India’s largest bulk tea producer McLeod Russel has decided to exit from its loss-making Vietnam venture.
The company, promoted by the Khaitan family of India, has signed an agreement with a Vietnamese company for the sale of the business for Rs 17 crore ($2.15 million).
McLeod owned three gardens and two tea processing factories in Vietnam. The assets were held through a step down subsidiary Phu Ben Tea Company Ltd (PBTCL).
McLeod entered Vietnam in 2009 by acquiring PBTCL from a Belgian company for a total cost of $7 million, including $5 million in debt, as part of an overseas gamble. The year after it entered Africa by acquiring gardens in Uganda.
However, it has been a struggle to operate the business profitably.
McLeod had to fully impair its investment in PBTCL in FY23 considering the operating losses incurred during the previous reporting years resulting in the erosion of the entire net worth.
In a filing to the stock exchanges, McLeod informed that Borelli Tea Holdings Ltd will sell 100 per cent of the capital contribution in PBTCL to TLK (the Vietnamese company) at a net consideration equivalent to $2.15 million. McLeod held the PBTCL stake through Borelli. The expected date of completion of sale is December 24.
During the year 2022, the Vietnam operations incurred a loss of $2.91 million compared with $4.51 million in 2021. In 2022, PBTCL manufactured 0.63 million kg compared with 3.24 million kg in 2021.
However, it sold 3.25 million kg of tea, compared with 6.14 million kg in 2021.
McLeod Russel had been on the look out to sell the asset and tea stock to reduce liabilities and pare debt as measures taken to improve operations were not successful, the company had disclosed in the latest annual report.
Following the exit from Vietnam, McLeod will have only one overseas business.
The company, through Borelli, owns gardens in Uganda, which collectively produced 19.65 million kg tea last year. In India, the company produces about 42 million kg tea, almost entirely from gardens in Assam.
The development comes at a time the promoters of McLeod have offered a one-time settlement (to Indian banks to restructure debt which runs up to Rs 1,700 crore).
The company is looking to sell gardens in India that collectively produce about 18 million kg for an effective price of Rs 750 crore.
