Millennium Housing Developers Limited

Initial Public Offering to be listed on the Diri Savi Board of the Colombo Stock Exchange Millennium Housing Developers Limited

OFFER FOR SUBSCRIPTION OF SIXTEEN MILLION (16,000,000) NEW ORDINARY VOTING SHARES AT LKR 6 PER SHARE WITH AN OPTION TO ISSUE A FURTHER SIXTEEN MILLION (16,000,000) SHARES IN THE EVENT OF AN OVERSUBSCRIPTION OF THE INITIAL SIXTEEN MILLION (16,000,000) SHARES

Managers to the Issue

Arpico Ataraxia Asset Management (Pvt) Ltd. Invitation to the Investor

The Board of Directors of Millennium Housing Developers Ltd (“MHDL” or “Company”) is hereby pleased to invite you to invest in Shares of the Company by way of the Offer, which provides an opportunity to participate in the future growth prospects of MHDL, one of the leading housing developers and deliverers of township projects in Sri Lanka. MHDL is a subsidiary of Nation Lanka Finance PLC and the main business activity of the Company revolves around developing property as Township Projects to cater to the emerging residential needs of people from various income segments.

MHDL, formally known as Ceylinco Developers Limited, was incorporated in 1998 and commenced business in 1999. MHDL's first project was the Millennium City Project which has revolutionised the concept of suburban neighbourhoods around Colombo. The first project was initiated on BOI land in Athurugiriya, consisting of 1,600 housing units, where the emphasis was to meet the housing needs of low and medium income earners. Later on, MHDL launched another mega project in Ja-Ela with the success of the Athurugiriya Project. Currently, MHDL has ventured into another new concept, named “Urban Range” to suit the diversified needs of various customers.

Sri Lanka is well positioned to enjoy significant economic growth in the coming years, despite the global economy recovering from the global financial crisis at a much slower pace. The robust business environment created following the end of the civil war continued to raise Sri Lanka's per capita income levels, thus giving rise to increases in net household income. This in turn will strengthen the spending power of the country's households in the future, enabling them to spend more on their housing needs. At the same time, Sri Lanka's growing population creates demand for more houses with the necessary facilities. Government spending on construction and infrastructure related projects have increased since the end of the civil war, creating a more favourable environment and immense growth prospects for the country's real estate market.

The Issuer is seeking to initially raise LKR 96 million through the issue of 16,000,000 New Shares of the Company at a Share Issue Price of LKR 6.00 per share. In the event of an oversubscription, company will issue a further 16 million Shares at the Issue Price of LKR 6 which will raise another LKR 96,000,000 totaling to LKR 192,000,000. The net proceeds of the Offer will therefore be applied towards the Objectives of the Issue described at Section 5.2

This document is intended to provide prospective investors with detailed information regarding MHDL and its business in addition to other statutory information relating to the Issue. The Board of Directors of MHDL encourage the investing public to read this Prospectus carefully before deciding whether to invest in Shares of the Company and look forward to welcoming you as an investor in MHDL.

Millennium Housing Developers | Initial Public Offering All applicants should indicate their respective CDS account number in the application form for reference.

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 shall be directly uploaded to the CDS. 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 making the Application, in order to facilitate the uploading of allotted Shares to the CDS.

PLEASE NOTE THAT UPON THE ALLOTMENT OF OFFERED SHARES UNDER THIS ISSUE, THE ALLOTTED SHARES WILL BE CREDITED TO THE APPLICANT'S CDS ACCOUNT SO INDICATED. SHARE CERTIFICATES SHALL NOT BE ISSUED.

IF THE CDS ACCOUNT NUMBER IS NOT INDICATED IN THE APPLICATION FORM, WHICH IS NOT OPENED AT THE TIME OF THE CLOSURE OF THE SUBSCRIPTION LIST (EITHER AT THE TIME FIXED FOR CLOSING OR ON THE DATE ON WHICH THE OFFER IS FULLY SUBSCRIBED), OR THE CDS ACCOUNT NUMBER INDICATED IN THE APPLICATION FORM IS FOUND TO BE INACCURATE /INCORRECT, THE APPLICATION SHALL BE REJECTED AND NO ALLOTMENT WILL BE MADE.

You can open a CDS account through any Member/Trading Member of the Colombo Stock Exchange (CSE) as set out in Annex A or through any Custodian Bank as set out in Annex B of this Prospectus.

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 the accuracy of the statements made, opinions expressed or reports included in the Prospectus. Moreover, the CSE does not regulate the pricing of the Shares which is decided solely by the Company/Issuer.

Millennium Housing Developers | Initial Public Offering i This Prospectus is dated 30th December 2013.

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 Prospectus or if you require any advice in this regard, you should consult your stock broker, bank manager, lawyer or any other professional advisor.

This Prospectus has been prepared from information provided by Millennium Housing Developers Limited (hereinafter referred to as “MHDL” or “Company”) and its Directors and/or which is publicly available. The Company and its Directors having made all reasonable inquiries, confirm that to the best of their knowledge and belief, the information contained herein is true and correct in all material respects and that there are no other material facts, the omission of which would make any statement herein misleading. Where representations regarding the future performance of MHDL have been given in this Prospectus, such representations have been made after due and careful enquiry of the information available to MHDL and making assumptions that are considered to be reasonable at the present point in time in their best judgment. The Company 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.

No person is authorized 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 authorized by the Company.

Millennium Housing Developers | Initial Public Offering ii Registration of the Prospectus

A copy of this Prospectus has been delivered to the Registrar General of Companies of Sri Lanka for registration. The following documents were attached to the copy of the Prospectus delivered to the Registrar General of Companies.

1) The written consent of the Managers to the Issue The Managers to the Issue have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Managers to the Issue and for the inclusion of their statements/declarations in the form in which it is included in the Prospectus.

2) The written consent of the Registrars to the Issue The Registrars to the Issue have given and have not before the delivery of a copy of the Prospectus for Registration withdrawn their written consent for the inclusion of their name as Registrars to the Issue in the Prospectus.

3) The written consent of the Auditors & Reporting Accountants to the Company The Auditors & Reporting Accountants to the Company have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Auditors & Reporting Accountants to the Company and for the inclusion of their report/ statements in the form and context in which it is included in the Prospectus.

4) The written consent of the Legal Advisors & Lawyers to the Issue The Lawyers to the Issue has given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their name as Lawyers to the Issue in the Prospectus.

5) The written consent of the Bankers to the Company/Issue The Bankers to the Company/Issue have given and have not before the delivery of a copy of the Prospectus for registration withdrawn their written consent for the inclusion of their names as Bankers to the Company/Issue in the Prospectus.

A declaration made by each of the Directors of the Company confirming that each of them have read the provisions of the Companies Act and of the CSE Listing Rules relating to the issue of the Prospectus and that those provisions have been complied with.

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.

Representation

Millennium Housing Developers | Initial Public Offering iii Registration of the Prospectus

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 Considerations 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 Considerations and Associated Risks” in Section 13 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, Department of Census & Statistics, World Bank, Asian Development Bank 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 Managers to the Issue make any representation as to the accuracy of that information.

Millennium Housing Developers | Initial Public Offering iv Issue at a Glance

Issuer Millennium Housing Developers Limited

Number and Type of Securities 16,000,000 Ordinary Shares to be Initially Issued

If the option is exercised 32,000,000 Ordinary Shares

Issue Price LKR 6.00 per Share

Amount to be raised on the LKR 96,000,000 number of Shares to be initially issued

Amount to be raised if the Upto LKR 192,000,000 option is exercised

Minimum Subscription per Minimum subscription per Application is Application 100 Shares (LKR 600.00). Applications exceeding the minimum subscription should be in multiples of 100 shares. The minimum subscription of 100 shares will be allotted to all successful applicants of the Company's Initial Public Offering

Issue Opening Date 28th January 2014

Issue Closing Date 18th February 2014 or such earlier date on which; The issue of 32,000,000 New shares are oversubscribed; or The Board of Directors decide to close the Issue upon the initial Issue of 16,000,000 New Shares becoming fully subscribed or on any other date the Board of Directors decide to close the issue upon the exercise of the Option of issuing a further 16,000,000 New Ordinary Voting Shares. Refer Section 5.7 of this Prospectus for further details on the Issue Closure Date.

Millennium Housing Developers | Initial Public Offering v Table of Contents

1.0 Abbreviations Used in the Prospectus 01 2.0 Corporate Information 02 3.0 Relevant Parties to the Issue 03 4.0 Glossary of Terms Related to the Issue 04 5.0 Details of the Issue 05 5.1 The Issue 05 5.2 Objectives of the Issue 05 5.3 Listing 07 5.4 Cost of the Issue 07 5.5 Brokerage 07 5.6 Minimum Subscription & Underwriting 08 5.7 Subscription List - Opening Date and Issue Closing Date 08 5.8 The Basis of Allotment 08 5.9 Inspection of Documents 09 5.10 Eligible Applicants 10 5.11 The Procedure for Application 10 5.11.1 How to Apply 10 5.11.2 Responsibility of a Non- Resident Investor 11 5.11.3 Number of Shares Applied 12 5.11.4 Margin Trading 12 5.11.5 Applications Made Under Power of Attorney 12 5.11.6 Applications 12 5.11.7 Multiple Applications 13 5.11.8 Rejection of Applications 13 5.11.9 Submission of Applications 14 5.12 Payment of Application Monies 14 5.12.1 Mode of Remittance 14 5.12.2 Cheques or Bank Drafts - Resident Sri Lankan Investors 14 5.12.3 Bank Guarantees - Resident Sri Lankan Investors 14 5.12.4 Foreign Currency Remittance 14 5.12.5 Restrictions Applicable to Foreign Citizens Resident in Sri Lanka 17 5.13 Banking of Payments 17 5.14 Returning of Monies on Rejected Applications 17 5.15 Allotment of Shares in Issue/Basis of Allotment 18 5.16 Refunds on Applications 19 5.16.1 Refunds via Sri Lanka Inter-bank Payment System (SLIPS) 19 5.16.2 Refunds via Crossed Cheque 20 5.17 Successful Applicants and CDS lodgement 20 5.18 Declaration to the CSE and Secondary Market Trading 21 6.0 Sri Lankan Economy 22 6.1 Economic Growth of Sri Lanka 23 6.2 Inflation of the Economy 23 6.3 Exchange Rates 24 7.0 Industry Overview 25 7.1 Construction Sector of Sri Lanka 26 7.2 Real Estate Sector 28 7.3 The Residential Housing Sector 28 7.4 Demand & Supply in the Housing Market 29 7.4.1 Demand Drivers 29 7.4.2 Supply Drivers 34

Millennium Housing Developers | Initial Public Offering vi Table of Contents

7.5 The Housing Finance Market 37 7.6 Land & Property Sector Growth of the CSE 38 8.0 Millennium Housing Developers Limited 39 8.1 Company Overview 40 8.2 Key Milestones 44 8.3 Product Portfolio 45 8.4 Key Strengths 49 8.5 Geographical Footprint 51 8.6 Future Direction & Strategic Plans 53 8.7 Assumptions Relating to Future Plans 53 9.0 Corporate Information 54 9.1 Corporate Structure 55 9.2 Directors' Other Directorships 58 9.3 Directors' Interest in Shares 59 9.4 Directors' Interest in Assets 60 9.5 Directors' Interest in Contracts 60 9.6 Directors' Emoluments 60 9.7 Statement - Board of Directors 60 9.8 Corporate Governance 60 9.9 Corporate Management 62 9.10 Human Resources 63 9.11 Corporate Social Responsibility 64 9.12 Key Management's Emoluments 64 9.13 Statement - CEO 64 10.0 Other Company Information 65 10.1 Relationship with Key Customers & Suppliers 66 10.2 Dividend Policy 66 10.3 Details of Material Indebtedness 67 10.3.1 Debentures 67 10.3.2 Bank Loans 67 10.3.3 Mortgages and Charges on Assets 67 10.3.4 Inter Company Balances 68 10.4 Working Capital 68 10.5 Litigation, Disputes and Contingent Liabilities 68 10.6 Material Contracts 69 10.7 Details of Commissions Paid 69 10.8 Details of Benefits Paid to Promoters 69 10.9 Details of Management Agreements 69 11.0 Capital Structure 70 11.1 An Overview of the Stated Capital 71 11.2 Details Pertaining to the Locked-in Shares 71 11.3 Transfer of Shares 72 11.4 Shareholders of MHDL 72 11.5 Details of Other Changes to Stated Capital 73 11.6 Details of Convertible Debt Securities 73 11.7 Details of Shares Sold Privately in Conjunction with the Issue 73 11.8 Free Transferability of Shares 73 11.9 Take-over Offers 74 11.10 Taxation 74

Millennium Housing Developers | Initial Public Offering vii Table of Contents

12.0 Management Discussion & Analysis 75 12.1 MHDL Group Financial Overview 76 12.2 Audit Report & Financial Statements of MHDL’s Subsidiaries 77 12.3 Financial Analysis 89 13.0 Investment Consideration & Associated Risks 93 13.1 Associated Risks 94 13.2 General Risks of an Investment in MHDL 94 13.3 Specific Risks to an Investment in MHDL 96 13.4 Risks Associated with the Future Strategies 97 14.0 Statutory Declarations 98 14.1 Signing of Prospectus & Statutory Declaration by the Directors 99 14.2 Statutory Declaration by Managers to the Issue 100 14.3 Statutory Declaration by the Company 100 15.0 Financial Statements & Auditor's Report 101 15.1 Accountant's Report for Inclusion in the Prospectus 102 15.2 Five Year Summary of Financial Statements 108 15.3 Interim Financial Statements up to 30th September 2013 116 15.4 Audit Report & Financial Statements as at 31st March 2013 130 Annexure 177 Annex A - Collection Points 178 Annex B - Custodian Banks 183 Annex C - Feasibility Reports 184

Millennium Housing Developers | Initial Public Offering viii Table of Contents

List of Figures

Figure 6.1 Annual GDP Growth of Sri Lanka 23 Figure 6.2 Movements of the CCPI 24 Figure 6.3 Movement of Exchange Rates 24 Figure 7.1 Performance of the Construction Sub Sector 26 Figure 7.2 Capital Expenditure on Construction Activities 27 Figure 7.3 Movement of Lending and Deposit Rates 29 Figure 7.4 Movement of Treasury Yields 29 Figure 7.5 Growth of Mid Year Population 30 Figure 7.6 Per Capita GDP Growth 31 Figure 7.7 Household Income & Expenditure 32 Figure 7.8 Share of Household Income by Household Income Quintiles 32 Figure 7.9 Change in Worker Remittances 33 Figure 7.10 Movement in Housing Stock 35 Figure 7.11 Greater Colombo Housing Approvals 36 Figure 7.12 Commercial Banks' Loans and Advances for Housing and Maturity Period 37 Figure 7.13 Commercial Banks' Loans for Housing 38 Figure 7.14 Land & Property Sector Market Capitalization 38 Figure 8.1 Analysis of Sales Units by House Types 48 Figure 12.1 Revenue Growth of MHDL 89 Figure 12.2 Gross Profit & Gross Margins 90 Figure 12.3 Net Profit / Loss & Margins 90 Figure 12.4 EBIT Vs Interest Coverage 91 Figure 12.5 Total Debt & Equity 91 Figure 12.6 Liquidity Position of MHDL 92 Figure 12.7 Financial Summary of MHDL 92

Millennium Housing Developers | Initial Public Offering ix Table of Contents

List of Tables

Table 5.1 Details of the Ongoing Projects and the Upcoming Projects 05 Table 6.1 Growth Outlook for 2013 23 Table 7.1 Mid Year Population of Sri Lanka 30 Table 7.2 Movement in Housing Stock 35 Table 7.3 Government Expenditure on Housing 36 Table 7.4 Lending Rates for Housing Loans 37 Table 8.1 Details of Operational Projects of the Subsidiaries 42 Table 8.2 Analysis of Sales Units by House Types 48 Table 8.3 Analysis of Sales Units by Lands 48 Table 9.1 Details of Board of Directors 55 Table 9.2 Other Directorships held by Board of Directors 58 Table 9.3 Directors' Shareholding in MHDL 59 Table 9.4 Sales and Purchases of Shares 59 Table 9.5 Human Resources of MHDL 63 Table 10.1 Debentures of MHDL 67 Table 10.2 Bank Loans of MHDL 67 Table 10.3 Mortgages and Charges on Assets 67 Table 10.4 Inter-company Balances of MHDL 68 Table 11.1 Movement in Stated Capital 71 Table 11.2 Details of Shares locked- in (Based on Shares held Prior to IPO) 71 Table 11.3 Details of Shares locked- in subsequent to the IPO (1st tranche) 71 Table 11.4 Details of Shares locked- in subsequent to the IPO (2nd tranche) 72 Table 11.5 Top 10 Shareholders of MHDL 72 Table 11.6 Pre IPO Vs Post IPO Shareholding of MHDL (1st tranche) 73 Table 11.7 Pre IPO Vs Post IPO Shareholding of MHDL (both tranches) 73 Table 12.1 Summarised Income Statement of MHDL 76 Table 12.2 Summarised Balance Sheet of MHDL 76 Table 12.3 Summarised Cash Flow Statement of MHDL 76 Table 12.4 Revenue Breakdown 89

Millennium Housing Developers | Initial Public Offering x 1.0 Abbreviations used in the Prospectus

Abbreviation Description ADB Asian Development Bank ASI All Share Index AWPLR Average Weighted Prime Lending Rate BOI Board of Investment of Sri Lanka CAGR Compound Annual Growth Rate CBSL Central Bank of Sri Lanka CDS Central Depository Systems (Private) Limited CEA Central Environmental Authority CEO Chief Executive Officer CSE Colombo Stock Exchange CSR Corporate Social Responsibility EBIT Earnings Before Interest Tax EBITDA Earnings Before Interest Tax Depreciation Amortization ESC Economic Service Charge FCBU Foreign Currency Banking Unit FY Financial Year GDP Gross Domestic Product HDFC Housing Development Finance Corporation Bank of Sri Lanka HR Human Resource IMF International Monetary Fund IPO Initial Public Offering ICTAD Institute for Construction Training and Development LCB Licensed Commercial Bank LKR Sri Lankan Rupee MHDL Millennium Housing Developers Limited MHL Millennium Housing Limited MVHDL Millennium Villa Housing Developers Limited NBT Nation Building Tax NHDA National Housing Development Authority NIC National Identity Card NRFC Non- Resident Foreign Currency NSB National Savings Bank PER Price Earnings Ratio POA Power of Attorney RANSI Rupee Account for Non – Resident Sri Lankan Investment RGFCA Resident Guest Foreign Currency Account SEC Securities and Exchange Commission of Sri Lanka SIA Securities Investment Account SLIPS Sri Lanka Inter – bank Payment System SMIB State Mortgage and Investment Bank USD US Dollar UDA Urban Development Authority USDA Urban Settlement Development Authority VAT Value Added Tax WHT Withholding Tax YoY Year on Year

Millennium Housing Developers | Initial Public Offering 01 2.0 Corporate Information

The Company Millennium Housing Developers Limited

Legal Form of the Company A limited liability company incorporated in Sri Lanka on July 28, 1998, and re-registered as a public limited liability company on June 25, 2008 under the Companies Act No. 7 of 2007

Company Registration No. (under P B 376 the Companies Act No.07 of 2007)

Place of Incorporation Colombo, Sri Lanka

Registered Office Millennium Housing Developers Limited No 28, Dr Lester James Peries Mawatha, Colombo 05 Tel : 011 451 8421, 011 492 7858 Fax : 011 454 1750

Secretaries of the Company First Corporate Solutions Limited No 540, R. A. De Mel Mawatha, Colombo 03 Tel : 011 255 9800 Fax : 011 255 9800

Auditors to the Company KPMG Sri Lanka (Chartered Accountants) No 32A, Sir Mohamed Macan Markar Mawatha, Colombo 03 Tel : 011 542 6426 Fax : 011 244 5872

Bankers to the Company Commercial Bank of Ceylon PLC No 285, Galle Road, Colombo 03 Tel : 011 257 7280-1 Fax : 011 257 5448

Board of Directors of MHDL

Mr. U. Harshith Dharmadasa Chairman / Non-Executive Director Mr. S. S. Weerabahu Executive Director Mr. N. Priyantha Jayetileke Non-Executive Director Mr. W. B. B. C. J. Fernando Non-Executive Director Mr. Gihan De Zoysa Non-Executive Director Mr. Rajiv Perera Non-Executive Independent Director Mr. M. K. W. J. Seresinhe Executive Director Mr. A. M. Pasqual Non-Executive Independent Director Mr. U. H. Palihakkara Non-Executive Independent Director

Millennium Housing Developers | Initial Public Offering 02 3.0 Relevant Parties to the Issue

Managers to the Issue Arpico Ataraxia Asset Management (Pvt) Ltd No 55/20 Vauxhall Lane Colombo 02 Tel : 011 590 0700 / 011 590 0704

Legal Advisors & Lawyers to the Issue Nithya Partners No 97 A Galle Road Colombo 03 Tel : 011 471 2625 Fax : 011 232 8817

Auditors and Reporting Accountants KPMG Sri Lanka to the Issue (Chartered Accountants) No 32A, Sir Mohamed Macan Markar Mawatha Colombo 03 Tel : 011 542 6426 Fax : 011 244 5872

Registrars to the Issue Corporate Arcade Ltd No 122/37, Kirulapona Road Kirulapona Tel : 011 251 4420-1

Bankers to the Issue Bank of Ceylon Corporate Branch 1st Floor, BOC Square No 1, Bank of Ceylon Mawatha Colombo 01 Tel : 011 234 5428, 011 220 3111 Fax : 011 239 9562

Millennium Housing Developers | Initial Public Offering 03 4.0 Glossary of Terms Related to the Issue

Applicant/s Any investor who submits an Application Form under this Prospectus Application Form/ Application The application forms that constitute part of this Prospectus through which the investors may apply for the Shares in Issue Board/Board of Directors/ The Board of Directors of MHDL Directors Closure Date The date of closure of the subscription list as set out in Section 5.7 of this Prospectus Company/MHDL Millennium Housing Developers Limited Managers to the Issue Arpico Ataraxia Asset Management (Pvt) Ltd 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). Please refer Section 5.11.2 and Section 5.12.4 of this Prospectus for further details Issue/IPO 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 Local Time Sri Lanka Time Millennium Housing Millennium Housing Developers Limited & its Subsidiaries Developers Group/Group Market Day Any day on which CSE is open for trading New Shares/Shares in Issue Up to 32,000,000 new Ordinary Voting Shares to be issued by the Company to the public at the Share Issue Price Non-Retail Investor Category Investors who do not fall under Retail Individual Investor Category and Unit Trust Investor Category Ordinary Shares/Issued and Ordinary voting shares of the Company Paid up Ordinary Shares/ Ordinary Voting Shares/ Shares Prospectus This Prospectus dated 30th December 2013 issued by MHDL Retail Individual Investor Individual investors who subscribe for Shares up to a value of Category Rs. 100,000/- (i.e. up to and inclusive of 16,666 Shares) Share Issue Price Rs. 6/- per Share Stated Capital The Stated Capital of MHDL Unit Trust Investor Category 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. Unit Holder 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.

Millennium Housing Developers | Initial Public Offering 04 5.0 Details of the Issue

5.1 The Issue

The Issue contemplated herein shall constitute an invitation made to the general public to initially purchase Sixteen Million (16,000,000) Shares, which in the event of an oversubscription, the Board to exercise the right to accept applications in respect of up to a further 16,000,000 shares, a total of 32,000,000 new ordinary voting shares of MHDL will be offered to the public at the offer price of Rupees Six (LKR 6.00) per Share.

If fully subscribed, the issue would raise Sri Lankan Rupees One Hundred and Ninety Two Million (LKR 192,000,000). (based on the option being exercised)

The 32,000,000 Million Shares shall, upon allotment, rank equal and pari passu in all respects with the existing Ordinary Shares of the Company with the right to vote, the right to an equal share in any dividend that may be declared by the Company after the allotment of the Offered Shares and the right to an equal share in the distribution of the surplus assets of the Company in a liquidation.

The Board of Directors of MHDL is of the opinion that the price of Rupees Six (LKR 6.00) per share is fair and reasonable to the Company and to all existing shareholders of the Company.

Please refer Section 5.8 for further details regarding the basis of allotment.

5.2 Objectives of the Issue

Table 5.1 Details of the Ongoing Projects and the Upcoming Projects

Completed at Subsequent to Utilisation Approximate Name of The Project Company Present the proposed of IPO Completion increase Funds Year No of units Rs. Mn MHDL - Housing - Athurugirya MHDL 1598 1602 - Year 2014 MHDL - Housing - Ja-ela MHDL 186 222 50.00 Year 2017 MHDL - Terrace -Athurugiriya MHDL 17 44 - Year 2017 MHDL - Housing - Homagama MHDL - 60 52.00 Year 2018 MHDL - Villas - Wattala - 180 - Year 2018 1801 2108

Millennium Housing - Ja-Ela MHL 368 418 - Year 2015 Millennium Housing - Piliyandala MHL 25 34 - Year 2015 Millennium Housing - Seeduwa MHL - 51 45.00 Year 2016

393 503

Millennium Villa - Ja-Ela MVHDL 42 192 37.16 Year 2017

Total 2236 2803 184.16

Until 2011, MHDL was concentrating mainly on large housing projects, including Athurugiriya Millennium city with 1600 units and 3 Projects of Ja-Ela totaling to 850 housing units. In response to the advertisements of MHDL, Company has received large number of inquiries from the Public on the availability of areas closer to strategic locations which are in line with their family requirements such as closer to work place, schools, parents and relatives and sometimes based on social, religious, ethnic

Millennium Housing Developers | Initial Public Offering 05 5.0 Details of the Issue

requirements and housing needs to fulfill through a developer. This market segment appears to be very lucrative, though it's small in number. MHDL has successfully catered the needs of this segment by choosing three specific locations within Maharagama – Piliyandala, Seeduwa and Athurugiriya with the launch of housing projects in the scale of 50 houses which proved to be very successful. MHDL has also come across a large demand for affordable Apartments. Hence, MHDL envisions a great potential in housing in the above sectors.

With the available resources of MHDL and the proceeds raised from the IPO, MHDL plans to expand the activities in small sized urban range housing projects initially catering to lower and middle income housing units. Company is planning to launch five projects of this nature each consisting 150 housing units. In addition to that, Company intends to expand the ongoing 03 projects in the Urban Range into 07 projects within the Greater Colombo area, with the addition of 4 new projects. Company plans to increase its Urban Range – Gated housing projects into two large scale housing projects and 07 urban range 40 – 50 housing unit projects.

At the same time, Company is expecting to increase the current housing stock of MHDL Housing and Millennium Villa both projects located in Ja-Ela. In addition to that, Company is planning to launch the two MHDL Housing projects at Seeduwa and Homagama, for which the land area and the infrastructure has to be developed before constructing houses. Following the development of necessary infrastructure, Houses will also be constructed for these two housing projects.

MHDL estimates a cost of LKR 800 Mn for all the above mentioned activities and hopes to fund the project partly from funds raised from the IPO, upon full subscription and the remaining would be funded through a mix of company reserves and Pre Selling of the said project as detailed in the below given table.

Type of Funds Amount IPO LKR 184.16 Mn Company Reserves LKR 300 Mn Pre Selling LKR 315.84 Mn

The proceeds raised through the IPO will be utilized to increase the number of completed housing stock in the current housing projects at MHDL Housing Ja-Ela and Millennium Viila Ja-Ela. Part of the IPO proceeds will also be allocated for the MHL Housing Project at Seeduwa and MHDL Housing Project at Homagama for the purposes described above. Hence, part of the funds raised from the IPO will be allocated to MHDL's subsidiaries, MHL and MVHDL. These proceeds will be injected by way of a Loan (Debt) at an Interest Rate equals to the Average Weighted Prime Lending Rate (AWPLR) plus 2% at the time of the Lending and the rate will be revised once in every six months.

The Offer is also being conducted to provide MHDL with a liquid market for its Shares and an opportunity for others to invest in Shares in MHDL.

Millennium Housing Developers | Initial Public Offering 06 5.0 Details of the Issue

5.3 Listing

The Issue herein contemplated comprises Thirty Two Million New Ordinary Voting Shares. If fully subscribed, the offered shares would amount to 21.24% of the Issued and Paid up Ordinary Shares of the Company subsequent to the Issue. (Including the option being exercised)

An application has been made to the CSE for permission to deal in and for a listing of up to One Hundred and Fifty Million Six Hundred and Eighty One and Three Hundred and Twenty (150,681,320) Shares being the entire Issued and Paid up Ordinary Shares of the Company subsequent to the Issue. (based on the offering being exercised)

The Shares mentioned in Section 11.2 will be locked-in to be in compliance with Section 2.1.1 (d) of the CSE Listing Rules, and will not be available for trading.

Upon the successful completion of the Issue, the Company will be listed on the Diri Savi Board of the CSE, subject to compliance with Rule 2.1.3 of the CSE Listing Rules.

Also note, Company will be listed, provided that the minimum Public Holding requirement is met as specified by Rule 2.1.3 (c) of the CSE Listing Rules.

5.4 Cost of the Issue

The total costs associated with the Issue are estimated to be approximately LKR 7.84 Mn. 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 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.

5.5 Brokerage

Brokerage at the rate of zero decimal six per centum (0.6%) of the Share Issue Price will be paid in respect of the number of Offered Shares allotted on Applications bearing the original seal of any bank operating in Sri Lanka, a member/trading member of the CSE, Managers to the Issue – Arpico Ataraxia Asset management (Pvt) Limited, or any other intermediary appointed by the Company involved in the marketing of the Issue.

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5.6 Minimum Subscription & Underwriting

There is no minimum amount required to be raised on this Issue. The Company has not entered into any underwriting arrangement with regards 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 public holding requirement as set out in Rule 2.1.3 (c) of the CSE Listing Rules. In the event the Issue is not subscribed, the money collected will be returned to applicants and the Company will not be Listed. However, if the Issue is adequately subscribed meeting the criteria as set out in Rule 2.1.3 (c) of the CSE Listing Rules and such shares being available for trading, the Company will seek a listing and any shortfall of the funds will be raised from Company Reserves and Long Term Borrowings via Banks.

5.7 Subscription List – Opening Date and Issue Closing Date

The subscription list for the New Shares will open at 9.00 a.m. on 28th January 2014 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 18th February 2014.

In the event of an oversubscription of the 32,000,000 New Shares, or on the date the Board of Directors decide to close the Issue upon the initial Issue of 16,000,000 New Shares becoming fully subscribed or on any other date the Board of Directors decide to close the Issue upon the exercise of the Option of issuing a further 16,000,000 New Ordinary Shares, prior to 18th February 2014, 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 (1) Market Day's prior notice to the CSE providing one (1) Market Day's prior notice to the CSE.

Applications may however be submitted forthwith. Duly completed application forms will be accepted in the manner set out in Section 5.11 of this prospectus by any collection points set out in Annex A.

5.8 The Basis of Allotment

The Offered Shares would be distributed among three broad investor categories, namely:

Categories of Investors Percentage of Issue (%) Retail Individual Investor Category 40% Unit Trust Investor Category * 10% Non-Retail Investor Category 50%

* Unit Trust Investors should be growth or balanced unit trusts operated by managing companies licensed by the SEC, where such unit trusts comprise of not less than 500 unit holders resident in Sri Lanka who together hold at least 50% of that fund as per the Section 3.1.5 (b) (iii) of the CSE Listing Rules. Only one Application should be made under each category.

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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).

Local and foreign individual investor/s who apply for up to a maximum of 16,666 Shares (including 16,666 Shares) (value of not more than LKR 100,000) will be deemed as Retail Individual investors for Share allotment purposes.

Investors who do not fall under the Retail Individual investor definition stated above will be deemed as Non Retail investors for Share allotment purposes. (All corporate bodies incorporated or established in Sri Lanka or outside Sri Lanka, global, regional or country funds approved by the SEC, shall fall under the Non- Retail category irrespective of the quantum of Shares applied for)

The investor categories have been selected to ensure the broadest possible spread of shareholders while treating all Applicants in a fair manner.

In the event of an under- subscription in the Unit Trust investor category, the Retail Individual investor category shall be given first priority in allotment of the under subscribed Shares.

In the event of an under- subscription in the Retail Individual investor category, the Unit Trust investor category shall be given first priority in allotment of the under subscribed shares.

In the event of an under- subscription in the Non- Retail investor category, Retail Individual investor category will be given first priority followed by Unit Trust investor category in the allotment of the under – subscribed Shares.

Redistribution will not apply in the event of oversubscription of all three categories stated above. In the event of an oversubscription of any one or all three categories mentioned above, the basis of allotment will be decided by the Board of Directors of the Company in a fair and equitable manner.

5.9 Inspection of Documents

The following documents of MHDL will be made available for inspection by the public during normal working hours at the Registered Office of the Company from the date hereof up to Fourteen (14) Market Days:

(i) Articles of Association. (ii) Material Contracts referred to in this Prospectus. (iii) Reports, letters, Valuations and statements by any expert, any part of which is referred to or is extracted in this Prospectus. (iv) The audited accounts of the Entity for five (05) financial years immediately preceding the publication of the prospectus, as applicable.

The Prospectus, Application Form and Articles of Association of the Company will be available on the website of the CSE, (www.cse.lk) and on the Company website (www.millenniumcitysl.com) and the website of the Advisor & Managers to the Issue, (www.arpicoataraxia.com) from the date hereof for a period of not less than Fourteen (14) Market Days.

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5.10 Eligible Applicants

Applications are invited from the following categories of investors: Having a Valid Account in the Central Depository System (Pvt) Ltd (CDS Account).

(i) Citizens of Sri Lanka who are resident in or outside Sri Lanka and above 18 years of age; or (ii) Companies, corporations or institutions incorporated or established within Sri Lanka; or (iii) Corporate bodies incorporated or established outside Sri Lanka; or (iv) Approved unit trusts licensed by the SEC; or (v) 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 (vi) Foreign citizens above 18 years of age (irrespective of whether they are resident in Sri Lanka or overseas); or (vii) Global, regional and country funds approved by the SEC.

Please note that Applications made by individuals less than 18 years of age or those in the names of sole proprietorships, partnerships, unincorporated trusts and non-corporate bodies will be rejected at the outset.

Application by growth or balanced unit trusts under the Unit Trust Investor category should conform to the criteria defined by the SEC Directive dated 10 March 2011.

5.11 The Procedure for Application

Applications must be made in the manner set out below. Applications duly completed should be submitted as in the manner set out in this Prospectus.

5.11.1 How to Apply

The Prospectus and Application Form will be made available free of charge from the collection points listed in Annex A. Investors must apply for Shares on the Application Form, which constitutes part of this Prospectus.

The Application Form should be legibly completed and be received by the Registrars to the Issue. The Application Form and the Prospectus can also be downloaded from www.cse.lk and www.millenniumcitysl.com and www.arpicoataraxia.com. Exact size photocopies of the original Application Form will also be permissible.

Applicants applying under the Unit Trust investor category must apply for Shares using the separate pink coloured Application Form printed for this purpose, which constitutes part of this Prospectus. If photocopies of the Application forms are used, the same should be on pink coloured paper. The completed Application Forms could be submitted either directly to the Registrars to the Issue or to the Managers to the Issue who will forward the same to the Registrars to the Issue.

Care must be taken to follow the instructions on the reverse of the Application Form. Applications that do not strictly conform to such instructions or as set out herein or which are illegible may be rejected. Please note that Applicant information such as full name, address, NIC number/passport number/ residency will be downloaded from the CDS, based on the CDS account number indicated in the Application Form. Such information shall take precedence over information supplied in the Application Form.

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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 shall be directly uploaded to the CDS. 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 CDS account prior to making the Application, in order to facilitate the uploading of allotted Shares to the CDS.

PLEASE NOTE THAT UPON THE ALLOTMENT OF OFFERED SHARES UNDER THIS ISSUE, THE ALLOTTED SHARES WILL BE CREDITED TO THE APPLICANT'S CDS ACCOUNT SO INDICATED. PLEASE NOTE THAT SHARE CERTIFICATES SHALL NOT BE ISSUED. PLEASE NOTE THAT IF THE CDS ACCOUNT NUMBER IS NOT INDICATED IN THE APPLICATION FORM, WHICH IS NOT OPENED AT THE TIME OF THE CLOSURE OF THE SUBSCRIPTION LIST (EITHER AT THE TIME FIXED FOR CLOSING OR ON THE DATE ON WHICH THE OFFER IS OVERSUBSCRIBED), OR THE CDS ACCOUNT NUMBER INDICATED IN THE APPLICATION FORM IS FOUND TO BE INACCURATE/INCORRECT, THE APPLICATION SHALL BE REJECTED AND NO ALLOTMENT 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 set out in Annex B of this Prospectus.

Applicants have the option of having their 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 a separate section in the Application Form for this purpose. If the Applicant has not specified that his/her Shares need to be deposited to his/her 'locked'* balance, please note that the said Shares would be deposited to Applicant's 'trading' balance.

* Definition and 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 would provide a mechanism where securities can be 'locked' in the CDS account.

The CDS would maintain 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 presently.

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 an unauthorized sale by a broker.

At the option and request of an account holder the CDS would transfer a named quantity of Shares from the locked balance to the trading balance of a CDS account and /or from the trading balance to the locked balance.

5.11.2 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 Offered Shares at the IPO, it is their responsibility to comply with the laws relevant to the jurisdiction of their residence and of Sri Lanka.

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5.11.3 Number of Shares Applied

Applications should be made for a minimum of One Hundred (100) Shares or in multiples of One Hundred (100) Shares thereof.

Applications made for less than One Hundred (100) Shares or for a number which is not in multiples of One Hundred (100) Shares will be rejected and the accompanying cheques, bank drafts or bank guarantees will not be sent for clearing and 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 Offered 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 5.12.1 for details with respect to the mode of remittance.

5.11.4 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 Application Form.

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 5.11.7).

5.11.5 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.

5.11.6 Applications

Application Forms should not exceed three Applicants (except on the case of executors, administrators or heirs of a deceased member). Applicants should note that all parties should either be residents of Sri Lanka or nonresidents.

An Applicant of an Application shall not apply through a separate Application Form either individually or jointly. Only one Application will be accepted on behalf of each Applicant.

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5.11.7 Multiple Applications

An Applicant can apply under only one Application Form. If an Applicant has applied under more than one Application Form it will be construed as multiple Applications. 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.

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.

Only one Application should be made by an Applicant under any of the Categories.

The Company/Managers/Registrars to the Issue reserve the right to reject all multiple Applications and suspected multiple Applications or to accept only one Application Form at their discretion.

5.11.8 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 this Prospectus will be rejected at the absolute discretion of the Company/Managers/Registrars to the Issue. If the CDS account number is not indicated in the Application Form, which is not opened at the time of the closure of the subscription list (either at the time fixed for closing or on the date on which the offer is oversubscribed), or the CDS account number indicated in the Application Form is found to be inaccurate/ incorrect, the Application shall be rejected and no allotment will be made. Applications delivered by hand after 4.30 p.m. Local Time on the Issue Closing Date will be rejected. Applications received by courier/post after 4.30 p.m. local time on the succeeding Market Day immediately following the Issue Closing Date will also be rejected even if they carry a courier acceptance date/postmark date earlier than the Issue Closing Date. Applications made for less than One Hundred (100) Shares or for a number which is not in multiple of One Hundred (100) Shares will be rejected. In the case of multiple Applications and suspected multiple Applications, the Company/ Managers/ Registrars to the Issue reserve the right to reject all or to accept one Application Form at their discretion. An Application Form accompanied by two or more cheques or bank drafts or bank guarantees 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, for whatsoever reason.

PLEASE NOTE THAT UPON THE ALLOTMENT OF SHARES FOR WHICH SUBSCRIPTION IS INVITED UNDER THIS ISSUE, THE ALLOTTED SHARES WOULD BE CREDITED TO THE APPLICANT'S CDS ACCOUNT SO INDICATED. SHARE CERTIFICATES SHALL NOT BE ISSUED. IF THE CDS ACCOUNT NUMBER IS NOT INDICATED IN THE APPLICATION FORM, WHICH IS NOT OPENED AT THE TIME OF THE CLOSURE OF THE SUBSCRIPTION LIST (EITHER AT THE TIME FIXED FOR CLOSING OR ON THE DATE ON WHICH THE ISSUE IS SUBSCRIBED), OR THE CDS ACCOUNT NUMBER INDICATED IN THE APPLICATION FORM IS FOUND TO BE INACCURATE/ INCORRECT, THE APPLICATION SHALL BE REJECTED AND NO ALLOTMENT WILL BE MADE.

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5.11.9 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 “Millennium Housing Developers 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. Address : Corporate Arcade Ltd, No 122/37, Kirulapona Road, Kirulapona

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.

5.12 Payment of Application Monies Payment should be made separately in respect of each Application by way of a cheque or bank draft or an unconditional bank guarantee from LCBs for the full amount payable on application. Cheques and Bank drafts should be made payable to “Millennium Housing Developers Limited - Initial Public Offering” and crossed “Account Payee Only”. Please note that no payment will be accepted in the form of RTGS transfers.

5.12.1 Mode of Remittance Payment for Applications for Shares of a value below an inclusive of LKR 99,999,999 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 of LKR 99,999,999 or below, accompanied by two or more cheques or bank drafts or bank guarantees will be rejected at the outset. Although Cheques may be drawn on any branch of a LCB operating in Sri Lanka, in the event that cheques are not realized within three (03) Market Days from the day of presenting the same to the bank for clearing, the Directors reserve the right to reject the Applications and refund such monies. Shares will not be allotted in respect of such applications. Investors residing in outstation areas from which Cheque clearance may take over two (02) Market Days are advised to make Payments via Bank Drafts to avoid any delays. Cheques must be honoured on first presentation to the Bank for the Application to be valid. The Directors reserved the rights to reject Applications which are not supported by Cheques that will not be honoured on the first presentation. Applicants making applications for Shares of a value above LKR 99,999,999 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 the 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 of above LKR 99,999,999 accompanied by multiple bank drafts 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.

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5.12.2 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 “Millennium Housing Developers Limited – Initial Public Offering”.

Cheques or bank drafts accompanying Application Forms made for less than 100 Shares, i.e. Rupees 600 or for a number which is not in multiples of hundred (100) Shares (as mentioned in 5.11.3 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.

Applicants residing in areas from which cheque clearance may take over two (02) days could also make payment via bank drafts to avoid any delays.

Remittances on applications will be deposited in a separate bank account in the name of "Millennium Housing Developers Limited - Initial Public Offering". Cheques will not be banked until the market day after the closure of the subscription list.

5.12.3 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 5.12.1 will be accepted. Bank guarantees should be issued by any LCB in Sri Lanka and in favour of “Millennium Housing Developers – 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.

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 5.12.4

5.12.4 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 above mentioned Applicants should make their payments using one of the following methods as the case may be. Also, the company hereby confirms that all of the methods of foreign remittances stated herein below are in line and conform to Exchange Control Regulations.

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(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; 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 Shares should be made through a cheque or bank draft or an unconditional bank guarantee issued by against the funds arranged through the SIA and made payable to “Millennium Housing Developers 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 “Millennium Housing Developers 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.

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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 or bank drafts or bank guarantees drawn on a RGFCA account 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.

5.12.5 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.

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 LCB in Sri Lanka but may do so via SIA/FCBU/RGFCA account as detailed in Section 5.12.4 above. Applications made by foreign citizens not in accordance to the foregoing shall be rejected.

5.13 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.

5.14 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.

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5.15 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 5.8, treating all Applicants in a fair manner as may be decided by the Board at its discretion.

In the event of an under subscription 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 under subscription 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 under subscription 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 under subscription 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.

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5.16 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.

5.16.1 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, 2010.

(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.

(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, www.lankaclear.com through the Quick Links access.

Millennium Housing Developers | Initial Public Offering 19 5.0 Details of the Issue

5.16.2 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.

5.17 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.

Millennium Housing Developers | Initial Public Offering 20 5.0 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 5.11.1 for definition of 'locked'.

Shares issued prior to the IPO shall not be transferable by the shareholders during the period between the date of submission of the initial listing application and up to the date of listing of the Company. Furthermore, the new Shares issued via the IPO will not be transferable from the Date of Allotment upto the Date of Listing.

5.18 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 (3rd) Market Day from the receipt of the declaration by the CSE as per the CSE Listing Rules.

Millennium Housing Developers | Initial Public Offering 21 SECTION 6.0 Sri Lankan Economy 6.0 Sri Lankan Economy

6.1 Economic Growth of Sri Lanka

The Sri Lankan Economy has recovered strongly since the end Table 6.1 Growth Outlook for 2013 of the civil war in mid-2009, and the country's economy has been on a strong growth trajectory led by rebuilding measures, surging tourism and increased investor confidence ever since. CBSL 7.20% The momentum of growth began during the second quarter of 2009 with declining interest rates, expansionary fiscal policy, RAM Ratings 7.00% and large inflows of foreign capital into government securities. The sustained momentum went on to record GDP growth of 8% Fitch Ratings 6.50% in 2010 and 8.3% in 2011, per the Central Bank of Sri Lanka (CBSL) Annual Report. However, this dropped to 6.4% in 2012 ADB 6.80% whilst inflation was maintained at single digits for the fourth consecutive year. Sri Lanka in 1H2013 underwent a real economic growth of 6.5% outpacing most regional economies World Bank 6.80% amidst a general slowdown in world economic activity. Today, the country is considered one of the fastest growing economies IMF 6.30% in the world. According to International Monetary Fund's (IMF) growth predictions, Sri Lanka is expected to record GDP growth of 6.3% for 2013 and 6.7% for 2014. Importantly, the Asian Development Bank (ADB) estimates a more optimistic GDP growth of 6.8% for 2013 and 7.2% for 2014.

Figure 6.1 Annual GDP Growth of Sri Lanka Agriculture

12% Industry Services 10% 8% 8% GDP growth (%)

8% 6% IMF 6% ADB 6% 4% 4%

0% 2008 2009 2010 2011 2012 2013F 2014F Source: Central Bank of Sri Lanka

6.2 Inflation of the Economy

“Inflation continues to remain at a single digit level” Sri Lanka has been able to maintain consistently low Inflation, which has remained at single digit levels for the fourth consecutive year primarily due to improved domestic supply conditions, prudent liquidity management by the CBSL and benign inflation expectations. According to the Department of Census and Statistics, Inflation dropped further in September 2013 to 6.2% from 6.3% in August along with the annual average inflation dropping to 7.8%. It is expected that appropriate measures will be taken by the CBSL to keep the inflation rate at a single digit level in the foreseeable future. According to the Asian Development Bank, an increase in the national minimum wage is a risk that could top up inflationary pressures, and monetary policy will thereby have to be kept tight in order to limit second round effects and anchor inflation expectations for 2013.

Millennium Housing Developers | Initial Public Offering 23 6.0 Sri Lankan Economy

Figure 6.2 Movements of the CCPI Base: 2006/07 = 100 YOY

12% 10%

2% 0% r r r r y y y y n Jul Jul Jul Ja Jan Jan Jan Sep Sep Sep Sep Ma Ma Ma Ma Nov Nov Nov Ma Ma Ma Ma July 2010 2011 2012 2013

Source: Department of Census and Statistics

6.3 Exchange Rates

“For the year to date, the SL rupee has appreciated against most international currencies”

Sri Lanka has a pegged exchange rate whereby the CBSL frequently intervenes in forex markets by trading in treasuries, in addition to creating or draining money through open market operations. Sri Lanka's rupee fell in sharply in February 2013 to LKR 134 per US dollar, breaking a peg at LKR110 and driving inflation up. The rupee has since appreciated again to levels of around LKR 124 to LKR 128.

The CBSL's latest announcement on external sector performance outlined that the Sri Lankan Rupee has appreciated against most major international currencies during the year 2013. However, it failed to strengthen against the US Dollar. The hardships of currency depreciation especially in a country like Sri Lanka, where many basic commodities are imported, are indeed serious, since depreciation of the currency leads to higher costs of living and higher costs of production in the domestic economy.

Figure 6.3 Movement of Exchange Rates

LKR Nominal Effective Exchange Rate Real Effective Exchange Rate LKR/USD 140.00 120.00 100.00 80.00

60.00

40.00

20.00 0.00 13 12 12 13 13 13 ------

008 010 009 010 011 008 009 010 011 009 011 008 009 010 011 012 008 012 008 009 010 011 012 r y 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Jul r 2 r 2 r 2 r 2 r 2 Jan Sep Ma Nov Ma Jul Jul Jul Jan Jan Jan Jan Jan Sep Sep Sep Sep Ma Ma Ma Ma Ma Nov Nov Nov Nov May 2008 May 2009 May 2010 May 2011 May 2012 July July

Source: Central Bank of Sri Lanka

Millennium Housing Developers | Initial Public Offering 24 SECTION 7.0 Industry Overview 7.0 Industry Overview

7.1 Construction Sector of Sri Lanka

Sustaining the high growth momentum recorded during the past year, Sri Lanka's construction sector recorded an impressive annual growth rate of 21.6 percent in 2012 compared to 14.2 per cent in 2011, which is the highest growth registered by the sector in the past ten years. The sub sector contributed to 8.1 percent of the overall GDP and 23.9 percent of the change in GDP growth from 2011 to 2012, thereby becoming the strongest and fastest growing sub sector within the broader industrial sector. Public sector construction projects, particularly in the areas of infrastructure development such as road development, power projects, port and airport development and housing development projects provided a substantial impetus to growth in the sector.

The private sector also contributed significantly towards the growth in the construction sector, particularly in relation to hotel and housing construction activities. The growth in this sector is reflected through the increase in imports of investment goods and building materials by 21.7 per cent and 13.5 percent in volume terms in 2012. Furthermore, loans and advances by the commercial banks to the private sector for construction activities grew by 22.9 per cent in 2012, compared to 14.5 per cent in 2011.

According to the price index compiled by the Institute of Construction Training and Development (ICTAD), the cost of construction activities had increased by 12.2 percent in 2012 compared to an increase of 5.4 percent in 2011.

Figure 7.1 Performance of the Construction Sub Sector

LKR Mn Construction YoY Growth % 800,000 45% 39.3% 700,000 40% 600,000 35% 30% 500,000 25% 400,000 20.7% 20% 300,000 15.6% 15% 200,000 12.0% 10% 100,000 5% - 0% 2008 2009 2010 2011 2012

Source: Department of Census & Statistics Sri Lanka / Central Bank Sri Lanka, Annual Report 2012

Furthermore, according to the National Accounts published by Department of Census & Statistics Sri Lanka, the 6.4% GDP growth rate in 2012 was largely underpinned by the 21.6% growth rate recorded in the construction sector.

Millennium Housing Developers | Initial Public Offering 26 7.0 Industry Overview

Figure 7.2 Capital Expenditure on Construction Activities

Residential Buildings Non-Residential Buildings Othe r Residential YoY growth %

LKR Mn

1,600,000 35% 31.9% 1,400,000 30% 26.7% 1,200,000 25% 1 ,000,000 21.8% 20% 800,000 15% 600,000 400,000 10% 200,000 5% 3.0% - 0% 2008 2009 2010 2011 2012

Source: Department of Census & Statistics / Central Bank Annual Report 2012

Gross fixed capital formation by type and purchaser for the current price which was published by Department of Census & Statistics Sri Lanka explains the growth in the construction sector by type of purchases, which include numbers for residential & non-residential constructions. As per this report, residential construction has grown by an impressive 21.8% in 2012 according to provisional figures, compared to 3% in 2011.

Millennium Housing Developers | Initial Public Offering 27 7.0 Industry Overview

7.2 Real Estate Sector

The market for real estate in Sri Lanka has shown significant growth since 2009 with a marked increase in price levels of real estate assets including bare lands, residential housing, commercial/retail premises, and condominium style apartments. Increased foreign investment interest in prime blocks of commercial lands in the city of Colombo, the acquisition and resale of leisure properties by private investors and general increase in the confidence level of investors in the real estate sector has fuelled this growth. The post war economic progress in the country has captured world's attention hence the property market in Sri Lanka is emerging as an appealing investment destination for both domestic and foreign investors.

The real estate sector in Sri Lanka can be separated into the Residential Segment, Commercial Segment & Retail Segment. Residential property includes residential houses built up as township projects, flats, apartments, condominiums & luxury apartments. Commercial property is commercial properties specifically designed for office premises. Large shopping malls and shopping complexes built up for the retailers are identified as retail property.

Residential Commercial Retail

Houses Commercial Space Shopping Malls Flats Office premises Shopping Complexes Apartments Condominiums Luxury apartments

With both local and domestic investors looking to capitalise on a promising economic growth environment and improving infrastructure, real estate has witnessed an upward trend in demand and pricing. The development of premium condominium projects and subdivided developments, row houses and villas in the peripheral suburbs have emerged as the preferred choice for middle income buyers.

7.3 The Residential Housing Sector

Recent developments in the economy and significant upswings in its various sectors (most notably in finance, tourism and IT services) have created healthy demand for residential space in the greater Colombo area. On the other hand, increasing employment opportunities in Colombo continuously trigger the need for the working population and their families to locate themselves closer to the city, making their lives convenient by reducing time spent on travelling and to cut down on costs. Hence, the development of premium condominium projects is most prominent in the areas closer to central Colombo. In contrast to this, people in the middle income range appear to find sub divided developments, row houses and villas in the peripheral suburbs more attractive and affordable given their income levels.

Buying land and building a house is a daunting task for most people given their busy lifestyle and hectic work schedules. Hence, most people would like to choose standard design houses or houses that are built to match customized requirements of living space. Considering such needs and requirements in the housing market and to take advantage of such needs, an increasing number of housing developers are now operating in this market. However, out of all these players, only a few have the capabilities and resources to launch large township projects which attract the attention of people who are looking for living spaces tailored to their needs.

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7.4 Demand & Supply in the Housing Market 7.4.1 Demand Drivers Favourable Macro Economic Conditions “Fall in interest rates to drive the demand for residential property” Interest rates saw a substantial drop in 2009 and this downturn continued until late 2010, which interestingly was a prosperous period for housing and property developers due to increased demand stemming from the market. However, interest rates began to climb again in 2010 and continued this trajectory into the second half of 2012.

Figure 7.3 Movement of Lending and Deposit Rates AWDR AWPR Currently, interest rates are trending downwards with the CBSL's 20% continuous cut in treasury bill rates and further easing of monetary 15% policy. It is the common view of economists that an aggressive 10% easing of the monetary policy is expected in the next few months 5% which in turn would create a favourable environment for the 0% housing market which may lead to a 2007 2008 2009 2010 2011 2012 rise in demand for housing. Source: Central Bank of Sri Lanka

Figure 7.4 Movement of Treasury Yields

12.0% Repo

11.0% Rev-Repo 91 Day T bill 10.0%

9.0%

8.0%

7.0%

6.0%

Source: Central Bank of Sri Lanka

Recently, bank lending and deposit rates were at a higher spread to treasury rates. But with the latest indications of lower credit demand, private sector credit growth at a very lower rate, coupled with the reduced funding needs of the state utilities and the clear indication of monetary easing, it is expected this spread will narrow down. As a result, the bank lending and deposit rates may fall in the upcoming months. The declining interest rates will provide low cost financing for the public to purchase residential property which in turn will drive an upswing in demand in the housing market.

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Growth of the Sri Lankan Population “Increasing population to create more housing demand”

Year on year, the increasing population of the country has to be accommodated. Hence, a need arises for new houses where the growth rate for new residential property has to be in line with the growth rate of the population and in accordance with the average household size in the country. Therefore, it is evident that the demand for residential property can directly stem from the population growth of the country.

Table 7.1 Mid Year Population of Sri Lanka

Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mid Year Population ('000) 19,173 19,435 19,644 19,858 20,039 20,217 20,450 20,653 20,869 YoY % 1.3% 1.4% 1.1% 1.1% 0.9% 0.9% 1.2% 1.0% 1.0%

Source: Department of Census and Statistics

Figure 7.5 Growth of Mid Year Population

Mid Year Population ('000) YoY % 21,000 1.6% 1.4% 20,500 1.2% 20,000 1.0% 19,500 0.8% 0.6% 19,000 0.4%

18,500 0.2%

18,000 0.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Department of Census and Statistics

According to the above graph, a growth in the Sri Lankan population is apparent. Average annual population growth rate between 1981 and 2012 stood at 1.0 percent, while the same between the intercensal period of 2001 and 2012 was reported as 0.7 percent. Hence, the population in Sri Lanka is still growing but at a lesser rate. A major share of 28.8 percent of the population live in the Western Province, where Colombo and Gampaha districts reported the highest population 2,323,826 and 2,298,588 respectively.

Therefore it is evident that the growth in the population is expected to give rise to demand for housing units in all areas of the country in the medium to longer term, and in particular, the Western province which has a higher population and demand.

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Per Capita Income

“Rising income levels to stimulate property demand”

Sri Lanka's per Capita GDP has experienced noteworthy growth since the ending of the three decade civil war, with the highest growth recorded in 2008.

Per capita income of households and the consumer spending capacity is largely measured by the country's per capita GDP. In 2012, the figure recorded was Rs.373,001 which translates to growth of 19% from Rs.313,576 in 2011. As recently highlighted by the CBSL Governor, Sri Lanka is aiming for a per capita income of USD 4,000 by 2016. If this aim is achieved, the people's spending power will further enhance, thus enabling them to afford much more, ultimately creating growth in the housing sector.

Figure 7.6 Per Capita GDP Growth

LKR Per capita GDP at current prices (LKR) Per Capita GDP growth (%) 400,000 25%

350,000 20% 300,000

250,000 15% 200,000 150,000 10% 100,000 5% 50,000 - 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Central Bank Annual Report 2012

Household Income & Expenditure on Housing

“Rising household income to boost demand for housing” From the Household Income and Expenditure Survey 2009-10 released by the Department of Census and Statistics, Colombo residents had a mean household income of LKR 51,070 per month (or LKR 612,840 per annum) in 2009-10. Assuming a growth rate equal to the Per Capita Income growth rate at the national level, the current mean household income for Colombo can be estimated as LKR 800,000-900,000 per annum. Hence, an average Colombo citizen could afford a housing unit costing LKR 2.8-3.2 million.

Furthermore, this survey also revealed that on average, a household spends LKR 3,446 monthly (LKR 41,352 per annum) on housing. This represents 19% of the total non food expenditure incurred by a household.

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Figure 7.7 Household Income & Expenditure

Monthly expenditure on housing (LKR) Growth of expenditur e on housing (%) Mean household income per month (LKR) LKR

40,000 160% 35,000 140% 30,000 120% 25,000 100% 20,000 80% 15,000 60% 10,000 40% 5,000 20% - 0% 1990/91 1995/96 2002 2005 2006/07 2009/10 Source: Department of Census and Statistics

The proportion of expenditure incurred on housing has grown since 2005 and is continuing at moderate growth. This in turn may give rise to a higher demand for housing due to higher proportions of income spent on housing out of the incremental household income.

Middle Income Population

“Housing demand to be driven by the middle income population”

According to the latest household income & expenditure survey (2009/10), Sri Lanka's population can be divided into income quintiles and when the proportions are analysed, it appears the richest 20% were receiving nearly 54% of the total household income of Sri Lanka, whilst the poorest 20% were receiving only 4.5% in year 2009/10. At the same time, the remaining 60% of middle income earners were receiving 41.4% of the total household income. This indicates that most of the Sri Lankan population can be categorised as middle income earners, who accounts for a larger proportion of the growing household income group. Hence, the demand for housing stemming from middle income groups would be higher compared to other income groups and developers who particularly target the middle income earners would reap these benefits.

Figure 7.8 Share of Household Income by Household Income Quintiles

41% 54% Richest 20% of the Population Middle 60% of the Population Poorest 20% of the Population

Source: Department of Census and Statistics

Millennium Housing Developers | Initial Public Offering 32 7.0 Industry Overview

Worker Remittances

“Rising worker remittances to gear the demand for housing”

Over the past decade, the country's foreign remittances have witnessed a tremendous growth which has multiplied by over 4 times during the period from 2003 to 2011, with annual growth nearing 19.5% CAGR. Growth in foreign remittances enables foreign employed Sri Lankan workers and their households to spend more on housing and is clearly a sign of demand flowing into the housing market.

Figure 7.9 Change in Worker Remittances

LKR Mn Worker Remittances (LKR Mn) Annual Change

600,000 25% 23% 23% 22% 21% 500,000 22% 20% 400,000 16% 15% 15% 14%

300,000 10% 200,000

5% 100,000

- 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Central Bank of Sri Lanka

According to the CBSL's road map for 2012, worker remittances were USD 1.9 Bn in 2005 and estimated to reach USD 6.5 Bn in 2012, recording a CAGR growth of 19.2%, which in turn would accelerate the demand for housing. In addition to this, MHDL's recent research indicated that the demand for housing is now showing a trend that also stems from locals who are employed in foreign countries and are planning to buy houses in Sri Lanka.

Emerging suburbs and towns

“Colombo is no more the only town of attraction”

The ending of the 30 year civil war enabled the country to enter into a strategic development phase. The idea was to take the growth and development in Colombo to other major cities of various provinces in the country. For instance, Hambantota Harbour, Mattala Airport, power & energy projects, telecommunication infrastructure and development of high mobility road networks spanning around the country are perfect examples of infrastructure development which encourages commercial development in those areas. Hence, in the future a demand for housing can also be expected in these emerging cities, creating new opportunities and markets for the housing developers, which makes Colombo no longer the only major town of Sri Lanka.

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7.4.2 Supply Drivers

Key Issues influencing Housing Supply

High cost of construction material

Construction material used for housing projects plays an important role in the housing developer business and directly influences the supply and pricing of the houses. The price hikes in construction material such as Cement, Sand and Steel could lead to higher construction cost for the developer resulting in higher pricing for houses which may squeeze their margins too. Shortages in material supply from time to time may give rise to price hikes, especially when the demand is high around the world.

As reported by Bloomberg Europe, steelmakers and cement manufacturers are struggling with excess capacity due to lower demand from the European markets caused by the weaker economic and market conditions in the region. However, a moderate demand could be expected from emerging markets such as Indonesia, Latin America and the BRIC economies, given the expected economic growth in those regions coupled with increased construction activity. World demand for cement and steel would still be much lower due to underutilized capacity and less demand. Thereby prices for both Cement and Steel are expected to stabilize in the short to medium term and the housing developers will reap benefits from these stable price levels.

Lack of Skilled workers

Only few workers in Sri Lanka have been systematically trained and carry certificates that are indicative of their skill. The lower level of salaries in Sri Lanka and the high demand for professionals in many countries has resulted in a flight of skills. According to the Ministry of Construction, Engineering Services, Housing and Common Amenities, the number of skilled construction workers in Sri Lanka is around 300,000 as at 2011. Continuous labour shortages could give rise to increasing costs and inability to cater for the demand for houses at a given point in time.

Frequent changes in Government policies & regulations

Changes in regulations can be a hassle for developers most of the time. Even after providing the necessary approvals, frequent changes could cause hardships for developers which are a serious concern. Streamlining regulations and integrating the approval process may be a favourable step by government to strengthen the housing market.

Unavailability of suitable lands

Implementation and viability of any township development or housing project is largely dependent upon the availability of lands in the right locations at competitive pricing and at the right time. If not, the launch of any new projects could be delayed resulting in unsatisfied demand for housing. This in turn would largely influence the revenue growth of the housing developers.

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Supply of Housing Units

According to the Department of Census and Statistics, the numbers of housing units are on growth, for the decade 1981-2001 the country has recorded a growth in housing units by over 60% & in the latest decade 2001-2011 the growth has been 23%. Population growth is on a steady growth whilst growth of house units is at a slow growth which would create a demand gap.

Table 7.2 Movement in Housing Stock

Year 1981 2001 2011 Housing units 2,943,610 4,687,157 5,773,678

YoY Growth % 59.23% 23.18%

Source: Department of Census and Statistics

Figure 7.10 Movement in Housing Stock

Housing units YoY Growt h %

7,000,000 70% 59. 23% 6,000,000 60%

5,000,000 50%

4,000,000 40%

3,000,000 30%

2,000,000 23.18% 20%

1,000,000 10%

0 0% 1981 2001 2011 Source: Department of Census and Statistics

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Greater Colombo Housing Approvals

A fall in housing construction approvals in recent years created unsatisfied housing demand in Colombo and suburbs. In Greater Colombo, approvals plunged 28.1% in 2009 to 7,890 units, after a decline of 22.4% in 2008 and a drop of 10.6% in 2007. The drop in approvals is attributable to rising construction costs, Interest rates & Exchange rate depreciation. However, since 2009 this number has increased continuously to date. In 2011, the growth reached up to 11% and 6% in 2012 which further justifies the potential growth in the housing market in Sri Lanka and in suburbs of Colombo.

Figure 7.11 Greater Colombo Housing Approvals

18,000 15,814 No. of Housing Approvals 16,000 14, 145 14,000

12,000 10,974 10,669 11,270 9,614 10,000 7,890 8,000

6,000 4,000

2,000 - 2006 2007 2008 2009 2010 2011 2012

Source: Central Bank of Sri Lanka - Monthly Bulletin

Government Expenditure on Housing

According to National Housing Development Authority (NHDA) in 2011 the Government was able to build around 30,000 new houses through the NHDA. The Government & NHDA together were able to take many important decisions on the construction sector which led to the rapid progress of the sector.

The NHDA hopes to push forward the housing development activities with the assistance of other state institutions. They have made arrangements to re-establish the Institute for Construction Training and Development (ICTAD) as an authority to regulate supervise and monitor the construction industry and train professionals in the field.

Table 7.3 Government Expenditure on Housing LKR Mn

Year 2011 2012 2013

Housing 6,712 7,319 7,383*

* Approved Estimates of Central Bank of Sri Lanka Annual Report – 2012

The Jana Sevana Housing Development Programme, the main program implemented by the NHDA and Urban Settlement Development Authority (USDA) continued projects to increase housing facilities by allocating Government funds of over Rs. 10 Bn across 12 programmes in year 2012. The aim is to realise the national housing policy of “house ownership for all”, through the target of 600,000 houses by 2016, according to Mahinda Chintana. The National Housing Policy is mainly targeted at low and middle income households in providing assistance to construct their own houses and relocation from low quality housing.

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7.5 The Housing Finance Market

Sri Lanka's housing finance market is intricately linked to capital and financial markets. According to South Asia Housing finance report/World Bank (2010). The housing finance market is shared between private commercial banks and state-owned banks, and the main financial institutions engaged in housing mortgage lending are private commercial banks, with 75% of market share; the NSB with another 9%; and SMIB and the HDFC with 7% and 6% respectively.

Lending Rates for Housing Purpose

Specialised banks have increased the interest rates offered for housing loans during the years 2011 and 2012. The rate currently stands between 10% and 15%. However, these rates are likely to drop in the short to medium term with the latest cut in interest rates and further easing of the monetary policy. This in turn may give rise to more demand for housing loans that would fuel the growth of demand for housing.

Table 7.4 Lending Rates for Housing Loans

Interest Rates on Lending for housing % End 2011 End 2012 National Savings Bank 10.00-12.50 14.00-15.50 State Mortgage and Investment Bank 11.50-13.50 17.00-19.00 DFCC Bank 10.50-15.00 16.50-20.00 National Housing Development Authority 11.00 11.00

Source: Central Bank of Sri Lanka Annual Report - 2012

Figure 7.12 Commercial Banks' Loans and Advances for Housing and Maturity Period

LKR Mn Short - Term Medium - Term Long - Term Total 180,000

160,000

140,000

120,000 100,000 80,000 60,000 40,000 20,000 0 2005 2006 2007 2008 2009 Source: Central Bank of Sri Lanka Annual Report 2010

The above graph shows the lending by commercial banks for housing has continuously increased by approximately 78% for the period 2005 to 2009.

Millennium Housing Developers | Initial Public Offering 37 7.0 Industry Overview

Figure 7.13 Commercial Banks' Loans for Housing

LKR Mn Loans to the Private sector for Housing

200,000 160,133

150,000 136,083 133,315

100,000

50,000

0 2,010 2,011 2,012

Source: Central Bank of Sri Lanka

The loan portfolio for housing declined marginally in 2011 and recorded a growth again in 2012, standing at LKR 160,133 Mn in total. Continuous rises in the loans disbursed for housing shows the increasing demand for housing year on year.

7.6 Land & Property Sector Growth of the CSE

Land & property (L&P) sector of the Colombo Stock Exchange consists of 18 listed companies. Currently, as at 9th December 2013, the market Land & Property sector price index is at 533.57. The sector Price Earnings Ratio is at 9.6 with a dividend yield of 1.1. The Land and Property sector is expected to benefit from the increasing demand for property and resultant rise in property prices. But increasing interest rates & a depreciating rupee can reduce the growth in the sector going forward.

Figure 7.14 Land & Property Sector Market Capitalization

LKR Land Property

50,000,000,000 43,770,633,775

40,000,000,000 31,144,395,681 31,540,009,161 30,000,000,000 19,383,874,661 20,000,000,000 10,107,431,097

10,000,000,000

2008 2009 2010 2011 2012

Source: Colombo Stock Exchange, as of 2012 June

Millennium Housing Developers | Initial Public Offering 38 SECTION 8.0 Millennium Housing Developers Limited 8.0 Millennium Housing Developers Ltd.

8.1 Company Overview

Millennium Housing Developers Limited (MHDL) is a subsidiary of Nation Lanka Finance PLC, formally known as Ceylinco Developers Limited was incorporated in 1998 and commenced business in 1999. MHDL's first project was “Millennium City”, Country's pioneered Mega township project in Athurugiriya, revolutionized the concept of suburban neighbourhoods around Colombo. The success of Athurugiriya project led to MHDL's second township project launched in Ja-Ela. MHDL is registered with the Board of Investments (BOI) where the company was allowed to import project related material on duty free basis. With the success of initial projects, MHDL's objective was further extended to upper - middle income group housing requirement by providing more houses in Athurugiriya, closer to the existing project. Ja-Ela and Ekala housing project was 90 acre land catering to middle and upper income level in the town east of Colombo.

Group Structure Nation Lanka Finance PLC

77%

Millennium Housing Developers Limited

100% 100% 100% 100%

Millennium Villa Millennium Housing Ceylinco Housing Ceylinco Construction Housing Development Limited Corporation Limited Company Limited Limited

Millennium Housing Developers | Initial Public Offering 40 8.0 Millennium Housing Developers Ltd.

Operations of the Subsidiaries

The four subsidiaries of MHDL are categorized based on the various housing projects they operate.

Millennium Housing Limited (MHL)

Established in March 2003, MHL is a fully owned subsidiary of Millennium Housing Developers Limited. MHL currently operates in Ja-Ela and Piliyandala. MHL is engaged in constructing the “Heartland” category houses in Ja-Ela. Total land area of the Ja-Ela project is approximately twenty nine acres of which eight acres are reserved for parks, green pockets, roads and other common reservations and 418 houses will be constructed over the allocated land area.

In Piliyandala site “Hearltland”, “Olympus” and “Paradis” houses will be constructed.

Company is planning to construct houses in Seeduwa sites as well.

Directors of the company Mr. S. S. Weerabahu Mr. M. K. W. J. Serasinhe Mr. N. Priyantha Jayathilake Mr. Gihan De Zoysa

Millennium Villa Housing Development Limited (MVHDL)

Established in February 2004, the MVHDL operates as a fully owned subsidiary of Millennium Housing Developers Limited. This subsidiary is responsible for the 'Villa' branded houses that were introduced in the Ja-Ela project. Eight exclusive 'Villa' designs were launched to cater to the housing needs of the upper income segment of the Market. MVHDL currently operates only in Ja-Ela, a total land area of approximately thirty one acres is being developed of which nine acres are reserved for parks, green pockets, roads and other common reservations. 192 houses will be constructed over the allocated land area.

Directors of the company Mr. S. S. Weerabahu Mr. M. K. W. J. Serasinhe Mr. N. Priyantha Jayathilake Mr. Gihan De Zoysa

Ceylinco Housing Corporation Limited (CHCL)

Established on 25th March 2003, Company operates as a fully owned subsidiary of Millennium Housing Developers Limited. The Company was formed to handle Piliyandala housing project and land area of the project was approximately twenty five acres. However UDA acquired the land for public purposes in 2008 and compensation was received in return. At present, Company does not have any commercial operations and commenced the liquidation process in Late 2012. Currently, CHCL has filed all the necessary documents with the Registrar of Companies (ROC) for the strike off of the name and ROC is in the process of obtaining a confirmation from the Department of Inland Revenue with regard to tax clearance. On the receipt of this confirmation, ROC will implement the standard procedure of striking off the name.

Millennium Housing Developers | Initial Public Offering 41 8.0 Millennium Housing Developers Ltd.

There are no any financial or other implications on MHDL due to this winding up, except for the 50% winding up fee that has been already paid by MHDL and the remaining, a maximum fee of LKR 50,000 that has to be paid in the future.

Directors of the company Mr. S. S. Weerabahu Mr. M. K. W. J. Serasinhe Mr. N. Priyantha Jayathilake Mr. Gihan De Zoysa

Ceylinco Construction Company Limited (CCCL)

Company was established on 28th October 2003. Initially, CCCL operated as a fully owned subsidiary of Nation Lanka Finance Plc and ownership has transferred to Millennium Housing Developers Limited on 01 March 2007. CCCL mainly engaged in construction of Houses, Roads, Drains, Retaining walls etc of Ceylinco group of companies and Millennium Housing Developers Limited and its subsidiaries. At present, CCCL is in the process of being reactivated again as the construction arm of MHDL and its subsidiaries and waiting for the approval from ROC for a name change as "Millennium Housing Construction Limited". MHDL expects to reactivate this company's operations in January 2014.

Directors of the company Mr. N. Priyantha Jayathilake Mr. Gihan De Zoysa

Table 8.1 Details of Operational Projects of the Subsidiaries

Completed Subsequent to Utilisation Approximate Project Reservations Name of The Project Company at Present the proposed of IPO Completion Commenced of Number increase Funds Year Year of Units No of units Rs. Mn

Millennium Housing MHL 368 418 - Year 2015 2003 20 - Ja-Ela

Millennium Housing MHL 25 34 - Year 2015 2013 5 - Piliyandala

Millennium Housing MHL - 51 45.00 Year 2016 2014 - - Seeduwa

393 503

Millennium Villa MVHDL 42 192 37.16 Year 2017 2004 8 - Ja-Ela

Millennium Housing Developers | Initial Public Offering 42 8.0 Millennium Housing Developers Ltd.

Vision

To be an internationally renowned large scale township developer, catering to the needs of the public by providing quality housing for various segments of the society with the comprehensive infrastructure facilities that conform not only to the best of quality standard, but set in an eco friendly environment as well.

Mission

To be the Market Leader in Eco-Friendly Township Development

Corporate Objectives

Provide quality houses to MHDL's customers Maximize customer satisfaction Enhance Shareholder value Maintain dynamic, satisfied and motivated staff, who are directed towards MHDL's mission Satisfy MHDL's obligation towards society at large Contribute to the development of the country

Business Overview

The main business activity of the company is to develop Township Projects. The first project was on a BOI land at Millennium City Athurugiriya consisting of 1600 housing units, where the emphasis was to meet the housing needs of the low and medium income earners. The project was very successful on pricing, facilities, and quality of construction, infrastructure, and the delivery of houses. Similarly Millennium City - Ja-Ela was launched with 830 houses which cater to a range of different income groups.

Currently MHDL is offering over 20 housing designs for the customers to select from. Due to the standard designs of the houses and the economies of scale possessed, the housing solutions offered by MHDL has always been competitive in the market. Over the last decade, approximately 1700 of MHDL's houses have been sold.

Millennium Housing Developers | Initial Public Offering 43 8.0 Millennium Housing Developers Ltd.

8.2 Key Milestones

The journey so far 2013 & Beyond 2012

Launch of Millennium Urban Entry into Urban Range in Maharagama/Piliyandala and Semi Urban Launch of project in Seeduwa development Launch of Project Projects “Millennium Terrace” which includes land sales

2010 2011

Change in parent’s Turnaround of MHDL ownership with new Directorship, (Nation Lanka followed by the Finance PLC) restructuring of Parent

2009 2008 Abandoning commercial Exposure to Ceylinco operations of Ceylinco Group crisis MHDL's margins Construction Company were affected Limited Abandoning commercial operations of Ceylinco Housing Corporation Limited

2003 2004

Incorporating three subsidiaries Incorporation of Millennium Villa Housing Development Millennium Housing Limited Limited (MVHDL) (418 Units) Ceylinco Housing Corporation Limited Launch of Millennium Villa Ceylinco Construction Company Limited Housing range (192 Units)

1999 1998 Launch of Island's first Mega Township Incorporated as Ceylinco Project – Athurugiriya (1,600 Units) Developers Limited 2nd phase of Athurugiriya project (270 more Units)

Millennium Housing Developers | Initial Public Offering 44 8.0 Millennium Housing Developers Ltd.

8.3 Product Portfolio

MHDL's first township development project was done in Athurugiriya, which is conveniently located in close proximity to the Colombo-Kandy highway in the picturesque Sri Jayawardenepura Kotte area, Millennium City Athurugiriya caters to the needs of a range of homebuyers. Moreover, The Millennium City Township is made up of 1600 houses which are spaced out over an area of 125 acres.

Millennium City Ja-Ela, located close to the Colombo-Negombo highway is in close proximity to the airport and to the metropolitan areas of Colombo. This township project comprises of 900 houses aimed at serving the residential needs of a range of income groups. In addition to the Paradis, Olympus and Tulip residencies, the Heartland Residential complex will be made up of single storeyed houses catering to a middle income group.

At Ja-Ela housing project, the Heartland Residential complex will be made up of single storeyed houses catering to a middle income group.

The Millennium City Villas is a dedicated segment exclusively designed as super luxury holiday homes into the Sri Lankan market. Further, this township project includes landscaped parks, lakes & fountains, club house, swimming pools, tennis, basket ball court, gymnasium and children's play area.

All the housing projects are delivered with the following Standard Amenities and the facilities will be upgraded depending on the selection of house categories.

Electricity from the main national grid Pipe - borne water Wide access roads with green belts Garbage & sewerage disposal systems

Product Range of MHDL

Type Size Location Type Size Location Paradis 10 Perches Piliyandala Villas 11-20 Perches Ja-Ela Esteem onwards Seeduwa

Millennium Housing Developers | Initial Public Offering 45 8.0 Millennium Housing Developers Ltd.

Type Size Location Type Size Location

Paradis 11 Perches Piliyandala Olympus 8 Perches Piliyandala Prestige onwards Seeduwa Classique onwards Seeduwa

Type Size Location Type Size Location Olympus 8 Perches Piliyandala 7 Perches Ja-Ela Crystal onwards Seeduwa Tulip

Type Size Location Type Size Location

Lotus 7.5 Perches Piliyandala Sakura 7.5 Perches Piliyandala onwards onwards

Millennium Housing Developers | Initial Public Offering 46 8.0 Millennium Housing Developers Ltd.

Type Size Location Type Size Location Ja-Ela Ja-Ela Heartland 6 Perches Heartland 6 Perches Piliyandala Piliyandala onwards onwards Orchid Seeduwa Rose Seeduwa

Type Size Location Type Size Location Ja-Ela Ja-Ela Heartland 6 Perches Heartland 6 Perches Piliyandala Piliyandala onwards onwards Anthurium Seeduwa Dahlia Seeduwa

Type Size Location

Gardinia 7.5 Perches Piliyandala onwards

Millennium Housing Developers | Initial Public Offering 47 8.0 Millennium Housing Developers Ltd.

Table 8.2 Analysis of Sales Units by House Types

House Type 2008/09 2009/10 2010/11 2011/12 2012/13 Paradis 4 5 2 6 4 Olympus 9 2 6 4 10 Tulip/Gardinia 6 3 2 4 5 Heartland 58 18 25 44 92 Villa 3 4 10 4 7 Total 80 32 45 62 118

Figure 8.1 Analysis of Sales Units by House Types

Paradis Olympus Tulip/Gardi nia Heart land Villa

100

60 40 20

2008/09 2009/10 2010/11 2011/12 2012/13

Table 8.3 Analysis of Sales Units by Lands

Company Sold Plots MHDL - Athurugiriya 1597 MHDL - Ja-Ela 184 MHL - Ja-Ela 338 MHL - Piliyandala 18 MVHDL - Ja-Ela 36 Total 2173

Millennium Housing Developers | Initial Public Offering 48 8.0 Millennium Housing Developers Ltd.

8.4 Key Strengths

Pioneers in Mega Township projects MHDL operates with a different business model that is largely focussed on offering mega township projects, located in key suburbans of greater Colombo. They are the first and the only housing developers who specialize in mega township projects based on large lands probably in the range of 100 to 150 Acres. MHDL's projects in Athurugiriya and Ja-Ela are the perfect examples that falls under this type of housing projects, which usually consists of 800 to 1500 houses.

Construction expertise, resources, equipment & Infrastructure Possessing the expertise in the construction industry which spans over 14 years and having the required equipment, resources, man power & infrastructure, coupled with modern technology gives MHDL the competitive edge in the housing market & the capacity to undertake large scale housing projects.

Economies of Scale Development of housing projects requires a substantial investment and is often costly business. But, given the size of the projects undertaken, MHDL is heavily benefitted by economies of scale, especially when it comes to the various raw material used in construction and the labour employed in the construction sites. This will enable MHDL to reduce costs and improve its margins, giving rise to more attractive pricing when compared to MHDL's close competitors.

Range of attractive housing designs to select from MHDL offers its customers a range of housing designs to suit varying needs of different customer segments. Some of the designs and architecture of these houses are by reputed foreign & local architects and constructed by ICTAD registered contractors. Although the housing designs are standard, MHDL's team which comprises of professional engineers and architects are always ready to make any amendments to the standard designs based on customer's requirement and preferences.

Employee force & Team strength MDHL has approximately 51 permanent employees specialising in selling, Construction, Surveying, Finance & costing and a separate team for liaising with government authorities & other institutions in obtaining approvals and arranging housing loans to provide assistance for the prospective customers.

Ownership of a high valued land book MHDL’s land book comprises of both BOI leased lands and lands of its own. Value of these lands continuously rise with the time, inflating the value for inventory reflected in the Balance Sheet. Once the revaluation takes place from time to time, MHDL would benefit with the revaluation gains adding much value to its financial statements.

Millennium Housing Developers | Initial Public Offering 49 8.0 Millennium Housing Developers Ltd.

Registered under Board of Investments (BOI) of Sri Lanka MHDL is a registered BOI entity; hence the company is facilitated to import duty free building materials, fittings & fixtures as prescribed under the BOI law for housing projects. Moreover, being a BOI registered company, MHDL also enjoys tax concessions on some of its housing projects, relieving pressure on its earnings and providing a competitive edge over other housing developers.

Easy payment schemes attracting more customers MHDL offers a wide variety of easy payment schemes for its customers by allowing them to pay only 10% of the total value as an advance for reservation and the balance to be paid in terms of instalments where the financing being offered through various reputed banks and financial institutions. This facility draws more buyers, especially those who prefer long term payment plans.

Rigorous Quality Control Process One of the factors that encourage home buyers to invest in a Millennium City home is the strict and rigorous quality control process that is put into operation during all stages of construction. MHDL works with Institute for Construction Training & Development (ICTAD) registered contractors, thus ensuring high quality workmanship and a durable and long lasting end product. All MHDL homes are stamped with the SLS standard of construction. Raw materials used such as the cement, sand and bricks are all regularly checked for quality. Finishing materials such as tiles, fittings and timber, also undergo a similar process and only high quality products are used. These are sourced both locally and internationally depending on the quality. At every stage of the project, the Millennium City project team will evaluate and assess the progress of home construction to ensure that high quality standards are maintained.

Housing that meets the needs of local households The key attraction for customers of MHDL is that it's ability to construct houses that suits the needs of Sri Lankan households. Conventional methods of construction are employed so as to suit the taste of Sri Lankan households. Materials, such as high quality clay bricks and class one timber, are used in the houses constructed. However, MHDL continuously employs modern methods and technology in keeping with the International standards whilst maintaining local cultural aspects of housing.

Millennium Housing Developers | Initial Public Offering 50 8.0 Millennium Housing Developers Ltd.

8.5 Geographical Footprint

MHDL MHL MVHDL Seeduwa 51 Plots

Ja-Ela MHDL 222 Plots MHL 418 Plots MVHDL 192 Plots

Athurugiriya 1602 Plots Millennium Terrace (New) 44 Plots

Homagama 60 Plots Piliyandala 34 Plots

Millennium Housing Developers | Initial Public Offering 51 8.0 Millennium Housing Developers Ltd.

Township Plan of Athurugiriya

Paradis Olympus Tulip Heartland Horizon

Township Plan of Ja-Ela

Paradis Olympus Tulip Heartland Mixed Villas

Millennium Housing Developers | Initial Public Offering 52 8.0 Millennium Housing Developers Ltd.

8.6 Future Direction & Strategic Plans

MHDL commenced in 1998 with the scope of developing Mega Township projects. In 2007, company had 3 large projects consisting 1600 housing units at Athurugiriya, 850 housing units at Ja Ela and 920 housing units at Piliyandala.

With the sales inquiries received, MHDL realized the potential of housing in specific locations closer to a town. As a pilot project, company started a project at Makuluduwa between Maharagama and Piliyandala consisting 34 housing units to explore this demand, and the project was very successful. With this experience during the financial year 2012 – 13, MHDL started two similar projects at Athurugiriya and Seeduwa and within a short time the response was very encouraging. With this sales inquires MHDL have realized there is a greater potential for completed houses, especially for the people who are working abroad and who are willing to come and settle closer to Colombo City for employment, schooling and business needs. There is another segment that is looking for affordable apartments for security and convenience.

Having experienced this demand, MHDL plans to expand into the Urban Range Projects catering into small gated communities between 20–50 small apartment projects and land sales immediately within the Greater Colombo area and to expand to other areas of the Country.

8.7 Assumptions Relating to Future Plans

MHDL expects the macroeconomic conditions of the country would remain favourable to its business or would not become adverse to its ongoing and planned business operations. MHDL believes the prevailing tax legislation in the country that directly or indirectly applicable to its products/services to either remain unchanged or have no adverse change. MHDL also believes the demand for residential housing will rise with the increasing population of the country and with the changing needs of households for affordable and convenient housing. MHDL expects its urban range housing projects to be more attractive and believes a higher demand would stem from this segment. MHDL believes it would find appropriate lands at the right locations for its upcoming housing projects MHDL expects the launch of small apartment projects and land sales within Greater Colombo to be successful with the increasing demand for affordable, convenient and secured housing.

Risks attached to the future plans and future strategies are outlined in Section 13.4

Millennium Housing Developers | Initial Public Offering 53 SECTION 9.0 Corporate Information 9.0 Corporate Information

9.1 Corporate Structure

The Board of Directors

The Board of Directors of MHDL endeavours to provide entrepreneurial leadership through effective formulation and execution of policies and procedures to attain the objectives of the Company. As at the date of the Prospectus, the Board of Millennium Housing Developers comprises of Nine (09) Directors out of which seven (07) are Non-Executive Directors and two (02) are Executive Directors.

Table 9.1 Details of Board of Directors

Name Address

4Mr. U. Harshith Dharmadasa No 66/9B, Greenpath, Colombo 03 Mr. S. S. Weerabahu No 87/1, St Michael's Lane, Colombo 03 Mr. N. Priyantha Jayetileke No 377/4, Temple Road, Thalawatugoda Mr. W. B. B. C. J. Fernando No 44, Lady lavinia, Off Temple Road, Mount Lavinia Mr. Gihan De Zoysa No 66, Sri Saranankara Road, Dehiwela Mr. Rajiv Perera No 14, Flat 3/4, Rudra Residencies, Moor Road, Colombo 06 Mr. M. K. W. J. Seresinhe No 323/3, High Level Road, Nugegoda Mr. A. M. Pasqual No 39/2, Jayasinghe Road, Colombo 06 Mr. U. H. Palihakkara No 16, Visaka Road, Bambalapitiya, Colombo 04

Mr. Harshith Dharmadasa was appointed to the Board on the 11th March 2011. He is an Associate Member of the Institute of Certified Professional Managers and a Mr. Harshith young business professional with over 18 years experience in Executive Dharmadasa Management. He has acquired extensive experience in the fields of trading, manufacturing and construction sector. He also served as a Director during the Chairman/ period from 2003 to 2004 in the Export Development Board of Sri Lanka and Non Executive Sathosa Retail Ltd. Currently, Mr. Harshith, serves as a Director of Nawaloka Director Holdings Company and all other Companies under its umbrella, including Nawaloka Hospitals PLC.

Mr. Weerabahu joined Millennium Housing Developers Limited at its inception as a General Manager and subsequently appointed to the Board in 2002. He holds a Mr. Sisira Bachelors Degree in Engineering from University of Moratuwa and he's also a Weerabahu member of Certified Engineers of Sri Lanka and a Fellow Member of the Chartered Institute of Management Accountants (FCMA). Mr. Weerabahu Executive possesses 28 years experience in the capacity of Senior Executives in both the Director/CEO Private and Public Sector. Currently, he serves as a director of Millennium Housing Limited and Millennium Villa Housing Development Limited.

Millennium Housing Developers | Initial Public Offering 55 9.0 Corporate Information

Mr. Jayatileke was appointed to the Board as an Executive Director of Millennium Housing Developers Limited in 2011. He was a graduate of Army command and the staff College and later obtained the Masters Degree in Management and strategic studies at the Kothalawala Defense University. Mr. Jayatileke is a member of the Institute of Transport and Logistics in Australia and also a member of the Institute of Material Management of Sri Lanka. He also possess few diplomas, diploma in quality management in Sri Lanka Standard Institute, diploma in Human Resources at Indian Institute of Management, diploma in Defense resource management at Monterey University of California in USA, Mr. Nalin diploma in Human rights at Institute of Human Rights. Mr. Jayatilleke is IATA Jayetileke qualified in Air Craft load distribution and obtained Air Load Master Qualification Non-Executive from the Keiv Aviation plant in Ukraine. Director Mr. Jayatileke counts over 28 years of experience in the capacity of Senior Executives in both the Private and Public Sector. He was a Wing Commander in the Sri Lanka Air Force and served the Nation over 22 years. In 2007, he joined Empire Tea (Pvt) Ltd as General Manager. At one point, he worked as the Head of Logistics in one of the biggest construction companies in Northern Australia. Later, he was appointed as the General Manager in Fiji Islands being an active member of award winning exotic 5 star hotel projects in Fiji, the Natadola Intercontinental golf and spa.

Mr. Fernando was appointed to the Board of Millennium Housing Developers Limited in 1998. Prior to joining the Board, Mr. Fernando was employed at Bank of Mr. Bede Ceylon and DFCC Bank. He also served as an Executive Director of Nation Lanka Fernando PLC from Year 2000 to Year 2013. He holds a Bachelor of Science (Hon's) Degree in Natural Science from the University of Colombo and is an Associate of Institute of Non-Executive Bankers. He Counts over 28 years of experience in Commercial banking, Director Development banking and financial services including stock broking and primary dealership.

Mr. Gihan De Zoysa was appointed to the board of directors of Millennium Housing Developers from March 2011. He is an Associate Director and Consultant for Taru Mr. Gihan Villas (Pvt) Ltd from 2007 - 2010 and is currently handling Anilana Hotels and De Zoysa Properties Ltd in charge of Special Projects and Technical Services. He has more than 23 years experience in Building Construction, Hotel Construction and Hotel Non-Executive Maintenance Management. He has worked overseas in the Seychelles, United Director Kingdom and Sri Lanka. He has work experience with International Non-Governmental Organizations (INGOs') in rebuilding Houses, Medical Centers and Hospitals. He excelled as a leading sportsman in his schooling career.

Mr. Rajiv Perera was appointed to the board of MHDL in 2011. He counts over 20 Mr. Rajiv years of experience in Marketing, Property and Real Estate business, both in the Perera United Kingdom and Sri Lanka. Mr. Rajiv is currently a Director of Nation Lanka Non-Executive Equities, Nation Lanka Promotions and Nation Lanka Capital. He worked as the Independent Head of Marketing of Primer Communication International London & Director of Director Capital CLS, Air Line Suppliers in UK.

Millennium Housing Developers | Initial Public Offering 56 9.0 Corporate Information

Mr. Seresinhe joined Millennium Housing Developers Limited in 1999 and was appointed to the Board in 2003 as the Director of Marketing. He counts over 26 Mr. M. K. J. years of experience in the field of marketing with a proven track record. He holds Seresinhe the advance certificate of the Chartered Institute of Marketing (CIM) UK and also Executive a member of the Sri Lanka Institute of Marketing (SLIM). Currently, Mr, Seresinhe Director serves as a director of both Millennium Housing Limited and Millennium Villa Housing Development Limited.

Mr. A. M. Mr. Pasqual was appointed to the Board in 2011, as a director of Millennium Pasqual Housing Developers Limited who holds a B.Sc. in Economics and Business from Non-Executive Manchester College, Indiana, U.S.A. He possess over 31 years of banking Independent experience of which a span of 23 years was at HSBC, culminating as Head of Director Corporate Banking and 08 years as General Manager/CEO, of Seylan Bank PLC.

Mr. Palihakkara, was appointed to the Board in 2011 as a Director of Millennium Housing Developers Limited with nearly 40 years of post qualifying experience in Accounting, Auditing, Finance, Consultancy, Development / Merchant / Investment Banking, Education and Training, General Management, Project Implementation and Management, Project Rehabilitation, Marketing and Promotion, Privatization, Enterprise Development, Sector Studies, etc.

During his professional career he has worked in a number of private sector and public sector organizations in Sri Lanka and overseas, which includes; Chairman, Acland Insurance Services, Deputy Chairman, Ceylon Electricity Board, Mr. Uditha Director/General Manager People's Merchant Bank, Deputy General Manager Palihakkara DFCC, Financial Specialist Commonwealth Secretariat (CFTC). He has also Non-Executive worked in a number of projects funded by the World Bank (WB), Asian Independent Development bank (ADB), African Development Bank (AFDB), International Fund Director for Agricultural Development (IFAD), Commonwealth Secretariat and JIAC, etc.

He was the former president of the Institute of Chartered Accountants of Sri Lanka and the Sri Lanka branch of Chartered Institute of Management Accountants (CIMA) UK, and the Association of Chartered Certified Accountants (ACCA) UK. He was a Council member of the Securities Council of Sri Lanka for Four years, Post Graduate Institute of Management, Open University of Sri Lanka and the Central Culture Fund National Institute of Business Management, CINTEC, etc. He was the President of the Organization of the Professional Associations (OPA) in Sri Lanka (2010/2011).

Millennium Housing Developers | Initial Public Offering 57 9.0 Corporate Information

9.2 Directors' Other Directorships

Table 9.2 Other Directorships held by Board of Directors

Name of Director Company Name

Mr. U. Harshith Dharmadasa Millennium Housing Developers Limited Nation Lanka Finance PLC Nation Lanka Capital Ltd Koala (Pvt) Ltd Ceyoka (Pvt) Ltd Sasiri Polysacks ( Pvt) Ltd Nawaloka Construction Co. Ltd New Nawaloka Hospitals (Pvt) Ltd Nawaloka Professional Academy (Pvt) Ltd Concord Ventures Export Lanka (Pvt) Ltd Nawaloka Trading (Pvt) Ltd Nawaloka Hospitals PLC Zhiraz Developers (Private) Ltd Nawakrama (Pvt) Ltd Melvin Wire Nails Industries (Pvt) Ltd Persia Airlink (Pvt) Ltd Nawaloka ABC Petroleum (Pvt) Ltd Nawaloka Metropolis Laboratories (Pvt) Ltd Nawaloka Aviation (Pvt) Ltd Trivitron Nawakrama Medical Technologies (Pvt) Ltd Nawaloka Holdings (Pvt) Ltd

Mr. S. S. Weerabahu Millennium Housing Developers Limited Ceylinco Housing Corporation Limited Millennium Housing Limited Millennium Villa Housing Development Limited

Mr. N. Priyantha Jayetileke Millennium Housing Developers Limited Ceylinco Investments Corporation Limited Anilana Hotels and Properties PLC TKS Finance Limited TKS Securities (Pvt) Ltd Millennium Villa Housing Development Limited Ceylinco Housing Corporation Limited Millennium Housing Limited Ceylinco Construction Company Limited Tropical Foliage Limited

Mr. W. B. B. C. J. Fernando Millennium Housing Developers Limited Ceylinco Foliage Exports (Pvt) Ltd Nation Lanka Equities (Pvt) Ltd CSF Money Broking Co. Ltd Ceylinco Securities Share Ownership Trust Co. (Pvt) Ltd Ceylinco Asset Management (Pvt) Ltd Ceylinco Bio Tec Ltd Tropical Foliage Limited First Lanka Treasuries Limited

Millennium Housing Developers | Initial Public Offering 58 9.0 Corporate Information

A F L Development Ltd Nation Lanka Asset Management Ltd Nation Lanka Capital Ltd

Mr. Gihan De Zoysa Millennium Housing Developers Limited Millennium housing Limited Millennium Villa Housing Development Limited Ceylinco Housing Corporation Ltd. Ceylinco Construction Company Ltd. Tropical Foliage Ltd.

Mr. Rajiv Perera Millennium Housing Developers Limited Ceylinco Investments Corporation Limited R & T Consultancy Group (Private) Ltd Nation Lanka Equities (Pvt) Ltd Nation Lanka Capital Ltd Tropical Foliage Limited

Mr. M. K. W. J. Seresinhe Millennium Housing Developers Limited Millennium Villa Housing Development Limited Millennium Housing Limited

Mr. A. M. Pasqual Millennium Housing Developers Limited Nation Lanka Asset Management Ltd Nation Lanka Capital Ltd Nation Lanka Equities (Pvt) Ltd Softlogic Capital

Mr. U. H. Palihakkara Millennium Housing Developers Limited

9.3 Directors' Interest in Shares

The Directors' shareholdings in MHDL as at 14th November 2013 (Date of Initial Listing Application) are tabulated below.

Table 9.3 Directors' Shareholding in MHDL

Name of Director Number of Shares Held Percentage of Total Shareholding (%)

Mr. W. B. B. C. J. Fernando 1,620 NM*

*NM - Not material

Sales and Purchases made by the Directors, during the year immediately preceding the date of the issue of the prospectus is given below:

Table 9.4 Sales and Purchases of Shares

Name of Director Transaction No. of Shares % Price

Mr. W.B.B.C.J. Fernando Purchase 1620 NM* LKR 10 per share

*NM - Not material

Please note that the above Shares were Purchased by Mr. W.B.B.C.J. Fernando from the company's Rights issue held in February 2012.

Millennium Housing Developers | Initial Public Offering 59 9.0 Corporate Information

9.4 Directors' Interest in Assets The Directors of MHDL hold no interest either directly or indirectly in any other assets acquired, disposed or leased by the company during the past two (02) years preceding the date of this Prospectus. Further, it is not proposed that the Directors of MHDL will hold any interest in assets to be acquired, disposed or leased by the Company in the two (02) years subsequent to the Issue.

9.5 Directors' Interest in Contracts There are no contracts or arrangements in force as at the date of Initial Listing Application in which the Directors of MHDL are materially interested in relation to the business of the company.

9.6 Directors' Emoluments Aggregate emoluments paid in the form of salaries, bonuses and/or profit sharing payments to the Directors inclusive of Executive Directors during the FY 2012/13 amounted to LKR 9,200,000/-

The Directors are expected to be remunerated in the form of salaries, bonuses and/or profit sharing payments during the FY 2013/14 which is estimated to be LKR 10,000,000/-

9.7 Statement – Board of Directors No Director or person nominated to become a director of the company has been involved in any of the followings; A petition under any bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an executive officer: and Conviction for fraud, misappropriation or breach of trust or any other similar offence which the CSE considers disqualification

9.8 Corporate Governance MHDL's vision is firmly embedded and maintained throughout with principals of transparency and ethical business practices where the Board of Directors and the Senior Management of the company maintains the philosophy of sound corporate governance by being transparent to all its stakeholders with proper ethics, values and accountability, committed to higher standards of cooperate governance in the Organization. The Board of MHDL and the Corporate Management is always committed to deliver the best for its Stakeholders through practice of best corporate governance principals in their operations.

The Chairman and the Board of Directors ensure the practice of good corporate governance throughout the organization. Frequent reviews are made to ensure smooth and proper functioning of good governance. This is further facilitated by the proper mix of Executive, Non Executive and Independent Directors in the Board of MHDL. The Non Executive Directors do not have any business interest that could materially influence their independent judgment in the decision making process of MHDL which demonstrates more transparency and independence in corporate affairs.

MHDL understands, Supports and applies the core concepts that underline enterprise governance and ensures that its standards remain in compliance with the regulatory requirements.

MHDL has placed utmost priority in maintaining corporate governance standards which stems partly from its parent, Nation Lanka Finance PLC. MHDL utilizes some of the Corporate Governance Committees of its parent so as to be fully conformed to Corporate Governance practices & with relevant regulatory bodies.

MHDL uses the same Audit & Remuneration Committees of its parent, Nation Lanka Finance PLC.

Millennium Housing Developers | Initial Public Offering 60 9.0 Corporate Information

Audit Committee

The Audit Committee of MHDL is also the same as its parent and the present committee comprises of three (03) Non Executive Directors of the Company.

Members of the Audit Committee are as follows:

Audit Committee of MHDL Mr. H. Dharmadasa Chairman / Non-Executive Director Mr. P. M. L. K. Karunaratne Non-Executive Director Mr. K. M. Kandegedara Non-Executive Director Mr. P. Polwatte Secretary

Scope of the Audit Committee

The Audit Committee shall assist the Board of Directors in the oversight of the;

Integrity of the Financial Statements of the Company Effectiveness of the Internal Control over financial reporting The company's Internal Audit functions Company's compliance with legal and regulatory requirements

Objective of the Audit Committee

The primary objective of the Committee is to assist the Board in pursuing its Statutory and Fiduciary duties relating to the financial management of the Company and the products it manages with respect to internal controls, accounting and reporting practices, and to ensure those duties are carried out in accordance with the legal and regulatory requirements and guidelines, policies and procedures laid down by the Company.

Remuneration Committee

The remuneration committee of MHDL is same as its parent's. Members of the Remuneration Committee are as follows:

Remuneration Committee of MHDL

Mr. H. Dharmadasa Chairman Mr. A. C. Seneviratne Non-Executive Director Mr. A. M. Pasqual (by Invitation) Non-Executive Independent Director Mr. P. M. L. K.Karunaratne Non-Executive Independent Director

The main objective of the remuneration policy of MHDL is to attract and retain the required human resource talent in order to sustain its operations and to reward their performance.

The Remuneration Committee of MHDL shall recommend the remuneration payable to the Executive Directors and CEO of the Company and/or equivalent position thereof, to the Board of the Company which will make the final determination upon consideration of such recommendations.

Millennium Housing Developers | Initial Public Offering 61 9.0 Corporate Information

9.9 Corporate Management

Corporate Management of MHDL possesses extensive knowledge and excellent business acumen in functioning of its business operation. Brief profiles of the key management of MHDL are provided below.

Mr. Sisira Weerabahu Refer profile in page 53 Executive Director/CEO

Mr. M. K. J. Seresinhe Refer profile in page 55 Executive Director

Mr. Thebuwana was appointed as AGM – Project of MHDL in 2008. He joined engineering division of Millennium Housing Developers Limited in 2002. He Mr. Chandana possesses 12 years of experience in the field of construction and civil H. Thebuwana engineering. Mr. Thebuwana holds Bsc. In Engineering from the University of GM – Projects Peradeniya and he holds an MBA from the University of Colombo. He is a Chartered Engineer of Institute of Enginnering Sri Lanka and he holds a Post Graduate Diploma in Finance and Business Administration from Crainfield University in UK.

Mr. W. A. Indunil Mr. Perera was appointed as the Finance Manger of MHDL in 2009. He joined the Rangana Perera Finance division of Millennium Housing Developers Limited in 2000. He posesses Financial 15 years of experience in the field of Accounting and Finance. He is an Associate Controller member of the Chartered Institute of Management Accountants (CIMA) UK.

Millennium Housing Developers | Initial Public Offering 62 9.0 Corporate Information

9.10 Human Resources

Millennium Housing Developers Limited (MHDL) is driven by a team of highly motivated and technically qualified staff focused on core Company activities which encompass internal Engineering, Technical support, Sales and Marketing and Product and Service diversification.

The Company remains committed in developing the skills and knowledge base of its employees at all levels. Training programs are organized on a regular basis and employees have been provided with opportunities for developing their knowledge and skills in keeping with the Company's focus on continuous professional development. MHDL’s core values of integrity and ethics viewed as of paramount importance are embedded into the corporate culture of MHDL.

Being a knowledge based entity, MHDL continuously strife to create a knowledge gaining culture by encouraging team members to pursue higher studies and professional qualifications, which the Company sponsors, as it adds value to the pool of knowledge available within the Company for it to draw upon. MHDL periodically reviews staff welfare in order to uplift the quality of work life of its staff. Life insurance covers, comprehensive medical covers and annual trips are some of the welfare facilities available to the employees and their families.

Current staff strength of MHDL consists of 115 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.

Table 9.5 Human Resources of MHDL

No of Employees

Management and Professional 12

Operational & Technical 38

Skilled & Semiskilled work force 65

Total 115

Millennium Housing Developers | Initial Public Offering 63 9.0 Corporate Information

9.11 Corporate Social Responsibility (CSR)

MHDL, since the inception of its operations has recognized the importance of managing the interests of various stakeholders whilst contributing to the needs of the society which is also in line with its responsibility as a corporate citizen. MHDL comes across different stakeholders in the various housing projects it initiates and it is crucial to keep in harmony with these stakeholders and the societies in which the projects are launched.

MHDL makes sure that it continues the work of any housing project in such a way that it does not harm the environment or cause any disturbances to the suburbs and the people surrounded to the project. This will enable it to mitigate any potential resistance arising from the society and the suburbs located closer to the construction work. At the same time, MHDL believes in its responsibility to contribute to the well being of the people and the society in which it operates. Hence, MHDL has conducted the following activities in the past which could be attributed to its role as a corporate responsible citizen.

Some of the CSR activities done by MHDL in the past

Allocating Land and developing a common Play ground with a pavilion in Athurugiriya. Donating a Crematorium to Athurugiriya Cemetery Providing a tractor to Athurugiriya Pradeshiya Sabha Donating Books for School children of Athurugiriya and Piliyandala Gifting a house to a disabled soldier During Tsunami helping people affected with clear drinking water by cleaning their wells. Contribution to Havelock Sports Club's projects and contribution to Carlton 7's international Rugby tournament held in 2012.

9.12 Key Management's Emoluments

Total emoluments paid to the Corporate Management (excluding Directors) in the form of salaries, bonuses and/or profit sharing payments during the FY 2012/13 amounted to LKR 3.8Mn The Corporate Management is expected to be remunerated in the form of salaries, bonuses and/or profit sharing payments during the FY 2013/14 to an approximate extent of LKR 4.3Mn

9.13 Statement – CEO

The CEO of MHDL who is also an Executive Director of MHDL, has not been involved in any of the following: A petition under any bankruptcy laws filed against such person or any partnership in which he was a partner or any corporation of which he was an executive officer; Conviction for fraud, misappropriation or breach of trust or any other similar offence which the CSE considers a disqualification.

Millennium Housing Developers | Initial Public Offering 64 SECTION 10.0 Other Company Information 10.0 Other Company Information

10.1 Relationship with Key Customers and Suppliers

Customers

MHDL serves a broad client base from different income segments catering to their housing needs. So far company has constructed and sold more than 2,500 housing units. It is of great importance to have a strong relationship with the customers in identifying their needs and to cater housing facilities that satisfies the customer requirements. Over the years of operations, MHDL has become one of the preferred housing developers, with a grater reputation for their quality in construction, delivery time, quick clearing of legal documents & fast loan processing through the banks.

MHDL's dependence on its clients is very minimal, since the company has a much broader customer base to serve based on the variety of housing types offered to a range of income earners. Therefore, MHDL does not depend on one or few clients at any given time.

Suppliers

MHDL works closely with the Raw Material Suppliers, Building Material Suppliers & Sub Contractors who are the key to smooth operations of construction work. Most of these Suppliers and the Sub Contractors who are partners of the operations, has been working with MHDL since its inception.

Their long term commitment will contribute to the high quality and continuous supply of material and construction work. Most of the construction work is carried out directly by MHDL using directly purchased raw materials and services of Sub Contractors who are partners of MHDL for a long time. This will ensure the timely delivery and quality of the construction work. Since there is a large number of Suppliers and Sub Contractors in the housing construction sector, the degree of dependency on single Supplier or Partner is minimal which gives company the access to better quality material and work at a reasonable rate that would ultimately result in a competitive house pricing.

10.2 Dividend Policy

Subject to the provisions of “Companies Act No. 07 of 2007” the payment and the timing of dividend is based on number of factors including but not limited to the company's earning, cash flow positions and future investment needs, overall financial condition to maintain a sound and efficient capital structure and any other factors that the Board of Directors may consider relevant.

Details of dividends declared during the preceding financial years have been stated under 2.5 - "Dividends" in the "Accountants' Report" presented in Section 15.1 of the Prospectus.

Millennium Housing Developers | Initial Public Offering 66 10.0 Other Company Information

10.3 Details of Material Indebtedness could be outlined as follows;

10.3.1 Debentures P articulars of Debentures of MHDL Group as at October 31, 2013 are given below.

Table 10.1 Debentures of MHDL group as at 31 October 2013 LKR Outstanding Balance Outstanding Balance Company Issue Date Maturity FY October 31, 2013 as at 31 M arc h 201 2 MHDL 2004/200 5 50,000 2006 50,000

MHDL 2005/200 6 3,200,000 2009 3, 200,000 Total 3,250,000 - 3,250,000

Note: The above Debentures have been already matured. However, Debenture holders have not yet surrendered the debenture certificates. Therefore, these have not been paid yet.

10.3.2 Bank Loans Particulars of loans of MHDL Group as at October 31, 2013 are given below.

Table 10.2 Bank Loans of MHDL group as at 31 October 2013 LKR Bank / Amount Amount Financial Facility Outstanding Balance Repayable Repayable Company Institution Limit as at 31 October 2013 within 1 year after 1 year Commercial Bank MHL 35,000,000 25,467,000 7,008,000 18,459,000 of Ceylon PLC Commercial Bank MHL 20,000,000 19,444,000 6,672,000 12,772,000 of Ceylon PLC

10.3.3 Mortgages and Charges on Assets Particulars of Mortgages and Charges on the Assets of MHDL Group as at October 31, 2013

Table 10.3 Mortgages and Charges on the Assets LKR Mortgage Outstanding Balance as at Mortgagee Property Period of Mortgage 14 November 2013 Commercial Bank 60 monthly installments of Ceylon PLC Land commencing from January 2013 25,467,000 36 monthly installments Commercial Bank Land 19,444,000 of Ceylon PLC commencing from October 2013

There are no mortgages and charges on the assets of the Company as at October 31, 2013, except for the above listed mortgage bond of LKR 35,000,000 in respect of company's land located in Makuluduwa and LKR 20,000,000 in respect of a land in Athurugiriya, which are against term loans obtained in 2013 (Refer Section 10.3.2) arranged through MHDL's subsidiary MHL.

Millennium Housing Developers | Initial Public Offering 67 10.0 Other Company Information

As at October 31, 2013, there are no lease, lease purchase, hire purchase and capital commitments of the MHDL Group. As at October 31, 2013, there are no guarantees and other material contingent liabilities outstanding of the MHDL Group

10.3.4 Inter-company Balances

Table 10.4 Inter-company Balances of MHDL as at 31st October 2013 LKR

Related Company Name Due From Due To Ceylinco Housing Corporation Lmited 117,127 - Millennium Housing Limited 13,516,411 - Ceylinco Construction Company Limited 15,455,473 - Millennium Villa Housing Development Limited 14,253,681 - Nation Lanka Finance PLC - 73,073 People's Realty Limited 16,900,000 - Ceylinco Real Estate Developers Limited 200,460 - 60,443,152 73,073 Less: Provision for impairment (30,812,648) - Total 29,630,504 73,073

10.4 Working Capital

The Board is of the opinion that working capital is sufficient for the purpose of carrying out day-to-day operations of the Company. However, for future business expansions, the Company intends to utilise the proceeds of the Issue contemplated herein, and Company Reserves as set out in Section 5.2 of the Prospectus.

10.5 Litigation, Disputes and Contingent Liabilities As at November 14, 2013 (initial listing application date), there are no material legal, arbitration or mediation proceedings pending against the Company that would materially affect the current financial position, future operations or profits of the Company. The Company was not involved in any legal, arbitration or mediation proceedings in the recent past which had any significant effects on the Company's financial position or profitability. Further, there are no penalties imposed by any regulatory or state authority against the Company.

As at November 14, 2013 (initial listing application date), there are no penalties imposed by any regulatory or state authority against the Company.

As at November 14, 2013 (initial listing application date), there are no contingent liabilities that would affect current and future profits of the Company.

Millennium Housing Developers | Initial Public Offering 68 10.0 Other Company Information

10.6 Material Contracts Currently there are no material contracts entered into or any agreements entered into with other parties by the Company other than those contracts entered into as part of the ordinary course of business.

10.7 Details of Commissions Paid No commission has been paid in the two (02) years preceding the issue or payable for subscribing or agreeing to subscribe or procuring or agreeing to procure subscriptions for any Shares of the Company.

10.8 Details of Benefits Paid to Promoters No benefit has been paid or given within the two (02) years preceding the Issue and there are no benefits intended to be paid or given to any promoter.

10.9 Details of Management Agreements There are no any management agreements presently in force or currently being considered including particulars of any consideration passing to or from the Entity.

Millennium Housing Developers | Initial Public Offering 69 SECTION 11.0 Capital Structure 11.0 Capital Structure

11.1 An Overview of the Stated Capital

An overview of the Stated Capital of MHDL as at the date of this Prospectus is set forth below. There has not been any change in the Stated Capital of the Company since the date of this prospectus.

Table 11.1 Movement in Stated Capital (April 1, 2011 - October 31, 2013) F ully Paid Ordinary Shares No. of Shares LKR

Balance as at April 1, 2011 9,890,110 98,901,100

On February 15, 2012 Issue of 9,890,110 Ordinary Voting Shares at LKR 10 per Share through a Rights Issue 9,890,110 9 8, 9 01,100

Balance as at March 31, 2012 19, 7 80, 2 20 197,802, 2 00 Balance as at April 1, 2012 19,780,220 1 97, 802,200 On 12 June, 2012 a Share split was made, each Ordinary

Voting Share was subdivided into 6 Shares (1:6) 118,681,320 - Balance as at October 31, 2013 118,681,320 197,802,200

11.2 Details Pertaining to the Locked-in Shares Table 11.2 Details of Shares locked- in (Based on Shares held Prior to IPO)

The time period after No. of Shares as Category of which the Shares a percentage of Shareholders Locked in will be available total number of (Pre- Listing) Shares for trading No. of Shares Shares in issue

Non Public Locked - in 6th month 109,680,720 92.42% Public Not Locked- in Not Applicable 9,000,600 7.58% Total 118,681,320 100%

The entity hereby confirms that the information furnished herewith shall remain unchanged until the Date of Listing. The terms 'Non Public Shareholders' and 'Public Shareholders' shall have the same meaning as set out in Rules 2.1.1 (d) of the CSE Listing Rules, and the same is in respect of lock-in purposes only.

Table 11.3 Details of Shares locked-in subsequent to the IPO on the basis of allotting 16,000,000 Shares of the 1st tranche of IPO The time period after No. of Shares as which the Shares a percentage of Category of Locked in will be available total number of Shareholders Shares for trading No. of Shares Shares in issue

Non Public Locked - in 6th month 109,680,720 81.44% Public Not Locked- in Not Applicable 25,000,600 18.56% Total 134,681,320 100%

Millennium Housing Developers | Initial Public Offering 71 11.0 Capital Structure

Table 11.4 Details of Shares locked-in subsequent to the IPO on the basis of allotting a further 16,000,000 Shares of the 2nd tranche of IPO

The time period after No. of Shares as which the Shares a percentage of Category of Locked in will be available total number of Shareholders Shares for trading No. of Shares Shares in issue

Non Public Locked - in 6th month 109,680,720 72.79% Public Not Locked- in Not Applicable 41,000,600 27.21% Total 150,681,320 100%

In terms of the Section 2.1.1 (d) of the CSE Listing Rules, the aforesaid Non Public Shares of MHDL Prior to the IPO (i.e. 109,680,720) would be subject to a 'lock-in' for a period of six (06) months from the date of Listing of the shares of the entity (as referred in the Table 11.2)

11.3 Transfer / Gifting of Shares by Major Shareholders

There had not been any Shares of the Company, either being transferred or gifted by any shareholder of the Company during the one (01) year period preceding the date of the Initial Listing Application. (i.e. November 14,2013)

11.4 Shareholders of MHDL

Tabulated below are the shareholders of the Company as at the date of the prospectus and subsequent to the Issue, assuming full subscription.

Table 11.5 Top 10 Shareholders of MHDL

Percentage of Name of Shareholder Number of Shares Shareholding (%) Nation Lanka Finance PLC 91,754,028 77.31% Anilana Hotels & Properties PLC 11,925,072 10.05% Arrow International (Pvt) Ltd 6,000,000 5.06% National Development Bank of Sri Lanka 1,500,000 1.26% Serendib Engineering and Agencies (Pvt) Ltd 1,500,000 1.26% DFCC Bank 1,500,000 1.26% Ceylinco Insurance Company PLC 1,200,000 1.01% The Finance Company PLC 1,200,000 1.01% Ceylinco Homes and International Ltd 900,000 0.76% Ceylinco International Reality (Pvt) Ltd 300,000 0.25%

Other 17 Shareholders 902,220 0.76% Total 118,681,320 100.00%

Millennium Housing Developers | Initial Public Offering 72 11.0 Capital Structure

Table 11.6 Pre IPO Vs Post IPO Shareholding of MHDL (Only the 1st tranche) Name of the Shareholder Prior to IPO Subsequent to IPO-1st Tranche Number of Percentage of Number of Percentage of Shares Shareholding (%) Shares Shareholding (%) Nation Lanka Finance PLC 91,754,028 77.31% 91,754,028 68.13% Anilana Hotels & Properties PLC 11,925,072 10.05% 11,925,072 8.86%

Arrow International (Pvt) Ltd 6,000,000 5.06% 6,000,000 4.45%

W. B. B. C. J. Fernando 1,620 0.00% 1,620 0.00%

Public - Existing 9,000,600 7.58% 9,000,600 6.68%

Public - New (IPO) - - 16,000,000 11.88%

118,681,320 100.00% 134,681,320 100.00%

Table 11.7 Pre IPO Vs Post IPO Shareholding of MHDL (Subject to both tranches) Name of the Shareholder Prior to IPO Subsequent to IPO-1st & 2nd Tranches Number of Percentage of Number of Percentage of Shares Shareholding (%) Shares Shareholding (%) Nation Lanka Finance PLC 91,754,028 77.31% 91,754,028 60.89% Anilana Hotels & Properties PLC 11,925,072 10.05% 11,925,072 7.92%

Arrow International (Pvt) Ltd 6,000,000 5.06% 6,000,000 3.98%

W. B. B. C. J. Fernando 1,620 0.00% 1,620 0.00%

Public - Existing 9,000,600 7.58% 9,000,600 5.97%

Public - New (IPO) - - 32,000,000 21.24%

118,681,320 100.00% 150,681,320 100.00%

11.5 Details of Other Changes to Stated Capital The Company has not carried out any redemption or repurchase of Shares or any reduction of Stated Capital in the last two (02) years preceding the date of this Prospectus.

11.6 Details of Convertible Debt Securities The Company has no outstanding convertible debt securities as at the date of this Prospectus.

11.7 Details of Shares Sold Privately in Conjunction with the Issue No Shares are being issued privately in conjunction with this Issue.

11.8 Free Transferability of Shares Other than the 109,680,720 shares that has to be locked - in for a period of six months from the date of listing of shares on the Colombo Stock Exchange as per the Section 2.1.1 (d) of the CSE Listing Rules, there are no restrictions on the transferability of the Shares and Shares shall be freely transferable subsequent to the Shares being listed on the CSE.

Millennium Housing Developers | Initial Public Offering 73 11.0 Capital Structure

11.9 Take-over Offers

There have been no take-over offers by third parties in respect of the Company's Shares during the past two (02) years, preceding the date of this Prospectus.

The Company has not made any take-over offers in respect of Shares of a third party during the past two (02) years, preceding the date of this Prospectus.

11.10 Taxation

Outlined below is an overview of the taxation, including the various tax concessions and tax exemptions that may be applicable to MHDL and its subsidiaries and thereby to any potential investor interested in investing in MHDL. The description outlined below does not give a comprehensive explanation on the applicable taxation regulations and considerations that relate to MHDL and/or to the purchase, ownership and disposition of shares in Issue. Hence, investors are advised to consult their own advisors prior to making any decision with regard to investment in MHDL's shares.

Corporate Taxation & Tax on Income

Millennium Housing Developers Limited Up to year 2010/11 No Income tax - subject to a 12 year tax holiday. For year 2011/12 The Company is liable for tax at the rate of 10% (2011 : 10%) in terms of the provisions of the Inland Revenue Act No 10 of 2006 and subsequent amendments thereto. Other income is liable for tax at the rate of 28%. From Year 2012/13 The Companies are liable for at the rate of 28% (2011 : 35%) in terms of the provisions of the Inland Revenue Act No 10 of 2006 and subsequent amendments thereto.

Millennium Housing Limited and Millennium Villa Housing Development Limited The Companies are liable for at the rate of 20% (2011 : 20%) in terms of the provisions of the Inland Revenue Act No 10 of 2006 and subsequent amendments thereto. Other income is liable for tax at the rate of 28%.

Ceylinco Housing Corporation Limited and Ceylinco Construction Company Limited The Companies are liable for at the rate of 28% (2011 : 35%) in terms of the provisions of the Inland Revenue Act No 10 of 2006 and subsequent amendments thereto.

Note: As per the Government approved budget for year 2013, any company that list its shares in the CSE on or after 1st April 2013, with more than 20% of its shares issued to the general public, will be reduced by 50% for the year of assessment in which such shares are listed and two years of Assessment immediately succeeding that Year of Assessment. Hence, MHDL would also be subjected to this concession for three years starting from FY 2013/14.

Millennium Housing Developers | Initial Public Offering 74