E&Y valued Watawala Marketing

Friday, 9 March 2012 02:39 - - {{hitsCtrl.values.hits}}

WATA surprised by SEC assertion of inadequate disclosure when requirements have been complied with

Ernst & Young Transaction Advisory Services Ltd. had been the independent valuer of the 100% stake of Watawala Plantations marketing unit sale, which created a rumpus in capital markets recently.

Watawala Plantations Plc (WATA) made this disclosure yesterday as part of its disclosure to the Securities and Exchange Commission and the CSE. When minority shareholders inquired who valued WATA’s subsidiary, Watawala Marketing Ltd. (WML) at the EGM, the name hadn’t been forthcoming.

WATA said the value of Rs. 741.6 million for the sale of marketing subsidiary to WATA’s largest shareholder Estate Management Services Ltd. (EMSL) was determined by the Board taking into consideration the valuation prepared by independent valuer E&Y.

“The value parameters as per the valuation report were Rs. 15.50 to Rs. 20.89 per share. It was decided by the board to adopt the higher valuation of Rs. 20.89 per share,” WATA said in its disclosure.

Additional information was following the SEC writing to WATA following minority shareholder protest that WATA stood to lose from the sale risking its financial viability whilst the subsidiary was worth much higher. They also opined that the sale was a sub-optimal option for WATA in addressing its problems.

Some minority shareholder opined WML is the cash cow for WATA and put the true worth of WML between Rs. 2.5 billion (based on 2010/11 performance) and Rs. 3 billion (based on forecast earnings for 2011/12 financial year).

In response to SEC queries, WATA also said that all relevant market disclosures relating to the divestment of WML have already been made in its letter to CSE dated 26 January 2012 enclosing therewith the draft circular and the notice to be sent to the shareholders prior to dispatching the same to the shareholders.

“We are therefore somewhat surprised that you (SEC) are informing us over a month later of the inadequacy of the information provided by us,” WATA had told the SEC.

WATA reiterated that the rationale for the sale saying that Directors were of the view that an immediate infusion of cash was required to address one of the most difficult periods in the tea sector.

“The net sales average movements were insufficient for the company to meet the rising cost of production which led to increased borrowings from funding agencies with a resultant increase in interest burden. The growing gratuity liability needs to be partially funded and long-term debts and other borrowings need to be partially settled. Furthermore the directors were of the view that investment must be made in expanding the company’s palm oil business which has become the mainstay of the company.”

It also said since the buyer of the stake will be EMSL, which is the holding company of WATA, the investment will be within the group of Sunshine Holdings Plc, the ultimate holding company of WATA.

Following minority shareholder representations, the SEC advised the golden shareholder Treasury not to vote in favour of the special resolution of WATA over the sale. However the resolution was passed by a majority at the EGM.