LOLC’s future holding company of financial companies to raise Rs. 1b via listed debt
LOLC Ceylon Holdings Ltd. (LOCH) will issue 10 million debentures of Rs. 100 each to increase Rs. 1 billion.
The debentures offer 9.50% per annum payable annually. The minimum subscription is Rs. 10,000. The managers of the issue are Capital Alliance Partners Ltd.
Depending on the allocation basis, the number of debentures to be allocated to one or more identified institutional investors of strategic and operational importance, preferentially or not, will not exceed 75% of the total number of debentures to be issued.
LOLC Holdings PLC (LOLC) has provided collateral up to Rs. 1.19 billion being the principal and two interest payments. LOLC owns a 55.54% stake in LOCH and the related party Commercial Leasing and Finance PLC owns 44.34%, making it a total control of 99.89%.
As part of the LOLC group’s overall strategy to attract investors to the large financial companies it has created, LOLC creates a platform allowing potential investors to acquire a minority stake in the financial companies it owns. LOLC believes that these large-scale foreign investors have the ability to help financial companies grow even further and provide even better service to clients by introducing the latest technology, technical know-how and employee training.
To this end, LOLC Holdings has appointed a wholly-owned subsidiary, LOLC Ceylon Holdings, to function as a platform and plans to list LOCH on the Colombo Stock Exchange. After LOCH listing, the shares held by LOLC in LOLC Finance PLC (LOFC) amounting to 44.79%, the shares held in Commercial Leasing and Finance PLC (CLC) amounting to 98.92% and the shares 55.55% held in LOLC Development Finance PLC (NIFL) are to be transferred to LOCH.
LOLC has stated that the Company Takeovers and Mergers Code of 1995 (as amended) will not apply to the transfer of shares by LOLC to LOCH from LOLC shares in LOFC, CLC and NIFL.
The proceeds of an equity injection by the parent company, LOLC Holdings, will be used to purchase the shares of LOFC and CLC, subject to receipt of the relevant regulatory approvals (if any). SEC approval in principle and Central Bank no objection have been obtained for the transfers of LOLC shares.
The transfer of shares will take place as soon as LOCH becomes a listed entity.
An estimated time frame could be two weeks from the date on which LOCH becomes a listing entity, as all the regulatory approvals in principle required have been obtained. As this is an internal restructuring of the group, the transaction will be executed at market prices in effect on the date of the transfer, as an off-the-floor transaction.
The funds raised by the bond issue will be used to partially finance the acquisition of LOLC Holding’s stake in LOLC Development Finance (NIFL) within one month of the grant date. As of the date of the prospectus, LOLC Holdings PLC holds a 55.55% stake in NIFL.
The purchase price for the transfer of NIFL shares would be the last market price for NIFL shares in accordance with the requirements of the SEC in its approval in principle. The share transfer will be executed at the last traded price at the time of the share transfer.
Subject to receipt of relevant regulatory approvals, the amount of the purchase consideration balance at the time of acquisition is to be funded by LOLC Holdings through an equity injection into LOCH. The purchase price of the transaction will be the market price prevailing at the time of purchase of the shares.
During the interim period (date from fundraising until deployment through the purchase of NIFL shares), the company would choose to invest the debenture proceeds in government securities without risk of default until that the funds are fully utilized. Investment in government securities is expected to generate a return of 5% per annum at current rates.
In addition, LOCH has applied for SEC and Central Bank approval for the restructuring exercise or transfer of ownership from LOLC Development Finance PLC to LOLC Ceylon Holdings and SEC approval in principle and no objections. from the Central Bank was obtained to conclude the restructuring provided. LOCH becomes a listed entity.
In the event that the Company does not use the funds for the stated purpose of issuing Debentures and proposes to use them for another purpose such a change will only be made after the Company announces it and received the necessary approvals from the authorities / parties concerned. The company also noted that LOLC Holdings is LOCH’s parent company.
However, if these products are used for a related party transaction, this will be done in accordance with Section 9 of the CSE Registration Rules.
LOCH will own 55.55% of the shares of NIFL after the equity injection. The acquisition of this stake will be partly funded by the proceeds of the bond issue and the remainder will be funded by the parent company, LOLC Holdings, through an equity injection.
The percentage of shares owned by LOCH in NIFL after full use of the IPO debt cannot be determined at this time, as the purchase price for the transfer of NIFL shares would be executed at the last price of the market negotiated at the time of the transfer of shares. The transfer of shares is expected to be completed within two weeks of the date on which LOCH becomes a listing entity.