Bogawantalawa Tea Estates PLC (BTE) has announced the issue of 5 to 7 year, senior, listed, BBB+ rated, unsecured, redeemable, Rs.100 debentures, issued at Rs.85 each, totaling to Rs.850 million. The issue opening is scheduled for July 18, 2019.
Over the last 5 years, the total Agriculture sector has contributed, on average a 7.32% to the Sri Lankan GDP, where the tea sector unfailingly emerged as a foremost contributor each year. Given such significance to our economy, the sector participants have very little exposure to other funding mechanisms, other than perhaps the traditional forms, such as shareholder funding and bank loan financing.
However, it was apparent that the non-linear cash generation of plantation specific companies, require tailor-made, innovative, hybrid solutions, unlike the finance sector companies, who enjoy constant, linear cash flow patterns, which make them easy targets to offer varying funding fusions.
For instance, the domestic listed debenture market, comprising of Rs.373 billion of outstanding debentures, is heavy on finance sector debt, where 94.1% comprises of banks and finance company debentures, while a only a mere 5.9% comprises of non-finance sector debt.
Therefore having conducted over a year of extensive research on the plantation sector, the Managers to the Issue, Areva Investments (Pvt) Ltd., identified an accessible solution for these plantation companies, yet to be explored in Sri Lanka. Consequently, a long-term debenture issue with a more plantation specific structure, which aims to mirror the cash flow patterns of a plantation sector company was considered, initially to be offered to BTE, a renown, well established, matured player in the industry.
In-line with the cash flow requirements of BTE, the debenture issue offers part convertible options to ordinary voting shares, at interim points before redemptions, where these options, also involving cash considerations, lies totally in the hands of the investor.
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