Sampath Bank’s Rs.6bn convertible debt issue oversubscribed

• Debentures issued to strengthen bank’s Tier II capital base
• Fitch in 2015 downgraded bank’s national long term rating

The Rs. 6 billion BASEL III compliant convertible debenture issue of Sampath Bank PLC was oversubscribed the day it was opened on the Colombo Stock Exchange last Friday, a disclosure to the trading floor said.

The debentures were issued to strengthen the bank’s Tier II capital base under the BASEL III capital requirements, and the funds would be used to expand and diversify the bank’s lending products.

The BASEL III debentures are convertible, to be triggered in the event the bank is not able to convince shareholders to subscribe for additional share capital in case the bank’s capital falls below requirements. Fitch Ratings in 2015 downgraded Sampath Bank’s national long term rating to A+ from AA- with a ‘Stable’ outlook before the outlook being revised down to ‘Negative’ in expectation of further worsening capitalization beyond previous expectations. 

“Fitch does not believe Sampath can sustain its capitalization purely through retained earnings. The bank’s rating reflects its lower capitalization and higher risk appetite relative to peers, which counterbalance its satisfactory asset quality and improving franchise”, Fitch said. By March 31, 2017, Sampath Bank’s Tier II capital adequacy ratio stood at 11.93 percent while the Tier I capital adequacy ratio, which contains purely the shareholder funds and retained earnings in relation to its risk weighted assets— stood at 7.68 percent. But according to the new BASEL III rules, the minimum regulatory requirements for Tier I and Tier II go up to 10 percent and 14 percent respectively by January 1, 2019 from the current 5.0 percent and 10 percent.