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By Chathuri Dissanayake and Charumini de Silva
The Government yesterday kicked off multiple probes into the sale of Bank of Ceylon’s (BoC) stake in Seylan Bank on Friday, with directives issued to reverse the transaction, a move which some analysts claimed would be a blow for international investor confidence.
The first shot at the alleged questionable deal was fired by Prime Minister Ranil Wickremesinghe on Saturday.
The Ministry of Public Enterprises Development yesterday called for explanations from the BoC Board of Directors on the controversial move to sell its 7.5% stake in Seylan Bank last Friday for Rs. 1.3 billion. “We have asked the Board to submit all reports regarding the decision taken by the Board,” Ministry Secretary Ravindra Hewavitharana said.
The Government has also initiated an investigation through the Criminal Investigations Department (CID), high ranking official sources confirmed.
The Colombo Stock Exchange is expected to formally announce the reversal of Friday’s transaction.
Colombo Stock exchange CEO Rajeeva Bandaranaike said that they have received a request from the broker who handled the deal for both parties to reverse the transaction. The broker for both buyer and seller was JB Securities.
Bandaranaike explained that such a move was within the regulations governing CSE transactions.
“The rules provide the possibility to cancel a transaction if both buyer and seller are in agreement,” he said.
An allegation that triggered the move for reversal was that the BoC Board hadn’t approved the transaction. Banking sources however said such consent wasn’t required and the Board was aware that the Bank’s Investment Committee would decide to divest if the price was attractive. The Seylan Bank stake acquired in 2009 is shown in the BoC Annual Report as “financial investments available for sale” and the divestiture was to augment BoC’s capital. The shareholding for BoC at cost was Rs. 466 million, which means Friday’s disposal was nearly three times the value.
The 7.5% stake amounting to 13 million shares was divested at Rs. 100 each, which was a 17.6% premium. The Seylan share closed unchanged at Rs. 85 on Friday. However, yesterday the share shot up by 5.5% to Rs. 89.70 despite markets being down. Seylan’s Net Assets per Share is around Rs. 76.
As part of investigations ascertaining whether anyone unduly profited from the transaction hasn't been ruled out.
Seylan's highest price in the past year was Rs. 101 and lowest was Rs. 77.
Other sources said Friday’s sale came at a time when the Government had decided not to dilute State shareholding in banks and Prime Minister on Saturday described the BoC stake in Seylan as a State asset.
“It has not taken approval from the Bank of Ceylon Board of Directors. So the order is not only to cancel the transaction, but also to take action against those who (are) involved in it,” Finance Minister Ravi Karunanayake was quoted as saying by Reuters.
The Reuters report cited stockbrokers saying the market was confused after the Prime Minister’s order.
Daily FT learns that the buyer is a Japanese investor with funding from Singapore and that the money has been remitted to a Seylan Bank account.
JB Securities is considered one of the most ethical brokers, largely dealing with foreign and local institutions and high net worth investors. Analysts noted that it would have done a due Know Your Customer (KYC) exercise.
It was also speculated that the buyer could be a front for a local party and that the moves to reverse the deal may have been championed by parties eyeing the same stake but were unaware of it being considered for divestiture.
Given the speculations as well as the serious impact of a reversal in the eyes of international investor community, analysts said regulators were under pressure to shed greater light on this issue.
Industry analysts opined that if Board approval wasn’t required and the transaction was straightforward, then reversal would be highly damaging to the reputation of BoC as well as confidence on the capital market.
Despite its Chairman Ronald Perera PC being overseas, the BoC Board had an emergency meeting yesterday to discuss the matter. It is learnt that some Directors have desisted undue intervention on this matter. The CSE as well as the stock broker concerned had been summoned to meetings at Temple Trees.
BoC was the sixth largest shareholder of Seylan Bank. Sri Lanka Insurance Corporation holds a 15% stake, while other State entities among the shareholders are EPF (9.86%) and ETF (1.8%). NDB also holds 8.72%. To facilitate industry consolidation, it is learnt that the Government is keen not to dilute State holdings for the time being.
Biggest non-state shareholders are Browns and LOLC who collectively control 23.4% stake.
“Till a clear picture comes, the market will be concerned and confused. The deal was positive at a time when there was no market-moving news,” said Softlogic Stockbrokers Deputy CEO Hussain Gani, as quoted by Reuters.
The stock market has reversed one transaction before this in the last five years due to an alleged corrupt deal when NSB bought in to The Finance Plc., after severe criticism of “pumping and dumping” by the UNP which was in the Opposition then.
According to BoC’s Annual Report, the mandate of the Investment Committee, headed by Deputy General Manager Treasury comprises General Manager, Chief Financial Officer and Chief Risk Officer among others, is to assist the Board of Directors in discharging its statutory duties and its oversight responsibilities in relation to investment activities of the bank, excluding investments in equity of subsidiaries and Government securities. This is achieved by implementation and monitoring of investment activities as stipulated in the Investment Policy of Bank of Ceylon.
The Board of Directors of Bank of Ceylon comprises Ronald C Perera (Chairman), S. R. Attygalle, Ranel T. Wijesinha, Charitha Nissanka Wijewardane, Asela Sanjaya Padmaperuma and AjithGunawardana.
(Photo courtesy Getty images)
Sri Lanka’s largest bank, the Bank of Ceylon is opening the subscription list of its eighth listed rupee debenture issue tomorrow, 21 December.
“Bank of Ceylon is the largest issuer of debentures in the Sri Lankan debt market with over 77 years of trust, stability and leadership in the Sri Lankan banking industry. The bank has successfully raised over Rs. 44 billion by issuing debentures in the market.
During all those times the issue has been oversubscribed on the same day which showed the high level of investor confidence enjoyed by the bank,” stated Deputy General Manager – International, Treasury and Investments S.M.S.C. Jayasuriya.
The bank intends to utilise the proceeds of this issue to expand the loan book. During the first nine months of 2016 the loan book has grown by Rs. 74 billion. Even though there are multiple sources of funds, such as different types of deposits and borrowings to fund the bank’s expansion strategy, mobilising medium term funds through debentures would diversify bank’s funding mix.
The other motive behind this issue is to expand the capital base of the bank to improve CAR and to manage the maturity mismatches in the bank’s assets and liability portfolio.
This is a rated, unsecured, subordinated, redeemable debenture that will be listed on the Colombo Stock Exchange (CSE). The debenture is rated AA by Fitch Ratings Lanka Ltd., one notch below BOC’s National Long-Term Rating of AA+ (lka)/stable.
The debenture issue is for an offering of Rs. 5 b with the option to increase it up to Rs. 8 b in the event of an oversubscription. The debentures are offered in four types to meet diverse investor requirements with five years and eight years maturities and fixed and floating coupon rates.
Fixed coupon rate of the five-year debenture will be 13.25% while the eight-year debenture will be 12.75%. Floating coupon rate of both five-year and eight-year debentures will be 1.25% above the six-month gross Treasury bill rate.
The issue price of a debenture is Rs. 100 and an investor is required to invest in a minimum of 100 debentures (Rs. 10,000).
BOC Debentures will provide the investors with an attractive interest income throughout the investment period. Investing in debentures will provide them the opportunity to diversify their investment portfolios.
As the debentures will be listed on the CSE there will be a secondary market for the investors and hence investors will be able to exit from the investment at any time, and could realise capital gains according to interest rate fluctuations in the financial markets. Further, investors will get the opportunity to obtain credit facilities from banks and financial institutions by offering their debentures as collateral.
Similar to its previous issues, this eighth public debenture issue is also structured and managed by the Investment Banking Division of the bank. The Legal Department acts as lawyers to the issue while Corporate Branch acts as bankers to the issue. The Investment Banking Division continues to be the registrars for the proposed issue, while Deutsche Bank AG, Colombo branch is acting as the trustee to the issue.
The debenture is priced considering the high credit worthiness indicated by the issue rating of AA affirmed by Fitch Ratings Lanka Ltd., the minimal risk involved in the investment and the strong franchise enjoyed by BOC.
Applications and prospectus containing details of the debenture issue are now available at all trading members and the members (stockbrokers) of the CSE and can be downloaded from the CSE website www.cse.lk and the BOC website www.boc.lk.
Duly completed application forms should be enclosed in an envelope marked ‘BOC Debenture Issue’ together with the remittance for the full amount payable on application and delivered to Investment Banking Division at 11th Floor of BOC Head Office or collection points mentioned in the prospectus.
During past years BOC made significant achievements in improving its balance sheet and overall performance. The Bank of Ceylon became the highest PBT earning single business entity in the country for 2014 and 2015 with record-breaking Rs. 25.3 billion PBT, a 25% growth over the previous year. The bank concluded 2015 with yet another striking trillion which was the Rs. 1.1 trillion deposit base.
BOC’s well-established 628 branch network and other service points along with 650 ATMs and 122 CDM touch points plus presence in common ATM switch enabling more than 2000 touch points and technology driven transformation process carried out throughout the year drove the bank’s achievements.
Leading the Sri Lankan banking industry with over 77 years of experience, the Bank of Ceylon has become the most stable and the trusted bank in the country that serves Sri Lankans from all walks of life helping them to build their lives and make themselves financially stable whilst uplifting the country’s economy.
The bank earned global recognition as one of the top 1000 banks in the world, (Country rank No.1) as listed by ‘The Banker Magazine’ (UK) respectively in 2012, 2013, 2014, 2015 and 2016.
The bank claimed its award as the only Sri Lankan brand recognised as one of Asia’s Best Brands in 2013 by the Chief Marketing Officer’s Council (CMO Council) based in Mumbai, India. Brand Finance Lanka has ranked Bank of Ceylon as the country’s No. 1 brand for the last eight consecutive years.
The bank has passed exceptional milestones in recent years such as becoming the first to gain over Rs. 1.6 trillion assets and over Rs. 1 trillion deposits. Focusing on the bank’s achievement, ICRA (lk) awarded AAA rating which is the highest credit quality rating issued by ICRA Lanka. BOC won the merit award for Annual Report 2015 under the State-Owned Enterprises Category at the Excellence in Integrated Reporting Awards – 2016 conducted by the Institute of Certified Management Accountants of Sri Lanka.
‘Asia’s Best Employer Brand’ awards organised by Employer Brand Institute endorsed the BOC as one of those classed as a ‘Best Employer Brand’ for 2016. The Bank of Ceylon maintains international presence with overseas branches in Chennai, Male, Seychelles and a subsidiary in London.
Bank of Ceylon invites local and foreign investors to join hands it by investing in debentures and contributing to the economic and social development of the country.
