More trouble brewing for McLeod Russel

As on March 31, 2019, while the promoter group’s stake, including individual promoter shareholders as well as group investment firms, stood at 42.71 per cent, it fell to 38.39 per cent on Tuesday.

Promoter stake in Brij Mohan Khaitan group company McLeod Russel has come down by 4.32 per cent in the last two months with Aditya Birla Finance (ABFL) invoking the entire part of promoters’ share pledged with it.

As on March 31, 2019, while the promoter group’s stake, including individual promoter shareholders as well as group investment firms, stood at 42.71 per cent, it fell to 38.39 per cent on Tuesday.

With ABFL’s move, Woodside Parks, an investment wing of the promoter group, lost its entire shareholding in McLeod.

Earlier this month, in the first tranche of sale of pledged shares of Woodside Parks, ABFL sold 2,142,339 shares at market price to the public which reduced stakes of the promoter group company from 4.31 per cent to 2.26 per cent.

Later, another sale followed which reduced Woodpark’s stake holding further to only 0.35 per cent.

However, during May 16-17 this year, McLeod Russel, in a filing with the stock exchanges, declared that ABFL had sold the remaining shareholding of this promoter company as well.

“After such sale, we do not hold any share,” Woodside Parks said in its disclosure to the stock exchanges.

McLeod has been in troubled waters for a while now. It faced its second credit rating downgrade this month.

While ratings agency ICRA downgraded the firm’s term loans as well as fund-based bank facilities from ICRA A to ICRA BBB, with a negative outlook, non-fund based bank facilities have been revised from ICRA A2+ to ICRA A3.

According to ICRA, the rating revisions have factored in further deterioration in McLeod’s liquidity profile due to a slower-than-anticipated progress on asset monetisation and continued pressure on the profitability of the core tea operations of the company.

Prior to this downgrade, the ratings agency had revised credit rating and outlook on this company on April 2.

Also, pledging of shares by promoters has increased.

According to filings with the country’s bourses, 98.5 per cent of the remaining promoter shareholding of McLeod Russel is pledged with banks and other financial institutions.

In a bid to pare debt of Rs 1,600 crore, McLeod has been selling estates.

So far, it is estimated to have received Rs 940-950 crore from sale of gardens.

In the process, it lost its crown - the world’s largest bulk tea producer - to Goodricke group’s parent Camellia Plc.

Sources said a significant part of McLeod’s short-term debt would come up for repayment in the next three-six months and this would keep its liquidity position under stress.

As on March 31, 2018, exposure to group companies was around Rs 650 crore which increased to Rs 1,000 crore by March 31, 2019, said sources.

ICRA noted that while a majority of proceeds from the sale of the second tranche of tea estates has been received recently with a delay, McLeod’s overall leveraging remains high.

Moreover, its high exposure to weak group companies, including McNally Bharat Engineering, has been largely funded by short-term debt which has further aggravated the tight liquidity position.

Photograph: Suzanne Plunkett/Reuters