Kolkata-based McLeod Russel has acquired Vietnam-based Phu Ben Tea company, for about $7 million.
The company has been acquired by Borelli Tea Holdings, a wholly-owned subsidiary of McLeod Russel, which has outright paid $2 million for the purchase. The remaining amount of $5.01, payable in three equal installments by 2011 according to the agreement, will be as bank guarantee to secure repayment of the inter-company loan by Belgium-based SA SIPEF company. The Belgium-based company, which owns Phu Ben Tea company, decided to sell its tea division to McLeod Russel, because it planned to expand its areas of core competence, like are rubber and palm, said Aditya Khaitan, managing director of McLeod Russel.
Khaitan said, the acquisition would increase the tea annual production by the company to 80 million kgs, from about 76 million kgs. However, as of now, the tea produced in Vietnam, will be for export purposes, as it will attract 100 per cent import duty, if sold in India. However, post India- Association of Southeast Asian Nations (ASEAN) free trade agreement, the duty is likely to be reduced to 45 per cent by 2015. Phu Ben owns about 1,000 hectares of land for tea plantation in Vietnam, and has applied for buying additional 1000 hectares. It has three processing factories in the country as well.
According to Khaitna, this year India is reported to have deficit of 70 million kg of tea production, as its exports is expected to increase by 35 million kg due to drought in Africa, and there is an existing deficit production of 35 million kg of tea. Thus, the acquisition will help meet international tea demand in long run, as the domestic demand for tea in India was increasing at 5-10 per cent annually.