Seylan Bank PLC this week said it would issue 5 and 10-year debentures to raise up to Rs.10 billion to strengthen its regulatory Tier II capital adequacy ratio, which was seen weakening amid growing risk weighted assets or the bank’s loan portfolio.
The proposed debenture will also be BASEL III compliant. The debentures are subordinated in nature and mark a deviation from its previous plans as the bank had earlier decided to raise the funds through senior debentures. The senior debentures are akin to pure borrowings and cannot be recognized as part of Tier II capital but when the instruments become subordinated, up to 50 percent of it can be taken as Tier II capital. Hence the bank, with an asset base of Rs. 370 billion, will initially issue debentures worth of Rs.6.0 billion at an issue price of Rs.100 each with an option to issue a further Rs.4.0 billion in the event of an oversubscription of the initial tranche of 60 million debentures.
The rates are yet to be determined by the bank’s board.
The bank previously planned debenture issue in October, last year, when the interest rates were rising. The decision to defer it could be due to the unattractively higher rates that the bank would have to offer for the fairly long-term funds.
However, now that the interest rates are easing, the board may have decided the time is ripe for an issuance of a debt instrument which also qualifies for Tier II capital.
Meanwhile, speculation that the removal of tax exemptions on listed debentures
Meanwhile, there were also doubts over the removal of tax exemptions on listed debentures as per the budget proposal.
As a result, as much as Rs.30 billion worth of corporate bonds did not go ahead.
But State Minister for Finance Eran Wickramaratne was reported to have said that no new tax would be brought in with retrospective effect.