McLeod Russel Reaches Debt Restructuring Agreement with National Asset Reconstruction Company Ltd (NARCL)

McLeod Russel India Ltd Receives Breather Through Debt Restructuring Agreement

The promoter Khaitan family of McLeod Russel India Ltd has secured a crucial debt restructuring agreement with the National Asset Reconstruction Company Ltd, providing the tea producer with a three-year window to stabilize operations and avoid a distress sale of core assets. The agreement, finalized on April 9, was reached after months of negotiations between the company and NARCL.

Under the terms of the agreement, the Aditya Khaitan-led management will service a sustainable debt of Rs 1,050 crore, payable to the state-owned NARCL by February 15, 2029. The deal entails around 10 per cent equity dilution and a pledge of promoter shareholding as a performance guarantee. Notably, the company's 75.02 per cent debt is with the NARCL.

Despite the relief provided by the debt restructuring agreement, analysts caution that McLeod Russel's weak cash flows and mounting losses limit the company's ability to meet repayment obligations through internal accruals alone. The company's consolidated operating cash flow nearly halved to Rs 29 crore in FY'25 (2024-25), while it posted cumulative net losses exceeding Rs 460 crore over the past two years. The annual interest burden, estimated at over Rs 225 crore, further constrains financial flexibility.

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| Comparison of McLeod Russel's Consolidated Operating Cash Flow | | --- | --- | | FY'24 (2023-24) | Rs 57 crore | | FY'25 (2024-25) | Rs 29 crore |

The analysts suggest that significant asset monetization appears inevitable, with the promoters potentially needing to divest 15-20 of the company's 33 tea estates in India to raise funds. Industry estimates suggest that Prime Assam gardens are valued at Rs 30-50 crore each. Alternatively, the company may consider monetizing assets of its African subsidiary, McLeod Russel Uganda Ltd.

The unit, which accounts for roughly 26 per cent of Uganda's tea output with six estates producing 21 million kg annually, remains a key asset but has faced profitability pressures. It reported a comprehensive loss of around Rs 28 crore in 2023 amid weak tea prices at the Mombasa auctions. The company officials estimate that a full or partial sale of the Uganda business could potentially fetch Rs 300–400 crore, covering a substantial portion of the NARCL dues.

The company is in talks with the lenders representing 24.98 per cent in debt value, including JC Flowers ARC and IndusInd Bank, to bring them under a broader resolution framework. While the conversion of a portion of debt into equity aligns the lender's interest with the company's turnaround, the pledge of promoter shares acts as a strong enforcement mechanism, the analysts said.

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