LVL Energy Fund announces Rs. 1.2 b IPO

Acuity Partners Managing Director Ray Abeywardena, LVL Energy Fund CEO Sumith Arangala, Lanka Ventures CEO Kanthimany Maheshwaran and Acuity Partners Corporate Finance Vice President Shehan Cooray at the IPO launch yesterday - Pic by Upul Abayasekara

By Uditha Jayasinghe 

Energy company and subsidiary of Lanka Ventures, the LVL Energy Fund Ltd. yesterday announced a Rs. 1.2 billion Initial Public Offering (lPO) to fund its strategic expansion and growth in the renewable energy sector.

The IPO is billed as the largest IPO listing since 2015. With 120 million shares being made available at Rs. 10 per share, the IPO will aim to raise Rs. 1.2 billion, the company said. 

The IPO price is backed up by an independent valuation carried out by Capital Alliance Partners Ltd. using a combination of Some of the Parts (SOTP) and Price Earning (PE) valuations. As per the SOTP valuation method and PE-based valuation, the independent valuer had arrived at a price of Rs. 13.18 per share but based on a sensitivity analysis has recommended a price range from Rs. 10.60 to Rs. 16.62 per share. 

Based on the Rs. 13.18 value, the offer price of Rs. 10 per share is at a 24% discount which augers well for active secondary market trading following the IPO, officials said, banking on its competitiveness to attract investors.  

“One cannot quantify a good time for an IPO, if you don’t price it properly and I think the reverse of that is any time is a good time if you have priced it properly. I think the emphasis is to price this issue right regardless of what market conditions may be. Most IPOs fail because you try to maximise the value that the initiator or promoter can get. With that in mind what we have done here is to ensure that there is an upside in price, mindful that market conditions are not as good as we would like them to have been. But don’t forget that the market has had the highest foreign inflow of over Rs. 100 billion this year, so there is an upside for a discerning longtime investor,” said Colombo Stock Exchange Chairman Ray Abeywardena.

He went on to tell reporters that investors, both local and foreign, looking for sustained investment in the market would find opportunities including the LVL IPO.   

Of the Rs. 1.2 billion that is to be raised at the IPO, Rs. 720 million (60% of the funds), will be invested in three new hydropower projects: Rs. 255 million in two hydropower plants aggregating 3.9 MW in Sri Lanka and the balance Rs. 465 million in a 10 MW hydropower plant in Nepal. 

The remaining part of the IPO proceeds, amounting to Rs. 480 million, will be utilised for the settlement of debt which will improve the company’s borrowing capacity to finance more projects that are in the pipeline. Projects in the pipeline include two 10 MW wind power projects in the Jaffna Peninsula and one 100 MW thermal power project in Bangladesh.

“We are excited to be a part of the country’s new era of economic growth and development. The LVL Energy Fund has always delivered high returns to our valued shareholders and we are thankful for the confidence and trust that the business community has placed in us. We hope that this IPO will enable us to strengthen our position as the leading and most diversified investment company in Sri Lanka’s energy sector and pave the way for us to enhance our regional foothold in the industry as well,” LVL Energy Fund Ltd. CEO Sumith Arangala. 

Lanka Ventures Plc, the parent company of the LVL Energy Fund, is a subsidiary of Acuity Partners Ltd, which is a joint venture between Hatton National Bank Plc and DFCC Bank Plc, two of the country’s most respected financial institutions. 

The LVL Energy Fund is a limited liability company that invests in power projects across Sri Lanka, Bangladesh and Nepal. The fund will be the island’s only listed company that has investments in thermal energy as well as two key renewable energy sources: hydroelectric and wind energy. 

The company has a proven track record and has delivered dividends to its shareholders since 2010. The LVL Energy Fund has also delivered 47% year-on-year growth in earnings over the last five years. In terms of fund size and the overall size of the investment portfolio, the LVL Energy Fund will be the largest amongst its peers in the stock market.

Prior to this IPO on the Colombo Stock Exchange, the company successfully raised Rs. 951 million in the form of a private placement. 

Generating electricity and power from renewable energy sources is a key driver for supporting sustainable economic and industrial growth, whilst ensuring the health and wellbeing of the public. Having recognised the immense potential of the alternative energy sector, the LVL Energy Fund has already made headway in establishing itself as a key investor in the local industry. Following the IPO and its continued expansion and investments in high potential power projects, the company will be able to further consolidate its position as a market leader in the energy sector.