Taking forward its plan to sell some of its tea estates to bring down the Rs 10 billion debt burden, McLeod Russel has entered into an agreement with M K Shah Exports to sell its tea estates in the Doom-Dooma region in Assam which will fetch the seller Rs 3.31 billion.
The sale, which cuts McLeod’s own production in India by 16.16 per cent, implies that its revenues will be impacted by 12.33 per cent of its annual turnover. In the last fiscal year, this company posted a revenue of around Rs 16 billion while production from its own plantations stood at 60 million kg (mkg). McLeod is the world’s largest tea producer and its consolidated production, including production from Vietnam and Africa and bought-leaf production stands at 118 mkg.
“A MoU has been signed in this regard and is expected to be executed in the next couple of months,” K K Baheti, director at McLeod Russel said.
The sale indicates that the gardens were sold at a valuation of Rs 340 a kilo which is in-line with the industry standards. However, McLeod was expecting at least Rs 400 a kilo for these premium gardens but had earlier indicated that it is open to negotiation as per industry standards.
As per Baheti, the buyer was interested in these eight gardens in the Doom-Dooma region and McLeod had also identified to sell estates primarily in the South Bank in Assam.
The combined grant area of these estates, which McLeod bought from Hindustan Unilever back in 2006-07, stands at 9,350 hectares while the area under tea cultivation is 5,700 hectares. As a result of this transaction around 11,000 workers from these tea estates will now shift over under the M K Shah Exports payroll.
Baheti reasoned that such a move will help this tea arm of the Williamson Magor Group balance its portfolio of Indian and foreign production with produce from bought leaf factories as well as boost its entry into the packet tea business with Eveready.
The company had formed a committee of directors to identify and execute sales of the gardens through a bidding process.
In the last 2-3 years, the bought leaf segment, which accounts for 20 mkg of sales and the overseas gardens in Africa and Vietnam which accounts for 30 mkg of production while earning a $19.5 million profit, has been the largest revenue as well contributors for the company. On the other hand, its Indian operations face huge rise in cost of production while tea prices remained softer in the recent past.
“It is better to reduce the exposure just to make a little rebalancing of the portfolio. So the board decided to downsize our operations a little bit in Assam and exit Dooars”, Baheti added.
McLeod is further keen to sell some more estates in Assam and Dooars which will mark its exit from the Dooars region in West Bengal. Industry sources suggested that it is in talks with the Luxmi Group to sell some more tea estates.
The sale further implies that M.K. Shah Exports will be able to double its production capacity from the previous 7.5 mkg to over 17 mkg this year itself. This company has been on the lookout to acquire gardens in Assam and has been keen to buy these estates. Apart from this, it has also been interested in acquiring the tea estates of Assam Company India Ltd which is currently undergoing insolvency proceedings in the Guwahati bench of NCLT.
Asked if post this acquisition, M.K. Shah Exports will still be interested in takeover of Assam Company, Jaydeep H. Shah, the company’s director said, “These are two different cases and we haven’t decided on it yet. We have been in an expansion mode but definitely the acquisition of the gardens in Doom-Dooma adds significant value to our business”.
Source: Business-Standard