First Capital Treasuries announces IPO and looks for digital transformation of sector

By Darshana Abayasingha

First Capital Treasuries PLC will open its Initial Public Offering (IPO) on 5 December, listing 7.69 million shares at a sale price of Rs. 39 each, divesting 5% of the company. Sri Lanka’s first non-bank standalone primary dealer, First Capital Treasuries, will raise Rs. 300 million from the IPO, with CEO Dilshan Weerasekera terming shares a mid-to-long-term investment. 

“It’s a cyclical business, we make money in a situation with declining interest rates. Therefore, this is a share with long-term value, and not a short-term generator. I would encourage investors to think medium to long-term. We need to educate the public that government securities present the least risk asset class for fixed incomes. The enhanced digital capacity post-COVID provides impetus and opportunity to promote this message. We have the muscle to weather the storm of rates rising, we can still expect a high dividend pay-out,” Weerasekera said. 

Incorporated in 1982 as a money brokering company, First Capital Treasuries was established as a primary dealer in 1992. It became a listed entity by in 2015 by virtue of the launch of Rs. 500 million in debentures. The company has played a pivotal role in financial sector having contributed to almost 18% of the market in raising debt for government in recent years. 

The potential upside of the listing presents a 15% - 19% upside for investors, with value per share deemed at Rs. 46 to 48. First Capital Treasures recorded a Profit After Tax of Rs. 1.84 billion in the previous year, with Return on Equity of 29% over the past years. It is the highest rated non-bank Primary Dealer, with a dividend pay-out of 50% over the past 10 years.

“I must disclose that over the last quarter ending September, we have incurred a loss over the year, as total assets decline with interest rates moving up. We believe we have the experience and research to navigate the volatile periods and benefit out of it. We are the highest capitalised Primary Dealer, and at Rs. 4 billion, we are already above the stated capital base requirements of the Central Bank for the next two years,” Weerasekera added. 

He also noted that the pandemic changed the way the industry works, with First Capital becoming the first dealer to digitally onboard customers with regulations making way for it. The Employees Trust Fund holds 5% of the company of the past 20 years, and with the share sale, First Capital will effectively divest 10% of ownership. 

“Government securities is the only risk-free asset class in the country. They cannot default. So, in an uncertain environment, this is the safest asset class. We have a 100% government securities portfolio, so our performance is a demonstration of their strength. Why would you want to invest with us? Because we are the highest rated non-bank Primary Dealer with a dividend pay-out of 50% over past 10 years.

“That is unmatched. We are confident we can replicate the performance we have had in the past. We feel there is huge potential as an asset class and that it is underutilised. You can’t get those rates from a bank or deposits. The general population don’t know this, and the digital transformation will help us do that,” the CEO said.  

Weerasekera was confident his company has the strength to weather any possible rate hikes, enabling healthy dividend pay-outs as before. 

“This is why we thought of an offer for sale, since we didn’t need the capital per. The IPO is to broad-base our ownership, and increase liquidity in our shares,” he said.