MACKWOODS ENERGY. NDB Investment Bank

Transcription

1 MACKWOODS ENERGY NDB Investment Bank

2 INVITATION TO THE INVESTOR This invitation represents an opportunity to participate in the future growth prospects of Mackwoods Energy Limited (MEL). MEL is a subsidiary of Mackwoods (Private) Limited (ML), the second oldest mercantile firm in Sri Lanka with over 170 years of experience in diverse business sectors. Mackwoods Group, having commenced its operations in the energy solutions business in 1996, and catering to the demands of a variety of sectors of the economy, thereafter, in 2008, brought its activities under a common identity through MEL, which previously functioned as Mackwoods Engineering (Private) Limited. This was aimed at harnessing, at an optimum level, the growing opportunities in the area of power and energy, and for greater specialisation in the sector. The advent of peace in 2009 accompanied by the strong growth in the economy and the emerging potential presented by the far reaching national infrastructure development programme, particularly in the North and East regions of the country, led to MEL repositioning itself as a total energy solutions provider of an extensive array of products and services including the development of hydropower and renewable energy projects, to enable the Company to be a significant player in the sector, leading to focused growth and expansion of the business. Through this Prospectus, MEL hereby wishes to make an invitation in respect of Twenty Five Million (25,000,000) Ordinary Voting Shares at Rs. 14/- per Share. In this document, a prospective investor will find detailed information about MEL and its business in addition to other statutory information relating to the Issue. The Board of Directors of the Company urges the investing public that this Prospectus be read carefully prior to making an investment decision.

3 This Prospectus is dated March 01, 2012 The delivery of this Prospectus shall not under any circumstance constitute a representation or create any implication or suggestion that there has been no material change in the affairs of the Company since the date of this Prospectus. If you are in doubt regarding the contents of this document, you should consult your stockbroker, bank manager, lawyer or any other professional advisor. FOR ENQUIRIES, PLEASE CONTACT THE MANAGERS TO THE ISSUE Registration of the Prospectus A copy of this Prospectus has been delivered for registration to the Registrar General of Companies in Sri Lanka in accordance with the Companies Act No. 07 of 2007 (the Companies Act ). The following documents were attached to the copy of the Prospectus delivered to the Registrar General of Companies in Sri Lanka: 1) The written consent by the Financial Advisors and Managers to the Issue, Auditors and Reporting Accountants to the Company and to the Issue, Company Secretaries, Lawyers to the Issue, Bankers to the Company, Bankers to the Issue and Registrars to the Issue for the inclusion of their respective names in this Prospectus. 2) The written consent by the Auditors to the Issue and to the Company that they have given their written consent to include their statement in the Prospectus in the form and context in which it is included. 3) The written consent by the Engineers and Valuers who have carried out professional services to the Company, for the inclusion of their respective names in this Prospectus. 4) A declaration by each of the Directors of the Company in terms of the Companies Act, confirming that each of them have read the provisions of the Companies Act and the CSE Listing Rules relating to the issue of a Prospectus and that those provisions have been complied with. The said Financial Advisors and Managers to the Issue, Auditors and Reporting Accountants to the Company and to the Issue, Company Secretaries, Lawyers to the Issue, Bankers to the Issue, Bankers to the Company, Registrars to the Issue, Engineers and Valuers who have carried out professional services to the Company, have not withdrawn such consent, before the delivery of a copy of the Prospectus for registration with the Registrar General of Companies in Sri Lanka. Registration of the Prospectus in Jurisdictions Outside of Sri Lanka This Prospectus has not been registered with any authority outside of Sri Lanka. Non-resident investors may be affected by the laws of the jurisdiction of their residence. Such investors are responsible to comply with the laws relevant to the country of residence and the laws of Sri Lanka, when making the investment. Responsibility for the Content of the Prospectus This Prospectus has been prepared from information provided by Mackwoods Energy Limited (hereinafter referred to as MEL or the Company ) and from publicly available sources. The Directors of the Company have seen and approved this Prospectus and collectively and individually, accept full responsibility for the accuracy of the information given and confirm that after making all reasonable enquires and to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading or inaccurate. Where representations regarding the future performance of MEL have been given in this Prospectus, such representations have been made after due and careful enquiry of the information available to MEL and making assumptions that are considered to be reasonable at the present point in time in their best judgement. MEL accepts responsibility for the information contained in this Prospectus. While the Company has taken reasonable care to ensure full and fair disclosure of information, prospective investors are advised to carefully read this Prospectus and rely on their own examination and assessment of the Company including the risks involved prior to making any investment decision. i Mackwoods Energy Limited Initial Public Offering

4 Representation No person is authorised to give any information or make any representation not contained in this Prospectus and if given or made, any such information or representation must not be relied upon as having been authorised by the Company. Forward Looking Statements Any statements included in this Prospectus that are not statements of historical fact constitute Forward Looking Statements. These can be identified by the use of forward looking terms such as expect, anticipate, intend, may, plan to, believe, could and similar terms or variations of such terms. However, these words are not the exclusive means of identifying Forward Looking Statements. As such, all or any statements pertaining to expected financial position, business strategy, plans and prospects of the Company are classified as Forward Looking Statements. Such Forward Looking Statements involve known and unknown risks, uncertainties and other factors including but not limited to regulatory changes in the sectors in which the Company operates and its ability to respond to them, the Company s ability to successfully adapt to technological changes, exposure to market risks, general economic and fiscal policies of Sri Lanka, inflationary pressures, interest rate volatilities, the performance of financial markets both globally and locally, changes in domestic and foreign laws, regulation of taxes and changes in competition in the industry and further uncertainties that may or may not be in the control of the Company. Such factors may cause actual results, performance and achievements to materially differ from any future results, performance or achievements expressed or implied by Forward Looking Statements herein. Forward Looking Statements are also based on numerous assumptions regarding the Company s present and future business strategies and the environment in which the Company will operate in the future. Given the risks and uncertainties that may cause the Company s actual future results, performance or achievements to materially differ from that expected, expressed or implied by Forward Looking Statements in this Prospectus, investors are advised not to place sole reliance on such statements. Investment Consideration It is important that this Prospectus is read carefully prior to making an investment decision. For information concerning certain risk factors, which should be considered by prospective investors, see Investment Consideration and Associated Risks in Section 12.0 of this Prospectus. Presentation of Currency Information and Other Numerical Data The financial statements of the Company and currency values of economic data or industry data in a local context will be expressed in Sri Lanka Rupees. References in the Prospectus to LKR, Rupees or Rs. are to the lawful currency of Sri Lanka. Certain numerical figures in the Prospectus have been subject to rounding adjustments, accordingly numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. Presentation of Macroeconomic and Industry Data Economic and Industry data used throughout this Prospectus are derived from the Central Bank of Sri Lanka (CBSL), the Public Utilities Commission of Sri Lanka (PUCSL), the Ceylon Electricity Board (CEB), Sustainable Energy Authority (SEA) and various other industry data sources, which the Company believes to be reliable, but the accuracy and completeness of that information is not guaranteed. Similarly, industry surveys and other publications, while believed to be reliable, have not been independently verified and neither the Company nor the Managers to the Issue make any representation as to the accuracy of that information. The Colombo Stock Exchange (CSE) has taken reasonable care to ensure full and fair disclosure of information in this Prospectus. However, the CSE assumes no responsibility for accuracy of the statements made, opinions expressed or reports included in this Prospectus. The pricing of the Shares to be issued herein has been decided by the Company. Mackwoods Energy Limited Initial Public Offering ii

5 Issue at a Glance Number of Ordinary Voting Shares to be Issued 25,000,000 Share Issue Price Rs. 14/- Amount to be Raised Rs. 350,000,000/- Minimum Subscription Minimum Subscription will be allotted to all successful applicants of the issue 500 Shares (Rs. 7,000/-) Application in excess of minimum subscription should be in multiples of 100 Shares Issue Opening Date March 22, 2012 Issue Closing Date April 11, 2012 or the day on which the Issue becomes oversubscribed, whichever is earlier Earliest Issue Closing Date March 22, 2012 CSE Listing To be Listed on the Main Board of the CSE subject to compliance with the CSE Listing Rules iii Mackwoods Energy Limited Initial Public Offering

6 Contents 1.0 Corporate Information RELEVANT PARTIES TO THE ISSUE Abbreviations Used in the Prospectus GLOSSARY OF TERMS RELATED TO THE ISSUE DETAILS OF THE ISSUE The Issue Nature of the New Shares Size of the Issue Share Issue Price Objectives of the Issue Listing Cost of the Issue Brokerage Minimum Subscription and Underwriting Opening of Subscription List and Closure Date Inspection of Documents Eligible Applicants The Procedure for Application Payment of Application Monies Rejection of Applications Banking of Payments Returning of Monies of Rejected Applications Allotment of Shares in Issue/Basis of Allotment Refunds on Applications Successful Applicants and CDS Lodgement Declaration to the CSE and Secondary Market Trading OVERVIEW OF THE POWER SECTOR IN SRI LANKA Overview of the Economy Overview of the Power Sector in Sri Lanka Thermal Energy Solutions Overview of the Small Hydropower Sector in Sri Lanka BUSINESS OPERATIONS OF MACKWOODS ENERGY LIMITED The Mackwoods Group Mackwoods Energy Limited Thermal Power Solutions by MEL Hydropower Generation by MEL Future Direction of MEL Major Assumptions Relating to Future Plans of MEL CORPORATE STRUCTURE The Board of Directors of MEL Profiles of the Board of Directors Other Directorships Held by the Board of Directors Directors Interest in Shares Directors Emoluments Directors Interest in Assets Directors Interest in Contracts Statement Board of Directors Corporate Governance Practices Key Management of MEL Key Management s Emoluments Statement CEO OTHER COMPANY INFORMATION Relationship with Key Customers and Suppliers of MEL Dividend Policy Details of Material Indebtedness Working Capital Litigation, Disputes and Contingent Liabilities Material Contracts Details of Commissions Paid Details of Benefits Paid to Promoters Management Agreement Mackwoods Energy Limited Initial Public Offering iv

7 Contents 10.0 CAPITAL STRUCTURE An Overview of the Stated Capital Capital Restructuring Transfer of Shares of MEL Shareholders of MEL Details of Other Changes to Stated Capital Details of Convertible Debt Securities Details of Shares Sold Privately in Conjunction with the Issue Free Transferability of Shares Take-over Offers MANAGEMENT DISCUSSION AND ANALYSIS Summary Financial Statements of MEL for the Three Years Ended March 31, Performance of Operations for the Three Years Ended March 31, Performance of Operations for the Six Months Ended September 30, Key Financial Ratios INVESTMENT CONSIDERATION AND ASSOCIATED RISKS Risks Relating to Political, Technological and Macroeconomic Factors Risks Relating to the Business Risks Relating to Future Plans of MEL Capital Market Related Risks TAXATION AND EXCHANGE CONTROL Corporate Taxation Economic Service Charge Value Added Tax Nation Building Tax Withholding Tax on Dividends Stamp Duty Share Transaction Levy Exchange Control THE COLOMBO STOCK EXCHANGE Governance Branches of the CSE Stock Market Indices Trading on the CSE Trading Sessions Size of Trades Settlement Procedure Transaction Costs Performance of the CSE STATUTORY DECLARATIONS Signing of Prospectus and Statutory Declaration by the Directors Statutory Declaration by Financial Advisors and Managers to the Issue Statutory Declaration by the Company FINANCIAL STATEMENTS AND AUDITORS REPORT Accountants Report for Inclusion in the Prospectus Three Year Summary of Financial Statements Audit Report and Financial Statements as at March 31, Reviewed Financial Statements for Six Months Ended September 30, ANNEX A COLLECTION POINTS ANNEX B CUSTODIAN BANKS ANNEX C EXTRACTS FROM FEASIBILITY STUDIES v Mackwoods Energy Limited Initial Public Offering

8 Index on Tables and Figures Illustrated in the prospectus List of Tables Table 5-1 : Categories of Investors... 6 Table 5-2 : Small Hydropower Projects of MEL... 6 Table 5-3 : Identification Information Table 6-1 : Small Hydropower Projects in Sri Lanka as at November 30, Table 7-1 : Status of Small Hydropower Projects of MEL Table 8-1 : Board of Directors of MEL Table 8-2 : Directors Direct Shareholding in MEL Table 9-1 : Leasing, Lease Purchase and Hire Purchase Commitments of MEL as at November 30, Table 9 2 : Inter-company Balances of MEL with ML as at November 30, Table 10-1 : Stated Capital of MEL Table 10-2 : Shareholders of MEL Table 11-1 : Summarised Income Statements Table 11-2 : Summarised Balance Sheets Table 11-3 : Interim Income Statements Table 11-4 : Interim Balance Sheets Table 11-5 : Direct Indent Transactions Undertaken by MEL Table 11-6 : Key Financial Ratios of MEL Table 14-1 : Transaction Costs Table 14-2 : Stock Market Statistics List of Figures Figure 6-1 : Power Sector Configuration Figure 6-2 : Power Generation by Source in Figure 6-3 : Growth in Electricity Consumption Vs Growth in GDP from 2001 to Figure 6-4 : Electricity Consumption per Capita in Figure 6-5 : Growth in Installed Capacity Figure 6-6 : Growth in Power Generation by SHPs Figure 6-7 : Power Generation by NCRE Sources as at November 30, Figure 7-1 : Structure of Mackwoods Group Figure 7-2 : Growth in Bank Branches in Sri Lanka Figure 11-1 : Total Revenue Figure 11-2 : Revenue Mix Figure 11-3 : Gross Profit Figure 11-4 : Net Profit Figure 11-5 : Revenue Mix for the Six Months Ended September 30, 2010 and Figure 11-6 : Sector-wise Breakdown of Revenue for the Six Months Ended September 30, Figure 11-7 : Gross Profit for the Six Months Ended September 30, 2010 and Figure 11-8 : Net Profit for the Six Months Ended September 30, 2010 and Mackwoods Energy Limited Initial Public Offering vi

9 1.0 Corporate Information The Company Legal Form of the Company Company Registration No. Place of Incorporation Registered Office Company Secretaries Auditors to the Company Bankers to the Company Mackwoods Energy Limited A limited liability company incorporated in Sri Lanka on March 19, 1979, and re-registered under the Companies Act No. 7 of 2007 on February 11, 2010 and converted to a public limited liability company on November 21, 2011 PV PB Colombo, Sri Lanka Mackwoods Energy Limited 10, Gnanartha Pradeepa Mawatha Colombo 08 Tel: Fax: Mackwoods (Private) Limited 10, Gnanartha Pradeepa Mawatha Colombo 08 Tel: / Fax: Wijeyeratne & Company Chartered Accountants 157A/1, Kynsey Road Colombo 08 Tel: / Fax: Pan Asia Banking Corporation PLC 996A, Maradana Road Colombo 08 Tel: Fax: National Development Bank PLC 40, Navam Mawatha Colombo 02 Tel: Fax: BOARD OF DIRECTORS OF MACKWOODS ENERGY LIMITED Dr. Chrisantha Nicholas Anthony Nonis Mrs. Nirmali Suzanne Moira Samaratunga Mr. Francis Lalith Fonseka Mr. Arjuna Lasantha Yatawara Mrs. Shelendra Marianne Andrea Nonis Ranaweera Mr. Lakshman Leelaraja Samarasinghe Mr. Lakshman Jayaraj Kumar Hettiaratchi Dr. Hasaan Shafeeu Mr. Shamal Mirisse Liyanage Chairman/Non-Executive Director Non-Executive Director Executive Director Executive Director - Managing Director/ Chief Executive Officer (CEO) Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Executive Director (General Manager) 1 Mackwoods Energy Limited Initial Public Offering

10 2.0 RELEVANT PARTIES TO THE ISSUE Financial Advisors and Managers to the Issue NDB Investment Bank Limited 40, Navam Mawatha Colombo 02 Tel: Fax: Legal Advisors/Lawyers to the Issue M/s F J & G de Saram Attorneys-at-Law 216, De Saram Place Colombo 10 Tel: Fax: Auditors and Reporting Accountants to the Issue Wijeyeratne & Company Chartered Accountants 157A/1, Kynsey Road Colombo 08 Tel: / Fax: Registrars to the Issue S S P Corporate Services (Private) Limited 101, Inner Flower Road Colombo 03 Tel: Fax: Bankers to the Issue National Development Bank PLC 40, Navam Mawatha Colombo 02 Tel: Fax: Hongkong and Shanghai Banking Corporation Limited 24, Sir Baron Jayathillake Mawatha Colombo 01 Tel: Fax: Mackwoods Energy Limited Initial Public Offering 2

11 3.0 Abbreviations Used in the Prospectus Abbreviation AMF APL ASI ASTRI ATSW ATS AWPLR BOI CAGR CBSL CDS CEA CEB CEO CSE CSR EBITDA ECOM EPF ESC ETF FCBU FY GDP GoSL ha ICT ICTAD IPO IPP IRR ISO IT KOEL kva kw LCB LECO LKR LOI LPG m Description Auto Mains Failure Agalawatte Plantations PLC All Share Index All Share Total Return Index Auto Transfer Switch Automated Trading System Average Weighted Prime Lending Rate Board of Investment of Sri Lanka Compound Annual Growth Rate Central Bank of Sri Lanka Central Depository Systems (Private) Limited Central Environmental Authority Ceylon Electricity Board Chief Executive Officer Colombo Stock Exchange Corporate Social Responsibility Earnings Before Interest, Tax, Depreciation and Amortisation Escalable Operational and Maintenance Component Employee Provident Fund Economic Service Charge Employee Trust Fund Foreign Currency Banking Unit Financial Year Gross Domestic Product Government of Sri Lanka Hectare Information and Communication Technology Institute for Construction Training and Development Initial Public Offering Independent Power Producer Internal Rate of Return International Organization for Standardization Information Technology Kirloskar Oil Engines Limited kilo Volt Ampere Kilowatt Licensed Commercial Bank Lanka Electricity Company (Private) Limited Sri Lanka Rupee Letter of Intent Liquid Petroleum Gasoline Metre 3 Mackwoods Energy Limited Initial Public Offering

12 Abbreviations Used in the Prospectus Abbreviation MEL ML mm MPI MTRI MVA MW NBT NCRE NDBIB NEC NGO NIC NRFC PER POA PRGT PUCSL RANSI RGFCA RPM SEA SEC SHP SIA SLCPI SLIPS SME SPP SPPA UN UPS USD VAT WFE WHT YoY Description Mackwoods Energy Limited Mackwoods (Private) Limited Millimetre Milanka Price Index Milanka Total Return Index Mega Volt Ampere Mega Watt Nation Building Tax Non-Conventional Renewable Energy NDB Investment Bank Limited Non-Escalable Component Non-Governmental Organisation National Identity Card Non-Resident Foreign Currency Price Earnings Ratio Power of Attorney Poverty Reduction and Growth Trust Public Utilities Commission of Sri Lanka Rupee Account for Non-Resident Sri Lankan Investment Resident Guest Foreign Currency Account Revolutions Per Minute Sustainable Energy Authority Securities and Exchange Commission of Sri Lanka Small Hydropower Project Securities Investment Account Sri Lanka Consumer Price Index Sri Lanka Inter-bank Payment System Small and Medium Enterprise Small Power Producer Standardised Power Purchase Agreement United Nations Uninterrupted Power Systems US Dollar Value Added Tax World Federation of Exchanges Withholding Tax Year on Year Mackwoods Energy Limited Initial Public Offering 4

13 4.0 GLOSSARY OF TERMS RELATED TO THE ISSUE Applicant/s Any investor who submits an Application Form under this Prospectus Application Form/Application Board/Board of Directors/Directors The application forms that constitute part of this Prospectus through which the investors may apply for the Shares in Issue The Board of Directors of MEL Closure Date The date of closure of the subscription list as set out in Section 5.10 of this Prospectus Company/MEL Mackwoods Energy Limited Financial Advisors and Managers to the NDB Investment Bank Limited (NDBIB) Issue/Managers to the Issue Foreign Investor/s Citizens of Sri Lanka who are resident outside Sri Lanka and above 18 years of age; Corporate bodies incorporated or established outside Sri Lanka; Foreign citizens above 18 years of age (irrespective of whether they are resident in Sri Lanka or overseas); Regional and country funds approved by the Securities and Exchange Commission of Sri Lanka (SEC) Issue/IPO Local Time Mackwoods Group/Group Market Day New Shares/Shares in Issue Non-Retail Investor Category Ordinary Shares/Issued and Paid up Ordinary Shares/Ordinary Voting Shares/ Shares Prospectus Retail Individual Investor Category Share Issue Price Stated Capital Unit Trust Investor Category Unit Holder Please refer Section 5.12 of this Prospectus for further details An invitation to the public by the Company to subscribe to the Shares in Issue via an offer for subscription as detailed in Section 5.1 of this Prospectus Sri Lanka Time Mackwoods (Private) Limited, its subsidiaries and associates Any day on which CSE is open for trading Twenty Five Million (25,000,000) new Ordinary Voting Shares to be issued by the Company to the public at the Share Issue Price Investors who do not fall under Retail Individual Investor Category and Unit Trust Investor Category Ordinary voting shares of the Company This Prospectus dated March 01, 2012 issued by MEL Individual investors who subscribe for Shares up to a value of Rs. 100,000/- (i.e. up to and inclusive of 7,100 Shares) [Ref: SEC/LEG/11/03/36] Rs. 14/- per Share The stated capital of MEL Growth or balanced unit trusts operated by managing companies licensed by the SEC to operate such unit trusts, where such unit trust comprises of not less than 500 Unit Holders resident in Sri Lanka who together hold at least 50% of that unit trust [Ref: SEC/LEG/11/03/36 and CSE Listing Rule (b)(ii)] An individual who has made an investment in units not exceeding the value of Rs. 10,000,000/- in a particular unit trust fund that subscribes for Shares [Ref: SEC/LEG/11/06/01] 5 Mackwoods Energy Limited Initial Public Offering

14 5.0 DETAILS OF THE ISSUE 5.1 The Issue The Issue contemplated herein shall constitute an invitation made to the public to subscribe to Twenty Five Million (25,000,000) new Ordinary Voting Shares of the Company at the Share Issue Price. The New Shares would be issued to the extent possible based on the Applications for Shares, among the following broad investor categories. Table 5-1: Categories of Investors Category Percentage of Issue (%) Retail Individual Investor Category 40% Unit Trust Investor Category 10% Non-Retail Investor Category 50% 100% 5.2 Nature of the New Shares From the date of allotment, the New Shares shall rank equal and pari passu in all respects with the existing Ordinary Voting Shares of the Company and each New Share shall confer on the holder thereof the right to one vote on a poll at a meeting of the Company on any resolution, the right to an equal share in any dividend that may be paid by the Company and the right to an equal share in the distribution of the surplus assets of the Company in a liquidation. 5.3 Size of the Issue If fully subscribed, the Issue would raise Rupees Three Hundred and Fifty Million (Rs. 350,000,000/-). 5.4 Share Issue Price The Share Issue Price will be Rs. 14/- per Share. The Board of Directors is of the opinion that the Share Issue Price is fair and reasonable to the Company and to all existing shareholders of the Company. 5.5 Objectives of the Issue The Company intends to utilise the funds raised through this IPO, subsequent to meeting all expenses in relation to the same (refer Section 5.7), for the purposes mentioned below in order of priority. (i) To finance working capital requirements of the core business of providing power and energy solutions to its customers, amounting to approximately Rs. 80 million. The Company expects to utilise the funds immediately for this purpose. (ii) To part finance the construction/rehabilitation/upgrading of five SHPs planned by the Company within the precincts of plantation estates of Agalawatte Plantations PLC (APL), a subsidiary of ML. Given below is the list of Small Hydropower Projects (SHPs) identified by MEL. Table 5-2: Small Hydropower Projects of MEL SHP Location/District Existing Capacity (kw) Proposed Capacity (kw) Nature of Investment Estimated Cost (Rs. million) Wedamulla Nuwara Eliya Upgrade Labookellie Nuwara Eliya Upgrade Frotoft Nuwara Eliya Upgrade Culloden Kalutara Upgrade 21.4 Doloswela Ratnapura New Total ,140.3 Mackwoods Energy Limited Initial Public Offering 6

15 DETAILS OF THE ISSUE The pre-feasibility studies for the SHPs have been carried out by Eng. Prasad Mudugama based on the hydrology studies by Eng. G. T. Dharmasena. The aforesaid estimated costs have been arrived as per the pre-feasibility studies, based on prevailing market prices of raw materials, purchase prices of equipment and machinery required for hydropower generation and construction cost estimates. MEL intends to source the equipment and machinery from reputed suppliers subsequent to securing requisite approvals. A breakup of the estimated cost has been included in Annexure C of the Prospectus. A sum of Rs. 175 million would be funded through the monies raised through the IPO, whilst the remainder would be financed by debt facilities obtained from banks, financial institutions and ML, and internally generated funds. The Company expects to utilise the funds for the abovementioned purpose during the FY 2012/13. Further details on SHPs and their current status with regard to securing the requisite regulatory approvals are disclosed in Section The Mackwoods Group has experience in constructing, commissioning and operating SHPs and is confident of securing all approvals for the new projects in a timely manner. (iii) To finance future working capital requirements of the new product lines and services intended to be launched by MEL, amounting to approximately Rs. 72 million with the objective of diversifying into related products, markets and services. During the interim period, from the receipt of IPO funds to their actual utilisation, the funds would be invested in interest bearing instruments. The funds raised through this IPO will not be utilised for the acquisition of any other business. In addition to the above, the IPO would facilitate MEL to broad-base the ownership of the Company to that of a public listed company and strengthen its identity through increased visibility and brand image amongst the public. 5.6 Listing The Issue herein contemplated comprises Twenty Five Million (25,000,000) New Shares. If fully subscribed, the New Shares will amount to 25% of the Issued and Paid up Ordinary Shares of the Company subsequent to the Issue. An application has been made to the CSE for permission for a listing of One Hundred Million (100,000,000) Ordinary Voting Shares being the entirety of the Issued and Paid up Ordinary Shares represented in the Stated Capital of the Company subsequent to the IPO. It is expected that the Company will meet the minimum Stated Capital requirement [Rule 2.1.2(a)] and the minimum public holding requirement [Rule 2.1.2(d)] of the CSE on the completion of the Issue pursuant to which the listing of the entire Ordinary Voting Shares of the Company will take place on the Main Board of the CSE. The minimum Stated Capital requirement of the CSE stipulates that the Stated Capital of the entity for which a listing is sought on the Main Board of the CSE, should not be less than Rupees Five Hundred Million (Rs. 500,000,000/-) at the time of listing whilst the minimum public holding requirement stipulates that, 25% of the total number of shares for which a listing is sought should be in the hands of a minimum number of 1000 public shareholders holding not less than 100 shares each. MEL has already complied with Rule 2.1.2(b) and Rule 2.1.2(c) of the CSE Listing Rules. However, in the event of an undersubscription where MEL is unable to meet the requirements of Rule 2.1.2(a) and/or Rule 2.1.2(d), the Company would alternatively opt for a listing on the Diri Savi Board of the CSE, subject to meeting the minimum public holding requirement set out in Rule 2.1.3(c) which stipulates that 10% of the total number of shares for which a listing is sought should be in the hands of a minimum number of 100 public shareholders holding not less than 100 shares each. It should be noted that the aforesaid minimum public holding requirements would be calculated by considering all Shares that are freely tradable. 7 Mackwoods Energy Limited Initial Public Offering

16 DETAILS OF THE ISSUE 5.7 Cost of the Issue The total costs associated with the Issue are estimated to be approximately Rs. 23 million. These include all direct costs and expenses associated with the Issue, inclusive of but not limited to the initial listing fees to the CSE, management/advisory fees to the Financial Advisors and Managers to the Issue, fees for the registrar function, advisory fees, certain legal, consultancy and accountancy fees, advertising and promotional costs, printing costs, brokerage commissions and stamp duty. Such costs will be recovered from the proceeds of the Issue. 5.8 Brokerage Brokerage at the rate of zero decimal seven per centum (0.7%) of the value of the New Shares will be paid in respect of the number of New Shares allotted on Applications bearing the original seal of any bank operating in Sri Lanka or a member/trading member of the CSE or NDBIB or any other intermediary appointed by the Company involved in the marketing of the Issue. 5.9 Minimum Subscription and Underwriting There is no minimum amount required to be raised on this Issue. The Company has not entered into any underwriting arrangement with regard to this Issue. The Company shall seek a listing irrespective of whether the Issue is fully subscribed or not (subject to the Company satisfying the requirements of the CSE Listing Rules for such listing as morefully described in Section 5.6). In the event of an undersubscription, the subscribers will be allotted the Shares they have applied for and the funds raised thereby will be utilised to meet the objectives of the Issue, as stipulated in Section 5.5 of this Prospectus Opening of Subscription List and Closure Date The subscription list for the New Shares will open at 9.00 a.m. on March 22, 2012 and shall, subject to the occurrence of the events in the following paragraph, remain open for fourteen (14) Market Days (including the date of opening) until closure at 4.30 p.m. on April 11, In the event of an oversubscription of the Issue prior to April 11, 2012, the Company shall inform the CSE in writing immediately of such fact and the subscription list will be closed at 4.30 p.m. on the same day on which it is fully subscribed. Also, the Board reserves the discretion to close the subscription list on any Market Day within the period of fourteen (14) Market Days irrespective of whether the Issue is oversubscribed or not, by providing one (01) Market Day s prior notice to the CSE Inspection of Documents Articles of Association, Auditors Reports and Audited Financial Statements for the three (03) financial years ended March 31, 2011 (i.e. the three (03) financial years immediately preceding the date of this Prospectus) and Interim Financial Statements for the six (06) month period ended September 30, 2011 and all other documents, including material contracts and management agreements entered into by the Company would be made available for inspection by the public during normal working hours at the registered office of the Company, 10, Gnanartha Pradeepa Mawatha, Colombo 08, for a period not less than fourteen (14) Market Days as per Rule (a) of the CSE Listing Rules. The Prospectus, Application Form and Articles of Association of the Company will be available on the website of the CSE, the website of the Company, and the website of the Managers to the Issue, for a period not less than fourteen (14) Market Days as stipulated in Rule (b) of the CSE Listing Rules. Mackwoods Energy Limited Initial Public Offering 8

17 DETAILS OF THE ISSUE 5.12 Eligible Applicants Applications are invited from the following categories of investors having a valid CDS Account: Citizens of Sri Lanka who are resident in or outside Sri Lanka and above 18 years of age; or Companies, corporations or institutions incorporated or established within Sri Lanka; or Corporate bodies incorporated or established outside Sri Lanka; or Approved unit trusts licensed by the SEC; or Approved provident funds and contributory pension schemes registered/incorporated/established in Sri Lanka (in this case, Applications should be in the name of the Trustee/Board of Management in order to facilitate the opening of the CDS account); or Foreign citizens above 18 years of age (irrespective of whether they are resident in Sri Lanka or overseas); or Regional and country funds approved by the SEC. Applications made by individuals under 18 years of age or those in the names of sole proprietorships, partnerships, unincorporated trusts and non-corporate bodies will be rejected. Applications submitted under the Unit Trust Investor Category should conform to the criteria defined by the SEC Directive dated June 6, 2011 (Ref: SEC/LEG/11/06/01). Eligible Applicants may fall into one of the following categories. Retail Individual Investor Category Unit Trust Investor Category Non-Retail Investor Category Please refer Section 4.0 Glossary of Terms Related to the Issue for definitions of the aforementioned categories The Procedure for Application Applicants applying for the New Shares should submit their Applications in the manner as set out in this Prospectus. The Prospectus will be made available free of charge from the collection points listed in Annex A. The Prospectus can also be downloaded from and How to Apply APPLICANTS SHOULD APPLY ONLY THROUGH ONE INVESTOR CATEGORY (INCLUDING JOINT APPLICANTS) AND WOULD BE PERMITTED TO SUBMIT ONLY ONE APPLICATION FORM. TWO OR MORE APPLICATIONS SUBMITTED BY THE SAME APPLICANT EITHER UNDER THE SAME CATEGORY OR DIFFERENT CATEGORIES WILL BE CONSTRUED AS MULTIPLE APPLICATIONS AND WILL BE REJECTED. Applicants falling under Retail Individual and Non-Retail Investor Categories should apply for the New Shares on the Application Form printed for this purpose, which constitutes part of this Prospectus. Such Application Forms will be made available from the collection points listed in Annex A and can also be downloaded from and Applicants applying under the Unit Trust Investor Category must apply for New Shares using the separate YELLOW coloured Application Form printed for this purpose, which constitutes part of the Prospectus. Such Application Forms will be made available through the registered office of the Company, 10, Gnanartha Pradeepa Mawatha, Colombo 08, Registrars to the Issue, S S P Corporate Services (Private) Limited, 101, Inner Flower Road, Colombo 03 and Financial Advisors and Managers to the Issue, NDB Investment Bank Limited, 40, Navam Mawatha, Colombo 02. Exact size copies of the Application Form printed on YELLOW coloured paper as specified herein will also be permissible under the Unit Trust Investor Category. 9 Mackwoods Energy Limited Initial Public Offering

18 DETAILS OF THE ISSUE Applications submitted under the Unit Trust Investor Category should accompany a confirmation by the trustee confirming that such unit trust is in conformity with the criteria defined by the SEC Directive dated June 6, 2011 (Ref: SEC/LEG/11/06/01) and CSE Listing Rules, 3.1.5(b)(ii). Applicants applying under Retail Individual, Non-Retail and Unit Trust Investor Categories should submit their Application Forms to the Registrars to the Issue in terms of Section An Applicant of a joint Application, applying through another Application Form is also deemed to have made multiple Applications and will be rejected. An Applicant who has made an Application under a margin trading account should not apply individually or jointly on a separate Application Form. Such Applications will also be construed as multiple Applications and will be rejected. Subject to the above, the Company reserves the right to reject multiple Applications and suspected multiple Applications which are not allowed. Please note that Applicant information such as full name, address, National Identity Card (NIC) number/ passport number and residency will be downloaded from the database of CDS, based on the CDS account number indicated in the Application Form. Such information shall take precedence over information provided in the Application Form. Application Forms stating third party CDS accounts instead of their own CDS account numbers, except in the case of margin trading accounts, will be rejected. Care must be taken to follow the instructions on the reverse of the Application Form. Applications that do not strictly conform to such instructions and additional conditions set out hereunder or which are illegible may be rejected. All resident Applicants should indicate in the Application for Shares, their NIC number or the company registration number as the case may be. The passport number may be indicated only if the Applicant does not have a NIC number. As per the Directive of the Securities and Exchange Commission made under Circular No. 08/2010 dated November 22, 2010 and Circular No. 13/2010 issued by the Central Depository System (Private) Limited (CDS) dated November 30, 2010, all Shares allotted must be directly uploaded to the CDS accounts. As such, all Applicants should indicate their CDS account number in the Application Form. Applicants who do not have a CDS account are advised to open a valid CDS account prior to submitting the Application, in order to facilitate the uploading of allotted Shares to their CDS account. Please note that upon the allotment of Shares under this Issue, the allotted Shares would be credited to the Applicant s CDS account so indicated. Please note that SHARE CERTIFICATE SHALL NOT BE ISSUED. Any Application which does not carry a valid CDS account number or indicates a number of a CDS account which is not opened at the time of the closure of the subscription list or which indicates an inaccurate/ incorrect CDS account number, shall be rejected and no allotment of Shares will be made. You can open a CDS account through any member/trading member of the CSE as set out in Annex A or through any custodian bank as set out in Annex B of this Prospectus. PLEASE NOTE THAT ALLOTMENT OF SHARES WILL ONLY BE MADE IF YOU HAVE A VALID CDS ACCOUNT AT THE TIME OF SUBMISSION OF APPLICATION. Mackwoods Energy Limited Initial Public Offering 10

19 DETAILS OF THE ISSUE Applicants have the option of having their Shares locked in the CDS as described below. Shares that are locked will not be available for trading purposes and will not be visible to the participant. Such Applicants would have to fill in the relevant section provided in the Application Form for this purpose. If the Applicant has not specified that the Shares need to be deposited to the locked balance in the CDS account, the said Shares would be deposited to Applicant s trading balance in the CDS account. Operation of a locked balance in the CDS In order to preserve the confidentiality of shareholder information and to ensure that securities are not made available for trading for those shareholders who do not want to trade the securities, the CDS provides a mechanism where securities can be locked in the CDS account. The CDS maintains two balances for each CDS account, namely a trading balance and a locked balance. The trading balance would be visible to the CDS participant and all dealings and trading would be permitted on the said trading balance, as done normally. As opposed to the trading balance, the locked balance will not be visible to the CDS participant and all dealings on such locked balance would be suspended thereby maintaining the confidentiality of the information and also safeguarding the account holder from any unauthorised sale by a broker. At the option and request of an account holder, the CDS would transfer a named quantity of securities from the locked balance to the trading balance of a CDS account and/or from the trading balance to the locked balance Number of Shares Applied Applications should be for a minimum of five hundred (500) Shares [for a value of Rupees Seven Thousand (Rs.7,000/-)] and in multiples of hundred (100) Shares thereof. Applications for less than five hundred (500) Shares or for a number which is not in multiples of hundred (100) Shares will be rejected and the accompanying cheques, bank drafts or bank guarantees will not be sent for clearing but be returned via ordinary post at the risk of the Applicant, or in the case of joint Applicants, the first named Applicant. The cheque or bank draft or bank guarantee should be issued to the exact value of the number of Shares applied for multiplied by the Share Issue Price. Cheques, bank drafts or bank guarantees not conforming to the above requirement will be rejected at the outset. Please refer Section for details with respect to the mode of remittance Identification Information All Applicants should disclose their identification/registration information by filling in the space provided in the Application Form for this purpose. Applicants are requested to state their residency and nationality in the appropriate spaces provided in the Application Form. The NIC, passport, or company registration number as the case may be, must be stated in the Application Form and any Application Form which does not provide the appropriate identification information will be rejected. Resident Applicants may use the passport for purposes of identification only if they do not have a NIC number. 11 Mackwoods Energy Limited Initial Public Offering

20 DETAILS OF THE ISSUE Tabulated below is the relevant identification information that a prospective investor should provide depending on the legal status: Table 5-3: Identification Information Citizenship/Legal Form NIC Number Identification Information Passport Number Company Registration Number Common Seal or Rubber Stamp Sri Lankan Citizens Sri Lankan Citizens with no NIC Number Note I Foreign Citizens Note II Corporate Entities Note III Note I: Note II: Note III: In the case of Sri Lankan citizens, the passport number will be accepted only when the NIC number is not available. The CDS account must be for the same passport number. Foreign citizens must state the passport number in the space provided. The company registration number must be provided. The common seal or rubber stamp should be affixed and the Application Form duly signed as stipulated in the constitutional documents of such Applicants. A valid CDS account number must be stated in the Application Form and any Application Form which does not provide the appropriate identification information will be rejected. All information about the Applicant (i.e. name, address, nationality and NIC or passport number) will be downloaded from the database of CDS, based on the number given in the Application Form. In the event of any discrepancy between the information in the CDS and in the Application, the information in the CDS shall take precedence. If the CDS account number is not indicated in the Application Form, or the number indicated in the form is found to be inaccurate/incorrect, or the account number indicated is not opened at the time of closing the Issue such Application will be rejected and no allotments of Shares will be made Key Responsibility of a Non-Resident Investor Non-resident investors may be affected by the laws of the jurisdiction of their residence. If the non-resident investors wish to apply for the Shares, it is their responsibility to comply with the laws relevant to the jurisdiction of their residence and of Sri Lanka Margin Trading Applicants who wish to apply through their margin trading account should submit the Application in the name of the margin provider/applicant s name signed by the margin provider. The Applicants should state the relevant CDS account number relating to the margin trading account in the space provided for the CDS account number in the Application Form. The Shares shall be uploaded to the CDS account indicated in the Application Form. The NIC, passport, or company registration number of the Applicant as the case may be, must be stated in the Application Form. Resident Applicants may use the passport for purposes of identification, only if they do not have a NIC number. A photocopy of the margin trading agreement must be submitted along with the Application. Please note that the margin provider can apply under its own name and such Applications will not be construed as multiple Applications. Details of multiple Applications are available under Section Mackwoods Energy Limited Initial Public Offering 12

21 DETAILS OF THE ISSUE Applications Made Under Power of Attorney In the case of Applications made under Power of Attorney (POA), a copy of the said POA, certified by a Notary Public to be a true copy of the original, should be lodged with the Registrars to the Issue along with the Application Form. The original POA should not be attached Joint Applications If the ownership of Shares is desired in the name of one Applicant, full details should be given only under the heading, SOLE/FIRST APPLICANT in the Application Form. In the case of joint Applicants, the signatures and particulars in respect of all Applicants must be given under the relevant headings in the Application Form. Joint Application Forms are permitted only for natural persons not exceeding three Applicants. Joint Applicants should note that all parties should either be residents of Sri Lanka or non-residents. An Applicant of a joint Application shall not apply through a separate Application Form either individually or jointly Submission of Applications Application Forms properly and legibly filled in accordance with the instructions thereof, along with the applicable remittance (cheque or bank draft or bank guarantee only) for the full amount payable on Application should be enclosed in an envelope marked Mackwoods Energy Limited Initial Public Offering on the top left-hand corner and be addressed and dispatched by post or courier or delivered by hand to the Registrars to the Issue at the following address prior to 4.30 p.m. Local Time on the Closure Date. S S P Corporate Services (Private) Limited 101, Inner Flower Road Colombo 03 Applications may also be handed over to the Financial Advisors and Managers to the Issue, Bankers to the Issue and their designated branches, members and trading members of the CSE as set out in Annex A, prior to 4.30 p.m. Local Time on the Closure Date. In the case of Applications dispatched by courier or post, such Applications should reach the Registrars to the Issue not later than 4.30 p.m. Local Time on the Market Day immediately following the Closure Date. Any Applications received after the above deadline shall be rejected even though the courier or postmark is dated prior to the Closure Date Payment of Application Monies Mode of Remittance Payment should be made separately in respect of each Application by way of a cheque or bank draft or bank guarantee for the full amount payable on application. Remittances on Applications will be deposited in a separate bank account in the name of Mackwoods Energy Limited Initial Public Offering. Payment for Applications for Shares of a value below Rs. 100,000,000/- may be supported by a cheque or bank draft or bank guarantee. In such instances, Application Form should be accompanied by only one cheque or bank draft or bank guarantee and should be issued for the full amount indicated in the Application Form. Any Application for Shares of a value below Rs. 100,000,000/- accompanied by two or more cheques or bank drafts or bank guarantees will be rejected at the outset. Applicants making Applications for Shares of a value above Rs. 100,000,000/- will be permitted to submit multiple bank drafts (not cheques) or multiple bank guarantees. Such Applicants are required to attach a list to the Application Form giving details of payment, such as amount of bank draft/bank guarantee, name of bank, name of branch and bank draft number/bank guarantee number. Applications for Shares of a value above Rs. 100,000,000/- accompanying multiple bank drafts (not cheques) or multiple bank guarantees will not be rejected. Cash will not be accepted. Anyone wishing to pay cash should obtain a bank draft from any Licensed Commercial Bank (LCB) in Sri Lanka. 13 Mackwoods Energy Limited Initial Public Offering

22 DETAILS OF THE ISSUE Cheques or Bank Drafts Resident Sri Lankan Investors Cheques or bank drafts should be drawn on any LCB in Sri Lanka and crossed Account Payee Only and made payable to Mackwoods Energy Limited Initial Public Offering. Cheques or bank drafts accompanying Application Forms made for less than five hundred (500) Shares, i.e. Rupees Seven Thousand (Rs. 7,000/-) or for a number which is not in multiples of hundred (100) Shares (as mentioned in Section ) will not be sent for clearing and shall be returned via ordinary post at the risk of the Applicant, or in the case of joint Applicants, to the first named Applicant. In the event that cheques are not realised within two (02) Market Days from the day of presenting the same to the bank for clearing, the Directors reserve the right to reject the Applications and return the Application monies. No allocation of Shares will be made to such Applicants. Applicants residing in outstation areas from which cheque clearance may take over two (02) Market Days are advised to make payment via bank drafts to avoid any delays. Cheques must be honoured on first presentation to the bank for the Application to be valid. Applications supported by cheques which are not honoured on first presentation will be rejected Bank Guarantees Resident Sri Lankan Investors Applications made by resident Sri Lankan investors backed by bank guarantees presented in line with the requirements set out in Section will be accepted. Bank guarantees will be presented to the respective banks only after the New Shares have been allotted. Bank guarantees should be issued by any LCB in Sri Lanka and in favour of Mackwoods Energy Limited Initial Public Offering in a manner acceptable to the Company and be payable on demand. Bank guarantees should be valid for a minimum of one (01) month from the date of opening of the Issue (i.e. March 22, 2012). Investors are encouraged to discuss with their relevant bankers with regard to the issuance of bank guarantees and all related charges that would be incurred by the investors. Foreign Investors and non-resident Sri Lankan investors should refer Section Foreign Currency Remittance This section is applicable to: Citizens of Sri Lanka who are above 18 years of age and resident overseas; Corporate bodies incorporated or established outside Sri Lanka; Regional or country funds approved by the SEC; Foreign citizens (irrespective of whether they are resident in Sri Lanka or overseas) who are above 18 years of age. The abovementioned Applicants should make their payments using one of the following methods as the case may be. (a) A Foreign Investor may invest through a Securities Investment Account (SIA) maintained with any LCB in Sri Lanka. The procedure for arranging payments through a SIA is presented below: - A Foreign Investor may use the services of a custodian bank as an intermediary when investing in the Sri Lankan securities market; - The intermediary may open a SIA, on investor s behalf; - In conjunction with the SIA, an account with the CDS must be opened in case the investor does not already possess a valid CDS account; Mackwoods Energy Limited Initial Public Offering 14

23 DETAILS OF THE ISSUE - In respect of regional or country funds investing for the first time in Sri Lanka, the intermediary will facilitate the approval process regulated by the SEC; - Payment for New Shares should be made through a cheque or bank draft or bank guarantee issued by a LCB against the funds arranged through the SIA and made payable to Mackwoods Energy Limited Initial Public Offering. (b) A Foreign Investor may invest through inward remittances of foreign currency held in a Foreign Currency Banking Unit (FCBU) account of the Applicant maintained with any LCB in Sri Lanka: - The Applicant should forward the Application Form supported by an unconditional bank guarantee drawn on the Applicant s FCBU account pending allotment of New Shares; - Upon allotment of New Shares, foreign currency to the extent of the Sri Lanka Rupee equivalent value of New Shares allotted would be called on the bank guarantee drawn on the Applicant s FCBU account. The requisite funds would then be credited to a SIA opened in favour of the Applicant via the aforementioned FCBU account; - This procedure would protect a prospective investor from any losses accruing due to fluctuating exchange rates. (c) In addition to the payments made through SIA and FCBU mentioned above, a foreign citizen resident in Sri Lanka under the Resident Guest Scheme may invest through the Resident Guest Foreign Currency Account (RGFCA) maintained with any LCB in Sri Lanka. An investor who wishes to avail him/herself of this facility should make the payment for New Shares through a bank draft or an unconditional bank guarantee against the funds arranged through the RGFCA and made payable to Mackwoods Energy Limited Initial Public Offering. (d) Non-resident Sri Lankans can remit money for investment purposes in Sri Lankan companies through Rupee Account for Non-Resident Sri Lankan Investment (RANSI) maintained with LCBs in Sri Lanka. - Sri Lankan citizens who have left the country to take up employment, business or a profession and continue to reside abroad and those citizens of Sri Lanka who have made their permanent place of abode outside Sri Lanka are eligible to operate a RANSI with LCB in Sri Lanka. - Remittances by non-resident Sri Lankans in connection with this Issue could be made via cheques or bank drafts purchased out of funds arranged through the RANSI. There are no exchange control restrictions on remittance of funds that may be available in a RANSI. - Where a RANSI holder is also the holder of a Non-Resident Foreign Currency (NRFC) account, movement of funds between a RANSI and a NRFC account of the holder is freely permitted, so long as the account holder continues to reside abroad and does not cease to be a citizen of Sri Lanka. Therefore, funds in the NRFC account could be transferred to a RANSI through which investment in New Shares could be made. Cheques or bank drafts or bank guarantees should be endorsed by the issuing custodian bank, to the effect that, arrangements have been made to facilitate such payment to be made against funds available in the individual s SIA/FCBU/RGFCA account. The endorsement must be clearly indicated on the cheque or bank draft or the bank guarantee. Alternatively, a document detailing the endorsement could be submitted along with the payment and Application. Bank drafts drawn on RANSI accounts should also be endorsed in line with the above. Applications supported by foreign currency remittances should be made in conformity with requisite declarations accompanied by the documentation stipulated by the Controller of Exchange Restrictions Applicable to Foreign Citizens Resident in Sri Lanka Foreign citizens resident in Sri Lanka may make payments through Sri Lanka Rupee Accounts, only if they possess dual citizenship where one such citizenship is Sri Lankan. Foreign citizens having Sri Lankan citizenship should attach a certified copy of the citizenship certificate with the Application Form. 15 Mackwoods Energy Limited Initial Public Offering

24 DETAILS OF THE ISSUE Foreign citizens residing in Sri Lanka having valid residency visas should note that they cannot make remittances via cheques or bank drafts or bank guarantees drawn on Sri Lanka Rupee accounts maintained with any LCBs in Sri Lanka but may do so via SIA/FCBU/RGFCA account as detailed in Section above. Applications made by foreign citizens not in accordance to the foregoing shall be rejected Rejection of Applications Application Forms which are incomplete in any way and/or are not in accordance with the terms and conditions set out in Section 5.0 of this Prospectus will be rejected at the absolute discretion of the Company. Any Application Form which does not provide the NIC, passport (where NIC is not available) or company registration number as the case may be, will be rejected. Applications delivered by hand after 4.30 p.m. Local Time on the Closure Date of the Issue will be rejected. Applications received by courier/post after 4.30 p.m. Local Time on the succeeding Market Day immediately following the Closure Date of the Issue, will also be rejected even if they carry a courier acceptance date/ postmark date earlier than the Closure Date. Applications made for less than five hundred (500) Shares or for a number which is not in multiples of hundred (100) Shares will be rejected. Any Application which does not carry a CDS account number, or indicates a number of a CDS account which is not opened at the time of the closure of the subscription list or which indicates an inaccurate or incorrect CDS account number, shall be rejected and no allotment of Shares will be made. Application Forms stating third party CDS accounts instead of their own CDS account numbers, except in the case of margin trading accounts, will be rejected. Applicants should apply only through one investor category and would be permitted to submit only one Application Form. Two or more Applications submitted by the same Applicant either under the same category or different categories will be construed as multiple Applications and will be rejected. The Company reserves the right to reject multiple Applications and suspected multiple Applications which are not allowed, as mentioned in Section Payment for Applications of New Shares of a value below Rs. 100,000,000/- accompanying two or more cheques or bank drafts or bank guarantees as mentioned in , will be rejected at the outset. Applications made by individuals below 18 years of age or those in the names of sole proprietorships, partnerships, unincorporated trusts and non-corporate bodies will be rejected. Notwithstanding any provision contained herein, the Board of Directors shall reserve the right to refuse any Application or to accept any Application in full or part Banking of Payments All cheques or bank drafts or bank guarantees received in respect of Applications will not be banked or called on until the Market Day after the Closure Date of the subscription list, in terms of the CSE Listing Rules Returning of Monies of Rejected Applications Where an Application Form is rejected, the cheque or bank draft or bank guarantee received in respect of the Application will be returned via ordinary post at the risk of the Applicant. In the case of joint Applicants, the cheque or bank draft or bank guarantee received in respect of the Application will be returned to the first named Applicant. Where the Application Form is accepted and the cheque or bank draft or bank guarantee is not honoured by the bank at the first presentation, the Application will also be rejected and the dishonoured cheque or bank draft or bank guarantee will be returned via ordinary post at the risk of the Applicant. In the case of joint Applicants, the dishonoured cheque or bank draft or bank guarantee will be returned to the first named Applicant. Mackwoods Energy Limited Initial Public Offering 16

25 DETAILS OF THE ISSUE 5.18 Allotment of Shares in Issue/Basis of Allotment The allotment of Shares in Issue will be made to the various categories of Applicants, as set out in Section 5.1, treating all Applicants in a fair manner as may be decided by the Board at its discretion. In the event of an undersubscription in the Retail Individual Investor Category, the Unit Trust Investor Category shall be given first priority in the allotment of the unsubscribed Shares. In the event of an undersubscription in the Unit Trust Investor Category, the Retail Individual Investor Category shall be given first priority in the allotment of the unsubscribed Shares. In the event of an undersubscription in the Non-Retail Investor Category, the quantum of Shares unsubscribed may be redistributed to the other two categories that may be oversubscribed in a fair manner at the discretion of the Board of Directors. In the event of an undersubscription in the Retail Individual Investor Category and the Unit Trust Investor Category, the quantum of Shares unsubscribed may be redistributed to the Non-Retail Investor Category that may be oversubscribed. In the event of an oversubscription in any one or more of the categories, in spite of the aforementioned distribution, the New Shares will be allotted at the discretion of the Board of Directors of the Company in a fair manner. Redistribution will not apply in the event of an oversubscription or undersubscription in all the categories. The Board of Directors of the Company will endeavour to decide and announce to the CSE the basis of allotments as soon as practicable so as to ensure compliance with the Listing Rules. Upon the allotments being decided, an announcement will be made to the CSE. A written confirmation informing successful Applicants on their allotment of New Shares will be dispatched within ten (10) Market Days from the Closure Date as required by the CSE Refunds on Applications Where an Application is accepted only in part or rejected in its entirety subsequent to cheques being realised, the balance/entirety of the monies received on Application as the case may be, will be refunded. Such refunds will be made on or before the expiry of ten (10) Market Days from the Closure Date (excluding the Closure Date) as required by the CSE Listing Rules. Applicants would be entitled to receive interest at the last quoted AWPLR published by the CBSL plus 5%, on any refunds not made by the expiry of the abovementioned period. Refunds via Sri Lanka Inter-bank Payment System (SLIPS) (i) The refund payment will be made to the bank account specified by the Applicant through the SLIPS on or before the expiry of ten (10) Market Days from the Closure Date (excluding the Closure Date) as required by the CSE Listing Rules and a payment advice shall be issued to the Applicant provided that the Applicant has submitted accurate and complete details of Applicant s bank account in the Application Form. However, SLIPS transfers are subject to a maximum limit of Rupees Five Million (Rs.5,000,000.00) imposed by the CBSL with effect from October 29, 2010 as per Operating Instruction Circular No. 11/2010 dated October 25, (ii) Even though the Applicant has requested for SLIPS transfer for refund amounts and submitted accurate and complete details of the bank account in the Application Form, refund amounts exceeding Rupees Five Million (Rs.5,000,000.00) will be made by a crossed cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In the case of a joint Application, a crossed cheque will be drawn in favour of the Applicant whose name appears first in the Application Form. 17 Mackwoods Energy Limited Initial Public Offering

26 DETAILS OF THE ISSUE (iii) In the event the refund payment is effected via SLIPS based on the bank account details provided by the Applicant in the Application Form, but is rejected by the Applicant s bank due to inaccurate or incomplete information, such refund payments would be made via a crossed cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In such instances, the Company together with the Registrars to the Issue will send the refund cheques to such Applicants at the earliest possible and the Applicant should not hold the Company or the Registrars to the Issue accountable for such delays. Bank codes and branch codes could be obtained from the website, through the Quick Links access. Refunds via Crossed Cheque (i) If the Applicant has not provided details of the bank account in the Application Form or has provided inaccurate or incomplete details of the bank account with respect to refunds via SLIPS, the refund payment will be made by a crossed cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In the case of a joint Application, a crossed cheque will be drawn in favour of the Applicant whose name appears first in the Application Form. (ii) A request for cancellation of crossing on the refund cheque, in instances where the Applicant does not maintain a current account, should be addressed to the Registrars to the Issue in writing, stating the cheque number and the fact that the Applicant does not maintain a current account. The refund cheque and a clear photocopy of the Applicant s NIC should accompany the letter. (iii) In the event of a refund cheque being delivered by hand by a third party to the Registrars to the Issue for cancellation of crossing, a letter of authorisation signed by the Applicant stating the NIC number of such third party should also be presented with the refund cheque. Refund cheques on which the crossings have been cancelled by the Registrars to the Issue should preferably be collected in person or by a third party authorised by the Applicant. Where an Applicant has requested the delivery of the cheque on which the crossing has been cancelled via post, such cheque will be sent at the risk of the Applicant Successful Applicants and CDS Lodgement The New Shares allotted will be directly uploaded to the respective CDS account given in the Application Form before the expiry of eighteen (18) Market Days from the Closure Date of the Issue as required by the CSE Listing Rules. All resident Applicants should indicate in the Application for Shares, their NIC number or the company registration number as the case may be. The passport number may be indicated only if the Applicant does not have a NIC number. As per the Directive of the Securities and Exchange Commission made under Circular No. 08/2010 dated November 22, 2010 and Circular No. 13/2010 issued by the Central Depository System (Private) Limited dated November 30, 2010, all Shares allotted shall be directly uploaded to the CDS accounts. As such, all Applicants should indicate their CDS account number in the Application Form. Applicants who do not have a CDS account are advised to open a valid CDS account prior to submitting the Application, in order to facilitate the uploading of allotted Shares to their CDS account. Please note that upon the allotment of Shares under this Issue, the allotted Shares would be credited to the Applicant s CDS account so indicated. Please note that SHARE CERTIFICATE SHALL NOT BE ISSUED. Any Application which does not carry a valid CDS account number or indicates a number of a CDS account which is not opened at the time of the closure of the subscription list or which indicates an inaccurate/ incorrect CDS account number, shall be rejected and no allotment of Shares will be made. You can open a CDS account through any member/trading member of the CSE as set out in Annex A or through any custodian bank as set out in Annex B of this Prospectus. Mackwoods Energy Limited Initial Public Offering 18

27 DETAILS OF THE ISSUE A written confirmation, upon the completion of crediting the respective CDS accounts will be sent to the shareholder within two (02) Market Days of crediting the CDS accounts by ordinary post to the address provided by each shareholder in their respective Applications. Applicants have the option of having their New Shares locked in the CDS. Shares that are locked would not be available for trading purposes and would not be visible to the participant. Such Applicants would have to fill in the relevant section provided in the Application Form for this purpose. If the Applicant has not specified that the Shares need to be deposited to the locked balance, the said Shares would be deposited to Applicant s trading balance. Refer Section for definition of locked. Shares shall not be transferable by the shareholders during the period between the date of allotment of the New Shares and up to the date of listing (excluding the date of listing) of the Ordinary Voting Shares (inclusive of the New Shares) on the CSE. Upon the Ordinary Voting Shares being listed on the CSE, such Shares shall be freely transferable except for those Shares allotted by the Company on September 30, 2011, as morefully described in Section 10.1 and Section of this Prospectus Declaration to the CSE and Secondary Market Trading The Company will submit to the CSE a declaration on the Market Day immediately following the day on which Applicants CDS accounts are credited with the New Shares. Trading of Ordinary Voting Shares on the secondary market will commence on or before the third (3 rd ) Market Day from the receipt of the declaration by the CSE as per the CSE Listing Rules. 19 Mackwoods Energy Limited Initial Public Offering

28 6.0 OVERVIEW OF THE POWER SECTOR IN SRI LANKA 6.1 Overview of the Economy The economy of Sri Lanka has rebound rapidly from its depressed state following the end of the long drawn conflict which raged on for three decades and the ensuing political stability. This is clearly reflected in the impressive Gross Domestic Product (GDP) growth rate of 8% recorded in 2010 and 8.3% in 2011 (as per estimates of CBSL) whilst the economy is projected to grow by 8% in Through the development of an overall macroeconomic environment conducive to sustainable economic growth, these high levels of GDP growth are expected to continue in the medium term. Sri Lanka s graduation to middle income status from the Poverty Reduction and Growth Trust (PRGT) Eligible Country list by the International Monetary Fund (IMF) and the upgrading of the sovereign credit rating by international rating agencies are strong votes of confidence on the Sri Lankan economy. Today, the country is considered one of the fastest growing economies in the world. The newly liberated areas in the North and East have demonstrated a rapid recovery of economic activities from their war-torn past. Since 2009, these areas have been prioritised for rebuilding infrastructure in order to rebuild livelihoods through programmes such as Nagenahira Nawodaya (Re-awakening the East) and Uthuru Wasanthaya (Northern Spring), two state-led rapid development programmes aimed at reviving the economies and livelihoods of the Northern and Eastern provinces of the country. The prioritised development has resulted in the abovementioned regions recording significant growth rates in their respective nominal provincial GDP figures in 2010 with the Northern Province recording the highest growth rate of 22.9% closely followed by that of the Eastern Province which stood at 18.7%. This is in the backdrop of a growth rate of 15.9% in the nominal GDP of the country. It is expected that the Northern and Eastern Provinces will continue to make significant contributions to the future economic growth of the country. This is further emphasised with the projected economic growth rate of 13% per annum in the Northern Province from 2011 onwards for the next few years. 6.2 Overview of the Power Sector in Sri Lanka The power sector is regarded as an essential driver of socio-economic development in Sri Lanka which has undergone many developments and transformations during the past few years. Recognising its strategic importance, the sector has been given high priority by successive governments in order to provide a reliable and secure electricity supply and to enhance the level of electrification in the country. Whilst hydropower has been the primary source of electricity generation in Sri Lanka until a few decades ago, the continuous rise in electricity demand has resulted in thermal power generation using fossil fuels emerging as an equally dominant contributor to the country s electricity supply. In 2010, the contribution of thermal power to the national electricity demand stood at 47% whilst the rest was supplied using hydropower. In addition to the above, much emphasis has been placed recently on the use of Non-Conventional Renewable Energy (NCRE) sources such as small hydro, wind and biomass to meet the growing electricity demand of the country. Regulatory Framework The power sector in Sri Lanka is primarily governed by the Sri Lanka Electricity Act No. 20 of The Act specifies the regulatory aspects pertaining to the generation, transmission, distribution, supply and use of electricity in Sri Lanka. The PUCSL is designated as the economic, technical and safety regulator for the electricity industry in Sri Lanka. It was established by Public Utilities Commission of Sri Lanka Act No. 35 of 2002 and is now entrusted with greater authority under the Sri Lanka Electricity Act No. 20 of 2009 to advise on generation, transmission, distribution, supply and use of electricity in ensuring the transparency, fairness and flexibility for industry participants whilst safeguarding consumer rights to achieve the policy objectives of the Government of Sri Lanka (GoSL). In addition to the above, PUCSL is entrusted with regulating tariffs and other charges levied by licensees and other electricity undertakings, in order to ensure that an economical and efficient service is being provided to the consumers. Under the Sri Lanka Electricity Act No. 20 of 2009, the Ministry of Power and Energy is vested with the power to formulate general policy guidelines in respect of the electricity industry and oversee their effective and timely implementation. In formulating general policy guidelines the Ministry would take into account the requirements for electricity, fuel diversity and the preferred fuel for new electricity generation, pricing policy etc. and adopt them as policies subsequent to receiving Cabinet approval. Mackwoods Energy Limited Initial Public Offering 20

29 OVERVIEW OF THE POWER SECTOR IN SRI LANKA The state owned CEB, was formed under and governed by the Ceylon Electricity Board Act No. 17 of The Act empowers CEB to develop and maintain an efficient and economical system of electricity supply. Furthermore, CEB is also entrusted with constructing, maintaining and operating the necessary work for the inter-connection of generating stations and sub-stations and transmission of electricity in bulk from generating stations and sub-stations to such places as may be necessary from time to time. The SEA was formed by Act No. 35 of 2007 to govern the renewable energy projects in Sri Lanka. Accordingly, all renewable energy projects require prior approval from SEA before commissioning construction activities. Further, the SEA strives to implement the National Energy Policy and Strategies of Sri Lanka via ensuring energy security, enhancing indigenous energy and improving energy efficiency of the country. In addition, the National Environmental Act No. 47 of 1980 has set out certain environmental regulations for power plants operated in Sri Lanka. According to the Act, there exists a mandatory requirement to obtain environmental clearance from the CEA before commissioning any type of power project in the country. Sector Configuration Principal activities of the power sector include the generation, transmission and distribution of electricity. As per Figure 6-1, CEB, Independent Power Producers (IPPs) and Small Power Producers (SPPs) are engaged in power generation. The generated electricity by CEB is subsequently supplied directly to bulk consumers (commercial and industrial), retail consumers and Lanka Electricity Company (Private) Limited (LECO) where the latter is also involved in the redistribution of purchased electricity from CEB to retail consumers. In addition to the grid system, there exist few off-grid village electricity schemes which provide electricity to geographically isolated consumers using solar, wind and micro hydro sources. Figure 6-1: Power Sector Configuration CEB Generation IPP Generation Off-Grid System Bulk Consumers CEB Transmission Isolated Consumers CEB and LECO Distribution SPPs Generation Retail Customers Source: Based on Public Utility Commission Power Generation Power generation in Sri Lanka is predominantly from hydro and thermal energy sources, whilst other sources of power including wind energy contribute a marginal component as depicted in Figure 6-2. The installed capacity in the year 2010 amounted to 2818 MW where total electricity generation for the same period stood at GWh in order to meet a maximum demand of 1955 MW. 21 Mackwoods Energy Limited Initial Public Offering

30 OVERVIEW OF THE POWER SECTOR IN SRI LANKA Figure 6-2: Power Generation by Source in % 1% 47% Thermal Hydro Small Hydro Other 46% Source: CEB Statistical Digest, 2010 Electricity Demand and Consumption Dynamics The YoY growth in electricity consumption in Sri Lanka closely follows the YoY growth in GDP. This is primarily due to the increase in domestic demand arising from improvements to quality of life and growth in industrial demand caused by heightened level of economic activities. Figure 6-3 depicts a more than proportionate growth/decline in electricity consumption based on the underlying growth/decline in GDP in most years. Figure 6-3: Growth in Electricity Consumption Vs Growth in GDP from 2001 to GDP/Electricity Consumption Growth Rate (%) Real GDP Growth Electricity Consumption Growth Year Source: CBSL Annual Report 2010 Furthermore, it should be noted that electricity consumption per capita in Sri Lanka lags behind most of its rapidly developing peers in the Asian region and that of the world average as depicted in Figure 6-4. This highlights the fact that there is massive scope for growth in demand for electricity, which would be driven by the high growth expectations in the country and the accompanying improvements to quality of life. Figure 6-4: Electricity Consumption per Capita in ,000 8,000 Electricity Consumption Per Capita kwh/year 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Sri Lanka South Asian Average India Thailand World Average Malaysia Singapore Source: World Bank Mackwoods Energy Limited Initial Public Offering 22

31 OVERVIEW OF THE POWER SECTOR IN SRI LANKA 6.3 Thermal Energy Solutions This section gives an overview of the demand for thermal energy solutions, mainly diesel power generators in Sri Lanka, which presently constitutes the core business operations of MEL. It also includes a description of the key demand drivers, main sectors which contribute to the demand and the future prospects of the industry. The demand for diesel power solutions emanates from three main sources. Firstly, as a primary source of power supply in areas where a connection to the utility power grid is not possible due to unavailability of grid coverage or the mobile nature of the activity. Secondly, generators may be used as a standby source of power when the grid supply is subject to frequent interruptions. Finally, power generators are also used as a parallel source of power in combination with grid electricity where the required power needs cannot be met primarily via grid supply and/or if it is found that stand alone generated power is more economical and cost effective than grid power in the event of very high consumption by an industry. In Sri Lanka, the demand for power generators as a primary source is mainly seen from organisations which intend to expand their operations into geographical areas where grid connectivity is not present, particularly in the North and East regions of the country and in industrial areas where load shedding and power outages are frequent which results in costly downtime and production line losses. Whilst Sri Lanka has achieved a significantly healthy level of electrification (90% by the end of 2010) compared to other countries in the region, the power supplied to rural areas may be subject to voltage fluctuations and periodic interruptions. Consumers whose operations may be affected by fluctuating voltages and power cuts have resorted to using power generators as a primary source of power to avoid such unplanned interruptions. This trend is increasingly evident particularly amongst industrial consumers who may suffer significant losses due to work stoppages resulting from such power fluctuations and/or interruptions. The demand for power generators as a secondary source of power is expected to increase partly due to the significant growth in construction activities, that result in many commercial and residential buildings which would fuel the demand for power generators. It should be noted that some of these buildings are mandated to have power generators as a backup source of power to comply with regulatory requirements. Demand is also expected to rise significantly in the telecommunications, healthcare, defence, leisure and state utility sectors due to the heightened level of economic activity in the country with the post-war peace environment. Many organisations which are experiencing significant growth in their business volumes have realised the need to have uninterrupted power supply to ensure the continuous and smooth operations. Furthermore, due to the competitive nature of current business environment as well as globalisation of business activities, companies are not in a position to tolerate any downtime. The downtime of business operations due to inadequacy and/or interruptions of power supply not only affects individual businesses but also the overall competitiveness of the country. Both planned and unplanned power cuts as well as power fluctuations result in overall economic losses and therefore the need for standby power is of utmost importance. 6.4 Overview of the Small Hydropower Sector in Sri Lanka Small hydropower as a NCRE source has emerged as an economical, sustainable and environmentally friendly source to promote electricity generation to the rural populace in Sri Lanka. Hydropower projects below the capacity of 10MW are generally defined as SHPs and are primarily based on run-of-the-river principle. Small scale run-of-the-river hydro projects are largely aligned with the preservation of the environment and ensure continuity in the contribution of hydro power to overall power generation. Standardised Power Purchase Agreements (SPPAs), structured tariffs, tax incentives through Board of Investment of Sri Lanka (BOI) and concessionary financing arrangements facilitated by various local and international financial institutions have been the cornerstones of the success in making small hydropower, a commercially viable source of power generation. A large number of grid connected as well as isolated small hydropower plants developed by the private sector presently account for approximately 10% of the total hydro power capacity available in the country. 23 Mackwoods Energy Limited Initial Public Offering

32 OVERVIEW OF THE POWER SECTOR IN SRI LANKA Table 6-1: Small Hydropower Projects in Sri Lanka as at November 30, 2011 Status Number of Projects Capacity (MW) In Operation SPPAs Signed Source: CEB Since inception in 1996, there has been a steady growth in SHPs, adding a total capacity of about 185MW from 89 SHPs up to November 30, As per Figure 6-5, installed capacity over the past seven years has reported a Compound Annual Growth Rate (CAGR) of 14% emphasising the significance of SHPs in generating electricity. Figure 6-5: Growth in Installed Capacity Installed Capacity (MW) * Year *Up to November 30, 2011 Source: CEB Long Term Generation Expansion Plan , Statistical Digest 2010 and CEB The power generation by SHPs has grown at a CAGR of 21% for the six years from 2004 to 2010 (as depicted in Figure 6-6) Figure 6-6: Growth in Power Generation by SHPs 700 Electricity Demand (GWh) Year Source: CEB Statistical Digests from 2004 to 2010 Power generation through NCRE sources currently contribute 6.8% of the total electricity generation in the country and CEB expects the figure to reach 10% by NCRE sources include power generated through SHPs, solar power, wind power and biomass projects. As depicted in Figure 6-7, 81% of the installed capacity of NCRE sources is contributed by SHPs. Mackwoods Energy Limited Initial Public Offering 24

33 OVERVIEW OF THE POWER SECTOR IN SRI LANKA Figure 6-7: Power Generation by NCRE Sources as at November 30, % 1% 13% 81% SHPs Wind Power Biomass Solar Power Source: CEB At present, the GoSL endeavour to promote SHPs to reduce dependence on costly fuel imports as well as their potential to earn carbon credits in the initiative to reduce the effects of greenhouse gases. The country has been focusing on its remaining hydropower resources and has identified around 600 small scale hydropower projects that have the potential to add around 300MW of power to the national grid Technology Used: Run-of-the-River Principle Run-of-the-river hydropower plants have emerged as a viable, environmentally friendly alternative to large scale projects which require large bodies of water to be stored behind dams. The energy is derived from naturally flowing water which has a pressure head simply by virtue of the terrain over which the river is flowing. Run-of-the-river principle produces electricity by diverting river flow through turbines that spin generators, before returning water back to the river down stream. Some run-of-the-river plants may have a small dam across the flow of water to utilise part or all of the water for electricity generation. Such installations will have a very small reservoir behind the dam and is still considered to be run-of-the-river, as there is minimal (if any) flooding. Generating costs depend on the amount of flow, the degree of drop across a short distance, and the technology used (i.e. the type of turbine). Most run-of-the-river plants operate on a competitive basis with electricity generation plants based on fossil fuels Tariff Structure Developers of SHPs have the option of selecting either a three tier tariff or a flat tariff. The first tier in the former tariff system represents years one to eight, the second tier represents years nine to fifteen and the third tier represents years sixteen to twenty whilst the latter would only have a fixed rate which will remain unchanged over the entire 20 year tenure of the SPPA. The flat tariff currently stands at Rs per kwh as per the rates published by PUCSL, for SPPAs signed from November 25, 2010 to December 31, This method has the advantage of improving the predictability of cash inflows for 20 years, thereby improving the certainty of the project. The three tier tariff consists of an Escalable Operational and Maintenance Component (ECOM), which is subject to an annual revision based on the changes in Sri Lanka Consumer Price Index (SLCPI) and the exchange rate between SLR and USD, and a Non-Escalable Component (NEC). The NEC component will remain unchanged during the first two tiers at the price set for each tier. On the third tier NEC would be replaced by an escalable component, which would be escalated at 2/3rd of the escalation rate applicable for ECOM. Further, it should be noted that both three tier and flat rate tariff structures are designed to have approximately the same Internal Rate of Return. 25 Mackwoods Energy Limited Initial Public Offering

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36 7.0 BUSINESS OPERATIONS OF MACKWOODS ENERGY LIMITED 7.1 The Mackwoods Group ML, the holding company of MEL, which was established in 1841 and later re-registered under the Companies Act No. 7 of 2007, has the distinction of being the second oldest mercantile firm in Sri Lanka with over 170 years of business experience. Over the years, ML has consolidated its position as a diversified conglomerate, having a strong presence in several key sectors of the Sri Lankan economy whilst building a network of partners, both global and local, at all levels of stratification. The Mackwoods Group of Companies provides employment to over 8000 individuals, whilst having a land base of over acres. Currently, the Group s core business areas consist of power and energy, healthcare, agri business and plantations, industry, Information and Communication Technology (ICT), hotels and leisure, infrastructure development, real estate and financial services, through its activities as a service provider, importer, exporter and manufacturer. The Board of Directors of ML is as follows: - Dr. Chrisantha Nicholas Anthony Nonis, BSc. (Hons), MBBS (Lond), MRCP (UK) - Chairman - Mrs. Nirmali Suzanne Moira Samaratunga, FCMA (UK) - Mr. Francis Lalith Fonseka, FCA, FCMA (UK), MBA (Sri J.) - Mr. Arjuna Lasantha Yatawara, MCIM, FAAI, FAMS - Mr. Lakshman Leelaraja Samarasinghe - Mr. Harendra de Silva, QC, MA, LLM (Cantab) - Mrs. Shelendra Marianne Andrea Nonis Ranaweera, LLB (Hons) (London), Barrister-at-Law (Gray s Inn), Attorney-at-Law Figure 7-1: Structure of Mackwoods Group Mackwoods Group Mackwoods (Private) Limited Mackwoods Energy Limited Mackwoods Healthcare (Private) Limited Mackwoods Tea (Private) Limited Mackwoods Plantations (Private) Limited Agalawatte Plantations PLC AEN Palm Oil Processing (Private) Limited Paklan Latex (Private) Limited Mackply Industries (Private) Limited Claridge Asset Management (Private) Limited Claridge Stockbrokers (Private) Limited Mackwoods IT (Private) Limited Mackwoods Infotec (Private) Limited Mackwoods Travels (Private) Limited Taprospa Resorts (Private) Limited Mackwoods Insurance Brokers (Private) Limited Mackwoods Real Estate (Private) Limited Mendis Mackwoods Charity Fund Mackwoods Research Foundation Imports and Exports Energy Sector Healthcare Branded Tea Marketing Plantations Plantations Manufacturing Manufacturing Manufacturing Financial Services Financial Services Information Technology Information Technology Travels and Tours Hotels and Leisure Insurance Broking Infrastructure Development Non-Profit Organisation Non-Profit Organisation Mackwoods Energy Limited Initial Public Offering 26

37 BUSINESS OPERATIONS OF MACKWOODS ENERGY LIMITED 7.2 Mackwoods Energy Limited MEL is a member of the Mackwoods Group of Companies and part of the Group s rich heritage of over 170 years. Building upon the solid foundation of its parent company, MEL has grown to be a trusted provider of a wide array of energy solutions, with many products and services being offered to cater to the diverse energy needs of its customers. Mackwoods Group launched its power solutions to the Sri Lankan market through its strategic partnership with Kirloskar Oil Engines Limited (KOEL) of India, a member of the Kirloskar Group, which has an annual turnover of over USD 1 billion and its core business operations in the engineering industry. MEL s strength in the power solutions business was achieved over the last decade by catering to the increasing demand for both primary and secondary power generation. In the light of the significant growth prospects for power solutions in the industry sector, and with a view to maximising the potential of the energy sector, a thrust sector in the National Economic Development Plan, MEL commenced operations in the power generation business and allied activities in With the cessation of the three decade long war in Sri Lanka in 2009, an era of rapid economic growth has been ushered in accompanied by a tremendous increase in the level of activity in the overall economy. This renewed optimism together with the rising demand for renewable and clean sources of energy, led to Mackwoods Engineering (Private) Limited re-strategising and re-positioning itself as a total energy solutions provider, with the intention of launching into the generation of hydropower and the provision of solar and wind power solutions among many other business ventures. With a view to better reflect its business profile and diverse products and services offered, which encompass many sub sectors within the energy sector, Mackwoods Engineering (Private) Limited subsequently changed its name to Mackwoods Energy Limited. Vision Mackwoods Energy to be the preferred choice and the leader in providing energy solutions through which the company strives to enhance shareholder value whilst contributing to the socio economic development of the country. Mission MEL is committed to value creation by fulfilling the needs of trade and industry and meeting the national energy requirements by providing competitive and high quality products, services and renewable energy solutions. MEL targets to accomplish this through continuous development of the existing business and by diversifying into new products, markets and services and renewable energy projects through optimum procurement, production and distribution in a sustainable and environment friendly manner. In doing so, MEL will always be mindful of the obligations to society, the customers, shareholders and the employees. MEL has been awarded the following accreditations ISO 9001 : 2008 for Quality Management Systems of Routine, Non Routine, Direct and Indirect activities in sales, Distribution and Maintenance of power generators ISO : 2004 for Quality Environmental Management Systems of Routine, Non Routine Direct and Indirect activities in sales, Distribution and Maintenance of power generators ICTAD (EM 3) : Under approval - Government Institute for Grading Specialist Construction Contractors in Electrical, Mechanical and Civil Engineering, and Training and Development under Ministry of Construction and Engineering Services Key Strengths of MEL Backed by the Strength of Diversified and Long Established Parent Company The diversity and business experience of over 170 years of its parent Company has been pivotal to the growth of MEL. Leveraging on the solid foundation of its parent company and its long established presence in core business sectors, MEL has, within a relatively short period of time, successfully created strategic alliances with world renowned suppliers and reached an extensive network of customers. MEL also enjoys the benefits of economies of scale by utilising the parent company s shared services in functional areas. 27 Mackwoods Energy Limited Initial Public Offering

38 BUSINESS OPERATIONS OF MACKWOODS ENERGY LIMITED Strategic Alliances with Leading Suppliers The key strength of MEL is its alliance with one of the world s leading power generator manufacturers, KOEL. KOEL is part of the internationally renowned Kirloskar Group which is a leader in engineering related businesses in India. KOEL has a strong global presence in the arena of diesel power generators. KOEL is recognised as a manufacturer of high quality environmentally friendly products, co-branded in Sri Lanka as Mackpower. MEL enjoys a solid partnership with KOEL spanning over two decades. Strong Brand Name and Proven Track Record The trusted and reputed name of Mackwoods, which has been serving the nation for over 170 years, combined with the strength of KOEL has enabled MEL to launch and establish the brand Mackpower. Mackpower enjoys a strong brand image in the market as a supplier of generators of varying capacities. The proven track record in power generation activities spanning several years is a testimony to the trust and confidence placed in MEL by its customers from diverse sectors. This solid foundation will provide the platform for the Company to expand and consolidate its activities in the area of energy solutions and be a significant player in the future. Efficient Business Model for Maintenance Operations ISO 9001 Certified MEL s unique business model for maintenance operations has enabled the Company to achieve the dual objectives of providing a timely and high quality service whilst keeping the operating costs low, without compromising either objective. The routine maintenance operations by MEL have not only enabled clients to enjoy smooth and uninterrupted business operations but also enhanced the lifespan of the generators supplied. This capability was confirmed by the award of ISO 9001 SGS certification to MEL for its business process Human Resources MEL is driven by a team of highly motivated and technically qualified staff trained both locally and overseas focussed on core Company activities which encompass internal engineering, technical support, sales and marketing and product and service diversification. Meanwhile, the Company has also harnessed the strength and expertise of the human resources available in the parent company in terms of shared services and key areas of specialisation which has further enhanced its strength in this area. The Company remains committed to developing the skills and knowledge base of its employees at all levels. Structured training programmes are organised on a regular basis and employees have been provided with opportunities for developing their knowledge and skills both within the country and overseas in keeping with the Company s focus on continuous professional development. ML s core values of integrity and ethics viewed as of paramount importance are embedded into the corporate culture of MEL. Current staff strength of MEL consists of thirteen (13) employees. The employees of the Company are not members of any labour union and the Company has not entered into any agreements with any labour union Corporate Social Responsibility (CSR) MEL s CSR strategy is in keeping with the philosophy of its parent company, ML. Whilst striving for excellence and consolidating its business activities, the Company is deeply committed to being a responsible corporate citizen by adhering to sustainable environmental practices and contributing towards uplifting and improving the quality of life of the community. The renewable energy projects and rural electrification projects which the Company has embarked upon, illustrate this commitment towards protecting the environment and serving the community in the course of pursuing its business endeavours. MEL manufactures high quality canopies which reduce the sound emission levels even below that specified by environmental standards, further illustrating this commitment of minimising harm to the environment. The Mackwoods Group touches the lives of hundreds of marginalised and under privileged members of society through its 23 years old charitable foundation extending support in a multitude of areas such as health, housing, education, sanitation, and poverty alleviation. Mackwoods Energy Limited Initial Public Offering 28

39 BUSINESS OPERATIONS OF MACKWOODS ENERGY LIMITED Whilst associating with these endeavours, MEL strives to be engaged in business activities which uplift the living standards of the community and safeguard the environment as a specific result of the business, rather than a by product. In order to achieve this, MEL will be strategically focusing on renewable energy generation through hydropower, bio-diesel, solar power and wind power. Further, the Company intends to reach remote areas of the country through rural electrification projects using environmentally friendly renewable sources of energy. 7.3 Thermal Power Solutions by MEL Current Product Portfolio MEL provides a wide range of solutions to meet the power needs of customers in diverse industries. The majority of the generators are diesel fuelled while the domestic version which is widely used by small businesses runs on Liquid Petroleum Gasoline (LPG). The generator product portfolio ranges from 5kVA up to 6.2MVA primarily sourced by KOEL in India and Kohler Power Systems, USA. These generators conform to US Tier 1/11 and Euro II emission norms. The key strength of these products is low operating cost, minimal maintenance and fuel economy due to the efficiency of power output. The range includes power generators, diesel engines, marine power generators and marine auxiliary engines. Value Added Products MEL has successfully manufactured/fabricated the commonly used Auto Mains Failure (AMF) and Auto Transfer Switch (ATSW) panels for the transfer of power from the main supply to the generator and vice versa. Three types of ATSW panels are currently being manufactured for the existing customers of MEL. Additionally, the Company has established its presence in the electrical engineering industry through the manufacture of panels for power generators including provision of circuit breakers (Moulded Case Circuit Breakers), power contactors and changeover switches and power distribution panels. This is further enhanced by the local production of high quality sound proofing canopies and other value added electrical equipment using the strength and technical expertise of the engineering staff. The Company has identified the existence of significant opportunities to expand further in the field of electrical engineering as it complements MEL s existing business. Due to the overall market growth in the construction industry such as high rise buildings, highways, marine projects and power projects, MEL would be able to competitively cater to diverse electrical engineering requirements in the country. Technical Support MEL operates an island wide service dealer network covering the main geographical areas which acts as a comprehensive service solution provider for the Company s diverse clientele. The service dealers provide a total solution for the customers by providing following services: On-site installation and commissioning Routine and preventive maintenance services Attending to emergency calls and troubleshooting Repairs, unscheduled and scheduled services The service dealers provide 24 hour/round the clock emergency services to MEL clients, where technicians are dispatched on-call, to all parts of the island. MEL has entered into service agreements which ensure immediate attention within minimum response times. In the event of a critical maintenance requirement, the expertise of technicians at the head office may be utilised at short notice. Preventive maintenance and routine servicing of power generators are carried out by the island wide dealer network. This dealer network consists of highly skilled and experienced technical staff, trained by MEL. The maintenance operations of MEL are carried out with the objective of helping the customers to avoid costly breakdown time and reduce maintenance costs. The Company carries out the emergency service repairs round the clock through the island wide service dealer network. The operation strives to achieve one hour response time and four hour repair time. 29 Mackwoods Energy Limited Initial Public Offering

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