Five for one rights issue will settle related shareholders with shares
Madulsima Plantations PLC, controlled/influenced by Harry Jayewardena related companies, has announced the issue of 145 million new ordinary shares by way of a five for one rights issue priced at Rs. 9.50 per share.
The company has said in a circular to shareholders that if the rights issue is fully subscribed, the company’s stated capital would increase from Rs. 290 mn. to approximately Rs. 1.67 bn., increasing by approximately Rs. 1.38 bn.
The company intends utilizing approximately Rs. 1.38 bn. of the funds raised by the rights issue to fully settle loans due to two related companies, Melstacorp. Ltd. and Stassen Exports Pvt. Ltd. which are two related companies, and part settle an HNB overdraft.
The circular has said that the loans due to Melstacorp and Stassen Exports are loans due on demand. Furthermore, these lenders are the majority shareholders of Madulsima who are willing to convert their loans into equity. The remaining borrowings due on a secured
HNB permanent overdraft is not yet due for settlement but Madulsima expects to settle Rs. 55 mn. of an outstanding of Rs. 294 mn.
Considering that the two related companies have expressed their willingness to subscribe fully to their rights entitlement and to apply for additional shares to the extent required to convert the outstanding loans into equity, the directors are assured that the total fund requirement will be met, the circular indicated.
Madulsima carries substantial debt and in the company’s last annual report for 2014 its auditors, without qualifying their opinion on the accounts, drew attention to the fact that the company continues to incur losses financed by related companies. In the last year under review the company incurred a net loss of Rs. 277.7 mn., up from Rs. 219.6 mn. a year earlier. As at that date, the company’s current liabilities exceeded its current assets by Rs. 1.79 bn. and there are uncertainties of its status as a going concern.
In 2014, a loss of Rs. 9.58 per share, up from a loss of Rs. 7.57 per share a year earlier, had been incurred. The directors have said that once debts are settled, Madulsima which has paid no dividends to shareholders but paid management fees to its controlling shareholder for 11 years, will benefit from reduced finance costs of approximately Rs. 165 mn. a year amounting to a saving of approximately Rs. 30 per kilo of made tea.
In the current financial year the saving would be approximately Rs. 80 mn.
These savings of interest cost together with the improvements in productivity, agricultural practices and factory development has led the directors to believe that once the lion’s share of outstanding debt is reduced, the financial performance of the company would improve together with its ability to continue as a going concern.
The Madulsima share closed at Rs. 13.20 last February, Rs. 11.40 in March, Rs. 11.80 in April and Rs. 10.80 in May.
The company has summoned an Extraordinary General Meeting on August 3 to seek shareholder approval for special resolutions enabling the floating of the rights issue.
The Madulsima directors are Messrs. D.H. S. Jayawardena, N.M.A. Gaffar, Lalith Obeyesekere, A Shakthevale and D.S.K. Amarasekera.
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