A total of 68 subscribers have contributed over Rs. 9.73 billion to make the Sampath Bank’s recent debenture issue a resounding success, the bank said in a stock exchange filing last week.
The comfortable over-subscription of the Rs. 4 billion debenture issue, with an option of raising a further Rs. 2 billion if over-subscribed, closed on the opening day despite the previous tax-free status on interest earned on these instruments to corporate subscribers not being available from April 1, 2018.
The debentures of five-year tenure with a par value of Rs. 100 each are listed, rated unsecured, subordinated and redeemable with a non-viability conversion to shares that may be imposed by the Central Bank.
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Markets continued to record week-on-week losses for the seventh consecutive week as dull sentiment dominated ahead of the holiday weekend, Acuity Stockbrokers said in their Stock Market Weekly.
"The broad-share price Index fell to an eight-month low of 6,321.36 points on Wednesday, before recovering marginally higher by 2.4 points to close above the Index’s previous low of 6,305.54 in mid-April," the report said..
Turnover levels too declined significantly, falling ~51% W-o-W to average Rs. 0.35 daily. This contrasts to the daily average turnover levels of Rs. 0.71Bn the previous week and the year-to-date average of Rs. 0.93Bn. Lower high netr worth investor and institutional participation contributed to the low daily turnover levels, with just 40% of crossings recorded over the week, Acuity noted.
Crossings were concentrated on just three stocks - Hemas, HNB and DFCC with DFCC accounting for the dominant share of the week’s crossings (85%).
The report said that the Colombo Bourse also managed to find some support from last week’s recovery in foreign appetite for domestic equities. Although notably lower than this year’s average weekly net foreign inflows of Rs.0.36Bn, net foreign inflows last week totaled Rs. 0.05Bn, up from the net outflow of Rs. 0.07Bn recorded the previous week.
The report said that markets in the holiday-shortened week ahead are likely to retain the current dull sentiment although some cues over market direction are likely to stem from next week’s monetary policy meeting on Thursday.
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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.
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