LOLC’s future holding firm of finance companies to raise Rs. 1 b via listed debt

LOLC Ceylon Holdings Ltd. (LOCH) will issue 10 million Senior Listed Redeemable Rated Guaranteed two-year debentures of Rs. 100 each to raise Rs. 1 billion.

The debentures offer 9.50% per annum payable annually. Minimum subscription is Rs. 10,000. Managers to the issue is Capital Alliance Partners Ltd.

As per the basis of allocation, the number of Debentures to be allotted to identified institutional investor (s) of strategic and operational importance, on a preferential basis or otherwise, will not exceed 75% of the total number of Debentures to be issued.

LOLC Holdings PLC (LOLC) has provided a guarantee up to Rs. 1.19 billion being the principal sum and two interest payments. LOLC owns 55.54% stake in LOCH and related party Commercial Leasing and Finance PLC owns 44.34% making it a total control of 99.89%.

As part of LOLC Group’s global strategy to attract investors to the large finance companies it has created, LOLC is creating a platform to enable potential investors to acquire a minority stake in the finance companies it owns. LOLC believes that these large-scale foreign investors have capability to support the finance companies to grow even further and offer an even better service to customers by introducing the latest technologies, technical know-how, and providing training for employees.

For this purpose, LOLC Holdings has designated a fully owned subsidiary, LOLC Ceylon Holdings, to operate as a platform and plans to list LOCH in the Colombo Stock Exchange. Post listing of LOCH, the shares owned by LOLC in LOLC Finance PLC (LOFC) amounting to 44.79%, shares owned in Commercial Leasing and Finance PLC (CLC) amounting to 98.92% and the shares owned in LOLC Development Finance PLC (NIFL) amounting to 55.55% are to be transferred to LOCH.

LOLC said Company Take-overs and Mergers Code 1995 (as amended) will not apply to the transfer of shares by LOLC to LOCH of LOLC's shares in LOFC, CLC and NIFL.

Proceeds from an equity infusion by the parent, LOLC Holdings will be used to purchase the shares of LOFC and CLC, subject to receipt of relevant regulatory approvals (as applicable). In-principle approval from SEC and No Objection from Central Bank have been obtained for the share transfers of LOLC.

The share transfer will take place immediately upon LOCH becoming a listed entity.

An estimated time frame could be two weeks from the date of LOCH becoming a listing entity, as all in principle regulatory approvals required has been obtained. As this is an internal group restructure, the transaction will be executed at the prevailing market prices at the date of the transfer, as an off the floor transaction.

The funds raised through the Debenture Issue will be utilised to partly finance the acquisition of LOLC Holding’s equity stake in LOLC Development Finance (NIFL) within a month from the date of allotment. As at the date of the prospectus, LOLC Holdings PLC has a 55.55% stake in NIFL.

The purchase price for the share transfer of NIFL would be the latest market price of NIFL shares as per the requirement of SEC in its in-principle approval. The share transfer shall be executed at the last traded price at the point of the share transfer.

Subject to the receipt of relevant regulatory approvals, the balance amount for the purchase consideration at the point of the acquisition is to be funded by LOLC Holdings via an equity infusion into LOCH. Purchase price of the transaction shall be the market price prevailing at the point of the share purchase.

During the interim period (date of fund raised till deployment via to purchase shares in NIFL) the company would opt to invest the Debenture proceeds in Government Securities at zero default risk until the funds are fully utilised. Investment in Government Securities is expected to generate a return of 5% p.a. at current rates.

Further, LOCH has sought approvals from the SEC and Central Bank on the restructuring exercise or transfer the ownership of LOLC Development Finance PLC to LOLC Ceylon Holdings and in-principle approval from SEC and no objection from Central Bank has been obtained to conclude the restructure provided LOCH becomes a listed entity.

In the event, the company does not utilise the funds for the stated Debenture Issue objective and proposes to use the same for another objective that such change shall be done only after the company announcing the same and receiving necessary approvals from relevant authorities/parties. The company also noted LOLC Holdings is the parent company of LOCH.

However, if such proceeds are utilised for a related party transaction it will be done in accordance with Section 9 of the CSE Listing Rules.

LOCH will hold 55.55% of shares in NIFL after the equity infusion. The acquisition of such stake will be partly funded by the proceeds from the debenture issue and the balance will be funded by the parent, LOLC Holdings, via equity infusion.

Percentage of shares to be held by LOCH in NIFL after the full utilisation of the debt IPO cannot be determined at present, because the purchase price for the share transfer of NIFL would be executed at the last traded market price at the point of the share transfer. Share transfer is expected to be completed within two weeks from the date of LOCH becoming a listing entity.