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Friday, 15 August 2014 00:00 - - {{hitsCtrl.values.hits}}
In a landmark deal Union Bank has succeeded in attracting one of the highest foreign direct investments in to Sri Lanka via a strategic partnership with TPG, a leading global private investment firm with over $ 59 billion of assets under management.
The Bank said yesterday it has entered into an investment agreement with Culture Financial Holdings Ltd., an affiliate of TPG, the USA-based global private investment firm. Union Bank Colombo (UBC) said the transaction is one of the largest Foreign Direct Investments to Sri Lanka in the recent years.
Under the deal, TPG will invest up to approximately $ 117 million in UBC through a combination of primary and secondary shares (issued at Rs. 15.30 each), representing up to 70% of the issued share capital, and warrants (Rs. 0.30 each) that, if exercised (at Rs. 16 per share) in full within their six-year term, would increase TPG’s interest in UBC to 75%. The Central Bank of Sri Lanka (CBSL) approved TPG’s investment in UBC on 6 August 2014.
Net asset per share of UBC is Rs. 15.64. Its share last week touched a new 52-week high of Rs. 23.30, up Rs. 2.20 whilst yesterday it hit an intra-day high of Rs. 23.80.
Trading of its shares was halted pending the announcement.
Following a private placement of primary shares in UBC, TPG will make an offer under the Company Take-overs and Mergers Code 1995 (as amended in 2003) to the other shareholders of UBC to acquire up to the number of shares that the Investor may acquire and hold under the approval granted by the CBSL.
The issue of the shares under the private placement, the issue of the warrants and the general offer are subject to certain conditions, including, but not limited to, shareholder approval of the transaction and certain regulatory approvals.
TPG is a leading global private investment firm founded in 1992 with over $ 59 billion of assets under management and offices in San Francisco, Fort Worth, Austin, Houston, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has defined itself as a regional leader in banking and financial services having invested $ 2.3 billion in 13 financial services companies in Asia as of December 2013.
Tim Dattels, Managing Partner and TPG’s Asia Co-Head, said: “We are pleased to partner with Union Bank. As a strategic and first-time investor in Sri Lanka, we are very encouraged by the country’s economic growth momentum and the Central Bank’s policy initiatives to enhance the country’s banking sector. We see great growth potential in Union Bank to emerge as one of the top local commercial banks in the country.”
Alex Lovell, Chairman of Union Bank, said, “I am delighted with TPG’s investment in Union Bank. A foreign investment of this size and nature is unparalleled in the banking industry in Sri Lanka. TPG is one of the leading and most experienced private investment firms with an unrivalled investment track record in the financial services sector in Asia. Union Bank will be able to tap into TPG’s operational expertise and global resources to, not only strengthen Union Bank’s balance sheet but also introduce new products and expand our network in order to offer better services to our customers.”
The transaction will strengthen the Tier 1 capital of UBC and enable UBC to meet the minimum capital requirements of Rs. 10 billion set by the Central Bank of Sri Lanka as part of its consolidation plan, which will come into effect from 1 January 2016. Its current Tier 1 capital is Rs. 5.1 billion.
UBC Director/CEO Anil Amarasuriya stated: “With Central Bank of Sri Lanka (CBSL) stressing the need for consolidation in the banking and non-bank financial institution sectors, local banks with asset bases of less than Rs. 100 billion is encouraged to merge with larger commercial banks or to grow organically to reach a substantial size by 2016. This investment results Union Bank, as a standalone entity to be placed second in stated capital in the banking industry and be within the top five private banks in Sri Lanka with regard to equity.”
Amarasuriya said Union Bank’s continuous and steadfast growth began with new capital infusion in 2007, followed by substantial investments by foreign institutional investors, which led to a highly-successful initial public offering in 2011.
“Subsequently, focusing on implementation of robust processes, new core banking and risk systems as well as expansion via diversification with the acquisition of NAMAL and UB Finance Company Ltd. Further, the expansion initiatives saw the branch network rapidly reach 60 branches by July 2014. As such this investment is timely and pivotal for the bank’s next phase of growth,” he added.
International banking industry analysts viewed the transaction as a game changer for Sri Lanka and propels the country’s image to greater heights as an investment destination.
“TPG’s attraction is evidently to Sri Lanka’s burgeoning macro landscape and to Union Bank’s high potential as a growth asset. Local investment houses have welcomed the transaction from a global investment giant, such as TPG,” they added.
TPG has received financial advice from CIMB Investment Bank Sri Lanka and legal advice from Cleary Gottlieb Steen & Hamilton LLP as its international counsel and F. J. & G. de Saram as its Sri Lanka law counsel. Nithya Partners acted as legal advisors to UBC.
UBC’s assets amounted to Rs. 36.7 billion (including Rs. 25.4 billion in loans and receivables) as at 31 March 2014 and liabilities were Rs. 31 billion (including Rs. 29.7 billion in customer deposits).
Chairman Alex Lovell holds a 6.5% stake whilst Vista Knowledge Ltd. holds 18.5%. Other major shareholders include Sampath Bank (7.5%), Associated Electrical Corp (7.5%) and Select Gain Ltd. (6.7%). Public holdings in UBC is 64%. Foreign holding accounts for 44%.
TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalisations, spinouts, growth investments, joint ventures and restructurings. The firm’s investments span a variety of industries including healthcare, energy, industrials, consumer/retail, technology, media and communications, software, financial services, travel, entertainment and real estate.
TPG’s past and present investments in the financial sector in the region include BFI, BTPN, Korean First Bank, Shenzhen Development Bank, Shriram City Union Finance, Shriram Transport, and UniTrust. In connection with each investment opportunity, TPG Asia leverages knowledge and expertise developed from prior transactions across the global TPG platform.
Established in 1995, UBC is one of Sri Lanka’s fastest growing commercial banks focusing on Small and Medium Enterprises (SMEs). With a branch network of 60 branches covering all districts and provinces, UBC offers a comprehensive portfolio of financial products and services to SME, corporate and retail sectors. Synonymous for technology driven innovation, introducing many firsts to the Banking industry in Sri Lanka, UBC in 2014, implemented a new state of the art core banking system facilitating its rapid expansion and service standards.
Listed in the Colombo Stock Exchange, the Bank’s IPO in 2011, was oversubscribed 417 times in the public category, highlighting its financial stability and long term sustainability. UBC’s shareholder profile boasts of top local and foreign investors. 2011 saw UBC achieve strategic diversification, designed to complement the core business with the acquisition of a 51% stake in National Asset Management Limited (NAMAL), Sri Lanka’s premier asset management company and 98% voting shares of The Finance and Guarantee Company Ltd. (rebranded as UB Finance Company Ltd).
Brand Finance conferred UBC as one of Sri Lanka’s most valuable 100 brands in 2012. As at 31 March, total equity was recorded at Rs. 5,463.5 million.
