The long troubled Laxapana Batteries PLC is seeking to raise Rs.90 million equity capital through a rights issue of two new ordinary shares for every one held at a discounted price of Rs.5 per share.

In a circular to shareholders, the company said that its board of directors considered this price as "fair and reasonable" to all existing shareholders noting that the Laxapana share was last traded in May and July at Rs.8.75 and in June at Rs.8.50.

Previously Elephant Lite Corporation, Laxapana was incorporated in August 1956 and is now a subsidiary of E.B. Creasy & Company PLC which is its immediate parent.

The core business of the company is the manufacture of dry cell batteries and it also franchise its Laxapana brand name to market related products.

The rights issue is being floated to repay advances obtained by Darley Butler & Company, Laxapana’s marketing agents, which also belongs to the E.B. Creasy group. Loans outstandingd to Darley Butler also remain to be settled.

"The balance proceeds would be availed for current working capital requirements," the circular said.

As at July 30, 2008, advances from Darley Butler amounted Rs.64.8 million. Laxapana also had an outstanding debt of Rs.337.3 million to Darley Butler of which Rs.262.3 million had been waived by the creditor.

"The company having made further payments to Darley Butler the loan outstanding presently is Rs.22.9 million and together with the advances the total indebtedness to Darley Butler stands at Rs.87.7 million," the circular said.

It also said that Laxapana was plagued by the sharp increase of raw material prices in the recent past with price escalation of zinc, accounting for about 40% of the cost of a torch battery, hurting the company’s effort to maintain profitability.

"The impact of the cost escalation has been two fold. Firstly the cost needed to be passed on to the consumer, resulting in a downturn for the overall demand for batteries, and secondly as the majority of the raw materials are imported, the inventory costs rose

sharply and the bank facilities too were severely constrained," the circular said.

In this situation the directors were of the view that the company should desist from increasing the current level of borrowings to repay liabilities in the context of prevailing high interest rates. Increased borrowings also depressed current earnings and will not improve the financial status of Laxapana.

The company had long been on a negative asset position and it was only during the financial year ended March 31, 2006 that this was reversed.

The directors were strongly convinced of the need to diversify operations of the company if it is to be turned around to be a viable, profitable entity.

"To achieve this objective there is a need to maintain a satisfactory long term financial record and the directors are of the view that raising equity through a rights issue is the best option available for the company," the circular said.

It also said that E.B. Creasy, the immediate parent, will subscribe to the extent of its entitlement. There will be no underwriting agreement and in the event of under-subscription, proceeds raised will be utilized to the extent the issue is subscribed.

Laxapana has called an extraordinary general meeting on September 15 to consider a resolution to float the rights issue.

During the first quarter of the current financial year the company has turned in a profit of Rs.3 million after-tax, up from a loss of Rs.3.7 million a year earlier translating to an earning per share of 33 cents against a loss of 41 cents a share during the first quarter of the previous financial year.

Net assets per share during the first quarter were down to Rs.8.23 from Rs.9.79 and the company’s share traded in the June quarter at a high of Rs.10 and a low of Rs.7. this compared with a trading range of Rs.7.25 to Rs.5 a year earlier.