MBSL looks to a successful Rs. 2.24 b Rights Issue

State-owned Bank of Ceylon’s (BOC) subsidiary, Merchant Bank of Sri Lanka and Finance Plc (MBSL) plans to raise Rs. 2.24 billion in fresh capital via a Rights Issue.

The main purpose of the issue is to comply with the minimum capital rules of the Central Bank of Sri Lanka (CBSL). Approval for the capital raising has been obtained from the Boards of MBSL, its majority owner BoC and the regulator, Central Bank of Sri Lanka (CBSL).  Exhibiting full confidence in the capital raising effort and in the management of their majority-owned subsidiary and thereby guaranteeing a successful outcome to the capital raising effort, BoC with a near 75% direct ownership stake in MBSL will be subscribing for its entire entitlement in full.  

The issue will be on the basis of nine new shares for four held, resulting in the issuance of 373.2 million new shares at Rs. 6 each. The stated capital of MBSL at present is Rs. 2.12 billion.

The MBSL share price closed at Rs. 6.80 on Friday 18 June, 13.33% above the 52-week low of Rs. 6 set on 7 April. Its net asset value as of 31 March 2021 was Rs. 10.42, up from Rs. 8.85 at year end 2020, a growth of near 18%. The percentage of MBSL shares held by the public numbering some 10,900 shareholders as of 31 March was 25.51%.

This Rights Issue is the culmination of MBSL efforts to regain momentum after reporting a loss in 2020. Its turnaround came in quick succession. For 1Q 2021 MBSL reported a profit, a near 300% growth compared to the pretax loss recorded in the same period in 2020. The profit turnaround was based on a 70% increase in Net Interest Income, compared to the same period in 2020. 

Then more recently in early June 2021came the announcement of the appointment of a new CEO, Dhammika Hapuhinna, a veteran with senior overseas finance company experience. 

MBSL is a unique institution in the annals of the financial market of Sri Lanka. The pioneer merchant or investment bank in Sri Lanka, it entered the financial sector in 1982 as a majority-owned subsidiary of BoC and was quoted on the Colombo Stock Exchange (CSE) in 1991. The listing on the CSE renders MBSL one of a few quoted financial entities majority owned by a State Financial Entity (BoC), the holder of the largest banking franchise in the country.

MBSL is also the owner of the proven stock market index brand, the MBSL MIDCAP Index. In another pioneering move, MBSL constructed the stock market index that measures the aggregate price level and price movements of medium size companies listed on the CSE. 

The index came into operation in the year 1999. It is revised annually in reference to mid-range market capitalisation, liquidity and profitability of firms to be included in the index. 

Referring to these unique attributes and quick turnaround exhibited by MBSL, BoC and MBSL Chairman Kanchana Ratwatte said: “Based on their historic achievements, their recent performance and potential resulting from Government initiatives for domestic industry, we believe the investment is justified and look forward to a beneficial outcome.”

The capital raised will enable MBSL, for their part to comfortably meet regulatory and funding requirements going forward and provide a stronger base on which to achieve its medium-term goals. 

Referring to the Rights Issue, MBSL CEO Hapuhinna said: “I am grateful to our parent bank, BoC, for the confidence placed in MBSL and look forward for a close partnership with them in pursuing our corporate plan that justified their investment.”