McLeod Russel tea company expects final debt restructuring plan in months

McLeod Russel India, the country’s largest producer of loose tea, expects its debt restructuring plan to be finalized in the coming months.

McLeod owes the banks around Rs 1,800 crore and with unpaid interest the total amount would be around Rs 2,300 crore. The bankers fully support the company which is “very consciously” committed to a restructuring plan with them, said Aditya Khaitan, president and CEO of McLeod Russel, while answering questions from shareholders at the annual general meeting of the society.

“I hope that in the next few months we can finalize the restructuring program with the bankers and with that the company should be able to manage its debt,” Khaitan said.

The company said last month in a stock market filing that all bank lenders have signed / executed a Intercreditor’s Agreement (ICA) providing ground rules for finalizing and implementing the resolution plan.

McLeod had been in discussions with bankers for a debt resolution in accordance with the Reserve Bank of India (RBI) circular of June 7, 2019 for some time. The process was relaunched by bankers after the withdrawal of insolvency proceedings initiated by a financial creditor in September.

In the September quarterly earnings notes, the company said the Technological and Economic Viability (TEV) study and assessment is being reviewed again and that a possible parent company credit rating will then be obtained in due time.

The draft resolution plan prepared previously by SBI Capital Markets Limited as well as their recommendation regarding the resolution plan will be accordingly amended in terms of ICA and submitted to the bankers for consideration, he said at the time.

On the operations side, Khaitan told the AGM that he expects the next season in April to start on a high note. Tea production was higher than last year, but consumption over the past two years had accumulated a shortage.

Tea companies have seen a record spike in prices in 2020, rising due to a drop in the harvest due to the closure of farms following the fallout from the Covid-19 pandemic. This resulted in an average 34% increase in Indian auctions in 2020 compared to 2019.

However, prices were lower this year with higher production compared to 2020. Khaitan said any cost increases that were expected to occur have occurred. The wage increase was finalized by the governments of Assam and West Bengal.

“I hope we believe that all of the cost increases that were supposed to occur have occurred and that the market is also prepared to pay a higher price for the tea product,” he said.

Khaitan estimated that the price differential between good quality tea and medium and low quality tea will be maintained.

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