McLeod Russel’s Debt Transfer Sparks Rally in Share Price
Shares of McLeod Russel India Ltd, one of the largest bulk tea producers in the world, surged over 5% on Monday, March 17, 2025, after reports confirmed that a consortium of lenders had transferred the company’s debt to the National Asset Reconstruction Company Limited (NARCL). The debt, valued at ₹1,104.69 crore, was sold to NARCL at a 36% haircut, with the final settlement amount set at ₹700 crore.
This development comes as a major relief for McLeod Russel, which has been battling financial distress for several years. The restructuring process is expected to give the company additional time to stabilize operations and avoid distress sales of assets.
Stock Performance Following the Announcement
Stock Price Movement on March 17, 2025
Following the announcement of the debt transfer, companies share price rose nearly 5% in early trade.
- At 11:46 AM, shares of McLeod Russel were trading at ₹32.03 apiece on the National Stock Exchange (NSE), reflecting a 4.98% increase.
- The company’s total market capitalization stood at ₹334.57 crore.
The market’s positive reaction to the news reflects investor optimism regarding the company’s restructuring efforts and its potential recovery.
Details of the Debt Transfer to NARCL
Key Aspects of the Loan Transfer Agreement
According to reports from PTI sources, the ₹1,104.69 crore debt exposure of McLeod Russel was sold to NARCL under a 15:85 cash-to-security receipts (SR) structure.
What This Means:
- 15% of the payment will be paid upfront in cash.
- The remaining 85% will be settled through security receipts (SRs) over five years.
The Swiss challenge auction—a process that allows other bidders to challenge the offer—was conducted for the debt at a base value of ₹700 crore. However, no counterbids were received against NARCL’s offer.
Why No Counterbids Were Made?
A merchant banker official involved in the deal stated that poor sentiment in the tea industry discouraged potential bidders.
This transaction marks a significant step in McLeod Russel’s financial restructuring and will allow the company to focus on working with fewer creditors.
Comparing the Current Deal with Past Debt Resolutions
The ₹700 crore debt transfer to NARCL is substantially lower than a previous one-time settlement (OTS) proposal of ₹1,030 crore, which was backed by Carbon Resources.
Why Did the Previous OTS Deal Fail?
The Carbon Resources-backed OTS deal lapsed due to a lack of consensus among lenders. This failure forced the company to explore alternative restructuring options, leading to the NARCL transaction.
Why is This New Development Important?
With the debt now transferred to NARCL, McLeod Russel will only have to negotiate with three major debt holders, rather than a dozen different banks.
These three debt holders are:
- NARCL (₹700 crore exposure)
- JC Flowers Asset Reconstruction Company (ARC)
- IndusInd Bank
McLeod Russel’s Financial Struggles and Outstanding Dues
Current Debt Burden
As of June 30, 2024, McLeod Russel had a total outstanding debt of ₹1,461.06 crore, including:
- Debt assigned to another private asset reconstruction company (ARC)
- Debt owed to IndusInd Bank (not included in the NARCL transaction)
Despite the NARCL deal, McLeod Russel is not out of financial trouble yet, but the restructuring offers some breathing space.
Official Statements on the Debt Transfer
A McLeod Russel official, speaking on condition of anonymity, stated:
“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.”
The current restructuring plan is viewed as a positive step, but the company will still need further financial discipline and operational improvements to achieve long-term stability.
NARCL’s Role in McLeod Russel’s Restructuring
The National Asset Reconstruction Company Limited (NARCL), also known as India’s “Bad Bank”, was established to take over non-performing assets (NPAs) from financial institutions and restructure them.
How Will NARCL Help McLeod Russel?
- Debt Consolidation: Reduces the number of lenders, simplifying negotiations.
- Restructuring Assistance: Will work with the management to restructure operations.
- Long-Term Recovery Plan: Will ensure that McLeod Russel avoids distress sales and finds a path to profitability.
While no immediate comments were available from NARCL, market experts believe that this transaction will be a test case for the recovery of struggling companies in the tea industry.
Reasons for McLeod Russel’s Financial Troubles
1. Classification as a Non-Performing Asset (NPA) Since 2019
McLeod Russel’s loans were classified as NPAs in October 2019 due to financial stress caused by:
- Falling global tea prices
- Rising input costs, including labor expenses
- Unrecovered loans extended to group entities
2. Exposure to McNally Bharat Engineering Co Ltd
- McLeod Russel had extended significant loans to McNally Bharat Engineering, a group company.
- McNally Bharat filed for insolvency, leading to huge financial stress for McLeod Russel.
3. Poor Market Conditions in the Tea Industry
- Oversupply in global tea markets led to lower tea prices.
- Increasing production costs reduced margins.
- Export challenges and fluctuating demand further hurt revenues.
McLeod Russel’s Business Operations and Market Position
Key Business Highlights
- Promoted by the Khaitan family
- Largest bulk tea producer in India
- Operates 31 tea estates in Assam and 2 in West Bengal
- FY24 production volume: 39.19 million kg of tea
- Workforce: Over 50,000 employees
Despite financial struggles, McLeod Russel remains a dominant player in India’s tea industry, supplying tea to both domestic and international markets.
Future Outlook for McLeod Russel
1. Focus on Operational Efficiency
With debt restructuring in place, McLeod Russel will need to:
- Improve cost management
- Enhance production efficiency
- Strengthen domestic and export sales
2. Potential Challenges
- Continued volatility in tea prices
- Competition from smaller tea producers and international players
- Debt obligations still exist, requiring strict financial discipline
3. Possibility of Further Asset Sales
To generate additional capital, the company may sell non-core assets or estates.
4. Collaboration with NARCL for Business Revival
A well-structured plan with NARCL’s assistance could help McLeod Russel achieve long-term financial stability.
Conclusion
The ₹700 crore debt transfer to NARCL marks a critical milestone in McLeod Russel’s financial restructuring. While the company still faces significant challenges, this move is expected to provide much-needed relief and buy time for recovery.
With a strong market presence, strategic restructuring, and potential support from NARCL, McLeod Russel now has a chance to stabilize operations and work towards financial recovery. However, the company will need effective cost management and operational discipline to ensure long-term success.
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