Kolkata, Mar 16 (PTI) A consortium of lenders to bulk tea producer McLeod Russel India Limited (MRIL) has transferred its debt exposure to the National Asset Reconstruction Company Limited (NARCL) for Rs 700 crore, representing a 36 per cent haircut, sources said on Sunday.

The debt of Rs 1,104.69 crore has been sold under a 15:85 cash-to-security receipts (SR) structure, with 15 per cent of the consideration to be paid upfront and the remaining 85 per cent through SRs over the next five years, they said.

The Swiss challenge auction for the debt transfer of the base value of Rs 700 crore received no counterbids against NARCL’s offer due to extremely poor sentiments about the tea sector, a merchant banker official involved in the transaction said.

The Rs 700 crore debt deal is seen as significantly lower than a previously attempted one-time settlement (OTS) of Rs 1,030 crore backed by Carbon Resources, which lapsed due to a lack of consensus among lenders.

McLeod officials stated that the development is a positive step that will allow the company to negotiate with only three debtors—NARCL, JC Flowers ARC, and IndusInd Bank—rather than a dozen banks.

"We are not out of the woods, but this will help the company get time to turn around and avoid a distress sale of assets," a company official said, declining to be quoted due to the sensitivity of the matter.

As of June 30, 2024, McLeod Russel had total outstanding dues of Rs 1,461.06 crore, including debt assigned to another private asset reconstruction company and Indusind Bank which are not part of this transaction.

NARCL is expected to work closely with the existing management to restructure the company. However, no immediate comments were available.

Based on financial due diligence, the lenders anticipated an additional net recovery of approximately Rs 270 crore upon full redemption of the SRs.

McLeod had informed the bourses that NARCL had taken over the loans of ICICI Bank-led consortium which had State Bank of India, HDFC Bank Limited, Axis Bank Limited, Punjab National Bank, UCO Bank, Indian Bank, and RBL Bank.

ICICI Bank officials declined to speak on the details.

The company’s loans were classified as non-performing assets (NPAs) in October 2019 due to financial stress arising from a prolonged downturn in tea prices, rising costs, and unrecovered loans extended to group entities, notably McNally Bharat Engineering Co Ltd, which is undergoing insolvency proceedings.

McLeod Russel, promoted by the Khaitan family, operates 31 tea estates in Assam and two in West Bengal, with a saleable production of 39.19 million kg in FY24 and a workforce exceeding 50,000 employees. PTI BSM NN

Debt transfer to asset reconstruction company reduces lender exposure and provides extended security receipt repayment to support company restructuring. Lenders sold a majority portion of syndicated exposure to an asset reconstruction company for upfront cash and the remainder as security receipts redeemable over several years, reflecting a significant haircut and no competing bids; the transfer concentrates creditor claims, aims to enable management engagement for restructuring, and was premised on due diligence projecting additional net recovery upon full redemption of the security receipts.