BOC’s Rs. 6 b debenture issue nets Rs. 3.5 b by opening day; goes for the balance

Bank of Ceylon (BOC) has successfully raised over Rs. 3 billion via its latest five-year listed debenture issue on its opening day and is going for the extra Rs. 3 billion.

The bank said as at 15 November the amount subscribed was Rs. 3.5 billion via 81 applications.

“We are exercising the option to issue further debentures up to 30 million,” BOC added.

The issue of 30 million unsecured, subordinated and redeemable debentures at Rs. 100 each had the option of a further equal amount in the event of the first tranche being oversubscribed.

Debentures offer a choice of returns.

One is 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.

Issue’s objective 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 SMEs.