Going concern doubts over insurance subsidiary puts MBSL on Watch List

• Parent says two bids under consideration for Rs. 700 m infusion via private placement to revive suspended insurance subsidiary
• MBSL to invest Rs. 500 m balance to meet regulatory capital requirement 

 The securities of Merchant Bank of Sri Lanka and Finance Plc (MBSL) have been transferred to the Watch List by the Colombo Stock Exchange as the audited financial statements for FY17 contains an emphasis of a matter of ongoing concern pertaining to subsidiary MBSL Insurance Ltd.

As at 31 December 2017, MBSL has made an impairment provision of 95.9% of the investment in insurance venture.

MBSL said as parent it has already taken proactive measures to revive the insurance subsidiary and is currently in the process of facilitating a capital infusion of Rs. 700 million by way of a private placement of shares with a strategic investor.

The insurance subsidiary called for Expressions of Interest from investors to invest in a significant minority stake subsequent to which two final bidding offers were received and revaluated. Having received the offers, MBSL is working towards receiving the requisite approvals from the line ministry, Insurance Regulatory Commission of Sri Lanka and MBSL parent, Bank of Ceylon. MBSL and the insurance subsidiary intend to enter into an investment agreement with the selected strategic investor no sooner that the said approvals are received. The filing to the CSE also stated that MBSL intends to invest Rs. 500 million in insurance subsidiary to meet the balance regulatory capital requirements subject to approvals and thereby facilitate the restoration of the licence which is currently suspended. MBSL has already received the approval of the Central Bank and in principal approval of the BOC for the proposed capital infusion subject to conditions. 

MBSL said that in the event of any deviation from the proposed remedial action, the extent of which will be communicated to investors by way of a subsequent announcement to the CSE within one market day from the date of obtaining the approval of the Board of MBSL for such a deviation.  In the event the matters giving rise to the emphasis of a matter of ongoing concern are not resolved within 15 months from the date of transfer of MBSL to the Watch List, trading will be suspended. In the event trading suspension continues for over 12 months, MBSL will be de-listed as per CSE rules.

In the event the matters giving rise to the emphasis of a matter of ongoing concern are resolved and independently verified by an auditor during the period MBSL is on Watch List, it shall be announced to the market forthwith.