McLeod Russel to buy tea estates in Uganda for $25 m

Mcleod Russel India Ltd. | Tea/Coffee | Agriculture & Allied activities | BSE: 532654 | NSE: MCLEODRUSS

24 Dec 2009 Evaluate

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. 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.

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, the company is expected to raise the production of the Ugandan properties from 15 mkg to 20 mkg annually.

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.

Several benefits would accrue to the company following the acquisition. Apart from being a good asset, McLeod would be able to offer teas from Assam, Vietnam and Africa at a time when there is shortage of tea internationally. Finally, the company would be in a position to offer value-added tea through blending.

crack crack