The Centre’s decision to once again relax the norms for foreign direct investment (FDI) in tea plantations may have little significance.
This is because the industry is witnessing a reverse trend of Indian companies moving out to acquire tea estates in abroad.
India allowed 100 per cent FDI in tea through the Foreign Investment Promotion Board route in 2002. After the July 16 Cabinet decision, foreign investors are spared from taking FIPB clearance for holding up to 49 per cent stake in a tea estates. The foreign investment board clearances are mandatory for holding a higher stake
The tea industry, however, has little as way of reaction to such changes.
Available records suggest that between 2011 and 2013, the board cleared Rs 258 crore worth of foreign investment proposals in two tea companies Darjeeling Organic Tea Estates and Jay Shree Tea & Industries Ltd.
A Jayshree Tea spokesperson said that the company had planned to issue Rs 60 crore worth of shares to a foreign investors. But it was abandoned.
Kamal Baheti, Chief Financial Officer of world’s largest tea producer McLeod Russell Ltd, does not remember any other instance of foreign investors showing interest in India.
Reverse trend
On the other hand, there are instances of foreign companies selling their legacy investment in Indian tea sector.
McLeod, for example, bought out the 70 per cent stake holding of UK-based Philip Magor group in Williamson Tea Assam Ltd.
With little scope to expand acreage under organised plantation estates, the average price for any good estate is substantially higher (approximately Rs 400-450 for every kg of production capacity in North India) compared with other tea producing nations.
As the high cost of acquisition of Indian estates limits the returns on investment, Indian tea companies are increasingly venturing abroad to expand capacities. Foothold across geographies also helps companies to reduce climate risk.
“In tea plantations, India is the leader. Indian companies have gone overseas to acquire assets. There has not been any activity from any overseas player to invest here ,” Baheti told Business Line .
McLeod has already acquired estates producing over 22 million kg (mkg) of tea in Uganda, Rwanda and Vietnam.
Even relatively smaller tea companies such as Dhunseri Petrochem & Tea acquired acquires estates in abroad.
Only exception
One of the exceptions in this story in tea sector is Goodricke Group Ltd (GGL).
Controlled by the UK-based Duncan Lawrie Group, Goodricke is one of the largest tea companies with well over 30 mkg production. Duncan Lawrie holds 74 per cent stake in the company.
According to Arun N. Singh, Managing Director, the relaxed FDI norms may offer good investment opportunities for foreign companies in India in view of the recent devaluation of rupee.
He has a point. But, that’s not a specific advantage with respect to the tea sector.