Share prices of both DFCC Bank and NDB last week gained sharply ahead of the pending merger over which the two institutions issued a preliminary statement on Friday saying talks will begin shortly.
Though the joint announcement came after the market was closed and timeline for merger proposal was announced on 2 January by the Central Bank via its 2014 Road Map, the gain in share price last week was significant. Whereas in the week ended 3 January, DFCC Bank share dipped by Rs. 1.50 and NDB just managed to be up by 10 cents, last week both counters rose nearly to their 52-week high.
DFCC gained by Rs. 15.60 (11.5%) to close at Rs. 150.60, whilst intra-week highest was Rs. 151, a few rupees short of its 52-week highest of Rs. 153. NDB rose by Rs. 15.70 (9.5%) to close at Rs. 180.50 whilst peaking to an intra-week highest of Rs. 182, just 50 cents short of its 52-week highest.
Most analysts linked the sharp rise to the pending merger though it is likely to take a longer time whilst others noted, post unveiling of the 2014 Road Map, sentiments have been positive on banking and finance sector stocks due to consolidation and other measures announced.
Analysts said that some investors were taking early positions on the two entities since a merger could involve a share swap. Both entities have nearly 18,000 shareholders.
Combined staff strength is around 2,800 and as per Central Bank indications there will be no retrenchment despite a merger.
Internally and confidentially, both DFCC and NDB in the past had explored various options of acquisitions outside but none made any headway. DFCC was the pioneering
Development Finance Institution in the country and has a commercial bank as a 99% owned subsidiary. NDB which was a development finance institution originally changed its charter to become a commercial bank.
Issuing a preliminary joint statement on the merger between DFCC Bank and National Development Bank PLC (NDB), the two entities on Friday said talks will commence shortly.
“The Boards of Directors of DFCC Bank (DFCC) and National Development Bank PLC (NDB) wish to announce that they, in pursuance of the policies announced by the Government encouraging the consolidation of certain banking businesses, are about to commence preliminary discussions with a view to achieving such consolidation,” the statement signed by DFCC Bank CEO Arjun Fernando and NDB CEO Rajendra Theagarajah said.
“The Boards of DFCC and NDB wish to emphasise there have been no definite decisions on any aspect of such consolidation and that final decisions would be dependent, amongst others, on arrangements being agreed keeping paramount the interests of customers, employees (which in the case of DFCC include those of DFCC Vardhana Bank PLC) and other stakeholders of the banks. Moreover, consolidation of the two entities will be dependent on regulatory approvals and possibly, the passage of facilitative legislation,” it said.
“In conclusion, the Boards of Directors of DFCC and NDB assure its shareholders, its employees, the regulatory authorities and the investing public, that they will keep them informed of the progress in connection with the proposed transaction as and when necessary,” the joint statement added.
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