BOC’s mega Rs. 6 billion debenture issues opens today

By C heranka Mendis

Tagged as the largest debenture of the year, Bank of Ceylon (BOC) opens the subscription list of its public issue of debentures today, issuing 30,000,000 debentures, which in the event of oversubscription will be extended by 30,000,000 more. BOC expressed confidence of oversubscription by the end of today.

The subscription list will remain open for 14 market days until its closure at 4:30 p.m. on 6 December. The rupee debenture – unsecured, subordinated and redeemable on maturity after five years –will be listed on the Main Board of the Colombo Stock Exchange.

BOC’s national long-term rating stands at AA+(lka) with a Stable outlook by Fitch Rating Lanka, which is the highest rating awarded to a local commercial bank in Sri Lanka.

 The debenture rating has also been equalled to the sovereign rating of the Government bond issue by the international rating agencies Moody’s and Fitch.

The debentures will be issued at Rs. 100 each with the initial 30,000,000 amounting to Rs. 3 billion, which upon oversubscription can be extended by 30,000,000 more to raise Rs.6 billion.

With three interest payment options to suit investor appetite, the bank anticipates the debenture to be subscribed by locals even though there has been interest from foreign investors, especially local foreign banks, BOC International, Treasury and Investment Director General Marketing P.A. Lionel said. Non residents are allowed to apply for any type of debentures provided funds are remitted through proper channels.

The options are: a fixed interest rate of 16% p.a. paid annually, a floating interest rate of six months gross T-bill rate + 1.25% paid biannually, or fixed interest rate of 15.25% p.a. paid biannually.

The objective behind the debenture is to increase tier II in order to enhance its capital adequacy ratio and single borrower limit and to minimise the interest rate risk and gap exposure in the bank’s assets/liability portfolio i.e. lending for three to five years with fund raised through five-year debentures, reducing dependency on the volatile short term borrowings.

Out of the proceeds Rs. 2 billion will be utilised for the retirement of existing debentures issued at 8.77% p.a. which are maturing this month and the balance will be utilised for the expansion of loan book, reducing the dependency on short-term borrowings.

The long-term funds raised through the issue could effectively be utilised to finance the long-term financial needs in the priority sectors of the economy such as exports, agriculture, tourism, infrastructure, manufacturing, and SME.

“We are turning another page in the success story of BOC,” Lionel said. “We have had three significant events this year. In April this year we completed the largest overseas bond issuance with the US$ 500 million, five-year tenure bond issue, reaching a one trillion balance sheet which other financial institutions will not be able to achieve in the next five to six years and finally the largest debenture issued in the financial market issued by a bank.”

Always at the forefront of the capital market in the country, the bank is planning to have debentures every year, he acknowledged. Currently BOC holds one third of the assets of the banking industry.

Aiming to secure the position as the leading commercial bank in Sri Lanka, the bank has come up with a number of strategies to support its goal. With the bank’s core-banking business operations remaining the main segment of the business, the bank will increase its product offerings services and solutions and plans to diversify its retail business to improve the current list of products.

The bank will also seek to diversify services and funding sources to expand and develop relationships with large corporates as well as the SME and will continue its network expansion islandwide with focus on the north and east.

BOC will continue looking for opportunities to reduce cost through leveraging and continue its information technology development projects, grow in the sector of Islamic banking, grow service and fee-based income through targeted cross selling, and look at leveraging its presence in the UK and India markets in the future.

The bank controls 23% of the total assets base held by all commercial banks in Sri Lanka as at end June.

It is the leader in inward remittances with 860 foreign correspondents on every continent and representatives in selected countries and has more than a 50% market share in Treasury operations. BOC recorded Rs. 16.2 billion in profit before tax for the first nine months of 2012, a growth of 62% over the same period in 2011.