Bulk tea maker, McLeod Russel India Ltd , which saw its losses widening on a standalone basis to ₹318 crore for the quarter ended March 31, 2019, as against ₹142 crore same period last year, is in talks with lenders for refinancing its loans.

As on September 30, 2018, its debt stood at ₹1,500 crore.

Poor financial health

McLeod, part of the BM Khaitan controlled-Williamson Magor Group, has been facing liquidity issues and has been selling its tea estates to repay its financial obligations. The company has already sold 16 tea estates and has entered into MoU for selling another four estates. It is also open to looking at further sale of assets of certain tea estates.

It is currently in talks with lenders to explore refinancing possibilities.

Also read:McLeod’s cup of debt woes overflowing

In addition to the cash flows from the sale of assets and cost reduction measures, the company had to seek short-term borrowings to fund various promoter group companies to enable them to meet their financial obligations. This has resulted in higher finance cost and increase in current liabilities.

“As a suggestion on mitigation options, one of the options suggested is to finance the short-term loans from lenders to long-term loans to ease the liquidity constraint on the company, along with further sale of assets of certain tea assets. The company is hopeful that the proposal for refinancing will be favourably considered,” McLeod said in notes to accounts.

Auditor’s adverse opinion

The company’s auditor Deloitte Haskins & Sells LLP has said that its ability to continue as a going concern will solely depend on the acceptance of the refinancing proposal, which is not wholly within the control of the company.

The company’s revenue from operations decreased to ₹176 crore for the quarter ended March 31, 2019, as against ₹378 crore same period last year.

McLeod Russel has received an adverse opinion from its auditor which has said that the financial statement prepared by the company “does not give a true and fair view in conformity with the aforesaid Indian Accounting Standards and other accounting principles generally accepted in India of the net profit and total comprehensive loss and other financial information of the Group for the year ended March 31, 2019.”

In its note to accounts, McLeod has said that its financial performance was adversely affected due to a downturn in the tea industry and operational issues due the increased cost of production. The company had given inter-corporate deposits (ICDs) to some companies (including promoter group companies) and the closing balance of such deposits stood at around ₹1745 crore as on March 31, 2019. The interest accrued and unpaid on such deposits stood at around ₹77 crore.

“Promoter group-level restructuring is underway to monetize assets to meet up the various liabilities of those companies (part of promoter group) including the outstanding inter-corporate deposits. The management, therefore, believes that the outstanding dues, net of provision of doubtful interest receivable, shall be recovered/adjusted and no further provision is required at this stage,” the company said in its note to accounts.

‘Understated loss’

However, according to the auditor, the ICDs given to promoter group companies and other companies and the interest accrued on the same, are doubtful of recovery considering the financial condition of the promoter group companies and the other companies.

“The company has not made any provision for the outstanding amounts recorded as ICDs and interest accrued thereon. Consequently the non-current portion of loans and interest accrued thereon are overstated and loss for the year is understated by 1,821 crore,” the auditor noted.

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