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Sri Lanka Equity Forum » Stock Market Talk » Background on recently concluded DIST restructure

Background on recently concluded DIST restructure

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Melstacorp Ltd

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Stock Analytic
Stock Analytic
Hi all

Back after a long time. Thanks to the overwhelming support of the shareholders the restructure of DCSL PLC was completed. The last step was listing of DCSL PLC which now is a pure liqour company. There was a long delay of listing DCSL from the swap that took place in Last quarter of 2016. At the time of getting the balance sheets of MELS and DIST ready for the swap a due of Rs. 20 billion was created in DIST books. This was done as at the time of the application for the swap a company needed a 20% public float. Also it was the intention of the boards to do a SPO (Secondary Public Offer) at DIST level. The plans changed as there was a huge dip of the profitability of DIST. This was as the Govt re-introduced VAT for liqour along with massive increase in import duty on ethanol and also a customary excise duty increase, all done in one go. The Company was not in a position to pass the entire increase of costs to the customers in one go. Hence the profitability of DIST dropped. 

Thereafter the company changed plans and wanted to do a sell down at MELS level. To do this the gap of Rs. 20 billion created in DIST had to be covered. This required a private placement. It took sometime to obtain SEC approval for the private placement. Based on financials (due to the dip in profitability as explained before, this was done at 12.50 a share) After the private placement through a capital reduction (which also has a 60 day public notice period) the gap of Rs. 20 billion was closed. This was completed in February 2018.

After November 2017 the profitability of the DIST was restored by adjusting the prices. Then MELS sought approval of the SEC to sell down in the market rather than selling on a prospectus. This as the Company was not in a position to sell above the private placement price of Rs. 12.50, although at the new level of profitability it was worth more. The Company thought it is unfair by the MELS shareholders to sell an investment much below it's value. Hence the request for approval to sell down in the market. This required the lifting of the suspension placed on the trading of DIST. The Company was on the view as the suspension placed was on the request of the Company, it should be lifted enabling the company to sell down DIST. SEC was not willing to approve the lifting of the suspension without the public float been restored. 

Therefore MELS decided to give 7.5% of DIST by way of a dividend, as although MELS loses the opportunity to raise funds by selling, it is the most reasonable method for the shareholders of MELS. Although at current level of market capitalization DIST only needs a public float of 7.5%  as it was given as a dividend the shares held by Mliford Exports and LMF are not considered as shares held by public. Hence MELS will have to divest further 4% to comply with the minimum public holding requirement. 

This is mostly for academic interest. If you have any specific questions, I would be happy to answer.

Thank you

Melstacorp PLC

http://www.melsta.com

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