Combank to raise Rs.10bn via rights in view of future capital needs
Commercial Bank of Ceylon PLC (Combank) yesterday announced its plans to raise equity capital by way of a rights issue to support its core capital base in view of the forthcoming BASEL III capital adequacy requirements and also to support future loan growth.
Accordingly, the bank will raise as much as Rs.10.1 billion through a rights issue of ordinary voting shares and nonvoting shares.
The bank will issue 84.5 million ordinary voting shares in the ratio of one new share for every 10 shares held at an issue price of Rs.113.60 a share to raise Rs.9.6 billion. Combank’s ordinary voting share closed at Rs.142 at yesterday’s market close.
The bank will further issue 5.8 million ordinary non-voting shares in the ratio of one new share for every 10 shares held at Rs.90.8 a share. This share was trading at Rs.113.20 at yesterday’s market close. Through non-voting shares the bank will raise Rs.527.7 million.
The number of rights shares under both categories will be calculated after adjusting for the number of shares to be issued as scrip dividend amounting to Rs.2.0 a share.
“The rights issue is subject to the Colombo Stock Exchange approving in principle the issue and listing of shares and obtaining the shareholders’ approval at an Extraordinary General Meeting to be held on March 30, 2017, immediately after the Annual General Meeting,” Combank Chief Financial Officer Nandika Buddhipala stated in a stock exchange filing.
The bank has a stated capital of Rs.25.1 billion. As of December 31, 2016, the bank had a core capital base of Rs.75.2 billion and a total capital base of Rs.103.4 billion.
The Tier I capital adequacy ratio slipped to 11.56 percent from 11.60 percent a year ago, while the Tier II capital adequacy ratio strengthened to 15.90 percent from 14.26, staying comfortably above the BASEL II minimum capital adequacy levels.
While the BASEL III demands higher capital adequacy and some additional capital buffers on top of it, Combank currently stays even well above those requirements. The Tier I and Tier II capital adequacy ratios under BASEL II are at 5.0 percent and 10.0 percent, respectively, at their minimums. But the BASEL III rules will likely increase them at least up to 8.5 percent and 14 percent, respectively for systematically important banks.
The directives have already been issued to the banks by the Central Bank, which will come into effect from July 1, 2017 with a transition period up to 2019 by which time these minimums will also gradually increase up to the stated levels.
Hence, the move by Commercial Bank, which is the largest private lender by assets, is considered as a timely one as the bank appears to be building its capital well in advance without having to slowdown its future growth.
Commercial Bank became the first private lender to surpass a trillion rupee asset base during the financial year ended December 31, 2016 and recorded an earning of Rs.14.5 billion, the highest profit figure by a private lender.
The bank disbursed a whopping Rs.107 billion in loans and receivables recording a growth of 20.4 percent during 2016 accounting for roughly one seventh of the total private sector credit to the economy.