CEB opts for stock market to raise Rs. 20 b in debt capital

• In a first-of-its-kind move, CEB to issue 100 m 5-year debentures with a fixed interest rate of 9.35% per annum and offer an equal amount in the event of oversubscription 
• Debentures carry Fitch rating of AA-
• CSE CEO welcomes move saying it demonstrates the confidence in stock market as a source for fund raising
• Urges other State entities to follow suite 
• CEB second non-financial SOE to tap CSE for debt capital after UDA 

In a major move, the State-owned utility, the Ceylon Electricity Board (CEB), has opted for the first time to raise Rs. 20 billion in debt capital from investors in the Colombo stock market.

The Colombo Stock Exchange (CSE) yesterday announced that it has approved an application by the CEB) to issue Senior Unsecured Listed Redeemable Rated Debentures at an issue price of Rs. 100, amounting to a potential capital raising of up to Rs. 20 billion. 

The debentures will be issued for period of five-years with a fixed coupon interest rate of 9.35% p.a. (AER 9.35%) to be paid annually. The issue will open on 8 April. 

The initial issue will consist of 100 million debentures with an option to issue up to a further 100 million debentures at the discretion of the CEB in the event of an oversubscription of the initial issue. This will pave the way for CEB to raise Rs. 10 billion in capital initially with an option to raise a further Rs. 10 billion subsequently. 

The debentures carry a rating of AA-(lka) by Fitch Ratings Lanka Ltd., while CEB is rated as AA-(lka) with a Stable Outlook by the same rating agency.  

Commenting on the development, CSE Chief Executive Officer Rajeeva Bandaranaike stated they were pleased to note that the CEB is opting to finance its capital requirements through the Sri Lankan stock market. 

“This once again demonstrates the confidence placed in the Sri Lankan stock market by both private and State institutions as an effective and efficient source of capital raising. We welcome other State institutions to strongly consider the Sri Lankan stock market as a vehicle to finance growth and development,” he said. 

Stock market analysts said CEB will be the second non-financial State-owned entity after the Urban Development Authority (UDA) to come to the Colombo stock market to raise debt capital. Bank of Ceylon too has raised debt capital via the CSE.

The CEB’s short-term borrowings from banks and other short-term liabilities to the Ceylon Petroleum Corporation (CPC) and Independent Power Producers (IPPs) increased to Rs. 223.2 billion by the end of 2019 from Rs. 142.2 billion at the end of 2018. CEB’s long-term outstanding liabilities increased to Rs. 421.7 billion by the end of 2019 from Rs. 392.2 billion recorded at the end of 2018.

According to the unaudited provisional financial statements, the CEB recorded a loss of Rs. 85.4 billion before tax in 2019 compared to a loss of Rs. 30.5 billion in 2018. Increased dependence on thermal power due to dry weather conditions that prevailed during the first seven months of 2019 was the main reason for the deterioration of the financial position of the CEB.