Advertisement

Kenya’s Trans Century moves to buy out Tatepa subsidiary Chai Bora

Saturday July 26 2008
regional tops pix

Packets of Chai Bora tea. Tanzania presents a particularly challenging trading environment for business. Photo/LEONARD MAGOMBA

Leading Kenyan investment firm Trans Century Ltd is to acquire Chai Bora Ltd from current owner Tanzania Tea Packers Ltd (Tatepa) as the equity fund consolidates its expansion in Tanzania.

Chai Bora is the first local firm to be listed on the Dar es Salaam Stock Exchange (DSE) and will become the second company to be acquired by Trans Century after the latter bought up 70 per cent of ABB Tanelec Ltd (Tanelec) in December last year.

The deal will see Trans Century take control of one of the largest tea packaging firms in East and Central Africa.

Peter Roland, operations director of Tatepa, told The EastAfrican last week from the Mufindi plantation that his company has entered into an agreement to sell Chai Bora to the Kenyan firm, with completion of the sale being conditional on clearance from the Fair Competition Commission of Tanzania (FCC) and the Capital Markets and Security Authority (CMSA).

“The shareholders have already approved the sale at the executive general meeting last week, but we are still waiting the clearance from FCC and CMSA,” he said.

The vendor, Tatepa Ltd, has three subsidiaries — Wakulima Tea Company Ltd, Kibena Tea Ltd and Chai Bora Ltd. Wakulima and Kibena are engaged in growing and processing of tea. Chai Bora is engaged in blending, packaging and marketing of packed tea.

Advertisement

Tatepa’s performance in the recent past has been impressive, with market capitalisation growing from $3.3 million in the year 2000 to $5.8 million in 2006.

With a 55 per cent share of the Tanzanian tea market, Tatepa provides employment to 27,000 people including outgrowers.

George Theobald, managing director of Tatepa, told The EastAfrican that Trans Century will acquire 100 per cent shares in the tea-packaging firm.

Tatepa has already obtained Fairtrade status as it benefits local communities by giving some degree of economic stability in a volatile commodities market.

Fairtrade buys Tatepa’s raw tea at a premium of $1.45 per kilogramme as a component of its successful Teadirect brand, a blend of fine teas from Kenya, Tanzania and Uganda, which supports the Teadirect Premium Fund that has helped finance local projects such as new schools, textbooks and health centres.

The Dar es Salaam-based raw and packaged tea producer has a longstanding relationship with the Commonwealth Development Corporation (CDC), which helped found the company along with the Tanzanian Venture Capital Fund in 1995.

The CDC was also instrumental in bringing Tatepa to the Dar es Salaam Stock Exchange in 1999.

In January 2006, CDC’s 53 per cent holding in the company was transferred to the new Actis Africa Agribusiness Fund.

Tatepa’s Chai Bora tea is Tanzania’s biggest-selling brand and the company now controls around 55 per cent of the country’s tea market.

As one of Africa’s poorest nations, prone to drought and with more than a third of its population living below the poverty line, Tanzania presents a particularly challenging trading environment for business.

In recent years, Tatepa has been growing steadily, winning Fairtrade accreditation and an agreement with Cafédirect to supply black tea from the estates for their Teadirect brand.

The agreement gives producers a guaranteed minimum price of $1.45 per kg of green-leaf tea even if wholesale prices fall below that in the open market.

Tatepa was founded in 1993 by Joseph Mungai, a two-time agriculture minister, and George Theobald, a British investor who sought government approval to establish the country’s first private tea blending, packaging and marketing business.

Their idea was to supply around 5,000 tonnes of processed tea to the domestic market and gradually build an export presence in the Common Market for Eastern and Southern Africa (Comesa), the Middle East and Central and Eastern Europe.

Between them, the two entrepreneurs had $200,000 in cash and an industrial site at Mafinga, a leading tea-growing area in Tanzania’s southern Highlands.

Mr Theobald, who as general manager of the Tanzania branch of Lonrho — a pan-African multinational — had heard of the work of the Africa Project Development Facility (APDF) with the continent’s SMEs, suggested they contact APDF’s office in Nairobi.

Starting in early 1994, APDF helped the project sponsors identify and hire a tea blending and packing expert, who carried out a feasibility study upon which a business plan was crafted.

With the business plan, APDF assisted the entrepreneurs to negotiate a $577,000 investment from the Tanzania Venture Capital Fund (TVCF).

TVCF is a $7.6 million vehicle launched in 1993 by the London-based Commonwealth Development Corporation, FMO (the Netherlands), DEG (Germany) and other development institutions.

Tatepa commenced sales in mid-1995, with its debut brand Chai Bora (Swahili for “high-quality tea”) becoming an instant success.

In the first six months of operation, Tatepa managed to penetrate the market more rapidly than anticipated, surpassing the initial target by 50 per cent.

The Tatepa plant expansion at the Mafinga factory was projected to increase production to 2,600 tonnes per annum, or 62 per cent of projected market size by 2003.

In late 1999, Tatepa was ready to list on the new Dar-es-Salaam Stock exchange.

The third such entrant in the Tanzania stockmarket, Tatepa offered over 21 million shares to the public, reserving around 40,000 shares for its employees — the first such offer by any company in the country.

In all, the initial public offer was valued at roughly $9.5 million. Since then, Tatepa’s shares have registered a 20 per cent growth, making them a prized possession for small local investors active in this nascent capital market.

Trans Century’s other Tanzanian acquisition, Arusha-based Tanelec, distributes its products to a number of sub-Saharan African countries, including Tanzania, Kenya, Uganda, Zambia, Mozambique and the Democratic Republic of Congo.

The other shareholders in Tanelec are Tanzania energy utility Tanesco, with 20 per cent shares, and the National Development Corporation with 20 per cent shares.

Advertisement