Business Times

Free Lanka Capital Holdings divests 45% in private placement, IPO

By Duruthu Edirimuni Chandrasekera

Free Lanka Capital Holdings (FLCH) owned by Browns Group and Perpetual Holdings has divested some 23% in the company initially through a successful sell-down/private placement and launched its Initial Public Offering (IPO) on Tuesday to sell some 22% in a bid to expand into the power sector and enter into the leisure sector, officials said.

This has come on the back of the company listing its subsidiary, Hydro Power Free Lanka Ltd. (HPFL) late last year. The Business Times reported last November that FLCH will list early this year.
Kamantha Perera, Director FLCH told the Business Times on the sidelines of the IPO launch that the sell-down early last year by the company was successful. He said FLCH is planning to bring in international chains to manage the hotels they are planning in Giragama and Padukka.

Mr. Perera said that they are eyeing to set up two boutique hotels which will be three to four star. “This star class we feel will bring in revenue for us,” he said. The company through its subsidiaries owns Maturata and Pussellawa Plantations and manages over 23,000 hectares of tea and rubber, comprising of a total of 43 estates, where tea plantation spans across a revenue extent of over 7,500 hectares and rubber plantation over a revenue extent of over 3,200 hectares of land.

The rubber segment of the plantations have successfully generated the highest yield among the rubber plantation companies and due to the immense future potential of this sector, the company intends to expand the group’s rubber production further. The company has also embarked on a comprehensive program of timber planting on its estates for commercial purposes and has already planted more than 1.2 million timber plants.

Mr. Perera said that FLCH which has interests in the plantation sector will enter into value added tea as there’s an urgent need to do so with the rising overhead costs (such as plantation employee wages, etc). Analysts said that hydro power companies have recorded improved earnings in the recent past and with the better tariff rates, increased power generation which has resulted in the increased earnings, their strong balance sheet position is backed by the low gearing levels.

“Relatively stable cash flows and profit margins, relatively high life span of the assets can be identified as few industry specific characteristics among others,” an analyst said, adding that despite the initial investment required, the working capital requirement necessary to operate the power plant remains low. And for hydro power generators, he noted that geographical diversification via acquisitions/constructions of new plants is a must to avoid the risk of insufficient water flow which may reduce the power generation capabilities. “The areas where FLCH wants to set up mini hydro power plants do not face such threats,” he said.

Mr. Perera said that HPFL will set up four more mini hydro plants with a total capacity of 5.37 mega watts and with the IPO funds FLCH will put up some seven more such mini hydro power plants. “This will add another 7.45 mega watts to the national grid.

He said the IPO’s official opening of which is on March 17 will see 22% stake or 300 million ordinary shares at Rs. 5 each being offered to the public.

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