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Mr Aditya Khaitan

Our Bureau

Kolkata, Dec. 23

McLeod Russel India Ltd (McLeod) is set to acquire for the first time tea estates in Africa through UK-based subsidiary Borelli Tea Holdings (Borelli) UK.

Mr Aditya Khaitan, Managing Director of the country's largest tea-producing company, said here on Wednesday that Borelli has signed a share purchase agreement with James Finlay Ltd and James Finlay International Holdings Ltd, both of the UK, for acquisition of 100 per cent of the share capital of Rwenzori Tea Investments Ltd (Rwenzori), Uganda, for a provisional consideration of $25 million. Borelli would be required to pay further $5 million recorded as debt in the Uganda company's books of accounts.

Out of $25 million, $15 million would be paid by McLeod as capital infusion into Borelli, which, in turn, would raise a debt of $10 million. “The transaction in regard to the share purchase agreement is scheduled to be over on January 15, 2010,” Mr Khaitan said.

With this acquisition, McLeod's total production will rise to 96 million kg, up from 81 mkg. The exports too would rise to 49 mkg from 34 mkg. “In the next five years, we'll try to raise the production of the Ugandan properties from 15 mkg to 20 mkg annually,” he said.

Rwenzori has six gardens and five factories spread over 3,300 hectares.

In 2008, Rwenzori posted a net profit of $5 million on a turnover of $24 million. These figures are likely to rise to $30 million and $7 million in 2009.

Mr Khaitan listed several benefits that would accrue to the company following the acquisition. First, it was a very good asset. Second, McLeod would be able to offer teas from Assam, Vietnam and Africa at a time when there was shortage of tea internationally. Finally, the company would be in a position to offer value-added tea through blending.

Right now about 2 mkg of teas were blended in Assam. The volume would not increase and the company was yet to identify where the new blending facilities would be set up.

Mr Khaitan made it clear that McLeod had no plans for branding. “That is not our business, there are big players like Tata Tea and Hindustan Unilever,” he said, adding that McLeod would continue to be in the blending of bulk teas.

McLeod's earlier bid to acquire tea estates in Rwanda, also in Africa, did not make much headway.

Referring to McLeod's performance in the third quarter, the Managing Director said it was in line with that of the second quarter. “We had expected the prices to fall and the production to falter. But fortunately that did not happen,” he added.

More Stories on : Overseas Investments | Tea | Mergers & Acquisitions

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