COMBank completes biggest fund raiser of Rs. 10 b via Rights

Commercial Bank, the largest and most profitable private sector player, has completed its biggest fund raiser, the Rs. 10.1 billion Rights Issue, this week.

On the basis of one share per 10 held, the bank issued a total of 84.58 million voting shares at Rs. 113.60 each and 5.81 million non-voting shares at Rs. 90.80.

Sources said the target of Rs. 10 billion has been achieved and exact values will be disclosed later this week.

Largest shareholder DFCC Bank said it has invested Rs. 1.4 billion in fully subscribing to its entitlement of Rights Issue of Commercial Bank. Other major shareholders (voting) include Indra Silva, the Employees Provident Fund, Sri Lanka Insurance Corporation, International Finance Corporation and Melstacorp.

The bank’s current stated capital is Rs. 26.8 billion and post Rights it will increase to Rs. 36.9 billion. 

The Issue wasn’t underwritten since the Rights offered were at a substantial discount to the market price of Rs. 142 for voting and Rs. 113.50 for non-voting. The Commercial Bank Board was also of the view that the Rights will be viewed positively by the shareholders as an attractive investment opportunity. Yesterday the voting share price of Commercial Bank closed at Rs. 134.90, down by one rupee, and non-voting was Rs. 105.10, lower by 90 cents from Monday.

The mega Rights Issue follows the successful conclusion of a Rs. 7 billion fund raiser in October last year via the issuance of five- and 10-year debentures which attracted a demand of Rs. 12 billion with a short-term option garnering Rs. 9.4 billion and the longer-term instrument drawing Rs. 2.5 billion.

The entire quantum of funds raised through the Rights Issue will be utilised to finance expansion by increasing the lending portfolio of the bank within 12 months from the date of allotment. 

In the first quarter net loans and receivables reached Rs. 642.171 billion, growing by Rs. 26.153 billion or 4.25% at a monthly average of Rs. 8.718 billion. Over the preceding 12 months, the bank’s loan book grew by Rs. 105.313 billion.

Funds raised are also expected to further improve the Capital Adequacy of the bank’s balance sheet by increase the Tier 1 Capital base, thereby strengthening its Total Eligible Capital. This improvement will materialise subsequent to the allotment of shares. The current applicable Tier 1 Ratio by the Central Bank is 5% and COMBank is currently having 11.56%. Post Rights, the Tier 1 Capital Adequacy Ratio will increase to 13.12%, according to the method of calculation of BASEL II.

As required by the Central Bank, BASEL III guidelines will be in effect from 2017. As per upcoming requirements, Minimum Common Equity Tier 1 (CET 1) plus Capital Conservation Buffer (CCB) and Capital Surcharge for D-SIBs is 6.25% in 2017, 7.375% in 2018 and 8.50% in 2019 with Additional Tier Capital (ATI) of 1.50%.

In addition to the expected robust credit growth of the bank in the future, the implementation of BASEL III not only requires a comparatively higher level of Tier 1 Capital but will impose a more stringent calculation where Tier 1 Capital volume requirement also will be increased. Therefore COMBank is of the view it is required to increase the Tier I Capital through the concluded Rights Issue to meet the increasing level of requirement in the future.

In the first quarter Commercial Bank reported a profit of R.s 6.341 billion before VAT and NBT, reflecting growth of 17.93% over the first quarter of 2016, while VAT and NBT for the three months reviewed increased by 40.33% to Rs. 1.119 billion due to an increase in the VAT rate and the higher profits earned. Profit before income tax for the quarter grew by 14.03% to Rs. 5.222 billion, while profit after tax, at Rs. 3.775 billion, increased by 16.73%.

Commercial Bank ended 2016 with the momentous feat of becoming the first private bank in the country to surpass Rs. 1 trillion in assets and had the largest deposits (Rs. 739.5 billion) and advances (Rs. 633.3 billion) portfolio in the private sector. The bank’s profit after tax of Rs. 14.5 billion also made it the most profitable private bank in Sri Lanka.