Acquisition hungry Harry turns selling spree!

Puts pioneering Unit Trust NAMAL and the only 100% Sri Lankan owned telecom firm Lanka Bell for sale

Usually on the hunt for acquisitions triggering controversy, business tycoon Harry Jayawardena is now in a selling mood by putting the country’s only 100% Sri Lankan owned telecom firm as well as the pioneering unit trust up for grabs.

Bids have been called for 100% stake in Lanka Bell as well as 70% stake in National Asset Management Ltd., (NAMAL) whilst there is strong interest for both from within the respective industries as well as outside from prospect new entrants.

Whilst KPMG Ford Rhodes Thornton and Company has been entrusted to handle the sale of Lanka Bell, 100% owned by Harry J controlled firms, the sale of controlling stake in NAMAL held by Milford Holdings Ltd., is handled directly by the latter.

DFCC Bank owns the remaining 30% stake in NAMAL which has an issued share capital of Rs. 100 million. DCSL Group holding in Lanka Bell is 97.8% and in NAMAL it is 68.66%.

The decision to sell both units appears to be a move to focus on core competencies and businesses. Whilst a few years ago it made sense to a then emerging conglomerate DCSL to diversify into new sectors such as telecom and financial services (latter in tandem with its SLIC acquisition) the new business model makes less sense to hold on to these assets. As far as telecom sector is concerned Lanka Bell hadn’t been able to expand into mobile which enjoys greater penetration.

Nevertheless Lanka Bell coming up for sale makes it the second fallout in the aggressively-competed telecom industry. The other is Suntel, which is reported to be acquired by India’s Tata.

Lanka Bell in 2009/10 financial year suffered a loss of Rs. 788 million after recording profits in the previous few years. The loss was despite operating cost being reduced by Rs. 380 million. However in the first half of 2010/11 financial year, it has posted a pre-tax profit of Rs. 92.3 million in comparison to a loss of Rs. 240.4 million. Its turnover amounted to Rs. 2.4 billion, though down from Rs. 2.6 billion. In the first quarter turnover was Rs. 1.15 billion and loss amounted to Rs. 73 million.  Lanka Bell also owes Rs. 200 million to DCSL on account of short term loan extended by parent.  

Its fortunes were also dimmed by unhealthy price war within the telecom industry. Apart from unique brand name Lanka Bell’s key asset is its strategic investment in commissioning the FLAG submarine cable to connect Sri Lanka to the world.  In order to expand services beyond fixed line communication and offer a wider array of ICT solutions, Lanka Bell incorporated two new companies; Bell Solutions Ltd., and Bellvantage Ltd. These companies will provide communication and computer related solutions, Data Centre and Call Centre hosting and KPO / BPO services etc.

The return of peace to the country will not only open up new markets but also provide opportunities for such services, according to DCSL’s 2009/10 Annual Report.

The recently established floor price and interconnection regime has helped Lanka Bell as confirmed by 1H results. It has also been successful in selling the excess capacity to other operators bringing in additional revenue.

Incorporated in 1997, Lanka Bell enjoys a tax holiday up to 2018 and it is the country’s leading CDMA 2000-1X (fixed line) operator. It also offers WiMax IEEE 802.16 d data service on the 3.5G spectrum, via 509 base stations and 65 branch offices throughout Sri Lanka. Lanka Bell is connected to the 65,000 kilometre long FLAG Global Undersea Gibre Optic Network that connects all continents of the world as well as to the 88,000 kilometre long Reliance Domestic Terrestrial Network covering the length and breadth of India. LBL owns and operates the sole landing station of FLAG in Sri Lanka.

The closing date for bids on Lanka Bell is 17 December.

Established in 1990, NAMAL is the pioneer unit trust and asset management company in Sri Lanka. Though first off the block, NAMAL with an estimated Rs. 8 billion worth of funds under management, is now second to Ceybank Asset Management, which claims 55% market share.

Daily FT learns that potential sale of Milford Holdings stake in NAMAL was informally in the market last month and there was heavy interest.  Market talk was that a price of Rs. 350 million was sought for the 70% stake. This however couldn’t be confirmed but the decision to formally advertise and call for sealed bids suggest Harry Jayawardena is keen to fetch a higher price especially following the boost for Unit Trusts in Budget 2011 as well as to be transparent.

The 2011 Budget is highly favourable for Unit Trust industry hence NAMAL is expected to benefit. The proposal to permit foreign institutions and foreign nationals to invest in unit trust, and the proposed changes to the rate and basis of computation of VAT on financial services is beneficial to unit trust industry. Furthermore, the proposal on the reduction of rates of income tax will have a positive impact on the earnings after tax.

In that context, Milford Holdings is of the view that time is opportune to find an investor who is capable and keen to take the services of NAMAL to the Sri Lankan masses, overseas investors and institutions who seek professional avenues and products to invest in the Colombo stock market.

Interested parties to acquire control of NAMAL are required to submit bids by 23 December with a refundable bank draft of Rs. 250,000.

NAMAL offers many types of Unit Trusts comprising open-ended and close-ended types of investment schemes to suit investors’ short to long term investment objectives. NAMAL also offers portfolio management services for provident funds and institutional investors.

It has seven funds including the country’s only close -ended and listed fund – NAMAL Acuity Fund in partnership with Acuity Partners – a joint venture between HNB and DFCC. They include growth fund, equity fund, income fund, money market fund, and gilt edge fund. NAMAL in 2009/10 recorded a creditable growth in net profits by 18%.