Kahawatte Plantations to capitalise Rs.800mn related party debt via private placement

• To issue 19.5mn shares at Rs.41 each to controlling shareholders
• Says losses and possible wage hike from 2021 led to the exercise 
• Move expected to strengthen company’s balance sheet

Kahawatte Plantations PLC board of directors has resolved to capitalise Rs.800 million of related party debt via a private placement, at Rs.41 per share, to controlling shareholders. 

Kahawatte Plantations, in a filing to the Colombo Stock Exchange (CSE), said it has obtained a Rs.350 million loan from MJF Teas Ltd, at an interest rate of average weighted deposit rate plus one percent (AWDR+ 1 percent) per annum. 

The company has also obtained a Rs.275 million loan from MJF Exports Ltd, at an interest rate of AWDR+ 1 percent per annum. 

In addition, Kahawatte has a payable amount of Rs.66.5 million due to Forbes Plantations Ltd, as at November 30, 2020, as unpaid management fees and accumulated interest, at the rate of AWDR+ 1 percent per annum.

The amounts receivable by MJF Exports and Forbes Plantations have now been assigned by MJF Exports and Forbes Plantations to MJF Teas Ltd. The total outstanding loan amount is Rs.800.19 million.

Kahawatte said the company has been incurring losses in the last few years continuously, due to a number of operational and non-operational challenges.

The board of directors of the company is of the view that a continuation of this trend of incurring losses, especially with the possible increases in the wages of plantation workers, as a result of the new Collective Agreement due in 2021 or as mandated by the government, could result in a serious loss of capital situation for the company, in the near future.

Given the challenges faced by the company and with a view to strengthening the balance sheet by reducing the debt burden of the company and the interest burden on cash flow, the board of directors of the company has decided to capitalise the entirety of the outstanding loan amount by issuing 19.5 million ordinary voting shares of the company, by way of a private placement to MJF Teas Ltd, at a consideration of Rs.41 per share.

The board of directors has also resolved that the price at which each private placement share would be issued is fair and reasonable to the company and all existing shareholders of the company.

The stated capital of the company at present is Rs.898.7 million, represented by 79.889 million shares. The private placement amounts to 24.4 percent of the current stated capital and 19.6 percent post placement. 

The public holding percentage of the company at the date of this announcement is 20.48 percent, held by 18,865 shareholders.