Panasian Power switches on Rs. 600 m IPO

By  Kinita Shenoy

The Panasian Power Limited (PAP) yesterday formally announced its Rs. 600 million Initial Public Offering to fund its recent key acquisition as well as harness greater prospects in the mini hydro sector.

The Company is offering 200 million shares at Rs. 3 each and the issue is open for subscription from 7 December.  With IPO offering 40% stake in the Company, PAP will be listed on the main board of the CSE.

PAP is a 100% fully owned subsidiary of Power Hub International (PHI), Malaysia, which is a subsidiary of Malaysia’s Majulia Group, responsible for the first plant under the Malaysian Government’s Small Renewable Energy Programme, and are providing the expertise for renewable energy solutions through mini hydro-electric plants in the country.

 The latter under the Malaysian Government’s small Renewable Energy Programme, was the first to undertake the development of a mini-hydro plant in Malaysia. This same expertise is at the forefront of efforts by PAP to develop the use of renewable energy in Sri Lanka.

PAP owns and operates a 2.0 MW Mini Hydropower plant in Ratnapura District and supplies electricity directly to the CEB. In September it acquired 100% shareholding of Manelwala Hydropower (Pvt) Ltd (MHPL) producing 2.4 MW at Walapane in the District of Nuwara Eliya for Rs. 565 million from PHI.

Funds raised via the IPO will be used by PAP to settle PHI over its latest acquisition.

PAP Chairman Dr. Prathap Ramanujam said: “The development of the energy sector within Sri Lanka is of core importance if the country is to continue moving forward. Panasian power is proud to be a part of the initiative to develop national infrastructure by utilising resources within Sri Lanka and we believe that the IPO will give the investing public a great opportunity to share the success of the company

According to him PAP is also looking at plans for many additional mini hydropower plants across the island. The company is in an unique position to re-engineer the mini hydropower sector of Sri Lanka, offering shares to the general public in order to generate investment and enable them to participate in the success of the industry and the Company’

PAP Director Deepal Sooriyaarachchi said, “By issuing shares to the public we are creating an opportunity for the citizens of Sri Lanka to become more involved in a resource that affects each of our lives.”

He assured prospective shareholders that the energy requirement within Sri Lanka in the next year is poised to grow at a rate of at least 7%- 9%, and they expect an increased investment in private owned power. The PAP insisted that the importance of green energy was growing, especially with the rising concern of carbon emissions and climate change. The company also asserted that mini hydropower plants have been acclaimed as one of the most eco friendly forms of power generation available in today’s world, and have finally become a practical and feasible reality in Sri Lanka.

The Company said the development of the mini hydro power industry is in keeping with the national energy policy to identify a sustainable energy mix to address the growth in industry and services sectors. In its 2009 Annual Report, the Central Bank of Sri Lanka states that the total installed capacity of the power sector is 2683 MW. Out of this total, the capacity of hydro power is 1345 MW, thermal power is i-285 MW and wind power and solar amounting to 3 MW.

PAP aims to operate as a commercially-focused sustainable company providing green energy solutions. “The provision of clean, renewable energy underpins the way we operate and do business, and is indicative of our efforts to preserve the environment by reducing carbon emissions,” said Dr. Ramanujam. Mini hydropower plants are one of the most environmentally friendly energy sources in Sri Lanka. These run-of-the-river grid-connected plants do not require reservoirs, instead releasing water into the same stream immediately after its diversion and generation of power.

PAP assured basis of allotment post IPO will be made in a fair manner. However the Board intends to make a Preferential Allocation of 30 million shares representing 15% of the shares on offer to the Directors and Employees of the Majulia Group of Companies.

The Applications and Prospectus for the Panasian Power IPO are available at all Sampath Bank Branches, the Kenanga Investment Corporation, and with all stockbrokers. These documents can also be downloaded from www.panasianpower.com.

The PAP plant is located at Ratganga, in the Ratnapura District. PAP has a capacity of 2.0 MW and the Plant factor of PAP is 60%. Annual plant factors of PAP are given in the latter part of this section. PAP’s channel length is 880 m long and it has a head of 165m. The power generation levels of PAP during the last five years indicate (see above graph) a compound growth of 7.0% due to favourable weather patterns and efficient operations of the plant. PAP has generated 7,731,673 Kw up to 30 September 2010. The Plant factors for calendar year 2008 and 2009 were 64.17% & 61.32 % respectively and this was the 2nd highest plant factor for all Mini Hydropower plants in Sri Lanka. The PAP top line has been steadily increasing throughout the last 5 years. Annual compound growth in revenue is 12.88%.

Higher volumes of power generation due to favourable weather patterns and proper maintenance of infrastructure are main enablers for this top line growth. From next year, PAP’s consolidated figures will include MHPL performance. These factors ensure the potential growth of PAP group for the forthcoming years.

Bottom line has recorded an annual compound growth of 35.7 % and in the last financial year PAP has recorded a net profit of Rs.77, 921,146 mn which is a growth of 26.7% compared to 08/09 financial year. An increase in income by 22.8% with a reduction in Finance costs can be identified as one of the main reasons for the growth in bottom line despite an increase in administrative expenses.

MHPL is situated at Walapane in the Nuwara Eliya District. MHPL has a capacity of 2.4 MW with a head of 280 m and a channel length of 1800 m. The annual average Plant factor of MHPL is 23.24%. The MHPL plant was commissioned in June 2008. MHPL has increased their top line by 105% compared to 08/09 financial year. This is due to the increase in volumes. Power generation indicates a compound growth of 31% again due to favourable rainfall. MHPL has generated 5,088,777 Kw up to 30 September 2010. Initially the Net profit margins depicted a negative sign, which is a common situation in any start up business. Power generation was initiated in June 2008. However net profit has significantly increased by 125% compared to the previous year which was a loss of 45 mn. Finance cost has been reduced by 87% on a YoY basis. MHPL will be able to maintain its profitability for the coming years while making a positive contribution to the PAP Group. MHPL maintains a current ratio of 0.10. MHPL’s ROE and ROA ratios for the Financial year 09/10 are 12.23% and 5.94% respectively.

With a long term interest in Sri Lanka, PAP will positively look in to investing in other hydropower projects within the Island. Some key strategies in this area include the following: since it is a Malaysian owned Company, PAP will also look for opportunity to tap business potentials in the South East Asian countries such as Malaysia, Indonesia, Cambodia, Vietnam and Laos through Malaysian networking. This would not necessarily confine to Mini Hydro but would also include other types of renewable energy, i.e. bio mass, solar hybrid, etc. Thus, PAP could become a regional player in the energy industry which would enhance its revenue and profitability while mitigating the risk of having to depend on one sole pay master, i.e. CEB.

The Company will identify possible locations for new plants, aiming to produce up to nearly 15.0MW of power, over the next five years. As stage 1 of this plan, PAP has already received confirmation from CEB confirming that the present network is adequate to accommodate our request to enhance the project capacity from 2MW to 3MW. The Company is now in the process of obtaining all the other approvals necessary for this purpose and the Company expects to commence generation by December 2011.