Question

Abdul LLC has been into hotel Business for nearly 14 years. Their hotels include luxury and boutique hotels incorporating one of the finest services in Oman attracting customers not only from Oman but also from all over the world visiting the country. Apart from accommodation, they offer services which include restaurants, spas and beauty therapy treatments, swimming pools, tennis and badminton courts. In 2018, they are ranked one of the top 10 best hotels in Oman Huge customer base and support encouraged the partners to try their part in cosmetics industry producing toiletries, skin care, hair care, fragrances and makeup products using organic materials. The owners of the company are aware of the fact that many cosmetic producers are already producing cosmetic products and selling in the market. Despite all these, the owners believe that they have a better understanding of the customers' requirements which gives immense confidence to the owners to foray into the business. Feasibility report indicated a huge positive and optimistic growth for the industry. The feasibility study revealed that nearly 400 to 600 new direct and indirect jobs can be created within a brief period of time of its establishment Market report suggests that the cosmetic industry has enormous potential in Oman not only from the resident customers but also from the vast number of tourists and businesspeople who visit and stay in Oman Vacationers and corporate people who stay in luxury hotels, resorts would definitely look for quality cosmetics and toiletries. Alliance with hotels, resorts, spas and beauty parlors would boost the sale of cosmetic products. They are also expecting demand from cosmetic shops, departmental stores and medical shops. Market reports are also highly positive projecting a huge growth rate of 30 to 40% in the year 2025. Any business at the outset sustaining losses is normal, and the cosmetic business is not an exception. The cosmetic products can be used in their existing business itself in their own spas and beauty therapy treatments and the prospect of huge demand from the market also would enable the company to annul its losses and transform itself into an income generating business. The partners are of the opinion that foraying into cosmetic industry will yield huge profits and also it will help to develop its hotel business in a constructive spirit. Business proposal showed that in order to establish cosmetic manufacturing business it has to invest OMR 77.5 million comprising of investment in men, materials, buildings, modern machines, and technology Although positive outlook about the cosmetic industry is coming from all the circles, the partners have decided not to combine their successful hotel business with the new cosmetic business. They are also aware of the fact that cosmetic business requires massive investment and Abdul LLC was well-known for its exceptional services in hotel industry. The company was also known for its income generating capability giving Abdul LLC a good public image. Discussions with legal and auditing professionals made the owners comprehend the processes to be pursued in order to establish a public limited company i.e., SAOG. Omani Commercial Companies law states the details of the procedures to be ensued and rules to be followed for the establishment of a public limited company Abdul LLC came up with AXY S.A.O.G by complying with the necessary rules and regulation. The company got registered with a capital of OMR 55.5 million consisting of ordinary shares of 250 baiza each. The promoter of the company were the partners of Abdul LLC who subscribed to 30% of the registered capital and 40% shares were offered to the public. The other details with regards to initial public offer is give below: The offer opening and closing Date was 21" October 2019 - 30 October 2019. Bank Sohar SAOG was appointed as the issue manager and the all nationalized Omani Bank were to be the collection banks. Reporting accountants were PricewaterhouseCoopers; appointed auditors were KPMG. Legal Adviser to were MJ & Co. Barristers & Legal Consultants and Marketing Adviser were LMG Duo. Each single share carried the right to one vote at any general meeting. Offer price for each share was at a premium of 20% along with additional share issue expense of 2 baiza per offer share. Purpose of the IPO is to comply with the obligations stipulated in the Oman commercial law with regards to company formation. Persons eligible for Offer Shares can be Omani and non-Omani individuals and juristic persons who apply a minimum of 5,000 Offer Shares and in multiples of 100 Shares. Persons prohibited from subscribing to the offer are the following: • Sole proprietorship establishments: The owners of sole proprietorship establishments may only submit Applications in their personal names. • Trust accounts: Customers registered under trust accounts may only submit Applications in their personal names. • Multiple Applications: An Applicant may not submit more than one Application. Joint Applications: Applicants may not submit applications in the name of more than one individual (including on behalf of legal heirs). All such Applications will be rejected without contacting the Applicant. Proposed allocation procedure: In case of oversubscription, for the purpose of allocating the Offer Shares between the eligible investor groups, the allocation of the Offer Shares will be 1:4. The maximum limit of shares allotted to an individual cannot be more than 50,000 shares. The company's issue was oversubscribed by 2.2 times of which 0.2 times were prohibited investors whose application was rejected. Of all the qualified investors' allotment was made pro-rata. Excess amounts were refunded within one week. You are required to analyse the given situation and detail out the following: a. List out the indicators that triggered Abdul LLC to expand its business and set up AXY Y S.A.O.G. Also briefly explain that why forming an AXY S.A.O.G is the better than starting the new business under Abdul LLC? (3 marks - Min 150 words) b. What was the main reason for the company's shares to get oversubscribed? Was the company able to qualify with the minimum subscription criteria? Justify with necessary fact and figures? (3 marks - Min 150 words) c. Calculate the issue price, total number of share applications received, total number of shares rejected, total number of shares allotted and share capital structure of AXY S.A.O.G. after the issue. Show necessary working notes (4 marks)