Renuka Agri Foods (RAF), a subsidiary of Coco Lanka PLC and Renuka Holdings PLC, announced its Initial Public Offering (IPO) to raise Rs. 270 million for future investments, grow market share and reduce cost structures, company officials said on Wednesday.
“With the money that is raised the company hopes to invest in plantations in the East, distribution infrastructure and new technology. These may be Greenfield projects and or acquisition of currently operational projects,” Executive Director, Renuka Holdings Shamindra Rajiyah told the Sunday Times FT on the sidelines of a presentation on the upcoming IPO of 120 million ordinary shares at Rs 2.25 each.
He said that the company expects growth through higher disposable income in emerging markets, adding that the returns from the IPO would be utilised to pay off three loans taken from the bank amounting to Rs. 47 million and invest in several projects to enhance the company's productivity.
The company is entitled to a 12 year tax holiday from the date of commencement of first commercial export followed by a concessionary rate of 15% for a further 12 years.
“The current debt has been borrowed at high costs. The exemption from income tax till 2015 and a concessionary rate of 15% for a further12 years means that there is little tax benefit from borrowings. The company will however have the possibility to borrow for further expansions due to its strong balance sheet,” Mr. Rajiyah noted.
He said RAF has the most diversified coconut factory in the country, utilizing many alternative food processing technologies.
He said that RAF has a 3-pronged strategy for growth. “We will invest in new technology such as in an aseptic ultra heat treatment plant for retail purposes from Tetra Pack or another company to meet growing demand and will do forward and backward integration,” he said.
He said the company plans to forward integrate by setting up or acquiring its own distribution channel in Sri Lanka. “It will formalize its current representative agreement in Europe by establishing its own subsidiary in Europe and for greater backward integration, RAF plans to go into coconut plantations in the East. With the liberation of the East, suitable lands have become available for large scale plantations to cater to the company’s raw material requirements,” he said.
“The demand for value added coconut based products are generated mainly through households, catering industry (hotels, restaurants, caterers) and food manufacturing industries,” he said. Mr. Rajiyah said that Grace Foods (UK) Ltd, a subsidiary of Grace Kennedy, one of the Caribbean’s leading corporate groups listed on the stock exchanges of Jamaica, Trinidad, Barbados and the Eastern Caribbean owns 18% in RAF.
He said that coconut is Sri Lanka’s third major agricultural export crop and that earnings from this sector accounted for 1.8% of last year’s gross domestic product. “The Coconut Cultivation Board (CCB) aims to distribute 2.8 million seedlings in 2010 which will increase the total acreage of plantations to over 1 million,” he said. The share subscription list opens on November 27. Merchant Bank of Sri Lanka is managing the IPO while the placement agent is Capital Alliance.
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