Strategy to protect JKH and Central Finance interest while protecting minority
The Nations Trust Bank PLC (NTB) has summoned an Extraordinary General Meeting on Jan. 12 to seek shareholder approval for an unusual rights issue under which approx. 40.1 million new convertible non-voting shares are being issued in the proportion of four new non-voting shares for every 23 voting shares held at a price of Rs. 80 per share.
"This is the first time any company is issuing non-voting shares against already held voting shares," an analyst said. "The exercise is intended to enable JKH and Central Finance (CF) to subscribe to the issue despite the constraints imposed on these two dominant shareholders of NTB under terms of the Banking Act."
Both JKH and Central Finance are hamstrung by the problem of holding the maximum permitted stake of the bank in terms of the voting shares they already hold. But this restriction does not apply to non-voting shares.
Minority shareholders’ interests have been protected by making the new non-voting shares convertible to voting shares down the road without cost.
In a circular to shareholders, NTB has explained the arrangement and said that JKH and CF owning approx. 64.9% of the bank have committed to subscribe for their rights. An under-subscription by the minority shareholders has been described as an "unlikely event" although the NTB share has been recently trading at around the Rs. 80 level at which the rights shares have been priced.
The NTB share which closed on Friday at Rs. 78 for a small quantity of 588 shares had traded between a low of Rs. 78 and a high of Rs. 87 between Sept. to Nov. this year closing at Rs. 80, Rs. 83 and Rs. 80 in these three months. As at Dec. 12, the last trading day before the circular was printed, the closing price was Rs. 80.
Analysts noted that recent rights issues by other commercial banks, like the Commercial Bank of Ceylon, HNB and Sampath priced their rights at a substantial discount to the prevailing market price and shareholders had an instant capital gain on their new shares.
"This is not the case with NTB," an analyst said. "Big shareholders of Sampath had to forego a proportion of their rights (of voting shares) due to limits specified by the Banking Act. As a result, small shareholders applying for additional shares over and above their entitlements got as many as 9,000 shares enabling a tidy profit."
NTB plans to infuse approx. Rs. 3.2 billion with the rights issue and a further Rs. 3.5 billion by the issue of listed, rated, unsecured, subordinated, redeemable five-year debentures with a "non-viability conversion" to ordinary voting shares "solely if instructed by the Central Bank of Sri Lanka."
A second meeting immediately following that seeking approval for the rights issue will also seek shareholder approval for the debenture issue. Both these capital raising exercises have been undertaken to strengthen Tier 2 capital of the bank to comply with BASEL III requirements.
NTB has a solid dividend paying track record having paid dividends of Rs. 2.10 per share during the last three financial years. The bank has made a profit of Rs. 2.745 billion in the first six months of the current financial year and the net asset value of the NTB share was Rs. 80.94 (group Rs. 85.42) as at Sept. 30, 2017.
The Nations Trust Bank PLC (NTB) has summoned an Extraordinary General Meeting on Jan. 12 to seek shareholder approval for an unusual rights issue under which approx. 40.1 million new convertible non-voting shares are being issued in the proportion of four new non-voting shares for every 23 voting shares held at a price of Rs. 80 per share.
"This is the first time any company is issuing non-voting shares against already held voting shares," an analyst said. "The exercise is intended to enable JKH and Central Finance (CF) to subscribe to the issue despite the constraints imposed on these two dominant shareholders of NTB under terms of the Banking Act."
Both JKH and Central Finance are hamstrung by the problem of holding the maximum permitted stake of the bank in terms of the voting shares they already hold. But this restriction does not apply to non-voting shares.
Minority shareholders’ interests have been protected by making the new non-voting shares convertible to voting shares down the road without cost.
In a circular to shareholders, NTB has explained the arrangement and said that JKH and CF owning approx. 64.9% of the bank have committed to subscribe for their rights. An under-subscription by the minority shareholders has been described as an "unlikely event" although the NTB share has been recently trading at around the Rs. 80 level at which the rights shares have been priced.
The NTB share which closed on Friday at Rs. 78 for a small quantity of 588 shares had traded between a low of Rs. 78 and a high of Rs. 87 between Sept. to Nov. this year closing at Rs. 80, Rs. 83 and Rs. 80 in these three months. As at Dec. 12, the last trading day before the circular was printed, the closing price was Rs. 80.
Analysts noted that recent rights issues by other commercial banks, like the Commercial Bank of Ceylon, HNB and Sampath priced their rights at a substantial discount to the prevailing market price and shareholders had an instant capital gain on their new shares.
"This is not the case with NTB," an analyst said. "Big shareholders of Sampath had to forego a proportion of their rights (of voting shares) due to limits specified by the Banking Act. As a result, small shareholders applying for additional shares over and above their entitlements got as many as 9,000 shares enabling a tidy profit."
NTB plans to infuse approx. Rs. 3.2 billion with the rights issue and a further Rs. 3.5 billion by the issue of listed, rated, unsecured, subordinated, redeemable five-year debentures with a "non-viability conversion" to ordinary voting shares "solely if instructed by the Central Bank of Sri Lanka."
A second meeting immediately following that seeking approval for the rights issue will also seek shareholder approval for the debenture issue. Both these capital raising exercises have been undertaken to strengthen Tier 2 capital of the bank to comply with BASEL III requirements.
NTB has a solid dividend paying track record having paid dividends of Rs. 2.10 per share during the last three financial years. The bank has made a profit of Rs. 2.745 billion in the first six months of the current financial year and the net asset value of the NTB share was Rs. 80.94 (group Rs. 85.42) as at Sept. 30, 2017.
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