Navara-led consortium to buy 68% of MBSL Savings Bank for Rs. 562 m

Merchant Bank of Sri Lanka (MBSL) has accepted a bid by a consortium led by Navara Capital Ltd. to buy a 68% stake in MBSL Savings Bank Ltd., for Rs. 562 million subject to Central Bank approval.

The consortium will buy 87.185 million voting shares at Rs. 3.75 per share (Rs. 327 million) and 100 million non-voting shares at Rs. 2.35 each (Rs. 2345 million), bringing the total to investment to Rs. 562 million.

On 17 October, Navara Capital, among promoters of which is financial market specialist Harsha de Silva, acquired control of Infrastructure Developers Plc (IDL), considered a shell company, for Rs. 128 million (paid Rs. 27.50 for the block of 4.65 million shares amounting to a 95.79% stake) from Flyasia Sdn Bhd which originally bought the stake at Rs. 13 per share.

MBSL Savings Bank, formerly Ceylinco Savings Bank is a Licensed Specialised Bank (LSB), is registered under the Central Bank. MBSL acquired a 78% stake in April 2009 and has invested Rs. 237 million (voting stake of 78% for Rs. 100 million and non-voting 100 million shares in 2010 at Rs. 150 million and subsequently divested 10% voting stake for Rs. 12.8 million) at the time when the venture was experiencing great financial difficulties and renamed it MBSL Savings Bank. Ceylinco Savings Bank began operations in May 2001.

In 2009 MBSL management turned the position of the venture and for the year ended 31 December 2009 recorded a net profit of Rs. 40 million compared to Rs. 371.9 million loss made in the previous year.

In 2010, MBSL Savings Bank failed to maintain a Capital Adequacy Ratio of not less than 10% in relation to total risk weighted assets with core capital constituting not less than 5% in relation to total risk weighted assets. In view of serious loss of capital situation MBSL Auditors SJMS Associates raised substantial doubt that MBSL Savings Bank will be able to continue as a going concern.

Even though, MBSL Savings Bank failed to contribute positively to the bottom line of the group, it had managed to perform to its budgetary expectations in 2010. This raised hope in MBSL that Savings Bank would break even in the year 2011.

In 2010 MBSL Savings Bank Ltd achieved a gross deposit collection of Rs. 1 billion, an increase of 15% over the previous year. The bank was able to disburse Rs. 942.99 million worth of facilities during the year 2010 compared with 2009, which was only Rs. 473.99 million.

During the year weighted average cost with overhead cost has reduced from 23.77% in December 2009 to 17.17% in December 2010. Cost of funds has come down from 15.43% p.a. to 12.05% p.a. due to the prudent treasury management of the bank. Also the net NPA Ratio which was 10.65% in December 2009 reduced to 7.90% in December 2010.