No takers for COMBank’s Rs. 1 b debenture

Commercial Bank’s five-year debenture issue worth Rs. 1 billion had closed this week sans a single application, a development which has shocked analysts.

The bank was offering 500,000 unsecured subordinated, redeemable debentures at an issue price of Rs. 1,000 each with an option issue a further equal amount in the event of the oversubscription of the original figure.

The issue which opened on 27 March ended on Wednesday with the bank saying it was not subscribed at all due to sharp increase in market interest rates subsequent to obtaining CSE approval and opening of the issue to the public.

The debenture offered a Fixed Interest Rate of 12.75% Per Annum on the principal sum payable annually (effective annual yield 12.75% per annum).

At this week’s Treasury Bill auction yields in all three tenors rose between 11-27 basis points, a development which has been regular of late.

No takers of debentures also come at a time when investors have moved away from equities to fixed-income instruments.

Analysts said banks and finance companies were offering higher rates on fixed deposits and expectations of higher rates were likely to have made investors uninterested in Commercial Bank’s offered rate on its debentures.

Some also said that given perceived volatility in interest rate scenario firms were finding it difficult to price their investment products.

Though disclosing zero subscription, Commercial Bank didn’t reveal what it would do next in terms of the fund raising exercise.

The minimum subscription per application is Rs. 5,000,000 or 5,000 Debentures.

Fitch Ratings Lanka Ltd. has affirmed National Long Term Rating of AA-(lka) rating to the proposed Debenture issue.