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Tata Tea issues GDRs at discount - Views on News from Equitymaster
 
 
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  • Mar 4, 2000

    Tata Tea issues GDRs at discount

    Tata Tea Limited has issued US$ 75 m worth of Global Depository Receipts (GDRs) at a price of US$ 9.87. The issue has been made at a discount of approximately 5% to the domestic price.

    Tata Tea (FY99 Total Income Rs 8,832 m) is the world's largest integrated tea company, accounting for over 8% of the tea grown in India. The company, which is the second largest blender/marketer in the domestic packaged tea segment, operates the largest instant tea EOU outside the United States of America.

    The purpose of the GDR issue is to fund the company's contribution to the special purpose vehicle (SPV) set up for the takeover of Tetley. The total funding required for the takeover has been placed at UK Pounds 271 m.

    We have often gone into the merits and demerits of the merger from the point of view of the two companies. Let's focus on the financial aspect point of view.

    Tata Tea has diluted its equity to fund the takeover of Tetley. The company has infused equity in a SPV (100% owned by Tata Tea) for the purpose. What needs to be noted is that though the equity dilution is immediate the significant benefits will flow in only later as the two companies integrate operations. Also there is little chance that the SPV will pay a dividend to Tata Tea, as it has to service a large burden of debt.

    However it needs to be pointed out that from the point of view of the tea business both the companies have a lot to gain Tata Tea will gain brands and an international distribution network. Tetley on the other hand will get to source its supply of loose tea from Tata Tea.

     

     

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