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Commercial Leasing - Sinhaputhra merger in the works

05 Jan 2022

 
  • Central Bank nods for proposed merger
  • Struggling Sinhaputhra awaits ‘concrete’ bid from CLC
  • Shares of Sinhaputhra up 50% after merger talks
  BY Shenal Fernando The Central Bank of Sri Lanka (CBSL) has approved the proposed merger between Sinhaputhra Finance PLC and (SFL) Commercial Leasing and Finance (CLC), The Morning Business learns. Confirming speculation in the industry and market, sources from both parties told The Morning Business that this approval process had been in the works for some time and that CBSL approval was finally granted early this week. It is further learnt that both parties have engaged in negotiations over the price and that they are currently waiting for a final concrete bid from CLC. The price of the ordinary voting shares of SFL has increased by around 62% since early December in the face of rumours over a potential merger with CLC. This surge in the share price of SFL is notable when considering the fact that SFL has recorded a loss of Rs. 3 million for 2Q FY2022, which is the sixth consecutive financial quarter during which SFL recorded losses.  Furthermore, the 2Q FY2022 report published by SFL sets out that the Tier 1 Capital Adequacy Ratio (6.50%) of the company had fallen to negative 2.7% from 0.5% six months ago and the Total Capital Adequacy Ratio (10.50%) of the company had fallen to negative 2.6% from 1.2% six months ago.  In addition, the Net Non-Performing Loans Ratio of the company has increased to 24.0% as of 2Q FY2022 from 17.7% six months ago and Net Non-Performing Loans to Core Capital Ratio has surged to 376.7% as of 2Q FY2022 from 240.4% six months ago.  Consequently, SFL had, by a Colombo Stock Exchange (CSE) corporate disclosure dated 6 December 2021, announced that it is currently in the process of resolving the matters that had given rise to the Emphasis of Matter on Going Concern and for such purpose, the company had shared relevant information and negotiated with a company.  This merger comes at a time when the CBSL is pushing for the consolidation of the non-banking financial sector. Speaking to The Morning Business yesterday (4), a highly placed source within the CBSL stated that under the “Master Plan for Consolidation of Non-Bank Financial Institutions Sector”, the CBSL will seek to revive and re-consolidate weak and stressed financial institutions that have major capital adequacy and core capital issues. Accordingly, under this plan, the CBSL is hoping to reduce the number of non-banking financial institutions (NBFIs) in the country from 40 to around 25-30. The majority shareholder of SFL is Singhe Capital Investment Ltd., which is an investment firm led by a consortium of individual investors holding a 54.88% stake in the company. Singhe Capital Investment Ltd. obtained a controlling interest in SFL with the acquisition of a 50.36% stake in the company in 2019 for a consideration of Rs. 301 million. Bimputh Finance PLC (BFI) holds a 19.93% stake and is the second largest shareholder of the company.    As per prevailing rumours, LOLC will be looking to takeover or merge with three struggling financial companies during 2022. These three finance companies include SFL and BFI as per rumours. Speaking to us last week, BFI confirmed that negotiations had been conducted with CLC over a potential merger and that they were currently waiting for approval from the CBSL. However, despite repeated attempts to contact BFI yesterday for an update on this approval, all such attempts were futile.


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