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Stronger now with over Rs. 3 billion in capital, SMB Leasing PLC is gearing for higher growth with improved
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| Chairman Ravi Wijeratne |
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| CEO Supul Wijesinghe
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prospects for some of its core business, as well as seeking fresh opportunities via new products.
The company benefited from a fresh capital infusion of over Rs. 2 billion recently following a Rights Issue.
The Rights entailed 5.958 million voting ordinary shares in the proportion of five new shares for every one held at 35 cents per share (worth Rs. 2.09 billion), as well as three million non-voting shares in the same proportion at 12 cents per share (worth Rs. 368.4 million). It eventually raised Rs. 2.14 billion, marginally falling short of its desired goal. Voting issue drew 126 applications for 5.278 million shares and non-voting attracted 242 applications requesting for 2.46 million shares.
Apart from returning to profitability, SMB has also succeeded in having its capital above the Central Bank requirement (including for licenced finance companies) of Rs. 2.5 billion, propelling itself to among the top three most capitalised leasing companies with a figure of Rs. 3.2 billion. Within the Non-Bank Financial Institutions (NBFI) sector. SMB Leasing is now within the top 10 in terms of stated capital and top 20 as per core capital, industry analysts confirmed. Incidentally, it was the second Rights Issue of SMB within the past 11 years, signalling a reinforcement of shareholder confidence while the company also graduated to a stronger position, not falling under entities earmarked for acquisition by others.
The second largest shareholder and Chairman Ravi Wijeratne, with a 16.35% voting stake, saw a post-Rights Issue enhancing of his shareholding by 48% to 64.44% (4.17 million shares), thereby triggering the SEC’s mandatory offer. Wijeratne’s investment in the Rights Issue was Rs. 1.4 billion. The mandatory offer didn’t yield much response except shares amounting to 47,600.
Wijeratne told the Daily FT that his investment was motivated by the improved prospects for SMB Leasing, following the capital infusion, as well as for the economy, with rapid vaccination and COVID pandemic-induced restrictions being lifted.
“With increased capital, we can now expand our business portfolio as well as launch new products,” said Wijeratne.
The company is primarily engaged in providing finance leases, mortgage loans, personal loans and gold loans.
SMB Leasing CEO Supul Wijesinghe said that in tandem with demand and growth in business, the company plans to expand its footprint from three branches at present by opening about five more in select cities. He said that SMB Leasing has had its best two quarters ending June 2021 and outlook remains positive.
Prior to the Rights Issue, in the 30 June 2021 quarter, SMB Leasing's net interest income rose by 133% to Rs. 28 million, while operating income rose by 108% to Rs. 33.7 million. Operating Profit Before Taxes on financial services rose by 779% to Rs. 27.5 million as against a loss of Rs. 4 million a year ago. After tax profit was Rs. 22 million in comparison to a loss of Rs. 5 million in 1Q of 2020.
In the first half of the current financial year, after tax profit was Rs. 49 million, a complete turnaround from a loss of Rs. 9 million in the corresponding period of last year.
In 2020 the after tax loss was Rs. 70 million as against a profit of Rs. 8 million in 2019. This contraction of the financial performance was predominantly due to the foregone interest income resulting from the debt moratoria granted to COVID-19-affected customers as per CBSL directives. Increased credit losses due to the pandemic impacted the bottom line as well.
As of 30 June 2021, SMB's assets amounted to Rs. 1.76 billion, down from Rs. 1.83 billion as of 31 December 2020. Liabilities however declined to Rs. 701 million from Rs. 815 million. It had retained earnings of Rs. 71.8 million.
Prior to the Rights Issue, SMB Leasing’s operations were funded by equity funds and loan funds obtained from the banking sector. At the beginning of 2021, it had loan funds of Rs. 500 million from the banking sector. However, with the leasing and loan lending rates in the banking and non-banking sectors coming down, the company revisited its cost of funds structure and decided that it was appropriate to raise capital via a Rights Issue to finance its lending operations and expand its lease, loan, and pawning portfolios, giving a higher yield to shareholders.
SMB Leasing is of the view that the funds raised from the Rights Issue can be fully disbursed with the present organisation structure and thus no additional overheads will be incurred. Therefore, the incremental yield from the portfolio expansion will directly have a positive impact on the net profit, which will increase shareholder return in 2021 and beyond.
The company believes that with increased stated capital, in addition to providing leverage for a significantly higher return for shareholders and facilitating portfolio expansion plans, it would qualify to be on par with licensed finance companies in terms of core capital.
The Rights Issue proceeds will be utilised to expand the lease, loan, and pawning portfolios of the company thereby ensuring a higher return to shareholders by the end of 2021. Prior to the Rights Issue, the company had a capacity to disburse Rs. 300 million in a month and the funds raised from the Rights Issue can be disbursed within six months.
