Shareholders of GL defy IFA’s advice

Group Lease Plc (GL) shareholders have approved the proposal to acquire shares in two finance firms in Sri Lanka and Myanmar despite a warning by an independent financial adviser (IFA) about unreasonable prices.

With the green light, GL will acquire 22.7% of shares in Commercial Credit and Finance Plc (CCF), a leading microfinance firm listed on the Sri Lanka stock market, as part of the company’s plan to acquire a total 29.99% equity stake in CCF.

The acquisition of the remaining 7.2% of shares will come from its two existing shareholders — which does not involve connected transactions and is not subject to shareholder approval.

The meeting on Dec 6 asked for shareholder approval of its plan to buy new assets in foreign countries between three related entities worth nearly 2 billion baht.

GL informed its shareholders it wants to acquire 30% of CCF from Creation Investments Sri Lanka LLC (Creation SL) worth 1.86 billion baht or 26.35 baht a share.

The IFA views 16.64-17.46 baht a share as an appropriate price.

Shareholders also approved acquiring a 100% stake in BG Microfinance Myanmar Co (BGMM). Some 28% of BGMM shares are currently held by CCF. GL plans to buy 78 million baht worth of shares for 199.79 baht a share.

The IFA views an appropriate price as 124.66-129.34 baht per share.

Furthermore, GL wants to raise funds by offering US-dollar convertible debentures to Creation SL worth 693 million baht, offering a 5% return.

The IFA warned that current GL bonds only return between 2.10-3.37%.

GL executives said the share transactions provide an opportunity to expand the business to Sri Lanka, while the convertible bonds facilitate expansion in dollar terms.

The IFA suggested shareholders do not approve any of the measures.

Chairman of the GL board and chief executive Mitsuji Konoshita said the acquisitions will boost earnings growth for GL, including profit-sharing of around US$7 million from CCF that will be booked immediately in this quarter, with more to come next year and beyond.

CCF has about 1 million customers, which should help GL widen its geographical scope of operations beyond Asean.

The acquisition of BGMM is meant to tap high loan demand in the newly opened economy while the issuance of debentures is to finance the expansion.

Mr Konoshita said the acquisition of CCF will be made through Group Lease Holdings Pte Ltd (GLH), a subsidiary listed on the Singapore Exchange. GLH has purchased the remaining 7.2% from two shareholders, BG Investments (PVT) Ltd and Stephen L Lafrance Jr, he said.

The combined value of the investments in CCF will be 2.51 billion baht.

CCF is expected to record profit of $22 million this year and $30 million next year.

The deal gives GL microfinance know-how, which it can apply to credit expansion in Cambodia, Laos, Indonesia and Thailand.

Mr Konoshita said the deal for 277.24 million shares of BGMM means there is no need for GL to go through the difficult process of applying for a new microcredit business licence from the Central Bank of Myanmar.

Operating for over two years, BGMM has nearly 10,000 customers and a loan portfolio worth more than $1.2 million.

GL’s shareholders also approved the issuance of convertible debentures valued at up to $70 million to international investors on a private placement basis. Up to $50 million in debentures will be allotted to J Trust Asia (JTA), a strategic partner in Indonesia, to finance expansion and secure working capital for GL’s digital finance business.

Up to another $20 million in debentures will be offered to Creation SL, a strategic partner in Sri Lanka, to raise funds for continued expansion.

The debentures will have a three-year maturity period and a conversion price of 70 baht per share.

GL shares closed yesterday on the Stock Exchange of Thailand at 63.50 baht, down 50 satang, in trade worth 769 million baht.