Carbon Resources says in 'open-ended discussion' for Khaitans' tea business

'Everything on the table' Abhishek Jalan of Carbon Resources about negotiations

Jalan-owned Carbon Resources has covered a lot of ground in less than a financial quarter: from making a hostile bid for the country’s largest bulk tea producer, McLeod Russel India, to becoming a potential white knight.

“We are in talks with the Khaitans for a cooperation arrangement. We decided that it would be in the interest of everyone and the debt issue might get resolved faster,” said Abhishek Jalan, director, Carbon Resources, which manufactures inputs for ferro alloys, steel and aluminium industries.

“It is an open-ended discussion and everything is on the table,” said Jalan on the contours of the proposed deal.

Sources close to the development said that the Khaitans were in discussion with “multiple” investors and were likely to enter into an exclusivity arrangement with Carbon Resources for a one-time settlement (OTS) with lenders.

The OTS is likely to be Rs 1,000-1,100 crore for bank debt of around Rs 1,600 crore, most of which would come from Carbon. The final figure would determine the contours of the deal: whether it would be just garden sale or a combination of garden sale and equity. Fresh debt would also be raised for the OTS.

Across 33 estates in Assam and Dooars, McLeod Russel India’s crop is around 44 million kg (mkg). The total production is about 70 mkg across India, Africa and Vietnam.

Sources indicated that the asset monetization could be in the range of Rs 500-600 crore. That would bring down McLeod’s production significantly though it would continue as a large player in the tea industry. McLeod Russel India had revenues of Rs 1,108.53 crore in FY22.

If the deal includes equity infusion by Carbon, then its holding in McLeod could go up. On September 16, Carbon scooped up a 5.03 per cent stake in McLeod Russel. It then approached bankers with a non-binding letter of intent (LoI) to settle dues and take a controlling stake in the tea producer. The Khaitans were in the middle of finalising debt resolution with the banks then.

The Khaitan holding in McLeod Russel stood at 6.25 per cent at the end of September. But equity infusion by the promoters as part of debt resolution with banks is expected to increase the holding.

Discussions between promoters and bankers for debt resolution had been on for more than two years. It was paused in the interim when an application for corporate insolvency resolution process (CIRP) by a financial creditor was admitted in the National Company Law Tribunal (NCLT). But the process resumed after a settlement with the creditor by the Khaitans.

The credit rating for the draft resolution plan is expected shortly, sources said. At the end of the September quarter results, the company had informed that the rating in respect to the draft resolution plan prepared by SBI Capital Markets had been received from two rating agencies.

But in view of the restriction imposed on one of the rating agencies by Sebi, lenders had appointed another agency for further evaluation.
 
However, sources indicated that for any deal to go through, a settlement with lenders—KKR, IL&FS and Aditya Birla Finance—at the holding company level, would be required as there was a stay on disposal of assets in one of the matters.