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By Ravi Ladduwahetty

Lanka Bell Ltd, Sri Lanka's second Wireless Local Loop operator will partner a strategic investor within the next six months in view of a major expansion program.

A debt restructuring program has been put in place which has brought the telecom operator's debts to zero in order to make the company's Balance Sheet more attractive in this regard. It is also the fir st Sri Lankan based telecommunication company which is totally debt free.

The idea is to partner a strategic investor who will have access to an international gateway who will have unlimited global access in the manner Sri Lanka Telecom partnered with NTT. It may be a regional or a global partner. It will be more positive than moving in virgin territory, Lanka Bell's Managing Director/CEO Joey Mendoza told the Daily News in an interview yesterday.

Mendoza stressed that the investors will find that the company will be attractive when the financial statements will be clean and the innovation will be to convert debt into equity, which will be a springboard to for the expansion.

"It will provide confidence to investors when the creditors own a part of the company," he said. He said that the company will have a series of options to raise capital for the expansion program. One is to get a strategic investor to infuse capital into the company which will dilute the stakes of the existing shareholders. The other is to raise capital through an Initial Public Offering (IPO), commercial papers or a debenture issue, after partnering the strategic investor, he said.

The principal shareholders of Lanka Bell at present are Trans Marco of Singapore- 48 percent, MIEL-18 percent, Japan's AIDEC-20 percent and North America's Nortel Networks-7 per cent.

He explained that the debt elimination program of the company which commenced in 2002, now ensured that the pro-forma financial results of the company now reported in the excess of Rs. 7 billion pre-tex profits, 50 percent growth in revenues and a 68 percent increase in Earnings Per Share, and a 180 percent increase in the business subscriber lines.

The debt elimination program covered payments to Nortel Networks and GTE Telecom the two largest creditors of Lanka Bell amounting to US$ 3.05 million. Nortel was the biggest supplier of network equipment while GTE's role included a management contract to run the initial operations of the company.

Nortel has agreed to write of the 90 percent of its debt and convert it to equity while GTE has write off 100 percent of its debt. MIEL and AIDEC have been offered shares of the company for the 30 percent outstanding in return for the remaining 70 percent outstanding debt.

Mendoza said that the creditors have agreed to waive off debts to the tune of US$ 25.6 million Nortel and GTE's Telesystems Corporation will be each paid cash to the value of US$ 1.5 million About 90 percent of the remainder will be written off and converted into Lanka Bell shares at a conversion price of US$ 1.108 per share which applies each of the new 1,137,420 shares. However, GTE has opted to take US$ 50,000 in lieu of these shares.

The other creditors-MIEL Investment Corp (which is the holding company of Transmarco owning upto 67.7 of it), Transasia Telecom Ltd (also shareholder of Lanka Bell) are to write off 70 percent of the debt outstanding in it and have them converted them into ordinary shares of Lanka Bell at a conversion price of US$ 1.108 per share.

The restructuring will ensure that Transasia's shareholding in Lanka Bell will be reduced from the current 60 percent to 47.87 percent. As the investment in Lanka Bell has been written off and its financial accounts from the Group of Transmarco, there will be no financial impact arising on the restructuring.

In view of the impairment conditions, Transmarco is currently raising options of divesting its interests in Lanka Bell, though it will be difficult to find potential buyers, Mendoza said.

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