- Private placement of 19.98% stake for Rs. 160 m to enable entry
- To invest a further Rs. 1 b plus via Rights Issue with major shareholders People’s Bank and PLC renouncing their entitlement
- Post Rights biggest exporter of cars from Japan to hold over 50% stake
- Private placement followed by Rights to raise Rs. 1.5 to boost People’s Merchant’s capital
The People’s Merchant Finance PLC (PMB) has succeeded in striking a deal with motor industry specialist Sterling to come in as a strategic investor infusing much needed capital.
Facilitation of entry of Sterling Capital Investments Ltd., (SCI) is via a private placement of 16.85 million shares (19.98%) stake at Rs. 9.50 each.
SCI is part of Sterling Japan Co. Ltd., which is the largest exporter of Japanese vehicles to Sri Lanka. The Group subsidiary is Sterling Automobiles Lanka Ltd., which operates Sterling Aftercare Guarantee Centres.
Post-private placement, PMB will have a Rights Issue of three new shares for two held offering 126.525 million shares at Rs. 9.50 each. PMB’s share closed at Rs. 10 on Monday. Net asset value is Rs. 3.15 as at end September 2018.
People’s Bank holds a 50.1% stake in PMB and People’s Leasing and Finance holds a 37% stake.
An agreement has reached between the parties concerned for People’s Bank and PLC to renounce their Rights enabling SCI to take up more stake as part of additional investments.
With multiple transactions, SCI is likely to have a minimum of 54% stake in PMB.
“The private placement and the rights issue are carried out in order to meet the minimum capital requirement of Rs. 1.5 billion stipulated by the Monetary Board of the Central Bank under the directions issued under the Finance Business Act,” PMB said. The new investor has been approved by the Central Bank and the measures are subject to CSE and shareholder approvals. The percentage ofpublic float of PMB is 11.3% held by 10,081 shareholders.
PMB began searching for a new investor to infuse capital after its auditors in FY18 Accounts raised significant doubt about its ability to continue as a going concern, even though no adjustments have been made in the financial statements, as the Board of Directors are confident that the company will continue as a going concern and the auditors have not qualified their opinion on the matter.
However, due to the “Emphasis of Matter on Going Concern” the securities of the company were transferred to the Watch List of the Colombo Stock Exchange in July 2018.
Pursuant to a direction issued by the Central Bank, the company was required either to negotiate with investors and finalise the capital infusion or complete the proposed merger with the PLC. In May, Central Bank granted an extension of six months till 30 September for the company to effect the merger with PLC.
Separately, the PLC announced that merger plans between the company and PMB will not be pursued since a decision has been made to go with the option of strategic investor.
PMB said proceeds from the private placement and Rights will enable the Company to meet the entirety of regulatory minimum capital requirements imposed by the Central Bank. PMB intends to utilise up to Rs.825 million to settle the short term facility obtained from People’s Bank and the remainder will be to part finance the growth in the loan portfolio.
As at 30 September, retained loss at Peoples Merchant Finance was Rs. 873 million. Assets amounted to Rs. 3.4 billion up by 16% from end FY and liabilities were Rs. 3.2 billion up by 17.5% from end FY18. Total equity was Rs. 213 million.
For the six months ended 30 September, total operating income of the company rose by 280% to Rs. 129.7 million but operating profit before VAT and NBT was Rs. 5 million. This is better compared with the Rs. 68 million loss a year earlier. After tax loss in first half of FY19 was Rs. 3 million, lower in comparison to the Rs. 68 million from a year ago. As at 30 September 2018, it had retained losses worth Rs. 873 million.
PMB also said that the deadline for compliance with CSE listing rules expires on 17 February.