Eastern Merchants Plc (ticker code EMER), arguably the largest exporter of natural rubber from Sri Lanka, hopes to gain shareholder approval for its proposed share sub-division at the Extraordinary General Meeting of the company to be held this Friday, 16 September 2011.
If approved, each of the company’s ordinary voting shares would be sub-divided into 70 shares, resulting in the number of shares in issue increasing from the current mark of 1,677,800 to 117,446,000 next Monday.
This 70:1 sub-division or ‘split’ recommended by the Board of Eastern Merchants is one of the largest ever announced on the Colombo Stock Exchange and matches the quantum of the sub-division executed by CT Holdings PLC in May 2008. Since the announcement was made public on 4 August this year, the share of the company skyrocketed from Rs. 860 to Rs. 3,850 within a matter of two days.
The management of Eastern Merchants has stated that the main purpose of the sub-division would be to give its share some much-needed liquidity in the market. They believe that there is an illiquidity discount hampering the share price currently and that the share split would no doubt help the situation.
Due diligence commissioned by the company has revealed that similar actions carried out by other quoted entities in the past have yielded significant upside potential and that the lower absolute value of the share price post-split would make it more affordable for investors who are not prepared to pay the current market rate.
Eastern Merchants Chairman J.B.L. de Silva recently painted a picture of growth and expansion for the company in his message published in the company’s latest Annual Report. The sub-division will aid the company in raising funds in the market if it wishes to do so, but the management refused to comment regarding this possibility at present.
In the Annual Report, the Chairman had hinted that Eastern Merchants was examining two of its subsidiaries and an associate company “to uncover any underutilised potential and future growth prospects” and was also exploring avenues to strengthen the working capital requirements of the company.