due to a breach in the loan agreement. Similarly, in MRIL, Khaitans had borrowed heavily by pledging their shares to save the group’s ailing engineering company McNally Bharat, engaged in turnkey solutions for infrastructure projects. According to an industry insider, some key senior management people, who had been running the day-to-day affairs of McNally Bharat, had misguided Aditya Khaitan, painting a rosy picture of the EPC industry and the over-ambitious Khaitan felt that infra could be the next business to be in for the group and started funding. It finally turned out to be a bad business judgement and dragged down MRIL. Last year, MRIL also escaped insolvency proceedings by clinching a settlement with Techno Electric over Rs100 crore inter-corporate deposits.
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Khaitan: trying times; Photos: Sajal Bose
