Kalamazoo under Renuka banner seeks Rs. 1.56 bn, cash infusion
Record 60 for one rights issue at Rs. 520 a share
The Renuka Holdings Group which in July last year acquired Kalamazoo Systems PLC, a quoted company with an issued capital of just Rs. 500,000, is seeking a Rs. 1.56 billion cash infusion into Kalamazoo by way of a rights issue of 60 ordinary shares of the company for every one share held at a price of Rs. 520 per share.
Analysts said that Renuka bought 69.97% control of Kalamazoo, since increased to 70.388% following a mandatory offer to other shareholders of that company, to have a listed company under its belt for further investment.
Kalamazoo was founded by and was a member of the Ceylon Printers Group. Mr. Nimal Perera, once Mr. Dhammika Perera’s investment advisor but no longer an intimate confidante, took control of the company buying approx. 70% at Rs. 1,067.70 a share ostensibly to have a quoted company under his control.
He thereafter took a tidy capital gain selling his 70% to the Renuka Group at Rs. 1,428 a share. Now Renuka is seeking to infuse over Rs. 1.5 billion to the company through the rights issue. Whether the approx. 30% minority will subscribe and whether Renuka will mop up unsubscribed rights is an open question.
The share closed on the CSE on Friday at Rs. 746.70, down Rs. 533.50 from the previous close on a small quantity of 2,495 shares traded. A June 1 EGM of the company approved the rights issued and also adopted a resolution to change the company’s name to Renuka Capital PLC.
The circular to shareholders of Kalamazoo leaves the possibility of under-subscription open.
In a circular to shareholders, the Kalamazoo board headed by Mr. S.V. Rajiyah of Renuka said that the initial objective of the rights issue was to make an equity investment in Renuka Developments Ltd (RDL) to acquire a controlling stake of that company.
RDL planned three property development projects: one an office development focusing on tenants providing IT and outsourced services on 184 perches of Colombo-9 land; a mixed development project on 86 perches of Colombo-3 land; and a hotel project on which RDL was in discussion with an international hotel operator for which it would provide its land.
However feasibilities indicated an internal rate of return of 11.5% for the office project and 14.72% for the mixed development. No feasibility study had been carried out on the hotel project which was at a discussion stage.
"Upon deliberation and consideration of the previous objectives and given the long lead times of these projects, the board believes that the revised objectives of becoming an investment company would provide better risk adjusted returns for its shareholders," a circular to Kalamazoo shareholders said.
"Given current market conditions, the board is on the view that debt instruments could yield returns in the range of 12-14% while equity investments could yield returns of 20-25%"
The revised objectives of the company are to invest and trade in equity (including private equity and listed shares), fixed income instruments/debt (including listed debentures, structured debt, unit trusts etc.) and other alternative asset classes and thereby create above average returns for shareholders.
The company plans to appoint an investment committee of two board members, two of its senior managers and two outsiders with finance, investment or legal backgrounds to appraise and make decisions.
Kalamazoo will invest 35% of the funds raised by the rights issue within 90 days of its completion in listed equity. It hopes to within 12 months (subject to market conditions) build a portfolio targeted to comprise 50-75% private and listed equities, 10 – 25% fixed income instruments and 10 – 25% in alternative asset classes subject to availability and appropriateness.
The Net Asset Value (NAV) of Kalamazoo as at Mar. 31, 2016 was Rs. 10.2 million. If the rights issue is fully subscribed a maximum of Rs. 1.56 billion will be generated, boosting the company’s NAV nearly 153 times.T
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