BOC goes for Rs. 8 b debenture

Bank of Ceylon plans to raise Rs. 8 billion via a listed debenture issue offering five options on interest rates. 

It will offer 50 million unsecured subordinated redeemable debentures at Rs. 100 each with an option to issue a further 30 million debentures in the event of the original amount being oversubscribed.The public can subscribe to the issue from Friday onwards whilst the official opening is on 1 October. 

The debentures will be of five- and eight-year tenures. There will be five options with regard to interest rates. 

Type A (fixed rate five year debenture) will offer 8.25% interest rate per annum payable annually (Annual Equivalent Rate 8.25%); Type B (fixed rate five year debenture) will offer 8% interest rate payable quarterly (AER of 8.24%); Type C (floating rate five year debenture) offering six months gross T. Bill rate + 1.25% payable semi annually; Type D (fixed rate eight year debenture) with 9.05% interest rate (AER of 9.5%) payable annually and Type E (floating rate eight year debenture) at six months Gross T. Bill rate + 1.25% payable semi annually.

BOC intends to utilise the entire proceeds of the issue to expand its loan book in the ordinary course of business. Since the bank has multiple sources of funds, such as different types of deposits and borrowings, dependency on proceeds of the debenture issue is marginal in expanding bank’s loan book.

Furthermore, the subordinated nature and mid- to long-term liability of the funds raised through the debenture issue will enable the bank to increase the Tier II capital of the bank in order to enhance the Capital Adequacy Ratio and Single Borrower Limit to facilitate expansion of the loan book, minimise and manage the gap exposure in the bank’s assets/liability portfolios and strengthen the bank’s liquidity position and increase its asset base.

BOC’s experience is that loans and advances portfolio of the bank are expanding. During the first six months of 2015 net loans and advances had increased by Rs. 52.7 billion. 

Since the proposed debenture issue was to raise only Rs. 8 billion and the demand for credit was excessive, there was no specific risk factor that may lead to the non-achievement of the objective of the issue.