Sanasa Development Bank PLC (SDB) is planning to raise Rs. 3.3 billion from international financiers through private placement of shares, convertible loan facilities and a senior term loan in order to meet the minimum capital requirements that will be enforced soon through the 2017 budget and to expand its loan book.
As a Licensed Specialised Bank, SDB is required to increase its Tier 1 Capital to Rs. 7.5 billion early next year due to a 2017 budget proposal to consolidate the country’s financial sector.
SDB’s current stated capital is Rs. 4.06 billion, and its Tier 1 capital at the end of the 3rd quarter ended September 30, 2016 (3Q16) was Rs. 5.1 billion.
Due to artificially low interest rates which were in operation for nearly a year until early 2016, Sri Lanka’s private credit had expanded at an unprecedented rate—at times exceeding 28 percent—causing capital adequacy levels in the financial system to slip.
However, SDB has maintained healthy capital adequacies, with Tier 1 capital adequacy measured at 11.24 percent in 3Q16, down from 12.07 percent year-on-year against a minimum of 5 percent, while total capital adequacy was recorded at 11.71 percent in 3Q16, down from 12.51 percent year-on-year against a 10 percent limit.
The bank will be issuing 10.44 million shares—equal to 19.88 percent of the total post placement shares—at a consideration of Rs. 140 per share, to raise Rs. 1.46 billion.
World Bank Group’s International Finance Corporation (IFC) will be receiving 3.65 million shares, valued at Rs. 510.65 million, subjected to IFC finalizing the agreement.
Together with its current 2.39 percent shareholding in SDB, IFC’s ownership in SDB will increase to 8.86 percent following the issuance of new shares.
SBI-FMO—a joint venture between Japan’s SBI Holdings Inc. (SBI) and the Netherlands Development Finance Company (FMO)—will be issued 4.7 million shares in SDB, or 8.95 percent of the total shares, for
Rs. 658.17 million.
FMO will also be issued a further 2.09 million shares—3.98 percent of the total shares—for Rs. 292.52 million.
FMO and SBI-FMO will also be issued convertible term loans, valued at Rs. 292.54 million and Rs. 658.17 million respectively, and at the end of the loan terms, the debt will be converted into shares in SDB.
The conversions however cannot exceed a consideration of Rs. 140 per share or 1.1x the book value per share, and the combined ownership of SBI-FMO and FMO cannot exceed 22.91 percent of the total shares
The convertible term loans will be considered as Tier 2 Capital, subjected to approval from the Central Bank.
Therefore, FMO’s total shareholding in SDB following the private placement of shares and the conversion of the term loan will be 7.05 percent, while SBI-FMO will own 15.86 percent.
SDB has also entered into an agreement with FMO to raise US$ 6 million, or Rs. 892.35 million through a senior term
The fundraising activities are subject to approvals being obtained from SDB’s shareholders, the Central Bank, the Controller of Exchange, the Colombo bourse and if necessary, the Securities and Exchange Commission.
SDB said that it is hoping for its main customer base, the small and medium scale enterprise sector, to continue to demand credit. This is despite the rising cost of credit in recent months.
High net worth investor Dr. T. Senthilverl owns 12.77 percent of the shares of SDB, while Global Rubber Industries (Pvt) Ltd owns 10.47 percent, and the state-owned People’s Leasing & Finance PLC owns 4.64 percent of the shares.