McLeod Russel: world's largest tea producer, insolvent over a Rs 100 crore loan

McLeod Russel India turned out 73 million kg of tea a year on 27,360 hectares with about 73,000 employees — one of the world's largest producers and India's leader even after selling gardens. With debt mounting, the board decided in 2018 to dispose of tea estates, and in September 2018 took a Rs 100 crore inter-corporate deposit from Techno Electric & Engineering at 14% interest, conditional on repaying loans on four Assam estates — Addabarie, Mahakali, Dirai and Rajmai — and securing their release from encumbrances. The title deeds never arrived, and the loan was not repaid by the due date.

On August 6, 2021 the NCLT's New Delhi bench admitted Techno Electric's application to begin corporate insolvency resolution against McLeod Russel. The company had sold 17 estates between FY19 and FY21 for Rs 764 crore, leaving 31 estates in Assam and two in West Bengal, and had parted with its profitable Rwanda operation — yet FY21 debt still stood at Rs 1,835 crore, with Rs 4,336 crore across the group's three main companies: McLeod Russel, McNally Bharat Engineering and Eveready Industries.

The deeper hole was group cross-support. In Q4FY21 Eveready, the country's largest dry-cell battery maker, provisioned Rs 629.70 crore for inter-corporate deposits and corporate guarantees given principally to prop up the ailing engineer McNally Bharat. Promoter shares were pledged in Eveready and McLeod to raise funds for McNally; as prices moved, lenders invoked the pledges, cutting promoter holding in McLeod to 10.07%. The backdrop was a decade of squeeze: ICRA noted bulk-tea operating profitability fell from 11-12% to about 3% between FY15 and FY20 as wages rose faster than prices.

A decade of rising wages without matching price increases crushed bulk-tea operating margins from 11-12% to roughly 3%, leaving no cushion for group debt.

Group contagion did the rest: money raised on McLeod and Eveready, including pledged promoter shares, was routed to support the perennially ailing McNally Bharat.

The deleveraging plan depended on estate sales, and the Rs 100 crore deposit required clean title deeds for four estates — deeds that were never delivered.

Even Rs 764 crore from 17 estates left Rs 1,835 crore of FY21 debt, and the one loan that actually defaulted belonged to a creditor willing to force insolvency.

Asset sales deleverage only as fast as titles actually change hands: McLeod's rescue deposit was conditional on deeds that never arrived, and a defaulted lender controls the timetable.

The NCLT admission put the market leader into insolvency just as lenders pursued an RBI-circular resolution process whose inter-creditor agreement had been signed by some lenders. Promoter holding in McLeod stood at 10.07% after pledged shares were invoked. Buyers looked scarce: ICRA's Jayanta Roy doubted an IBC auction would fetch good value for a bulk-tea giant, and some major industry buyers privately ruled out bidding — a contrast with Assam Company, whose 2018 IBC auction fetched Rs 1,214 crore with lenders recovering about 80% of claims on a producer a quarter of McLeod's Indian size.