SMB Leasing minority shareholders avoid mandatory offer

• Offer to acquire 2.3 m shares at 35 cents each draws response only for 47,598 shares

Minority shareholders of SMB Leasing PLC haven’t opted for the mandatory offer judging by the low response.

When the offer closed on 3 September, Offeree Ravi Wijeratne had received acceptance amounting to only 47,598 shares. Prior to the offer, Wijeratne held a 64.4% stake or 4.169 million shares.

The offer was to purchase 2.3 million shares representing 35.56% of SMB at 35 cents per share. Public shareholding of voting shares is 83.65% held by 9,956 shareholders, while there are 4,941 non-voting shareholders. As of 31 March, SMB net asset per share was 56 cents.

Acuity Partners, in its independent advisors’ report, said shareholders should envisage accepting the offer since the Offer Price was at a significant premium to the earnings multiples and residual income valuation methods, marginal premium to the forecasted end-July Net Asset Value per share, as well as being lower or marginally discounted to the book value multiples and the last traded share price in the market. If the share price trading on the CSE is higher than the Mandatory Offer price, shareholders could sell their shares in the market.

Over the last 12 months SMB voting share price has fluctuated, with the share price showing a significant increase from January this year to February (70 cents to Rs. 1.30), and thereafter, it had shown a significant drop to 50 cents and closing at 50 cents on 6 August. Yesterday, the share traded at 70 cents.

Wijeratne originally held 194.88 million shares, or a 16.35% stake, in SMB Leasing. Pursuant to the allotment of 3.97 million shares at the Rights Issue (at 35 cents per share), his total shareholding rose to 64.4%.

The company raised Rs. 1.8 billion from voting shareholders and Rs. 296 million from non-voting shareholders through the Rights Issue.

Acuity said the Rights Issue funding would enable the company to expand its loans, leases and pawning portfolios in the future. The independent financial forecasts prepared by Acuity take into account the present low interest rates, economic environment, competitive environment in the domestic financial sector and moratoriums granted by the Government on loans due to the COVID-19 pandemic. 

“Therefore, although the company has adequate funding to expand its loan portfolios significantly subsequent to the Rights Issue completed in July 2021, the assumptions used in the financial forecast are based on a conservative and realistic approach taking into consideration the external factors as well,” Acuity added.

As of 31 March, SMB had Rs. 1.83 billion in assets and Rs. 784 million in liabilities. In FY20, SMB suffered a Rs. 65 million loss as against an after tax profit of Rs. 12.7 million in the previous year. In the 1Q of 2021, the company achieved a post-tax profit pre-tax profit of Rs. 25 million.