Singapore’s G&G Group, Sri Lanka’s EMS jointly acquire tea plantation firm for $5.7m

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Singapore-based renewable energy company G&G Group of Companies Pte Ltd (G&G) and Sri Lanka’s Estate Management Services (EMS), a subsidiary of Sunshine Holdings PLC, have together acquired a 51 per cent stake in Sri Lankan tea plantation company Hatton Plantation PLC (HPL) for about LKR1.0 billion ($5.67 million).

For G&G, the acquisition has been routed through its subsidiaries Lotus Hydro Power PLC and Zyrex Power Company Ltd (LRE).

HPL is one of the largest tea plantation companies in Sri Lanka, and is well-known for its quality Ceylon tea. As of financial year ended March 31, 2018, HPL earned revenues of LKR 4.66 billion, up 23.5 per cent year-over-year (YoY) from FY 2017, while profits from operations rose 158.6 per cent YoY in FY 2018 to LKR435.4 million. Upon closing of the acquisition, HPL will become a subsidiary of G&G.

The board and management of G&G have outlined their rationale for the cash acquisition in HPL. The deal will support and accelerate HPL’s market leadership in the tea industry and the tea plantation company spruce up its innovation, among others.

The cash acquisition will come in two tranches. One part will be financed via long-term loan facility agreement entered by both NDB Investment Bank and LRE on February 28, 2019, while the rest of the funding will come from a combination of existing cash resources, and various long-term financings, excluding equity placements.

NDB Investment Bank has been acting as the sole financial advisor to G&G for the acquisition.

The stock price of HPL fell by 1.27 per cent to LKR7.80, with a light trading volume of 65,427 shares at 12:10 pm Indian Standard Time, according to data provided by Yahoo! Finance. The offer price was LKR8.30 per share and this might suggest that the G&G-led consortium could have overpaid for the acquisition deal given the wide spread difference of about 50 basis points (bps).