By Charindra Chandrasena
Sampath Bank has followed capital raising plans which were formulated three years ago, and there have been no ad hoc cash calls, according to its Managing Director Nanda Fernando.
Speaking to The Sunday Morning Business about the bank’s Rs. 12.1 billion rights issue, Fernando said that the Central Bank of Sri Lanka (CBSL) was kept fully informed of the bank’s capital plans.
“This was part of the capital plan that we formulated three years ago and presented to CBSL, when it introduced the Basel III requirements for banks. We have not deviated from the plan at all,” he said, in response to a question as to whether shareholders would be justified if they felt this rights issue was unplanned.
Sampath Bank offered 89 million shares at Rs. 136 each in the proportion of seven new voting shares for every 23 held, but initially, only 69.9 million rights or 78% were subscribed.
However, by the end of June, the bank announced that it had successfully allotted all of the shares that remained unsubscribed to investors.
Fernando attributed the under-subscription to economic conditions which gripped the nation following the Easter attacks as opposed to any factors particular to Sampath Bank.
“Even before Easter, we saw the low level of subscription of some rights issues. After the Easter bombings, the markets were not settled. I would say this uncertainty was the main reason for the under-subscription.”
In the fourth quarter of 2018, National Development Bank (NDB) had a rights issue of over Rs. 6 billion which was only 60% subscribed.
The latest rights issue was the third for Sampath Bank in less than three years, but Fernando attributed this phased-out capital-raising strategy to the bank not wanting to unnecessarily burden shareholders too far in advance.
“We did not want to burden our shareholders in advance with a massive one-time rights issue. We knew exactly at which rate we should grow and according to that, we knew what our capital requirements were. Furthermore, even before this rights issue, we were on track to meet the Basel III capital adequacy requirements, but now we actually have a comfortable cushion of 3%. Earlier, one of the biggest complaints the rating agencies had was that our capital was just at the bare minimum required for Basel III compared to our competitors. We have solved that problem with this capital buffer.”
He also noted that while there were three rights issues in three years, there had been none for 12 years when the first of these took place in 2017, as the previous rights issue was in 2005.
Apart from Basel III capital adequacy ratio requirements, the rights issue was prompted by the need for capital for the bank’s expansion plans.
Fernando also dismissed rumours of shareholder fatigue, especially in light of some of Sampath Bank’s biggest shareholders being reluctant to subscribe to their portion of rights.
“We are obviously not permitted by law to inform shareholders of capital-raising plans years in advance. Therefore, some shareholders may not have purchased to the extent that they were eligible, but all major shareholders purchased the rights as most wanted to contribute towards boosting the bank’s capital for growth and were ready and willing.”
The pricing of the rights, at Rs. 136 each, while a Sampath Bank share was trading at Rs. 231.9, contributed to the gradual decline of the share price since the announcement in early March to hit Rs. 138 last month. However, following the allotment of shares, a share closed higher last week at Rs. 150, nearly Rs. 20 above the rights issue pricing.
Fernando, however, said that the pricing was ideal and had been vindicated in the months since the rights issues were announced.
“We were thinking that our existing shareholders who are the investors of the bank should be given the utmost benefit. That is why we gave a deep discount and I think our pricing was superb as even after the Easter bombings, the market price did not dip below the rights price. This was not the case with some rights issues which took place over the past year, where there were instances where the market price dipped below the rights price. We offered it at Rs. 136 and the lowest price the share went to was Rs. 138. Therefore, I think it was well priced.”
Speaking of the future plans of Sampath Bank following the successful completion of the rights issue, Fernando said that the bank intends to build on its performance of the past few years.
“We have mostly outperformed the industry over the past three to five years as well as during the first quarter of this year. For example, our net interest margin during the first quarter has increased by 23% compared to the previous year. We aim to build on this performance in the next five to 10 years. The major challenge currently faced by the industry is the non-performing advances, but we have taken necessary precautions and have all the ingredients and required plans to tackle the situation,” he said.
Photo Caption: Sampath Bank Managing Director Nanda Fernando
Photo by Saman Abesiriwardana