Senkadagala Finance to raise Rs.580mn via rights to remain capital-rich

Senkadagala Finance PLC, a licensed finance company with an asset base of just under Rs.29 billion last week announced its plans to raise equity capital via a rights issue to maintain the minimum regulatory capital requirements, a disclosure to the Colombo Stock Exchange said. 
The rights issue has already received the nod from the Central Bank, but is subject to the Securities and Exchange Commission and shareholder approval. 
The company, accordingly, plans to issue one new ordinary share for each 9 shares held at a rights price of Rs.80 a share to raise a total of Rs.579.8 million. 
Senkadagala Finance share is hardly traded in the market but on December 31, 2016, the share traded at Rs.90.  

As of December 31, 2016, the company’s core capital stood at Rs.2.99 billion with a Tier I capital adequacy ratio of 12.37 percent, much higher that the regulatory requirement of 5.0 percent. 
Hence the financial statements do not point to an immediate need for an equity injection to raise the Tier I capital. 
However, the proposed rights issue could be indicative of some rapid expansion plans by the company for 2017 and beyond. 
In any case, raising capital would not be much of an issue for Senkadagala Finance, which is largely controlled by a family and the shareholding is highly concentrated among a few family members.
E. W. Balasuriya & Co. (Pvt) Limited held 56.27 percent stake as at December 31, 2016, while some other members of the Balasuriya family held large stakes.  
Public float of the company was 21.60 percent, but that is also among 10 shareholders. 
Meanwhile, the Tier II capital base of the company stood at Rs.3.72 billion with a ratio of 15.38 percent while the regulatory minimum requirement is 10.0 percent. 
The stated capital of the company is little over Rs.1.0 billion and the total equity is Rs.3.37 billion. 
The Central Bank is expected to soon issue a directive to raise the core capital of licensed finance companies to Rs.2.0 billion from the current Rs.400 million while for leasing companies, the minimum core capital will be raised to Rs.1.0 billion from Rs.300 million.
 In January, Orient Finance PLC, a Janashakthi group company, also announced a Rs.400 million rights issue to strengthen its capital base. 
Meanwhile, for the December quarter, the Senkadagala Finance recorded earnings of Rs.2.84 a share or Rs.185. 2 million, up 34.5 percent from a year ago. 
For the nine months ended December 31, the company posted earnings of Rs.8.81 a share or Rs.574. 7 million, which is an increase of 28.7 percent from a year ago. 
As of December 31, 2016, the company had a loans and receivables book of Rs.21.9 billion, which is an increase of Rs.5.0 billion from March 31, 2016 which translates into close to a 30 percent growth.