1 of 2
McLeod Russel India operates 48 gardens and employs 73,000 workers in India, Africa and Vietnam.
2 of 2
McLeod Russel India operates 48 gardens and employs 73,000 workers in India, Africa and Vietnam.
A combination of massive flooding in Assam, then drought, and rising labor costs and conflicts amid declining exports significantly reduced earnings, eroding profits to the point that India’s largest bulk tea supplier simply could not pay its bills.
When executives of tea giant McLeod Russel India signed off on their latest financial report, they did so with an ominous warning from their auditor signed June 23.
Inter corporate deposits “given to certain companies which are doubtful of recovery” amounted to $383 million (INRs 284,338 lakhs), reported Lodha & Co. auditors: “Loans given to other companies remain unpaid… The company’s current liabilities exceeded its current assets… Obligations could not be met due to insufficiency of resources. These conditions indicate uncertainty about the company’s ability to continue as a going concern.”
McLeod Russel, a Kolkata-based division of the Brij Mohan Khaitan Group is the largest bulk tea supplier in India. The company employs 73,000 workers and produces 73 million kilos annually from 31 estates mainly in Assam with two in West Bengal as well as tea gardens in Africa and Vietnam.
The corporate insolvency resolution process (CIRP) was triggered by default on a $13.5 million loan dating to 2018 but McLeod carries many millions more in debts and faces a combination of debtors. An interim resolution professional was named to the National Company Law Tribunal case on Aug. 6.
McLeod’s director of tea Azam Monem will continue to guide the operations of the company and key managerial staff remains in place with the intent to restructure.
The storied company dates to 1869 when English Capt. J.H. Williamson and Richard B. Magor first began operations in Assam. The firm remained in British hands until 1987 when the Khaitan family purchased the company to form the McLeod Russel group. Profits were strong and in 1994 McLeod purchased 51% of battery maker Union Carbide’s Eveready Industries, a firm that supplied half of the country’s sales of batteries and flashlights. A decision was made to operate the company as two divisions, battery and tea. In 2000 the privately held firm went public and in 2004 demerged into two separate companies with McLeod producing and marketing tea and Eveready manufacturing batteries and flashlights.
McLeod began a buying spree to become the largest bulk tea company in the world. Acquisitions from 2005-2010 increased the number of estates to 48 including Williamson Tea, Doom Dooma Tea Company (2007), Moran Tea (2008), and Borelli Tea (17 tea gardens). In 2009 the company acquired Phu Ben Tea company in Vietnam (3 estates) producing 4.5 million kilos, bringing McLeod’s total acreage worldwide under tea to 98,000 acres (39,770 hectares). Annual turnover exceeded $265 million with $9.7 million in profits in fiscal 2016.
In August 2017 McLeod considered Bhatpara TE less productive than the gardens it owned, selling it for $2 million, according to Global Ag Investing. It was the first garden to be sold in the firm’s modern history. Production rose to a peak that exceeded 118 million kilos that year (2017-18). The company authorized annual dividends of 5-7 rupees per share during this time. Today the company’s estates cover 67,608 acres (27,360 hectares). Harvest totals are downy by 45 million kilos. Quarterly losses rose to $3 million in recent years.
A misjudgement in lending more that $390 million to the battery company in 2018 led to the default in February 2020 on the loan from Techno Electric & Engineering, a power infrastructure company, and two other creditors. The loan, at 14% interest, was to be repaid by March 31, 2019.
In a statement the company said that it “has taken various measures to overcome the financial constraints, which inter-alia include reduction in operational costs, monetising the company’s/group’s assets including holding of other group companies; a proposal for restructuring/reducing the borrowings to make them sustainable and rationalising the costs thereof; and infusing liquidity in the system over a period of time.”
To reduce its debt load McLeod sold an additional 17 tea estates between March 2019 and May 2020 generating $102 million (INRs 764 crore). Divestiture of 21 tea gardens in India and Rwanda since 2017 further reduced annual production and overhead, but it wasn’t enough.
Rival Camellia Plc., the holding company of Goodricke Group, is now the largest tea producer in the world and likely to advance to the top tea producer in India as well. Amalgamated Plantations, owned in part by Tata Global Beverages, is the second-largest Indian tea producer, according to Rediff