McLeod Russel India Ltd (MRIL), part of the BM Khaitan-controlled Willamson Magor Group, might have to sell more tea gardens to pare debt if it is unable to recover the advances it has made to Group entities.
McLeod, one of the largest bulk tea producers in the country, is estimated to have around ₹1,000-crore exposure to group companies, accounting for a major share of its total debt of ₹1,500 crore as of September, 2018. The group consists of Eveready Industries, McNally Bharat and Kilburn Engineering.
“One way to reduce debt is they should sell more gardens; or the other way is whatever advances they have done to the Group comes back,” Kaushik Das, Vice-President and Sector Head, Corporate Sector Ratings, ICRA, told
Calls and messages sent to McLeod did not elicit any response.
Options to pare debt
In the recent past, McLeod had sold 12 gardens in Assam and signed an MoU to sell around eight more estates, both in Assam and Dooars. The company had 52 tea estates in the country, producing 67 million kg at the end of the last fiscal year.
Following the sale of the 20 estates, McLeod Russel’s own production capacity (the company also outsources to small growers) is estimated to have come down to close to 42 mkg.
McLeod Russel had got shareholder approval to sell up to 35 per cent of its assets in India, which it has nearly exhausted. Any further sale will require shareholder approval. While it has very little direct exposure to McNally Bharat, however, it has lent to the Group, which, in turn, has pumped it in McNally — one of the weakest group companies.
It is to be noted that Khaitan family, along with the group promoter Williamson Magor, is looking to pare stake in Eveready in a bid to bring down debt and de-leverage promoter group holding.
Rating downgrade
McLeod’s long-term rating was recently downgraded by ICRA to BBB- from A while the short term rating was revised to A3 from A2+. The outlook on long-term rating is negative.
“The negative outlook underpins ICRA’s expectation that input cost pressure would continue to impact the operating profitability and cash flows from operation, which along with higher debt (on account of exposure to Group companies) would keep coverage indicators depressed and liquidity stretched,” said ICRA in its rating rationale.