CEO Lakshman Silva on DFCC Bank’s latest Rs. 7.6 b Rights Issue

DFCC Bank recently announced a two for five Rights Issue at Rs. 72 per share. The move involves issuance of 106 million shares thereby raising Rs. 7.6 billion. Following is an interview on the on-going Rights Issue held with DFCC Bank CEO Lakshman Silva

Q: Why do you think it is necessary to go for a Rights Issue at this time? 

A: The main objective of this Issue is to increase the Tier 1 Capital of the bank in order to accommodate and support the bank’s future business expansion and continue our well-established franchise of being the premier provider of project financing for the country. Over the past few years, DFCC has been able to grow its asset base through a judicious combination of debt and internally generated funds. 

Looking ahead, based on the medium term projected growth plan, an asset base of over Rs. 500 billion and above is to be achieved. DFCC will become a systemically important domestic bank in the near future. As such, we will require a Tier 1 ratio of 10% to be maintained. Also, in order to sustain our present position as the premier project finance lender in the country, we will need to enhance our equity capital which is currently quite low when compared to our peers as we have not requested shareholders for capital for well over a decade.

Q: Why is it priced at Rs. 72 when Net Asset value per share as at 31 December 2018 is Rs. 165.40? 

A: At the time of deciding the price of Rs. 72 per share, the market price was Rs.89.10. The directors considered a 19.2% discount to the prevailing market price to be reasonable considering the share price movement at that time and in the context of the Rights Issues of other banks which were also issued at a similar discount. The Directors also considered that a discount of 56% to the net asset value would make the rights attractive to shareholders.

Q: What benefits are there for shareholders when they subscribe for the Rights Issue? 

A: The last time we requested shareholders to provide capital was in 2007, 12 years ago. Since then, the bank has given 1:5 and 1:1 Bonus Issues. This, combined with the dividends paid annually,  entirely in cash, has resulted in substantial returns to shareholders, when averaged over the period,  represents a return on investment more or less on par with the average return that could have been earned had such funds been invested in time deposits or treasury instruments.  In addition, the return for DFCC shareholders was free of tax. Furthermore, shareholders will receive excellent value for their new investment when the current depressed stock market recovers.

Q: What are the plans and where does DFCC expect to be over the next few years? 

A: After becoming a commercial bank in 2015, DFCC has been aggressively moving towards acquiring new retail and corporate customer and focusing on introducing digitally enhanced products and services, for the convenience of its customers. With these new initiatives, the bank will become a systematically important bank in the near future in line with our plans.

Q: Do you intend to approach Shareholders after a few years for future capital?

A: No. Should shareholders support the Rights Issue in full, there will be no need for further infusion of shareholder capital in the immediate future.

Q: Do you have any other comments for shareholders? 

A: Shareholders approved the Rights Issue at the Extraordinary General Meeting held on 28 March, and the provisional letters of allotments have been posted to the shareholders on 4 April. The applications should be submitted no later than 22 April. Shareholders have always supported DFCC over our 64-year history and we are certain that they will continue to do so. On behalf of the bank, I assure you that my team and I remain fully committed to ensure the stable and steady growth of DFCC bank in the years ahead.