McLeod Russel to sell gardens in Assam, Dooars in six months to pare debt

This move would help the tea arm balance its portfolio of Indian and foreign production

McLeod Russel, the world’s largest tea producer, is looking to sell some of its gardens that will mark its exit from the Dooars region in the coming six months, as well as reduce estates it owns in the Assam belt. 

Sources said it was expected that Luxmi Tea and MK Shah Exports would show interest in the gardens.

The Willamson Magor Group (WMG) company, which controls McLeod Russel, expects to generate Rs 5-6 billion from the sale proceeds, enabling it to halve its debt of Rs 10 billion. The decision has received approval from its board of directors. An industry representative said it was expected to set a benchmark in the valuation of tea gardens.

Kamal Kishore Baheti, director at McLeod Russel, stated the company aims to reduce its  debt of Rs 10 billion to Rs 400-500 million in three to six months.

“In the current environment, it is always better to be debt-light. Taking loans has become a stigma,” Baheti said.

The targeted reduction in debt implies it will have to offload several gardens, as it wants to prune its portfolio by 10-15 million kilogramme (mkg). It owns 53 gardens over 33,723 hectares which produce 67 mkg annually. With global produce from its bought leaf factory,  total production stands at 120 mkg.

The McLeod board on Wednesday also approved a buyback of a little less than 10 per cent of its own shares, for Rs 1 billion.

Baheti reasoned that such a move would help the tea arm balance its portfolio of Indian and foreign production with produce from bought leaf factories. And, boost entry into the packet tea business with group entity Eveready.

The company has formed a committee of directors to identify and execute sales of the gardens through a bidding process. 

In the past two-three years, the bought leaf segment, which accounts for 20 mkg of sales and the overseas gardens in Africa and Vietnam which account for 30 mkg of production while earning a $19.5-million profit, have been the largest revenue  contributors for the company. On the other hand, its Indian operations had huge rise in cost of production, while tea prices had remained softer in the recent past.

“It is better to reduce the exposure and 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.

Part of the proceeds from the garden sales will be invested in the coming packet tea venture. The move to sell gardens fits in the overall group plan to pare debt. The overall debt of WMG is Rs 42 billion, of which Rs 30 billion is on account of McNally Bharat Engineering.

Eveready, which has debt of Rs 2 billion, is looking at selling a 25-acre plot in Hyderabad and numerous other properties in Chennai and Kolkata in the next 12-18 months, which it feels will make it completely debt-free.

“We are in the process of identifying land and assets which can be sold,” said Amritanshu Khaitan, managing director, Eveready. 

McNally Bharat, with debt of Rs 30 billion, expects to reduce it to Rs 10 billion via payment from orders it has already executed. Sources said debt would be cut by Rs 20 billion after it receives payment from orders it has executed in a year. McLeod has a direct exposure of Rs 1 billion to McNally and other group entities have an exposure of Rs 4 billion to the engineering wing of WMG.

Weight of debt

• Rs 42 bn: Debt of the Willamson Magor Group, which controls McLeod Russel
• Rs 30 bn: Debt of McNally Bharat Engineering
• Rs 2 bn: Eveready’s debt 
• Rs 10 bn: McLeod’s debt