Financial Daily from THE HINDU group of publications
Saturday, Feb 12, 2005
Corporate - Restructuring
Agri-Biz & Commodities - Tea
Tata Tea to transfer 17 estates Begins exiting plantation biz; workers to be stakeholders
Mumbai , Feb 11
TATA Tea Ltd (TTL), often described as the world's biggest integrated tea company, has begun the process of withdrawal from the plantation business, with its board today approving the transfer of 17 tea estates in South India to a new company featuring employee ownership.
TTL will be a minority shareholder in the new private limited company with less than 20 per cent stake, Mr P. Siganporia, Managing Director, told newspersons.
The transfer of business includes the estates' assets and liabilities, regional office, and connected service departments.
While these estates historically require their lease to be passed on in entirety, the remaining eight south Indian estates (including one coffee plantation), over which the company has `free hold', will be sold with current employment conditions maintained.
The move is subject to all necessary approvals and TTL will be seeking nod from shareholders through a postal ballot.
Shifting ownership to employees would help drop production cost per kg of tea by Rs 8-10, which will be useful to the new owners as well while weathering commodity price cycles. "The traditional colonial model of ownership is not sustainable," Mr Siganporia said.
He refused to quantify receipts to TTL from the transfer or sale of estates at market cost, though an independent valuation has been done by Ernst & Young.
ICICI Securities will extend debt to the new company and TTL plans to participate in subordinate debt.
Bids have been received from interested parties for the eight `free hold' estates and quoted prices are higher from those seeking to grow more than just tea.
The land lends itself to income from non-tea items as well, including fruits and even tourism.
Every year TTL produces about 65 million kg of tea, of which an estimated 30 million kg of black tea comes from its Southern estates.
It has around 29,000 workers at its North Indian plantations and 24,000 in the South.
TTL will continue to source teas from the new company, but that will be one among several sources for similar teas worldwide.
Asked if a consequent flow of teas to the auctions could dampen prices, Mr Siganporia said that any such gap opened up in offtake would be filled in by other buyers.
Around 2,400 plantation workers from Southern estates belonging to the `concessional' category had opted for VRS a few months ago.
Over time, and particularly following the acquisition of Tetley, TTL's branded tea sales had grown to 83 per cent of total revenues.
Plantations, which account for just 11-12 per cent of revenues, continued to have high operating cost even amid low tea prices in the recent past.
For some time now, the company has been indicating an exit from the plantation business.
TTL's official statement said that the decision was "in line with the policy of the company to exit from plantations in order to develop and expand the branded business of the company both in India and globally."
Our Kochi Bureau reports: There was a bit of uncertainty as well as jubilation among the Tata Tea plantation workers in Munnar. Mr R. Kuppuswamy, leader of INTUC, one of the recognised trade unions, said that he was very happy that the workers were also being made stakeholders in the new enterprise.Mr C.A. Kurian of AITUC was a lot more circumspect. He said that many details had to be discussed and the consent from all the shareholders of Tata Tea had to be obtained before the move becomes a reality.
The management of Tata Tea had called a meeting with the workers tomorrow at Munnar to elucidate on the details of the move, he added.
The workers themselves would be holding a meeting on Sunday to chalk out their strategy before responding to this new initiative. Mr Kurian said that it was still too early to comment.
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