SHL seems to take loan on all fronts.....bright horizon ahead?

SHL seems to take loan on all fronts.....(AAIC, CRL, ASIR), bright future ahead? can we expect heavy growth to take place in future?

Dec 21, Colombo: Sri Lanka's Softlogic Holdings, a diversified conglomerate has entered into a loan agreement with the International Finance Corporation, an arm of the World Bank, to raise US$ 15 million to expand operations of its fully owned subsidiary Uni Walkers (Pvt) Limited.

Out of the 10-year loan drawn entirely in US dollars, US$ 10 million will be granted as a quasi-equity and US$ 5 million as a loan, a company statement to Colombo Stock Exchange said.

The project by Softlogic involves an investment of up to US$ 67.7 million over the next three years, a part of which will be used to expand its network of retail stores from about 124 to up to 280 as well as increase its geographical reach to smaller cities.

The investment will be used to provide working capital for the expansion of Uni Walkers retail operations and for a consumer finance product resulting in greater penetration of the retails operations of the subsidiary in new markets.

Softlogic headquartered in Colombo, has operations across the country. The IFC investment for the retail expansion will be deployed at several locations in Sri Lanka.

The company says the necessary approvals from the Central Bank of Sri Lanka have been obtained for the investment.
http://forum.srilankaequity.com/t25106-turnover-nudges-billion-blue-chips-do-nicely

SHL is expanding like crazy. That's why they need the loans. In a recessionary situation, (like what Sri Lanka is in now) this could backfire on the company. Remember Vanik?

SHL is getting its act together now.. They are shifting from debt to equity. They are have entered into agreement to divest AAIC at a profit.

Please read below

Two foreign banks to acquire AAI stake
FRIDAY, 21 DECEMBER 2012 08:16
Germany’s DEG and Dutch state-owned development bank FMO will be purchasing 38 percent stake in Asian Alliance Insurance PLC (AAI), of which over 95 percent is controlled by Sri Lanka’s diversified Softlogic group.

The Rs.1.8 billion transaction at a price of Rs.128 per share will take place via the Colombo Stock Exchange and is expected to be completed by early January 2013 with both parties holding an equal 19 percent stake.

“This partnership will be of tremendous benefit to all stakeholders, particularly since it will enable the company to access international expertise and strategy. We have carefully evaluated a number of potential investors for AAI and we are extremely pleased to have DEG and FMO on board with us,” Softlogic Group and AAI Chairman, Ashok Pathirage said.

Subsequent to the completion of the transaction, both FMO and DEG will also nominate a director to the AAI director board. However, both the transaction and appointment of directors will only take place subsequent to regulatory approval from the Insurance Board of Sri Lanka.

Commenting on the rationale behind DEG’s investment into AAI, Investment Manager, Equity, DEG, Thomas Kronsbein said, “For DEG, we have had a long partnership with Sri Lanka already and we are optimistic about the growth potential of the insurance industry given the low penetration of insurance, coupled with increasing per capita income.” The partnership is also part of FMO’s initiatives to improve access to finance in Sri Lanka.

“The insurance sector is still a fairly new area for FMO and at present we are only operating through 3-4 other insurance companies worldwide. However FMO recently took the decision to enter into the insurance sector with a view to improving access to finance.”

“We already operate in finance, leasing and micro finance sectors. However, insurance too is a type of financial product which the general public requires and we believe this partnership will create strong opportunities in this regard,” Senior Investment Officer, Private Equity, Arno de Vette said.

FMO made headlines early this month with the approval of a US$ 10 million loan to Softlogic Finance PLC.

The loan is to be disbursed in two tranches of US$ 6 million whilst the US$ 4 million unsecured convertible subordinated loan will be disbursed once approval of the Colombo Stock Exchange is obtained.

AAI is a composite insurer engaged in both life and general insurance and is a company under the Softlogic Group.

Headquartered in Cologne, Germany, DEG is a subsidiary of KFW, one of the largest European development finance institutions for long-term project and company financing whilst FMO, based out of The Hague in Netherlands, is a development bank focused on financing companies, projects and financial institutions from developing and emerging markets.

No question SHL is very dynamic. But their exposure to loans are far too much and risky. More loans hmm?

On the other hand moves to reduce debt is a good move.

Interestingly didn't SHL pay Rs 120 for AAIC. Now selling at Rs 128 after 1 year is not much of a deal for them.

Will there be a mandatory offer for AAIC. 38% but two parties. Answer should be NO..

SHL is becoming very dangerous. The IPO price was Rs.28/= but the price is no way justifiable when you look at their earnings. They basically cheated the investors by forecasting very attractive future earnings.

These loans are in US$ and I personally feel this cause a huge risk. When they repay the loan, a rupee would have depreciated to Rs170/= to a US$.

It's up to you to decide whether you want to invest in SHL which has huge debt and low earnings. Day-by-day their debts are increasing. There are plenty of attractive companies with less debt and attractive earnings in CSE.