Thursday, 18 September 2014 00:06
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By Shabiya Ali Ahlam
The Bank of Ceylon’s (BOC) first debenture issue for the year worth Rs. 8 billion was oversubscribed on its official opening day on Tuesday following an oversubscription.
“The issue took place just as expected. With BOC having a strong position in the market, we were confident the debenture would be oversubscribed on the opening day itself,” BOC Senior Deputy General Manager International, Treasury and Investment P. A. Lionel told the Daily FT.
He said the first trench of Rs. 4 billion was reached within an hour of opening and was oversubscribed by 2 p.m. the same day. The exact number of applications for the issue which comprised five and eight year tenure, and the basis of allotment will be notified in due course. Fund raised from the issue will be used to strengthen BOC’s Tier 2 capital base and reduce asset and liability maturity mismatches.
BOC offered involved 40 million unsecured, subordinated, redeemable debentures at Rs. 100 each with an option to issue an equal amount in the event the initial figure of Rs. 4 billion was oversubscribed.
The debenture is the sixth to be issued by BOC, and its first for the year.
Rated ‘AA’ by Fitch, the public issue was attractively structured giving investors the opportunity to select from five types of debentures: Type A with a five year tenure and 8% payable annually, Type B with a five year tenure and 7.75% (Annual Equivalent Rate, AER 7.98%) payable quarterly, Type C with a tenure of five years and six months gross T-bill rate +0.50% payable bi-annually, Type D with a tenure of eight years and 8.25% payable annually and Type E with a tenure of eight years and six months gross T-bill rate +0.50% payable bi-annually. The managers and registrars for the issue was BOC’s Investment Banking Division.
According to a report released by NDB Securities, the fund raised will help strengthen BOC’s liquidity position while taking advantage of the comparatively low interest rates in the market and manage the gap exposure in the bank’s asset and liability portfolios.
While the debenture offered a lower premium to prevalent Treasury Bond yields in comparison to debentures with similar tenures issued in the recent past, BOC’s credit rating is the highest among the comparable listed debentures justifying the lower premium, NDB Securities said.
BOC, in its last debenture that was issued on October 2013, raised Rs. 8 billion with it being oversubscribed also on the official opening day. It drew applications worth Rs. 11.69 billion. It was valued at Rs. 4 billion, with an option to increase the size up to Rs. 8 billion in the event of oversubscription.
The debenture was priced at Rs. 100 each. The unsecured, subordinated, redeemable debentures were divided into nine choices and had tenures in the range of five to 10 years, with both fixed and floating coupon rates.
The interest rates offered ranged from 13% payable annually to 12.6% semi annually, on five-year fixed rate debentures, as well as one with five-year floating rate payable semi annually, and eight-year fixed at 13.25% payable annually, an eight-year floating rate payable semi annually, nine-year fixed rate of 13.25% payable annually and 10-year fixed rate of 13.75 payable annually.
