Access Engineering’s Rs. 5 b debenture issue up for grabs

By Shehana Dain

Access Engineering Plc’s (AEL) Rs. 5 billion debenture issue is up for grabs with official opening slated for 12 November.

The Company is issuing 30 million rated, senior, unsecured, redeemable debentures at Rs. 100 each and in the event of an oversubscription will offer a further 20 million debentures.

The issue has four types of debentures. Type A is five year tenor and carries 10.25% interest rate per annum payable semi annually with an Annual Effective Rate (AER) of 10.51%. Type B is six years with an interest rate of 10.45% per annum payable semi annually with AER being 10.72%.

Type C is seven year tenor with 10.72% interest rate per annum payable semi annually with an AER of 11.01%. Type D is eight years with 10.95% per annum payable semi annually with an AER of 11.25%.

ICRA Lanka Ltd., a wholly owned subsidiary of ICRA Ltd, a group company of Moody’s Investors Service has assigned [SL] A+ rating for the debentures.

Manager to the issue is NDB Investment Bank Ltd., and registrars are PW Corporate Secretarial Ltd. Trustee to the issue is Bank of Ceylon.

AEL proposes to utilise the entirety of the funds raised through the Issue to part finance two on-going projects undertaken by the Company.

One is the construction of Access Tower II at Union Place Colombo 2 for which Rs. 2.57 billion will be utilised and balance Rs. 2.4 billion on Urban Regeneration Project – Design and Construction of 941 housing units at Henamulla, Colombo 15.

Any additional investments on these projects will be financed by internally generated funds of the Company.

Access Tower II, which is the second stage development and expansion of the existing iconic

Access Tower I, is a 29 storeyed state-of-the-art modern office complex currently under development at Union Place, Colombo 2 alongside the Access Tower I.

The project is coming under Access Realties 2 Ltd., which is a fully owned subsidiary of Access Realties Private Limited which in turn is a fully owned subsidiary of AEL. Access Realties Ltd. is a BOI approved private limited company incorporated on 11 March 1994 with an objective of developing and managing high rise buildings. Access Realties Ltd. currently owns and manages Access Tower I, a twelve story office complex in the heart of Colombo. Access Realties 2 Ltd was incorporated on 18 March 2013 as a private limited company to own and manage the proposed Access Tower II.

The project undertaken by Access Realties 2 Ltd. is estimated to cost approximately Rs. 3 billion. The funding requirement of the project will be met by AEL via an equity infusion into Access Realties Ltd. which will in turn be invested in the equity capital of Access Realties 2 Ltd.

Out of the proposed infusion of Rs. 3 billion by AEL into Access Realties 2 Ltd., Rs. 2.58 billion will be funded through the proceeds raised via the Debenture Issue. The remainder of Rs. 458 million will be funded through internally generated funds of AEL also financed as equity in to Access Realties 2 Ltd. via Access Realties Ltd.

The project is expected to be completed by the end of the year 2016.

Upon completion, the tower will comprise of a total area of approximately 387,000 sq.ft and will provide approximately 198,000 sq.ft of rentable high quality office space with parking facilities for approximately 300 vehicles. The development is expected to enhance the urban outlook of the area.

AEL intends to rent out the building to corporate clients and expects to commence marketing of

the office space once the development is fully completed, as AEL believes it would be in a better

position to demand higher rental prices once the facility is fully completed.

The Henamulla urban regeneration project (Phase II) involves the design and construction of

941 housing units at Henamulla, Colombo 15. As a design and built project awarded by the

Urban Development Authority (UDA) on 8 April 2014, AEL has undertaken the work related

to structural design and construction and all the civil and mechanical engineering works of

four (4), fifteen (15) storeyed (G+14) apartment blocks with 941 housing units.

The total contract value of this project is Rs. 3.25 billion whereas the total prime cost of the project is estimated at approximately Rs. 2.9 billion. The profit margins expected for a project of this nature would be in the range of 10%-15%. A separate finance charge of Rs. 235 million is to be received on the project to compensate for the deferring nature of the payment schedule along with the final payment of the project.

On 8 July 2014 and 24 July 2014, AEL received sums amounting to approximately Rs. 240 million and Rs. 246 million respectively as mobilisation advances from the UDA in order to commence the construction of the development.

The remaining funds of Rs. 2.4 billion required to develop and complete the project will be financed via the proceeds raised through this Issue until it receives payments from the UDA upon completion of the project. Any cost overrun over and above the estimated cost will be financed through internally generated funds of AEL.

Up to 31 August, a total cost of Rs. 884 million has been incurred on the project. The mobilisation advances received from the UDA and internally generated cash have been utilised to meet this expenditure. Envisaged completion of the project is at the end of the financial year 2016/17 and

the final payment is expected to be made to AEL by UDA within the financial year 2017/18.

Having already completed the Henamulla Urban Regeneration Project (Phase I) in the past, and

after completing the current Henamulla Urban Regeneration Project (Phase II), AEL is confident

of being awarded more urban regeneration projects from the UDA and/or similar public sector

housing projects from Government agencies on a continuous basis.

Upon completion, the UDA will provide secure housing to families who are currently living in

underserved settlements in and around Colombo, thus improving their quality of life by a

significant level.

Access Engineering operates mainly in four sectors that are Civil Engineering, Construction Material, Commercial Real Estate, and Automobile dealership.

For the period ended 30 June 2015 the company recorded revenue of Rs 2.87 billion as opposed to Rs. 2.80 billion in 2014. However profit after tax for the first six months in FY15 decreased to Rs. 493 million from Rs. 503 million the previous year.

The Company assets stand at Rs. 19.3 billion while liabilities amounted to Rs. 4 billion. Total equity as at June 2015 was Rs. 15.3 billion. Net Asset Value per share increased to Rs. 15.27 by end June 2015 from Rs. 15.02 in March 2015.