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Listed firms in debenture rush

27 March 2013 02:30 am - 0     - {{hitsCtrl.values.hits}}

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Many listed entities in the Colombo Stock Exchange were seen taking advantage of the concessions offered in the Budget 2013 with regard to corporate debt, as few companies have already raised big sums this year through debenture issues with a several more to follow.

On Monday, Fitch Ratings said Lion Brewery, a unit of Carson group and Softlogic Holdings were planning to Rs.3 billion and Rs.750 million respectively through debenture issues. The two issues have been assigned AA- and A-, respectively, by Fitch.

The Budget 2013 proposed to exempt withholding tax on interest income earned by investing in bonds and debentures listed in the Colombo Stock Exchange (CSE) with effect from this year in an attempt to create a more vibrant corporate debt market.

Being the first to take advantage of the new development, Seylan Bank PLC finished raising Rs.2 billion via a debenture issue in February that was oversubscribed in the opening day itself.

Merchant Bank of Sri Lanka, a unit of state owned banking giant, Bank of Ceylon also raised Rs.2 billion through a listed debenture.

According to analysts, companies seem to be using this window of opportunity to raise long-term capital, as the tax concessions offered in the Budget 2013 are applicable for the entire duration of the debt.

“So they can lock the moneys raised and keep it for future needs,” an analyst pointed out.

“It is encouraging to note that better managed companies are using the capital markets to raise debt on the strength of their own balance sheet.

This will reduce exposure to bank borrowings and raise medium to long-term capital, reducing interest rate risk. We hope more companies will take advantage of the tax break to issue rated longterm paper,” Fitch Rating Lanka said, responding to a Mirror Business inquiry.

According to market sources, a number of companies, including couple of big banks and several finance companies are also bracing to raise money via debenture issues in the near future.

Meanwhile Mirror Business lear ns that Colombo Stock Exchange is currently in the process of amending certain Listing Rules pertaining to the listing of debentures both in the main and the secondary boards.
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