BOC flies Sri Lanka flag high with mega $ 500 m bond’s landmark success

Bank of Ceylon’s supremacy in Sri Lanka is well known but recently the bankers to the nation proved its true mettle with landmark success for its ground breaking $ 500 million five year bond issue.

The issue is a trailblazer for several reasons. It was the first global bond issue by a Sri Lankan corporate. Whilst the bond was well rated (Moody’s: B1 stable and Fitch: BB- stable), equivalent to sovereign rating, it was the impressive track record of BOC and future upside for it in tandem with post-war rebound in Sri Lanka that saw global investors literally queuing up to subscribe.

The joint lead managers to the bond issue were Citibank, HSBC and Bank of America Merrill Lynch and following road shows conducted in Asia, Europe and the US, the issue was oversubscribed by an unprecedented 7.7 times drawing bids worth $ 3.86 billion.

Chairman Dr. Gamini Wickramasinghe told the Daily FT that BOC was proud to have been the trendsetter with the first-ever bond and its massive oversubscription augured well for both the bank and Sri Lanka.

“It was a major milestone and underscored the investor confidence on BOC. With the successful bond issue, the bank has now accessed the global investor base,” Dr. Wickramasinghe said.

“I feel the success of the BOC issue is a major encouragement for other corporates to tap the international capital market,” he added.

According to the Chairman, the appetite for BOC bonds was very impressive. Some were insistent that they want a bigger share of the bond issue but we had to ensure allocation to a wider spectrum of investors,” Dr. Wickramasinghe said.

BOC General Manager W.A. Nalani said that the impressive track record of the bank helped to woo much investor interest.

“The rate of 6.875% for the bond issue is attractive if one considers it was a first time issue,” she added.

The highest application was for around US$ 125 million but the $ 500 million issue was allocated among nearly 200 investors with majority going to those in the US, followed by the Europe and Asia.

“The investor interest especially from US and Europe is a major boost for Sri Lanka’s investment profile in capital markets,” Nalani emphasised.

According to her, the team at BOC played a key part in the effective marketing of the bond issue as well along with showcasing the bank’s performance as well as the potential in the post-war Sri Lanka.

She said that since 2009, the BOC has improved year on year whilst the growth momentum has continued on to the first quarter of 2012 as well.

Both the Chairman and General Manager acknowledged that though it was the first time BOC tapped global capital markets for an issue of its own, the State giant has over 10 years experience in tapping the syndicated market.

“We have had experience in the past in the syndicated market but this was the first issue of our own and there was considerable learning. In the future if and when we tap international markets, the success of this bond issue will be highly useful,” they added.

Nalani said that proceeds from the bond issue would be used to finance sectors such as infrastructure, exports, manufacturing, services sector, agriculture and dairy and firms which have steady foreign exchange earnings. This way the repayment of the bond issue is secured. BOC’s leading market share in inward remittances is also another strong point.

The bond issue also boosted the country’s reserves in addition to boosting the overall financial services industry in Sri Lanka.

BOC Deputy General Manager International, Treasury and Investments P.A. Lionel said a host of impressive performance indicators of the bank reinforced the case for investments by global funds who participated in the issue.

He also said that in global financial markets such as London, New York, Los Angeles, Boston as well as Hong Kong where the bond issue was marketed via presentations, investors found the BOC story credible and the bank’s potential very high. They also understood the post-war upturn in the economy and resultant opportunities for the banking sector.

Investors felt BOC as a proxy to Sri Lanka given its stature in the economy.

BOC’s is the leading commercial bank in terms of total asset size, branch and ATM network size and total revenues. The bank has the largest market share in loans and advances to customers, customer deposits, inward remittances and Treasury operations. BOC is also the 17th strongest bank in Asia as per the Asian Banker magazine.

Among credit considerations for prospective investors of the bond is BOC’s leading market position and strong franchise.

As of 31 December 2011, the bank was the largest licensed commercial bank in Sri Lanka in terms of total assets, loans and advances to customers and customer deposits, accounting for 22.8%, 21.3% and 21.2%, respectively, of the entire Sri Lankan banking sector. The bank is also a leader in inward remittances. As of 31 December 2011, the bank had a 43.5% market share of all worker remittances to Sri Lanka.

The good asset quality of BOC was also a key consideration. The Non Performing Asset (NPA) ratio of 2.2% and an NPL coverage ratio of 59.3% as of 31 December 2011 were considered good.

In 2011, the bank posted a profit before tax of Rs. 15.5 billion for the year 2011, the highest ever profit in its history, achieving a growth of 54.6% over the last year. Growth was recorded mainly from the bank’s core banking activities, resulting in an increase in both interest income and non-interest income.

BOC recorded a total asset growth rate of 17%, reaching Rs. 836 billion. The advances grew at a higher rate of 44.6% to Rs. 552.8 billion, yet in spite of this recorded growth, the bank ensured the good quality of its assets, limiting the non performing advances to 2.1%. The portfolio management ensured the volume decrease in non performing advances in absolute terms. The deposits in the bank grew by 12%.