27th July 1997

By Asantha Sirimanne

Initial public offers of several plantations companies will be made within three weeks, giving the general public an opportunity to participate in the government's privatization exercise.

Newly converted shares of the National Development Bank are also due to come to the market soon.

Analysts expect plantations shares to be attractively priced.

"We will decide on the pricing nearer to the issue date," PERC Chief Mano Tittawella said.

"But the issues will be priced with the retail investor in mind."

When plantations companies were first privatized, initial public offers of profitable companies were made via the Colombo Stock Exchange. The price established at the IPO was used to transfer the majority holdings to the managers. There was poor public response to these issues resulting subscriptions being placed only at Rs 10.

Underwriters such as the NDB, Merchant Bank and Bank of Ceylon took up large tranches of shares that devolved upon them. Though the institutions came under fire for their involvement at the time, they are now in a position to realize huge capital gains.

When majority holdings of plantations were auctioned, they changed hands at several times par. Attractive tea prices have also made the sector's earnings soar to unprecedented levels, making plantations one of the best performing sectors in the market.

The NDB has prematurely converted its debentures into ordinary shares, which will be disposed of via a local and international placement, in the largest ever stock offer made here.

The placement will be lead managed by Jardine Fleming, Lehman Brothers. Citi National will also be involved in the marketing of the shares.

The NDB earlier had Rs 175 mn (Rs 10 shares in equity) and Rs 275 mn in debentures. The debentures had now been converted into 18.33 mn ordinary shares at the rate of 2 ordinary shares for every three debentures, boosting NDB's issued capital to 35.83 mn.

They were originally due to be converted into ordinary shares in three tranches of 10,10 and 7.5 mn debenture in 1999, 2000 and 2001.

If the shares were converted at par, NDB would have had an isued capital of Rs 450 mn, diluting its earnigns more than the case is now. The present conversion gives exisiting shareholders an unexpected bonus.

The international marketing programme will be leading fund managers in New York, London, Edinburgh, Hong Kong and Singapore.

Five per cent of the offer will be reserved for domestic investors to be sold at a discounted price and five per cent purchased by the NDB for an employee share option plan.

The offer will amount to a around 3 per cent of the market capitalization of Colombo Stock Exchange, sources said.

The shares will be market through a book building process where fund managers are fist sounded out on their requirements to enable large volumes to be absorbed, financial sources said.

Sri Lanka's second wireless fixed phone operator is to engage in a major project financing effort to raise more than US $ 100 mn from international lending institutions to finance its expansion in Sri Lanka.

Both Lanka Bell and Telia (Suntel) are required to install 100,000 subscriber lines by the year 2000.

"Lanka Bell is committed to installing in that period many more lines that that mere minimum of 100,000," Chairman Steven K. Baker said last week at the official launch of the company.

Lanka Bell (Pvt.) Ltd., which has already spent more than Rs 50 mn to start up its wireless loop network, will invest at least US $ 40 mn more in equity in the coming months. Most of the equity is coming from Transasia Telecom Ltd. which owns 72 per cent of Lanka Bell.

Transasia Telecom is a wholly owned subsidiary of the Singaporean public listed companyTransmarco, which in turn is controlled by the Sampoerna family who have extensive interests in Indonesia, Mr. Baker said.

The initial investment from outside sources will total US $ 200 mn. International funds will be raised with the involvement of multilateral lending agencies.

Long term multilateral lending is expected to be combined with a syndicated commercial loans and injections from infrastructure funds, Mr. Baker told The Sunday Times Business. ING Bank is financial advisor to Lanka Bell.

The company is hoping to plough back several hundred million in future cashflows to ultimately install one million loops in its 25 year license period.

Lanka Bell estimates that Sri Lanka would have three million subscriber lines in two decades.

"We see ourselves as part of a collective effort by various telecom licensees to continue to enhance Sri Lanka's telecommunications infrastructure and its teledensity, and therefore in its economic prospects," Mr. Baker said.

Though dependance on proprietory technology from a single sources is considered a risk, Lanka Bell says its 'Proximity I' technology developed by Northern Telecom (Nortel) - which now owns 12 per cent of the company - will give it an edge over competitors. Proximity I was first applied in the UK but has since been ordered and successfully installed in several other locations.

Unlike Suntel, all Lanka Bell phones are capable of supporting Internet. However Suntel officials say they provide loops capable of supporting Internet on request and the service will be available to all subscribers once a software bottleneck is cleared.

Mr. Baker said Sri Lanka has been able to 'leap frog' into a new level of technology as result of the telecom liberalization process.

"Sri Lankans would not have to gradually install, cope with and pay for expensive incremental advances in telecom technology that most developed societies have had to endure," he said.

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