Once the largest tea producer in the world, McLeod Russel India's auditor Deloitte Haskins & Sells LLP in its audit report has cast doubt over the company's ability to run its business, as the fate is now dependent on the acceptance of its refinance proposal by the lenders.
On late Saturday evening, in a stock exchange filing, McLeod Russel India, a BM Khaitan-controlled Williamson Magor Group (WMG) company, received an "adverse opinion" from its auditor Deloitte, largely because of inter-corporate deposits (ICDs) given to promoter group companies which "are doubtful of recovery considering the financial condition of the promoter group companies and other companies to whom these ICDs have been given," and hence the auditor believes the financial statements "does not give a true and fair view in conformity with the aforesaid Indian Accounting Standards (IAS) and other accounting principles generally accepted in India".
According to Deloitte, the Kolkata-based bulk tea manufacturing company's liabilities exceeded assets by Rs 1,435.66 crore as on March 31, and in the last financial year, it was unable to discharge its obligations for repayment of loans and settlement of other financial and non-financial liabilities including statutory liabilities. The company is in discussion with lenders for carrying out a refinancing proposal, it further added.
"These events and conditions indicate a material uncertainty which cast significant doubt on the company's ability to continue as a going concern, and therefore it may be unable to realise its assets and discharge its liabilities including potential liabilities in the normal course of business. The ability of the company to continue as a going concern is solely dependent on the acceptance of the refinancing proposal, which is not wholly within the control of the company. The management has prepared the statement on going concern basis based on their assessment of the successful outcome of the refinancing proposal and accordingly, no adjustments have been made to the carrying value of the assets and liabilities and their presentation/classification in the balance sheet," Deloitte said in its auditor report.
As on March 31, ICDs of Rs 1,744.68 crore was given to the promoter group companies and other entities, and of the total capital advances, Rs 775.75 crore was converted to ICDs, while Rs 77.03 crore has been accrued as interest.
Deloitte further said that the company has not made any provision towards the outstanding amounts recorded as ICDs and interest accrued thereon.
"Consequently, the non-current portion of loans and interest accrued thereon are overstated and loss for the year is understated by Rs 1,821.71 crore," it said.
McLeod Russel on Saturday announced its fourth-quarter earnings, after it earlier notified the stock exchanges of its inability to finalise its March quarter results due to various reasons, and postponed it till June 29.
The company's net loss during the fourth quarter widened to Rs 318.45 crore on a standalone basis, from Rs 142.09 crore in the same period last fiscal. The company's revenue from operations declined to Rs 175.68 crore during the quarter under review as against Rs 377.91 crore in the corresponding period last fiscal.
During the year ended March 31, the company sold 16 tea estates for an aggregate consideration of Rs 614.91 crore. Profit on sale of such assets amounting to Rs 180.41 crore is shown as an exceptional item in the standalone and consolidated results, McLeod said in its note.
During the year, the company's board has further identified four tea estates which have been approved for sale, for an aggregate consideration of Rs 178.15 crore, subject to due diligence by the proposed buyers and necessary approvals. The company has been on an asset sale spree since May 2018 to pare its debt.
In addition to the cash flows from the sale of assets and cost reduction measures, the company had sought short-term borrowings to fund various promoter group companies to enable them to meet their financial obligations. This has resulted in higher finance cost during the year and increase in current liabilities, the company said in its note to accounts.
The liquidity issues faced by the company have been discussed with the lenders, and a suggestion on mitigation options, one of the options suggested is to finance the short-term loans from lenders to long-term loans to ease of liquidity constraint, along with further sale of assets of certain tea estates, as per the note to accounts.
"The company is hopeful that the proposal for refinancing will be favourably considered," it further said.
Meanwhile, Vistra ITCL, a trustee for the joint lenders namely IL&FS Financial Services, IL&FS Infrastructure Debt Fund and Aditya Birla Finance had invoked pledged shares of McLeod Russel held by promoter groups such as Williamson Magor & Co, Williamson Financial Services, and Babcock Borsig on June 21.
On June 29, Price Waterhouse & Co Chartered Accountants LLP quit as the auditor of another WMG company, Eveready Industries, citing its inability to obtain sufficient audit evidence on Eveready Industries' ICD and its recovery.
On May 31, Deloitte Haskins & Sells and V Singhi & Associates, the auditors of another WMG entity McNally Bharat Engineering raised concerns over its ability to be in business unless a financial restructuring proposal with the lenders is approved.
Losing Steam
- Auditor Deloitte Haskins & Sells LLP in its report has cast doubt over the company’s ability to run its business
- The Kolkata-based bulk tea manufacturing company’s liabilities exceeded assets by Rs 1,435.66 crore as on March 31
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