McLeod Russel to buy tea firm in Vietnam

Firm will acquire 100% stake in Phu Ben Tea Company for $7 million

KOLKATA: McLeod Russel, the B M Khaitan Group flagship, which has made a string of acquisitions including Williamson Tea Assam, Doom Dooma and Moran Tea over the last three years, is close to acquiring Vietnam-based Phu Ben Tea Company for $7 million.

McLeod, through its wholly owned subsidiary Borelli Tea Holdings, has signed a “term sheet” with Belgium-based S A SIPEF NV for acquisition of a 100% equity stake in the Vietnamese tea company over a period of three years.

The upfront cost would be $2 million. In addition, Borelli will have to arrange a bank guarantee to secure repayment of the inter-company balance of $5.01 million granted by the seller to Phu Ben Tea Company.

The inter-company balance shall be paid by Phu Ben Tea Company within three years in equal instalments at the end of 2009, 2010 and 2011.

Being the world’s largest plantation company, the latest acquisition will fortify McLeod’s tea crop portfolio to 80 million kg.

Aditya Khaitan, managing director, McLeod Russel, told DNA Money the company will continue to scout for acquisitions. “The acquisition of the controlling stake of Phu Ben Tea Company should prove highly beneficial to Borelli and McLeod Russel. It will give McLeod Russel a presence in Vietnam, which could lead to possible expansion of production in future,” he said.

“With a vast experience in tea production, manufacture and marketing, McLeod hopes to improve the quality of tea being produced by Phu Ben Tea Company and consequently achieve a higher price realisation of the tea manufactured by the said company,” Khaitan said.

K K Baheti, director, McLeod Russel, said the entire process of acquisition is likely to be completed by November. “The last few months have seen increasing prices of tea and we hope to generate revenues of Rs 100 crore on account of the commodity price increases. The present acquisition is being done through internal accruals and would have no effect on the debt burden,” he added.

McLeod is expected to bring down its debt by Rs 400 crore by the end of the fiscal. Almost 55% of the total debt comprises working capital, whereas the balance is term debt. Meanwhile, the company may have to cough up an additional Rs 4-5 crore due to higher interest rates this year.

Manish Sarawagi and Vandana Luthra, research analysts, Merrill Lynch, said in a recent report that organic growth opportunities are limited for McLeod Russel and they would come largely from increasing bought leaf production and improving yields. “The management is exploring possibilities of acquiring tea gardens abroad, especially in Vietnam, which in the long run can emerge as a tea sourcing destination for India. The company’s investment in jatropha plantation should be an additional long term growth driver,” they said.
g_nandini@dnaindia.net