Monday, 21 October 2013 00:00
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By Kinita Shenoy
The Bank of Ceylon (BOC) announced the opening of the subscription list of its debenture issue on Monday 21 October. The 5th BOC debenture issue is also slated to be the largest debenture issue in Sri Lanka, valued at Rs. 4 billion, with an option to increase the size up to Rs. 8 billion in the event of oversubscription. The debenture is priced at Rs. 100 each.
The unsecured, subordinated, redeemable debentures are divided into nine choices and have tenors in the range of 5 to 10 years, with both fixed and floating coupon rates. BOC is also offering a 13% fixed rate, adding that as interest rates drop, debentures are more attractive.
As of 2013, Fitch Ratings (Lanka) have given debentures an AA(lka) rating, adding weight to the claims of long term stability in the face of market volatility.
The BOC Chairman and the Board expressed their confidence in the issue, claiming that they expect bids reaching Rs. 15 billion on the opening day based on interest shown and market assessment. The Investment Banking Division of BOC acts as manager, banker and registrar to the issue.
BOC Chairman Razik Zarook explained that the debenture aimed to bridge the mismatch between short and long term investments, and that “part of the funds will be used to retire older debentures and more importantly to fund priority elements of the economy- infrastructure development, trade and entrepreneurship.”
He added that “the performance of the Bank’s prior subscriptions reflected confidence in the bank and the country’s financial capability, as well as the ability of the bank to sustain the process of repayment.”
Zarook also mentioned that BOC primarily expected Sri Lankan investors from the corporate sector with liquidity excesses such as Sri Lanka Insurance; although they also encourage foreign investors as the rupee is fairly stable at the moment.
BOC Senior Deputy General Manager International/ Treasury and Investments P.A. Lionel weighed in, adding that this was a good time to lock funds long-term depending on interest forecasts, as well as because the debenture capital market is now tax exempt.
The necessity of this structure was for BOC to make its contribution towards the growth of Sri Lankan corporate debt market, increase the depth of the market and strengthen the longer term yield curve. BOC stressed the need of an active debt market for sustainable growth of the Sri Lankan economy.
The BOC senior executives announcing the opening added that listings of debentures on the main board of the Colombo Stock Exchange will provide an exit and entry route for the investors while increasing the liquidity of the issue.
With a value of Rs. 100 each, the unsecured redeemable debentures are categorised into nine types: Type A with a 5-year tenure and 13% fixed interest paid annually, Type B with a 5-year tenure and 12.6% fixed interest paid bi-annually, Type C with a 5-year tenure and floating interest paid bi-annually. Type D has an 8-year tenure and annual fixed interest of 13.25%, Type E, also with an 8-year tenure floating interest paid bi-annually, Type F with a 9-year tenure and 13.25% fixed interest paid annually, Type G with a 9-year tenure and floating interest paid bi-annually. Type H has a 10-year tenure with 13.75% fixed rate paid annually, and Type I has a 10-year tenure with floating interest paid bi-annually.
BOC welcomes applications for subscriptions from both Sri Lankan and foreign individuals over 18 years of age, corporate bodies and registered pension funds.
Via the prospectus, the bank stated its future strategies, including “focus on improving capital adequacy to complement the asset growth enjoyed by BOC in the past few years. Endeavours are to be made to diversify revenue sources and introduce new product lines to make BOC the preferred bank in high-growth and high-potential sectors of the economy.”
It further referred to its new corporate plan, launched in November 2012, which aimed to “focus on the stability of the bank’s balance sheet through moderate and steady growth with industry-competitive performance ratios”.
While mentioning risks associated with the debentures including interest rate risk, reinvestment risk, default risk and liquidity risk, BOC also detailed the various benefits of investing. These included interest income throughout the investment period, the opportunity to realise capital gain according to interest rate fluctuations in the financial markets, the capacity to exit from the investment at any time, the ability to use the debentures as collateral to obtain credit facilities from banks and financial institutions, as well as a tax benefit.
BOC, rated at AA+(lka) stable outlook by Fitch Ratings (Lanka) Ltd., claims a total asset base exceeding Rs. 1.0 trillion, 22% of total assets held by all commercial banks in Sri Lanka, 38% of all inward remittances and 50% of treasury operations of the country.
The BOC executives further announced that its “customer base ranging from retail consumers to private and public companies /corporations together with its large branch net work will provide a solid platform to utilise the funds profitably and efficiently.”
