Lankem Development (LDEV) - Rights Issue and its Implications

Please see below the implication of the two separate announcement made by Lankem Development (LDEV) in relation to the recent Rights Issue.

Initial Announcement
Rights Issue
22 March 2011
Date of Initial Announcement :- 09-Mar-2011
Proportion:- Fifteen (15) new ordinary shares for every One (01) share held
Issue Price:- Rs.25.00/-
The number of shares to be issued :- 103,500,000 ordinary shares
EGM / Provisional Allotment: 21.Apr.2011
XR: 25-Apr-2011
Dispatch of Provisional Letter of Allotment : 29.Apr.2011
Rights Trading Commences on : 06.May.2011
Renunciation: 13.May.2011
Last Date of Acceptance & Payment: 16.May.2011

Latest Announcement
Rights Issue
07 June 2011
Please note that 53,100,000 Ordinary Shares of the Company were listed on 7th June 2011, pursuant to a 15:1 Rights Issue.

What does this mean?
Carefully read the amounts highlighted in blue. This means that although LDEV planned to issue 103.5mn share by way of a rights issue, only 53.5mn shares were issued and subscribed. The Rights issue was a failure and not fully subscribed.

What are the Implications
a) Share capital my have not got diluted as previously expected.
b) Only few objective of rights issue would have been met. Please read the purpose of the Rights issue. http://www.cse.lk/cmt/uploadAnnounceFiles/5851299655983_446.pdf
c)LDEV may have acquired the Agrapatana Plantation from the proceeds of the rights subscription but other plans of Hydro Power and Leisure project may not materialize
d) As the subscription would have predominantly come from Lankem Group Companies, the free float will remain almost the same.
e) LDEV may be renamed as the Agarapatna Plantation and may probably be the only plantation company that may be available at these price levels

Current Share Price offer greater discount than expected. How?
Please see below the two separate calculations for the expected and adjusted theoretical ex-right price of LDEV subsequent to the Rights issue.

Expected Theoretical Ex-rights Price based on full subscription of rights.

Cum Rights Price............... 1 Share = Rs 75
Rights Proportion.............. 15: 1
Proposed Rights................15 Shares at Rs 25 = Rs 375
Ex-Rights.............................16 Shares = Rs 450
Ex-Rights Price........................ Rs 28/- per share

Real Theoretical Ex-Rights Price due to under subscription of rights

Issued Share Capital Prior to the Rights Issue. = 6.9mn Shares
Actual Rights Subscribed = 53.5mn
Actual Rights proportion = 53.5mn shares; 6.9mn shares = 7.75 shares : 1 Share
7.75 Shares@ Rs 25/= ................. Rs 194/=
Cum Rights Price...........................Rs 75/=
Cost of 8.75 shares.........................Rs 269/=
Real Ex-rights Price....................... Rs 31/=

The Market Price of LDEV as at 17th June 2011 was Rs 21/=. Therefore one may consider that LDEV trade at a larger discount to its theoretical valuations.

If it is not fully subcribed, how can we get to know whether the parent company (LANKEM) has suscribed to the Right Issue? Was thare any annunsment in that regard?

good analysis rep from me.

But if this right issue was a failure how can we expect good returns from LDEV since objectives of right issue will not be realized.

Even though we calculate the ex rights price based on the price before the XR date, shouldn't we consider that it went up day by day since the day of announcement for many days?

what are your comments on this

http://www.cse.lk/cmt/upload_report_file/446_1306838438203.pdf

Accordingly NAPS was only Rs. 0.76* (Seventy Six cents) before the Right Issue of 25:1 at 25/-.


Net Assets of Rs. 5,264,000 and No of shares in issue was 6,900,000.

Subscribed Rights 53,100,000 (assumed that includes rights of parents 50.13%) at the rate of 25/- infused fresh capital of Rs. 1,327,500,000.

Adjusted Net Assets after Right Issue = Rs. 1,332,764,000/- (Rs. 5,264,000 + Rs. 1,327,500,000)Adjusted No of shares in issue = 60,000,000 (6,900,000 + 53,100,000)
Adjusted NAPS = 22.21

If LDEV trades at 21/- it trades below the NAPS as well.

@ Qb i have small question.

I have seen in past Right Issue documents when the Right Issue is gone on under-subscription then major share holder or another party will subscribe the remaining unsubscribe shares. but with this Right Issue major holder didn't .........

Is it says that major holder didn't keep faith with LDEV ???

Let me knw

@Chabbi wrote:@ Qb i have small question.

I have seen in past Right Issue documents when the Right Issue is gone on under-subscription then major share holder or another party will subscribe the remaining unsubscribe shares. but with this Right Issue major holder didn't .........

Is it says that major holder didn't keep faith with LDEV ???
Let me knw

Major shareholder did subscribe and others didn't?.. We may have to look at the latest shareholders list to know that. I am sure Lankem may have wanted to keep the ownership of the plantation with them and would have subscribed for their portion. Question is whether there was a underwriting bank that may have taken up a portion of the rights. But the real truth is that only 53.1mn shares were issued and subscribed as against the proposed 103.5mn rights issue.

@Quibit wrote:

@Chabbi wrote:@ Qb i have small question.

I have seen in past Right Issue documents when the Right Issue is gone on under-subscription then major share holder or another party will subscribe the remaining unsubscribe shares. but with this Right Issue major holder didn't .........

Is it says that major holder didn't keep faith with LDEV ???
Let me knw

Major shareholder did subscribe and others didn't?.. We may have to look at the latest shareholders list to know that. I am sure Lankem may have wanted to keep the ownership of the plantation with them and would have subscribed for their portion. Question is whether there was a underwriting bank that may have taken up a portion of the rights. But the real truth is that only 53.1mn shares were issued and subscribed as against the proposed 103.5mn rights issue.

the underlined would may wud be reason

but i can remember when LDEV.R rights were traded on last day thr was a pending order for more than 10+ Mn shares @ 0.10/= ........

for my point of view Major holder shd subscribe the existing shares in right issue bt thy ddnt ....... its sounds unfaith with the organization.

Now thy failed wt thy planned

interesting point so major part was not subscribed for?

npp wrote:Even though we calculate the ex rights price based on the price before the XR date, shouldn't we consider that it went up day by day since the day of announcement for many days?

what are your comments on this

Spot on dude.

For my own purposes, when I do the valuation, I always look at the price before the announcement was made, most of the times a few days before. Even then, if there are any sharp rises in the prices before that, I try to look at the reasons for the rise.

For LDEV, as far as I could see, the 'real' price before the XR was around 45/=. Note however that there is a rise of the price from around 35-38 to this around mid Feb, I don't know the reasons for this. Perhaps it was a 'legit' reason.

LDEV gets only Rs.1.32 billion from rights issue
Daily Mirror
http://print.dailymirror.lk/business/127-local/47450.html

Though Lankem Ceylon PLC (LCEY) subsidiary Lankem Developments (LDEV) was to raise Rs.2.5 billion via rights, it has only managed Rs.1.32  billion as at June 7 as per a stock exchange statement by the company.

However, in May Mirror Business exclusively reported that many investors in the outskirts of Colombo have missed to accept Lankem Developments (LDEV) rights entitlement or to deposit rights through renunciation to Central Depository System (CDS) due to the postal delivery delay that prevailed in the country.

An announcement by the company on June 7 to Colombo Stock Exchange said, the company had only been able to list 53.1 million shares pursuant to the 15 rights per share issue whilst earlier on March 2011 LDEV said it was hoping to issue 103.5 million rights to existing shareholders. Prior to the rights issue Lankem Developments (LDEV) stated capital was valued at Rs.80,505,620 representing 6.9 million.

Back in march LDEV said it had decided to come up with the rights issue in a bid to raise Rs.2.5 billion for an investment in acquisition of 61.88% of Agarapatana Plantations Ltd and for further investments in plantations, leisure industry and hydro power plants.

In a stock exchange filing, Lankem Developments said it will issue 15 rights per share at a price of Rs.25 each to acquire 47,417,276 (61.88% stake) ordinary shares of Agarapatana Plantations Ltd at a total cost of Rs.1.185 billion.

In another filing to the stock exchange, Kotagala Plantations  (KOTA) said it is expected to earn Rs.150 million disposing 6 million shares of Agarapatana Plantations to Lankem Developments.

As the rights issue had only been able to raise nearly half of the anticipated Rs.2.5 billion, market sources are of the view that the company would now only be able to acquire a controlling stake of Agarapatana Plantations whilst the LDEV share value is stagnated at an undervalued price range of Rs.19 to Rs.20.

http://print.dailymirror.lk/business/127-local/47450.html

@Quibit wrote:LDEV gets only Rs.1.32 billion from rights issue

Though Lankem Ceylon PLC (LCEY) subsidiary Lankem Developments (LDEV) was to raise Rs.2.5 billion via rights, it has only managed Rs.1.32  billion as at June 7 as per a stock exchange statement by the company................

..........................An announcement by the company on June 7 to Colombo Stock Exchange said, the company had only been able to list 53.1 million shares pursuant to the 15 rights per share issue whilst earlier on
As the rights issue had only been able to raise nearly half of the anticipated Rs.2.5 billion, market sources are of the view that the company would now only be able to acquire a controlling stake of Agarapatana Plantations whilst the LDEV share value is stagnated at an undervalued price range of Rs.19 to Rs.20.

http://print.dailymirror.lk/business/127-local/47450.html

Well .... at last LDEV is to aquire Agarapatana Plantations and its faith more or less depend on the performance of this plantation company.

I guess Agarapatana Plantations also highly exposed to mid-grown TEA and probably had not performed well in the recent past. That may be the reason LANKEM want to dialute its ownership by tranfering 50% owned LDEV.

Do any one knows more details on Agarapatana Plantations ??

@Chabbi wrote:



but i can remember when LDEV.R rights were traded on last day thr was a pending order for more than 10+ Mn shares @ 0.10/= ........

for my point of view Major holder shd subscribe the existing shares in right issue bt thy ddnt ....... its sounds unfaith with the organization.

Now thy failed wt thy planned

Or they planning to buy 10 million @21..seems like a bargain

@Gaja wrote:http://www.cse.lk/cmt/upload_cse_announcements/4661308819601_.pdf

If I remember correct LDEV went for the rights issue to buy a tea plantation from LCEY. Now LCEY owns 56% of LDEV.

@duke wrote:

@Gaja wrote:http://www.cse.lk/cmt/upload_cse_announcements/4661308819601_.pdf

If I remember correct LDEV went for the rights issue to buy a tea plantation from LCEY. Now LCEY owns 56% of LDEV.

Bro now LDEV is not subsidiary of LCEY ... LDEV is subsidiary of Lankem Planation ******* Company. but finally that company too belongs to LCEY ..........

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LDEV this rights price is 25.00,now it is trading at 20.00 20% is blow rights issue price. It will recover to it's rights issue price.

This is not a recommendation to buy,sell or hold any share

I cannot understand why people are selling the shares that they bought for 25 (or higher if bought before right issue) at 19. Because as I see, what has happened after the right issue is just a restructuring of the LDEV within the Lankem group. Though it true that there was a undersubscription the final implications of this are:
1. Shares were not diluted to a 1:15 but instead 1:8 which will give a ex right price of 31 instead of 28 (this is positive)
2. LDEV got a huge inflow of funds (Rs. 1,3 Bn) from the Lankem group (positive)

LDEV has got funds for more than 7 times of its size. So why are people selling it at 19. If you study the order book its totally manipulated. Big guys are collecting it at very low prices from the small investors who has liquidity problems. And after they collect they will stop selling and automatically the rally will start.

This was trading at Rs.90 before the right issue (when its net asset value was less than Rs.1) and now trading at 19 (when its net asset value is Rs.23). Shouldn't it be the opposite?

when CUM Right price 75/= the index was above 7500. now 6800.

This was trading at Rs.90 before the right issue (when its net asset value was less than Rs.1) and now trading at 19 (when its net asset value is Rs.23). Shouldn't it be the opposite?

ranesh,
May be your facts are right. But how many shares are today selling at below NAV and below IPO price. In the current market, all those fundamental has no value.No one can predict. What happend to VONE? Not as expected by the investors.Isn't it?

wait and see

please explain why  LDEV  moving. What is the target price.

https://cdn.cse.lk/cmt/upload_report_file/446_1502795974699.pdf                                        Check three month  EPS  Rs.1.97 NAV 12.59 Tea price up this period.             
my view u check careful Thanks.

Dear Sanjulanka,You are one of very few,who in a selfless manner initimated the huge potential available with LDEV to members.I am sure many would have capitalized.Greatly appreciate the kind acts backed by good intentions.I think all those who are following LDEV should read the post by Quibit way back in 2011,which will give valuable insight in to the true potential with the share.