Cargills Bank embraces new chapter with CSE listing, and next growth phase with Rs. 500 m IPO

For the first time in a decade, the investing public has an opportunity to become inaugural public shareholders in a unique financial services entity with the ongoing Rs. 500 million IPO by Cargills Bank Ltd. (CBL)

The previous commercial bank to have an Initial Public Offering (IPO) followed by a listing on the CSE is Amana Bank way back in 2014.

Via the IPO, the CBL is issuing 62.5 million ordinary voting shares at Rs. 8 each to raise Rs. 500 million in capital and more importantly to become a listed entity on the CSE. Once fully subscribed, the New Shares would amount to 6.61% of the Ordinary Voting Shares of the Company post-IPO. The IPO is now on for subscription with its official opening on Wednesday, 13 December.

The Net Asset Value (NAV) per share of the Company as per the unaudited Interim Financial Statements as at 31 August 2023 is Rs. 12.88. As per the latest audited financial statements 31 December 2022, NAV per share is Rs. 11.01.

The Share Issue Price is 0.62 times the NAV. The IPO price of Rs. 8 reflects a discount of 20.19% to the average value per share of Rs. 10.03 obtained via the valuation done by co-manager to the issue, NDB Investment Bank Ltd. The other co-manager is CT CLSA Securities, part of Cargills Group. 

The CBL Board of Directors is of the opinion that the IPO price is fair and reasonable and the discount is provided to investors eyeing a potential upside on the investment. 

The post-IPO NAV per share amounts to Rs. 12.56 based on the NAV as at 31 August 2023 adjusted for IPO proceeds and post IPO number of ordinary shares in issue assuming full subscription of the Issue.

The objective of the IPO is to enhance the capital base of the Bank in order to comply with the minimum capital requirement as set forth in the Banking Act Directions No. 05 of 2017.

As per this directive, issued by the Central Bank of Sri Lanka (CBSL) regarding the enhancement of minimum capital requirements for banks, commercial banks are mandated to maintain a minimum capital of Rs. 20 billion by 31 December 2023. The Monetary Board has granted an extension to CBL until 31 December 2025 to meet the minimum capital requirement stipulated by the CBSL. This extension is contingent on the Bank listing its shares on the CSE by 31 December 2023.

Currently, CBL’s capital for the calculation of minimum capital requirement stands at Rs. 11.35 billion as at 31 August 2023. After the capital raising, CBL’s capital base will increase to Rs. 11.85 billion.

Until the Bank meets the minimum capital requirement of Rs. 20 billion, CBL has been directed by CBSL to maintain its Total Tier 1 Capital Ratio 250 basis points above the minimum requirement of 8.5%. As at 30 June 2023, Total Tier 1 Capital ratio of the Bank stood at 21.33%, well above the regulatory requirement.

CBL's confidence in achieving this obligation is bolstered by Sri Lanka’s trajectory of recovery from a severe economic crisis, indicating a more conducive environment for raising capital in the future.

CBL said the IPO represents phase 1 of the Bank’s capital augmentation plan. Additional equity capital raisings will be carried out in the future to meet the required minimum capital subject to compliance with the relevant Listing Rules.

Proceeds from the IPO will be utilised for its lending business. The average monthly loan portfolio disbursements made by CBL for the last three months from July to September 2023 amounts to Rs. 742 million.

CBL said the proposed objectives, once implemented, would extend an opportunity for the shareholders of the Bank to be part of the growth of CBL and benefit from equity returns in the future through improvement in the expected profitability of the Bank.

Founded in 2014, CBL is still evolving though its achievements and contributions to the SMEs have been significant. The business model pursued by CBL is also unique. 

Backing of diversified conglomerate Cargills (Ceylon) Plc

CBL has the backing of diversified conglomerate Cargills (Ceylon) Plc, which has extensive interests in retail, food and beverage, manufacturing and distribution, restaurants and property development. The Group works with a diverse stakeholder base; directly purchasing from over 20,000 farmers and 1,000 suppliers; supplying over 67,000 grocery stores with Cargills FMCG products through a network of over 400 distributors; and serving over 1.6 million loyalty customers with a group employee strength of over 11,000 staff members.

CBL is uniquely positioned to leverage these relationships and offer financial solutions that combine the synergies of this broad ecosystem to provide win-win solutions for the Bank and its customers. Access to the ecosystem has enabled growth of the Bank’s customer base across agriculture, retail, SME and corporate business units.

CBL achieved a turnaround in FY22 following three consecutive years of operational losses, recording a profit before income tax of Rs. 206 million.

CBL is led by Managing Director Senarath Bandara, a distinguished personality in the Sri Lankan Banking space with over 30 years’ experience including as Bank of Ceylon, GM/CEO, the country’s largest commercial bank. 

Under the oversight and strategic direction of the Board of Directors, CBL said it plans to execute growth strategies to capture opportunities and grow its business over the next few years to continue its performance trajectory, while remaining agile to face future challenges.

Managing Director Bandara in an interview with the Daily FT said CBL is stepping up its pursuit of being an inclusive bank with a balanced approach. 

“Our vision is to be the most inclusive bank harnessing the spirit of progress in every Sri Lankan,” said Bandara.

He said via Cargills widespread ecosystem, especially farmers in agriculture and dairy as well as SMEs in the supply chain, CBL is pursuing its goal of being an inclusive bank.

Mindful of being a commercial bank, Bandara said CBL is taking a balanced approach to drive growth and profitability as well as creating value to its customers. The Bank provides a gamut of services for all kinds of customers including individuals and the corporate.

Of the total network of over 500 Food City outlets, CBL has received Central Bank approval to work with 479 outlets as agents where customers can deposit money, withdraw money on a real time basis. CBL has a dedicated App for customers to transact at Food City outlets. Additionally, CBL operates a mini-banking unit at 30 Food City outlets. 

Through this strategy, CBL has now established touchpoints in high traffic locations allowing the Bank to build a portfolio in the locality at a lower cost than a standard brick-and-mortar model. According to Bandara efforts are underway to further enhance digitisation of customer experience.   CBL also plans to upgrade its core banking system to the latest technology, improving efficiency and versatility.

CBL's Board of Directors comprise: Richard Ebell (Chairman), Senarath Bandara (Managing Director/CEO), Marianne Page, Yudhishtran Kanagasabai, Buwaneka Perera, Asoka Pieris, Ravi Jayawardena, Shanti Gnanapragasam, and Arjuna Herath.