PLC aims phoenix rising from markets ashes!

Thursday, 13 October 2011 00:37 -     - {{hitsCtrl.values.hits}}

  • Issuer of Rs. 7 b biggest post-war IPO People’s Leasing confident of success midst challenges
  • Says pricing attractive with good upside, robust leasing industry growing at double digit
  • Preferential allocation for foreigners; strong appetite following road shows in Singapore, Hong Kong; next stop is three cities in India; managers believe IPO will lift the Colombo bourse

Given the bearish conditions in local and global stock markets, the timing may be highly challenging, but issuer of Sri Lanka’s biggest post-war IPO, People’s Leasing Plc (PLC) yesterday expressed confidence that the Rs. 7 billion offering would be a success.

“We are coming to the market without any overhang of pre or private placements. We have remained successful as the leader for the past nine consecutive years in the leasing industry, which is booming given the post-war momentum, and the country’s economy is on the rebound overall,” PLC’s longstanding Chief Executive Officer D.P. Kumarage told the Daily FT yesterday on the sidelines of the company’s media launch of the mega IPO.

Involving 390 million shares at Rs. 18 each, PLC’s IPO which is now open for subscription is the biggest since Dialog’s Rs. 8 billion offering in 2005. As a truly home-grown Sri Lankan entity PLC’s IPO is the biggest ever.

Whilst everything from company’s outstanding track record in mere 15 years, solid backing parent – People’s Bank, pricing, future earnings upside to growth prospects for the industry seems perfect, Kumarage admits the timing is tough.

“Yes, the market has had some bad experiences and had lost faith in IPOs. On top of it, the Colombo market has remained bearish whilst global markets are underperforming. These are the biggest challenges, but we remain confident,” added Kumarage, who has been PLC’s CEO and General Manager since 1997.

Having begun with a capital of Rs. 10 million, one-and-a-half decades ago, today PLC is Rs. 65 billion worth asset-strong. In FY2011, its after-tax profit was a whopping Rs. 2.58 billion, up from Rs. 1.2 billion in the previous year and reflecting a compound annual growth rate of 36%.

Top line enjoying a 12% CAGR was Rs. 9.8 billion in FY2011. The phenomenal growth in assets had been whilst ensuring top quality with non performing loan ratio of a mere 1.2% as at March 2011. Leasing industry is estimated to grow by 25% per annum over the next few years.

“We have been the market leader in leasing for nine consecutive years. The company possesses the potential to scale to greater heights in the next decade. I am confident that this IPO will receive an overwhelming response from investors, both individual and institutional enhancing the value for our shareholders, whilst strengthening our capacity to fund our ambitious growth plans in the future,” Kumarage added.

Noting that the IPO has the best potential to lift the Colombo bourse, joint managers to the issue NDB Investment Bank and Capital Alliance Holdings said the pricing of Rs. 18 was very attractive with an upside both in the short and medium term. From recurrent earnings basis the pricing reflects a PE of eight times, much attractive than some of the financial services peers in the Colombo bourse.

Based on the response at recently concluded road shows in Singapore and Hong Kong, the IPO has already elicited foreign appetite. Similar exercises are planned in three Indian cities Mumbai, Bangalore and Chennai.

Given the sheer size, liquidity as well as strong fundamentals, the PLC is expected to be a sought-after stock in Colombo bourse for foreigners.  To make it a success, a 30% allocation has been set aside for Identified Investor Category which includes foreigners. Retailers will get 22.5% share and non-retail will get 27.5% along with 10% for Unit Trust and 10% for employees out of the IPO quantity.

The primary objective of the Issue is to obtain a listing for the Ordinary Voting Shares of PLCL on the CSE to comply with the regulatory requirement of the Monetary Board.

As a company carrying on business in the finance sector, primarily in the leasing and HP financing business, it is intended that the entirety of the monies raised through the Issue, subsequent to meeting all expenses in relation to the same would be utilised to part finance the loan disbursements made by the company to its customers during the remaining period of the FY 2011/12 through financial products such as leasing, HP and loans.

It is estimated that the funding requirement for such disbursements would amount to approximately Rs. 12-14 billion which is in excess of the total monies to be raised from the Issue. The balance funding requirements for disbursements would be financed through means such as bank borrowings, issuance of promissory notes and asset backed securitised instruments.

The increase in stated capital of the company subsequent to this Issue would improve its debt to equity position and would enable the company to leverage its balance sheet and raise the requisite debt financing in a comfortable manner.

The company expects to utilise the monies raised from the Issue before the end of FY 2011/12.

In addition, the IPO would facilitate PLCL to broad base the public ownership of the company and strengthen its identity through increased visibility and brand image amongst the public. PLCL believes that fulfilment of these objectives will further enhance the growth of the business operations of the company.

The company provides its financial services through a wide network comprising 37 regional branches and 121 window offices located within PB branches. Disbursements have grown at a Compounded Annual Growth Rate (CAGR) of 32% from Rs. 13.8 billion in FY 2006/07 to Rs. 41.8 billion for FY 2010/11 – resulting in an impressive 35% CAGR in the total assets of PLCL.