Merger out; Sinhaputhra owners to invest in Nation Lanka via private placement

The planned merger between Nation Lanka Finance PLC (NLF) and Sinhaputhra Finance PLC (SFP) has been abandoned but the latter’s major shareholder, Singhe Capital Investment, will invest in the former via a private placement.

Previously NLF and SFP were discussing an amalgamation which received conditional approval from the Monetary Board.

NLF said this week that its Board of Directors in consultation with the major shareholder of SFP – Singhe Capital Investment Ltd. (SCI) – had decided to pursue an alternate method which would enable NLF to satisfy the capital infusion.

“It has been consequently agreed that SCI will directly invest such amount of capital as is required for the capital infusion, by way of a private placement, subject to the approval of the Monetary Board, the Securities and Exchange Commission and the Colombo Stock Exchange as well as shareholders of the company.”

NLF and SCI have entered into a Share Subscription Agreement reflecting such obligations and submitted it to the Monetary Board for approval of the alternate proposal.

NLF said it would keep shareholders and other stakeholders informed of further developments.

An amalgamation proposal was to enable the satisfaction of the core capital and capital adequacy requirements by NLF under the Finance Business Act.

Post announcement, NLF shares closed unchanged at Rs. 1.10 with 1.72 million shares traded for Rs. 1.9 million. SPF price gained by 10 cents, or 0.8%, to Rs. 11.90 with 175,413 shares traded for Rs. 2.1 million.

As at 30 June, it had not met the minimum core capital (Tier 1) requirement of Rs. 2 billion as of 31 March. It was Rs. 585 million as at 30 June, down from Rs. 700.8 million as at 31 March.

Pending compliance with capital requirement, the Monetary Board had imposed a cap on deposits and lending for NLF from 30 September 2019, and the company has not exceeded it to date.

As at 30 June, NLF’ assets amounted to Rs. 7 billion, including Rs. 4.1 billion in loans and advances. Liabilities were Rs. 6.2 billion inclusive of Rs. 5.3 billion in deposits. Retained loss was Rs. 423 million as at 30 June. Operating loss before VAT and income tax was Rs. 112 million in 1Q of FY21, up from Rs. 44 million a year earlier.

Major shareholders of NLF as at 30 June were V.R. Ramanan (55.5%), U.H. Dharmadasa (17%), H.K.J. Dharmadasa (6.5%), J. Rudra (2.8%) and K.C.C. Perera (2.8%). NLF’s public float is 24% held by 13,587 shareholders.

SPF as at 30 June had Rs. 5.2 billion in assets and Rs. 4.4 billion in liabilities. Its accumulated loss stood at Rs. 199 million. Operating loss before VAT and income tax in 1Q of FY was Rs. 0.33 million, as against a loss of Rs. 39 million a year ago. Post tax loss was Rs. 1.6 million in 1Q of FY21.

SPF is also subject to regulatory restrictions on the company’s operations by the Monetary Board until it complies with the minimum core capital requirement.

SCI owns 55% stake in SPF whilst Bimputh Finance PLC holds 20% stake. Its public float is 45% held by 889 shareholders.