McLeod Russel plans to raise debt

Borrowing limit to be raised to Rs 600 crore in light of recent acquisition

Brij Mohan Khaitan's tea company, McLeod Russel India is raising its borrowing limit to Rs 600 crore, in the light of the recent Williamson Tea Assam acquisition.

McLeod Russel would be seeking shareholders' approval for the same at an extraordinary general meeting (EGM) scheduled for July 6, 2005.

Deepak Khaitan, vice- chairman, McLeod Russel India said, it was just an enabling resolution. When asked whether the company was eyeing further acquisitions, he said, it was too early to evaluate fresh acquisitions, at this juncture.

The Khaitan-Magor deal was struck for Rs 168.66 crore and with the subsequent open offer for 20 per cent of the paid-up equity of Williamson Tea Assam at Rs 145 per share, the total cost of acquisition would stand at Rs 209 crore.

The offer price of the deal was Rs 140 per share and an additional Rs 30 per share was agreed upon for non-compete arrangement in the Indian tea industry.

Subsequently, the company announced an open offer for 20 per cent of the paid-up equity share capital of Williamson Tea Assam at a price of Rs 145 per share, which would cost around Rs 41 crore.

The open offer would be made by McLeod Russel India, Williamson Magor & Company, United Machine Company, Ichamati Investments and Nitya Holdings & Properties.

Market sources said, it was likely that the Khaitan group was keeping provision for further acquisitions.

At the EGM held on February 7, 2005, the board of directors of the company was authorised to borrow money from time to time, in excess of the aggregate of the paid-up capital of the company and its free reserves subject to a maximum limit of Rs 250 crore.

In view of the requirement of additional funds for acquisition of the controlling stake of Borelli Tea Holdings, it was envisaged that the limit of Rs 250 crore would not be adequate and the company proposed to increase it to Rs 600 crore.

The acquisition was proposed to be financed through bank borrowings, external commercial borrowings and internal accruals. The company was in discussion with various banks and institutions for the purpose.

At the EGM, the company would seek shareholders' approval for the investment in Williamson Tea Assam and raising borrowing limits.

The group believed that through this acquisition, in view of the total business synergy between the company and Williamson Tea Assam, economies of scale could be achieved which should not only rationalise costs but enhance shareholder value. Williamson Tea Assam has 17 gardens in Assam and has an annual production of 20 million kg of tea.

The Williamson Tea Assam scrip today closed at Rs 144.05 on the Bombay Stock Exchange (BSE) and at Rs 143.70 on the National Stock Exchange (NSE).