Expolanka IPO adds new conglomerate to Sri Lanka bourse

By C. Bryson Hull and Shihar Aneez

COLOMBO (Reuters) - ExpoLanka Holdings Ltd’s initial public offering next week will give investors discounted exposure to Sri Lanka’s post-war growth story, balanced with regionally diversified operations, the family-owned conglomerate’s chief executive said on Friday.

At 2.4 billion rupees ($21.9 million), ExpoLanka’s debut will be the biggest IPO so far in 2011 on the Colombo Stock Exchange, which has for three years running been Asia’s best-performing bourse.

So far this year it leads Asian peers with a 10.3 percent return, after last year’s 96 percent. The bourse began to turn around in early 2009, when it became clear the government would defeat a 25-year separatist insurgency that ended in May 2009.

ExpoLanka is among Sri Lanka’s biggest conglomerates, which are traditionally seen as the safest counters on the bourse.

“I have a Sri Lankan company which is international to some degree. Our risk is mitigated by the business we do in the region,” group Chief Executive Officer Hanif Yusoof told Reuters in an interview. The 33-year-old company has interests spanning 11 countries in Asia, the Middle East and Africa, including India, Pakistan, Kenya, South Africa, Indonesia, Vietnam, Madagascar and the United Arab Emirates.

It derives 71 percent of profit from transportation businesses, including logistics, travel, shipping and representation agency agreements for 13 airlines. It focuses in particular on servicing Sri Lanka’s garment industry. It also has interests in agricultural import and export, manufacturing of paper and bioextracts and has strategic investments in tertiary education and business process outsourcing, both now government prioritised sectors ExpoLanka has long been involved in.

Although operating in different businesses, conglomerates John Keells Holdings, Hayleys Plc and Aitken Spence are among the favourite picks on the CSE.

“When you look at the whole thing for investment in Sri Lanka, multiples are far too high for foreign investors to come to the market,” Yusoof told Reuters.

Keells has a 12-month forward price-to-earnings ratio of 19.3, Hayleys 20.8 and Aitken Spence 20.4, based on Reuters and Thomson Reuters StarMine data. The overall bourse has a 14.3 percent P-E ratio.

ExpoLanka is offering 172 million shares at 14 rupees each, based on a P-E of 14-15 against forecasted 2011 profit of 1.8 billion rupees. It earned 1.3 billion rupees before interest and taxes against revenue of 23.7 billion rupees in the financial year ended March, 2010.

The company plans to use 1 billion rupees of the funds raised for working capital, 908 million to restructure debt and 500 million to expand existing warehousing capacity, Yusoof said.

“I want to go to emerging markets and I don’t want to go to matured countries. Today, I want to be a strong regional player. Emerging markets have been my strength,” Yusoof said.

ExpoLanka’s growth has mirrored significant economic events in Sri Lanka’s history, having started as a fresh produce exporter in 1978, the year the government liberalised the economy and encouraged and “Export or Perish” mentality.

Yusoof said the availability of new land in the former war zone in the north and east will provide a growth opportunity for ExpoLanka’s agricultural exports. “I just cannot cope with the orders I have,” Yusoof said.