1

APPLICATION FOR H. O. LIMITS Page 1

Branch : Corporate Credit Date : New X
16.10.2009
Customer : A Baur & Co Ltd Additional
Account No : To be Opened Renewal
Business/Prof : Manufacturing & trading of Agro-Chemicals, Pharmaceutical Terms
specialties, Amended
Industrial Chemical & Textile Dyes
Balance Sheet Dated Audited Draft Profit & Loss Audited Draft
Rs’ 000 as at as at Summary as at as at
31/12/2007 31/12/2008 Rs’ 000 31/12/07 31/12/08

Current Assets 4,639,342 6,532,217 Turnover 6,764,598 7,728,973

Current Liabilities 4,194,714 5,977,927
Working Capital 444,628 554,290 Trading Profit 485,988 757,319

Land & Building 340,240 368,790 Profit Before Tax 420,505 511,993
Others Fixed Assets 115,369 122,930
Investments 6,284 6,284 Earnings 274,671 311,270
Net Assets 906,521 1,052,294
Retained Profit 120,671 156,270
Share Capital 155,420 155,420
General Reserve 498,506 653,506
Accretion Reserve 146,874 146,874
Retained Earnings 1,555 2,825 Due to Bank / N.W 2.4 3.3

Net Worth 802,355 958,625

Total Liab / N.W 5.4 6.3
Term Finance 29,883 ---
Other Liabilities 74,283 93,669 R.O.C (%) 52 53
Capital+ Long Term 906,521 1,052,294
Liabilities

CONNECTIONS & OWNERSHIP Risk Grading

Limited Liability Company Borrower Rating - " B- "

Score - " 71 "

STATED CAPITAL
Customer Profitability
Stated Capital - Rs.155,420,000/-
R.O.A of the proposed facility - 3.38%

Shareholding
Sector Exposure - 0.07% (as at 28-02-2009)
Name of Shareholder No of Percentag
shares e (%)
Lanka Baurs Holdings - 100% Sector - Traders & Whole- salers
Switzerland
Total 100% (Whole salers of agricultural raw materials))

DIRECTORS

1. Thomas F. Daetwyler
2. Lakshman Niyangoda
3. Jayendran Setukavalar
4. Amal Peiris
5. Janaka Gunasekara
6. Jayantha Ratnayaka
7. Mahanama Dodampegama

Next Review in Page 2

April 2010
Previous Amount
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Amount Type, Terms (Including Interest Rates, Margin Purpose, Etc) Now
Required
Rs.M

NIL FACILITY 1 - OVERDRAFT 300.0

Purpose : To finance working capital requirements

Interest Rate : AWPLR + 1.5% p.a. subject to a floor of 19.0% p.a payable
monthly
together with applicable statutory taxes at prevailing rates.
(Rate to be adjusted monthly, floor be reviewed quarterly)

Repayment : On demand

Security : Overdraft Agreement for Rs.250.0M (To be Obtained)

FACILITY 1 - OVERDRAFT
NIL 300.0
Purpose : To finance working capital requirements

Interest Rate : AWPLR + 1.5% p.a. subject to a floor of 19.0% p.a payable
monthly
together with applicable statutory taxes at prevailing rates.
(Rate to be adjusted monthly, floor be reviewed quarterly)

Repayment : On demand

Security : Overdraft Agreement for Rs.250.0M (To be Obtained)

NIL Total Direct Exposure 600.0M

NIL Total Indirect Exposure 0.00

NIL Total Exposure 600.0M

A BAUR & CO LTD - (ABCL)

1.0 PROPOSITION
To consider an overdraft facility

• An Overdraft facility of Rs.250.0M

2.0 RISK
2.1 FINANCIAL RISK
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The company has forwarded us the audited accounts for F/Y 2007 & draft accounts for F/Y 2008
and following observations are based on same:

Item (Draft ) Change Comments

FY Rs.M
2008
Rs.M
Turnover 7,728.9 964.3 Mainly due to increase sales in fertilizer &
14.2% - Up chemicals, healthcare, pharmaceuticals, etc.
(Note 1)
Operating Margin 798.4 269.4 Mainly due to increased sales & reduced cost of
50.9% - Up sales during the period
Net profit before 512.0 91.5 Although finance charges increased from 4% to 6
Tax 21.8% - Up % of the turnover during the period, growth in
operating margin by 50.9% had mainly resulted
the increase in NPBT
Interest Cover 2.1 0.4 - Down This is mainly due to increase in finance charges
by 61.6% when compared to the growth in NPBIT
by 37.9% during the year. However the cover
stands satisfactory
Gearing 3.3 0.9 - Up Due to a 62% (Rs.1.2Bn) increase in bank
borrowings compared to the 19.5% growth in net
worth
Working Capital 554.3 109.7 - Up Improved due to part financing of current assets
with retained earnings
Net worth 958.6 156.3 - Up Due to retention of 50% profits within the
company
R.O.C. 53 1 - Up Satisfactory. A slight increase in R.O.C. is evident
mainly due to increase in NPBT when compared
to the growth in net worth

Cash Flow Statement – Comments -

Company has recorded a NPBT of Rs.512.0M in F/Y 2008 which is an increase by Rs.91.5M
compared to previous year. The operating cash flow prior to working capital changes in F/Y
2008 was Rs.1.0B. During the period the company had increased its inventory by Rs.1.26B,
trade debtors & other receivables by Rs.156.8M & trade creditors and other payables by
Rs.562.3M as working capital changes & had paid interest and tax of Rs.462.1M & Rs.200.7M
respectively resulting in a deficit of Rs.499.6M being the net cash outflow from operating
activities.

The company’s investing activities which indicated an outflow of Rs.77.2M in F/Y 2008 were
dominated by purchase of property, plant & equipment while financing activities signifies
receipt of loan proceeds of Rs.488.1M, payment of lease rentals & dividends of Rs.38.5M and
Rs.155.0M respectively. The deficit in operational and investing activities had been partly
financed by proceeds of loans. During the year the net decrease in cash and cash equivalent
was Rs.282.0M which resulted in further deteriorating the year end balance to a negative of
Rs.529.0M which was financed by way of an overdraft.

2.2 MARKET / BUSINESS RISK

2.3 SECURITY RISK

We are not in a position to obtain stocks and book debts as security for the proposed facilities
as the company policy has been obtaining facilities on clean basis considering the vast
experience and reputation gained in the field during the past 11 decades. The company
confirms that all facilities obtained from HSBC (who has been their bankers since inception),
Standard Chartered Bank, Commercial Bank, Bank of Ceylon and Seylan Bank are on clean
basis. However, according to ABCL the value of stocks and book debts as at 30-04-2009 stood
at Rs.1,644M and Rs.1,838M respectively and the total bank outstanding as at same was
Rs.2,785M. (The percentage of facilities outstanding covered by stocks & book debts is 80.0%).
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Therefore, it is justifiable in considering the proposed package of facilities on a clean basis due
to the company being a large corporate entity, diversified in to many segments, financially
strengthened, well reputed establishment engaged in business in Sri Lanka for more than 110
years which will mitigate the unavailability of security.

2.4 INTEREST RATE RISK

ABCL is highly concerned with regard to interest rates. The company is presently enjoying
facilities within the range of AWPLR+0.5% p.a. to AWPLR +1.0% p.a., with other banks. Hence
we are proposing at AWPLR +1.5%p.a with a floor of 19.0% p.a. for the proposed facilities and
according to the cash flow, they are in a position to service same.
Also, draft accounts indicates the company's present interest cover at 2.1 times which signifies
the their ability in servicing the present interest commitments as well as the proposed package
of facilities and a further increase of 0.50% p.a.-1.0% p.a. on interest rates could be absorbed
by the company, based on its financials.
ABCL is a good revenue source for the bank in terms of DC & guarantee commissions. We
proposed the DC commission to be levied at 0.1875% per quarter (normal commission 0.375%
per quarter) for term DC's and 0.125% per quarter (normal commission 0.25% per quarter) for
sight DC's, taking into consideration the volume of DC's to be routed through us and
commission rates offered by other banks.

2.5 STRUCTURAL RISK

ABCL is fully owned by Lanka Baur Holding SA, a company based in Geneva, Switzerland. The
net worth of ABCL as at 31-12-2008, stood at Rs.958.6M which mainly consist of Rs.155.4M as
stated capital, Rs.653.5M as general reserve & Rs.146.9M as revaluation reserves. The general
reserve will be increased every year as it is the company policy to transfer 50% of its earnings
to the general reserve and the balance to be distributed as dividends. Therefore, the structural
risk of ABCL is mitigated considering the strong and growing net worth.

2.6 MANAGERIAL RISK

ABCL is a well established conglomerate in Sri Lanka having diversified in to many segments
and is headed by Thomas F. Daetwyler, Chief Executive Officer who is supported by Lakshman
Niyangoda, COO in making strategic decisions on behalf of the organization. Further the
following directors, with vast knowledge and experience in the relevant sectors are supervising
and controlling other diversified activities of the company. They are well experienced
professionals in the field and directly involved in the management. Therefore non availability of
one or two of them will not affect the existence of the company.

• Jayendran Setukavalar - Director - Finance & Support Services

• Amal Peiris - Director - Industrial raw material, Textile machinery, Airlines & Travel
• Janaka Gunasekara - Director - Alternate, Agriculture Division
• Jayantha Ratnayaka - Director - Exports
• Mahanama Dodampegama - Director Healthcare

Therefore, the managerial risk relating to the company is mitigated in view of the involvement
and the commitment of the professionals which resulted the company being successful in the
industry.

3.0 RECOMMENDATION

We were not successful in our initial attempt in mid 2008, in trying to canvass this company, as
the Company's policy was to bank only with foreign banks. But recently, the company had
decided to divert part of their business to local banks as well with the financial crisis being
affected on foreign banks. Hence, we have initially proposed a package of facilities consisting of
a overdraft limit of Rs.0.25B and a money market loan facility of Rs.0.25B (as a sub limit of
overdraft facility) to finance working capital requirements, import line facilities amounting to
Rs.1.25Bn to facilitate the importation of fertilizer, agro chemicals and pharmaceutical items
followed by a letter of guarantee facility of Rs.0.1Bn to issue IATA guarantees favouring airlines,
mainly Swiss Air Ways.

According to the banks risk grading mechanism the borrower rating of ABCL is "B-" with a score
of 71, which is considered acceptable. R.O.A of the package of facilities proposed, is at 3.38%
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which is healthy and will bring profits to the bank. Further, the company has forecasted a
turnover of over Rs.10.7Bn for financial year 2009 as they are positively looking forward to
increase their sales with the expected growth in the agriculture and pharmaceutical sectors in
the North & the East regions, with the settlement of the prevailing war in the country.

Therefore, the proposed facilities are recommended considering the following :

• The financial performances & Being a stable company for the past 110 years in doing
business successfully.
• Market position of the company
• Branded products
• Potential trade business for the bank
• Potential growth in business
• Management knowledge and expertise

Indika Samarasekera Sandun Wickramasinghe

Manager - Credit Marketing Manager- Corporate Credit.
Prepared by - Hasantha Kariyawasam (Executive I)

A BAUR & CO Ltd - (ABCL)

COMPANY PROFILE

ACCOUNT RELATIONSHIP

ABCL is yet to commence banking operations with us. However, with the approval of the
proposed package of facilities there is a good opportunity for us to build a solid relationship and
to improve trade business of the bank. Presently the company enjoys working capital as well as
import line facilities from HSBC, Standard Chartered Bank, Commercial Bank, Seylan Bank and
Bank of Ceylon.

R.O.A

The R.O.A of the proposed package of facilities is 3.38% which will bring profits for the bank in
terms of interest base as well as fee base income.
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Application for Limits

Customer : A. Baur & Company Limited DATE:
11/03/2009
Please Report as Applicable
1. Address No : 5, Upper Chatham Street, Colombo 01
2. Year of Establishment 17th March 1938
3. Name/s of Directors 1. Thomas F. Daetwyler - CEO
2. Lakshman Niyangoda - COO
3. Jayendran Setukavalar
4. Amal Peiris
5. Janaka Gunasekara
6. Jayantha Ratnayaka
7. Mahanama Dodampegama
4. Names of Subsidiaries/Associates/any other 1. A. Baur & Co (Travel) Ltd,
business where the Directors/ 2. Baurs Air Services Ltd
Partners/Proprietor have a substantial 3. Baurs Plantation Ltd
Interest
5. Other Bankers (quote also their latest Refer Annex I
report and date given)
6. Facilities from other Banks Refer Annex I
7. Facilities taken from Finance Companies / ---
Leasing Co. / any other Financial Institutions
8. Securities given to other Banks / Financial Refer Annex I
Institutions
9. Contingent liabilities e.g. Guarantees on --
behalf of third parties
10. Tax particulars of the Company / Directors / --
Partners / Proprietor
11. Status Report(s) on guarantors --
(a) Names
(b) Source and date of Report
12. Whether CRIB/ Recoveries Department CRIB report obtained on 17.03.09 reflects Irregular borrowings
clearance regarding past due facilities had consisting of leasing facilities outstanding amounting to Rs.2.7 M
been obtained/ Date of report obtained from Central Finance PLC.

However, the "General Manager - Finance" of Central Finance PLC,

13. Other relevant information confirms that at present the out standings have been settled in full.
14. Report on Guarantors
Consents & Resolutions

It is confirmed that all relevant statutory and other provisions

and regulations concerning the borrower and the Bank with
regard to the proposed lending such as Memorandum &
Articles / BOI Agreement/Exchange Control
Approval/Environment Authority Approval etc. having been
examined and that the proposed lending on the part of the
Bank and the proposed borrowing on the part of the borrower
fall within the applicable and governing circumstances. All
consents and resolutions will be obtained.

Manager – Credit Marketing

Corporate Credit

Other bank facilities & outstanding

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as at 31st December 2008 - (in Rs. M)

Bank Facility Limit O/S Security

HSBC

Total O/S

Bank Facility Limit O/S Security

Standard
Chartered

Total O/S