Tata Tea to offload northern estates

Workers to get 15% stake; ILFS and IFC to get 20% each.

Continuing with its move to position itself as a beverage marketing company, Tata Tea is set to divest 80 per cent in its North Indian Plantation Operations (NIPO), which is being spun off to a handful of investors and workers.

The value of Tata Tea's 80 per cent stake in NIPO, comprising 24 estates in West Bengal and Assam, is pegged at Rs 290 crore, with the entity's total valuation at Rs 359 crore.

With this, the company will detach itself from plantation management. Two years ago, Tata Tea handed over the management of its south Indian plantations to its workers. The management of the company will be vested with the workers and Tata Tea will handle the marketing and distribution of NIPO's produce.

The separation of NIPO is expected to be effected from April 1, 2007.

The broad contours of the plan, to be announced next week, indicate that Washington-based International Finance Corporation (IFC) and ILFS will each pick up a 20 per cent stake in NIPO. It will be IFC's first overseas investment in the plantation sector.

Mumbai-based Assamese consultant Ranjit Barthakur's Globally Managed Services (GBS) is likely to pick up 10-15 per cent and the workers of the 24 estates another 15 per cent. The balance will be held by a couple of agri-companies.

The agri-companies are being roped in to cash in on Tata Tea's multi-cropping activities, so that NIPO emerges as an agricultural company with tea as its mainstay.

A back-of-the-envelope calculation suggests that IFC and ILFS will pay nearly Rs 72 crore each for their acquisition, while GMS will pay Rs 36-54 crore, depending on the size of its shareholding. The workers will have to chip in with Rs 54 crore, which they will finance through loans from the company spread over 5-10 years.

A trade union source said Tata Tea had asked workers to pay Rs 8,000 each, the staff to chip in Rs 15,000-20,000 each and managers Rs 1-1.5 lakh each for their equity acquisition.

Although a Tata Tea spokesperson declined to comment, sources familiar with the matter said all the parties were expected to sign on the dotted line next week.

Trade union sources added that Tata Tea's management had taken workers to south India to show them Kanan Devan Hills Plantation, which was formed by carving out the south Indian operations of the company and was being managed by workers. Tata Tea still holds 18.2 per cent in Kanan Devan.

Bankers said the valuation of NIPO was higher than its turnover as it had the potential to concentrate on tea as the main crop, as well as diversify into other cash-rich crops.

After the separation of NIPO, IFC may provide grants for training workers. GMS is expected to help the company grab opportunities in Assam.