Areva Investments structures unique long-term listed debenture issue for Bogawantalawa Tea Estates

Bogawantalawa Tea Estates PLC (BTE) has announced the issue of five to seven year, senior, listed, BBB+ rated, unsecured, redeemable, Rs. 100 debentures, issued at Rs. 85 each, totalling to Rs. 850 million. The issue opening is scheduled for Thursday, 18 July.

Over the last five years, the total agriculture sector has contributed, on average a 7.32% to the Sri Lankan GDP, where the tea sector unfailingly emerged as a foremost contributor each year. Given such significance to our economy, the sector participants have very little exposure to other funding mechanisms, other than perhaps the traditional forms, such as shareholder funding and bank loan financing. 

However, it was apparent that the non-linear cash generation of plantation specific companies, require tailor-made, innovative, hybrid solutions, unlike the finance sector companies, who enjoy constant, linear cash flow patterns, which make them easy targets to offer varying funding fusions. For instance, the domestic listed debenture market, comprising of Rs. 373 billion of outstanding debentures, is heavy on finance sector debt, where 94.1% comprises of banks and finance company debentures, while a only a mere 5.9% comprises of non-finance sector debt. 

Therefore having conducted over a year of extensive research on the plantation sector, the managers to the issue, Areva Investments Ltd., identified an accessible solution for these plantation companies, yet to be explored in Sri Lanka. Consequently, a long-term debenture issue with a more plantation specific structure, which aims to mirror the cash flow patterns of a plantation sector company was considered, initially to be offered to BTE, a renowned, well established, matured player in the industry. 

The debenture listing would assist the company to broaden their funding mix and to explore funding from diverse sources. The discount offered on the investment value of the debenture, at the onset, extends a higher effective return to the investor, while the Issuer, bearing fruition of the projects in hand by the end of five, six and seven years, will be comfortable to service the ballooned up repayments at maturity. 

The features of the debt includes call options on investors for a specific number of shares based on the number of debentures held, giving them the opportunity to be a part of the shareholding of the Company, if the future profitability of the company improves. If these call options, which have cash considerations attached are exercised by the investor, the Issuer would benefit from the interim cash flows received by the company.

BTE’s maiden listed debenture issue also marks the first non-finance sector debt listing, so far to grace the markets this year. The debt issue, structured and managed by Areva Investments Ltd, introduces several innovative features to the listed corporate bond market. 

The debentures issued at a 15% discount to the redemption value, varies from the issues listed so far by also featuring quarterly coupons at very attractive rates of interest. 

In-line with the cash flow requirements of BTE, the debenture issue offers part convertible options to ordinary voting shares, at interim points before redemptions, where these options, also involving cash considerations, lies totally in the hands of the investor.

A sinking fund, established for the total capital redemption of the issue, is mortgaged to the Trustee, Hatton National Bank. Rs. 50 million from the initial proceeds of the Issue, will be channelled towards the commencement of the Sinking Fund. Thereafter BTE will make monthly contributions to the Sinking Fund.

The presence of a cornerstone investor for a minimum of 50% and a maximum of 75% of the Issue, further strengthens the issuance.

The proceeds of debentures would be utilised for the commencement of the Sinking Fund, settlement of high-cost debt, on-going field development and factory development activities. Apart from receiving the approval of the Colombo Stock Exchange, due to the quasi-equity features of the listing, the Issue was also approved via special shareholder resolution at the Extra Ordinary General Meeting held on 31 December 2018. 

HNB acts as the Trustees to the Offering, Nithya Partners as the Lawyers, Commercial Bank as the Bankers, PW Corporate Secretarial Ltd. as the Registrars, ICRA Lanka Ltd. as the Rating Agency and BDO Partners as the Auditor and Reporting Accountant to the Issue.

Bogawantalawa Tea Estates, also known as the Golden Valley of Ceylon Tea, has been producing the finest teas since 1869. The Company manages over 6,000 hectares of land and tucked away, in the central hills of Sri Lanka, the high grown tea estates of BTE are blessed with perfect microclimatic conditions to produce some of the finest all-rounded teas in the world. Over the years, the company has established a strong brand name, synonymous with high quality Ceylon Tea and the premium prices achieved for its produce, have ensured their ranking, among the top five plantation companies in the industry. 

Likewise the company’s commitment towards environmental sustainability has led them to be one of the world’s first tea growing, manufacturing and marketing company offering Uncompensated Carbon Neutral Teas from its state-of-the-art carbon neutral facilities. Worldwide, the company’s varied product range reaches over 2,000 supermarket chains, retails stores and food service suppliers, covering over 23 countries. BTE’s key export destinations include Netherlands, Japan, UK, USA, Sweden, Australia, Poland and Lithuania.

Apart from its main business activity of growing, manufacturing, packaging, marketing and exporting of tea, BTE is also well diversified into other sectors such as rubber, mixed development projects, leisure, solar power and other renewable energy projects. Operating under the parasol of the Metrocorp Group, the company is reinforced by the group’s consolidated financial strengths, being well established and diversified into hydro power, water management, office automation and leisure sectors.

This exclusive long-term debt issuance, specially targeting the plantation sector, was structured and managed by Areva Investments Ltd., specialists in debt and equity issue management. Fortified by an experienced team and entrusted by a loyal clientele, Areva Investments have successfully arranged, structured and managed several fund raisers in both listed and unlisted corporate bond markets, assisting companies to raise both long-term and short-term capital. 

In future, the company hopes to reach out to new horizons, by revolutionising the planation sector by offering cheaper, tailor-made, accessible financing facilities to other plantation companies in Sri Lanka and overseas.