The offered shares would be distributed among three broad investor categories, with employees getting five percent, retail investors 30 percent and non-retail investors 65 percent, according to the prospectus.
Investors who apply for up to a maximum of 5,000 shares will be deemed as retail investors for share allotment purposes.
"The investor categories have been selected to ensure the broadest possible spread of shareholders while treating all applicants in a fair manner," the prospectus said.
Recent IPOs on the Colombo bourse have been heavily oversubscribed with the use of bank guarantees instead of cash by big investors, drawing criticism that small investors were being edged out.
HVA Foods, which exports mainly value-added teas, plans to list a 30 percent stake by offering 19.9 million shares at 16 rupees each.
The subscription list for the offered shares opens on January 12, 2011.
HVA Foods chairman Rohan Fernando said 45 million rupees of IPO funds will be used to pay for the acquisition of HVA Holdings to transfer international brand rights of 'Heladiv' to HVA Foods.
HVA Foods bought HVA Holdings for 45 million rupees on September 29, 2010. HVA Holdings was a fully-owned subsidiary of Lake Drive Holdings, a company owned by Rohan Fernando, Varuni Amunugama Fernando and H J Fernando.
The international brand rights are registered under HVA Holdings while the local brand registration of 'Heladiv' is registered under HVA Foods.
"The acquisition will now give us total jurisdiction over the brand in Sri Lanka and worldwide covering the manufacture and export of 'Heladiv' branded products," Rohan Fernando said.
About 95 million rupees of IPO money will be used to reduce company debt and another 102 million to upgrade its ice tea plant from a pilot plant to a commercial plant.
"Our current tea bagging capacity is well below the required demand," Fernando said. About 76 million will be used for expansion of the current operations."
In 2010 finance costs fell by almost half, helping boost net profit and margins are seen improving with IPO funds used to repay debt, the prospectus said.
After the IPO the firm will have 66.4 million ordinary shares in issue. HVA Foods had a net profit of 27 million rupees in the six months ending September 2010 compared with 17 million rupees the year before.
At an annualized 54 million rupees in profits for the current year a minimum, analysts say the fully diluted earnings per share will be about 80 cents, pricing the stock at about 20 times on a very conservative basis at its issue price of 16 rupees.
Net profit in the financial year ended March 31, 2010 was 54 million rupees compared with 15 million the previous year.
HVA Foods has recovered from losses in 2007 and 2008, years in which company liabilities exceeded total assets and its audit reports qualified by auditors KPMG Ford, Rhodes, Thornton & Co.
An unqualified audit opinion has been issued for the financial year ended March 31, 2010.
"HVA Holding was audited by another auditor who has expressed a qualified opinion due to the substantial doubt in the company’s ability to continue as a going concern," KPMG said, according to the prospectus.
KPMG Ford, Rhodes, Thornton & Co. said it had not been provided the audited financial statements of HVA Holding prepared in accordance with Sri Lanka Auditing Standards for the years ended March 31, 2006 to March 31, 2009.
Since its inception, HVA Group has won six Gold Awards as the Exporter of the Year in both traditional and non-traditional exports from Sri Lanka.
The company has 80 products under 'Heladiv' brand which is registered in 42 countries, including a range of flavours like black tea, green tea, herbal tea, specialty teas, tea concentrate with pure tea extract and fruit based teas.
source - www.lbo.lk
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