The Hindu Business Line : McLeod Russel set to buy Vietnamese tea company

Brewing a buyout
Phu Ben Tea Co produces 4.5 million kg of CTC black tea annually
Annual turnover is about Rs 25 crore
Production to be stepped up to 6 million kg in two years
Output will mainly cater to export market

Our Bureau

Kolkata, Oct. 3 McLeod Russel India Ltd is set to clinch an acquisition overseas — a long cherished dream of the company. It has decided to acquire 100 per cent equity in Phu Ben Tea Co of Vietnam through its wholly-owned UK-based subsidiary Borelli Tea Holdings Ltd.

“This will be certainly our first foray into a foreign country and, for that matter, for any Indian tea plantation company,” Mr Aditya Khaitan, Managing Director of McLeod Russel, told newspersons on Friday.

He estimated the cost of acquisition at about $7 million, to be paid in four instalments; $2 million would be paid initially and the rest paidin three equal annual instalments during the end of 2009, 2010 and 2011 respectively.

Belgian owner

Phu Ben Tea Co, which produces 4.5 million kg of CTC black tea annually and has an annual turnover of about Rs 25 crore, is owned by SA SIPEF NV of Belgium which has major interests in rubber and palm oil. “The Belgian company has another tea garden, producing 3 million kg annually, in Indonesia but that is not up for sale,” said Mr Khaitan. “We will be offered first as and when it is put on sale.”

Production at Phu Ben Tea Co, which has three processing factories, would be stepped up from 4.5 million kg at present to 6 million kg within the next two years and 12 million kg in four years, said Mr Khaitan. The company owns 1,000 hectares, of which 80 per cent is under plantation, and plans to acquire another 1,000 hectares. The size of investment is still being worked out but the modernisation of the factories might initially cost around $1 million.

To meet export orders

The acquisition will boost the total tea production of McLeod Russel and its subsidiaries to more than 80 million kg annually. “The acquisition is in tune with our roadmap laid out in 2005 when we made our first acquisition domestically,” said Mr Khaitan, pointing out that the entire production of the Vietnamese company would go to meet export commitments.

With domestic tea prices in India is set for steady increases in the coming years, the domestic production would be increasingly used to meet domestic demand.

For the export market, which is price competitive, low-cost sourcing of tea is crucial and the acquisition of the Vietnamese company was therefore most appropriate, he said, adding that overseas buyers too had reacted positively to the proposed acquisition.

“Our vision is to become a global producer of tea,” Mr Khaitan said.