DFCC Bank, announces overwhelming response to the first single-digit coupon debenture issue
DFCC Bank, the pioneering development bank in the country, announced the oversubscription of its Rs 3 billion Debenture Issue obtained at the lowest coupon rate. The Bank sold its 3- year notes with an 8.50% coupon, proceeds of which will be used to supplement and strengthen the funding base utilised for the project lending activities of the Bank.
Arjun Fernando, Chief Executive DFCC Bank talks about the success of this issue and the Bank’s plans for the future.
What were the most significant features in this Debenture Issue?
The Bank offered Rs 3 billion of Senior Unsecured Redeemable Debentures with the option to go up to Rs 5 billion in the event the issue was oversubscribed. These were 3 year Debentures with an annual effective rate of 8.50%, which is the lowest coupon rate to be obtained by a nonstate entity. Investors were given the opportunity to choose from three attractive options consisting of annual, semi-annual and quarterly options, addressing their cash flow requirements.
The overwhelming response received on this Issue is a great achievement for DFCC, and will provide a good platform for the Bank to build on its strong performance and successfully pursue its growth strategies during the year. We extend our heartfelt thanks to all subscribers for their support in making this Issue a great success.
DFCC went in at a substantially lower coupon rate than other issues in the market which is significant, what are your views on this?
Well, DFCC’s stature in the banking industry as experts in project financing coupled with its financial strength contributed towards the Bank being able to decide on a bold and aggressive interest rate, whilst other similar rated Issues were raised at much higher rates in the recent past. We were also able to rely on the expertise of our excellent team of professionals who were able to read the interest rates and pin point the exact and appropriate timing to enter the market.
This Debenture Issue presents a win-win proposition for investor as well as the Bank, as on one hand they offer investors an alternative investment opportunity to earn a fixed rate of interest at their chosen frequency of payment; if the interest rates fall, investors tend to benefit as they continue to get higher interest rates. At the same time it enables the Bank to boost its capital adequacy.
The Issue also gives the investing public the opportunity to contribute directly towards the economic development of the country, as the funds raised from this Issue will be utilised for the medium to long term lending activities of the Bank
What is the advantage to investors? How will the money raised be utilised?
The funds raised will be used to grow our business, supplementing and strengthening the funding base utilised for project lending activities of the Bank, with special focus on developing SMEs.
DFCC has also aligned its strategies to support the Governments five-hub strategy in advancing Sri Lanka beyond a middle-income economy. With its expertise of nearly 60 years, the Bank will utilise these funds to nurture entrepreneurs and industries, providing total solutions to develop sectors prioritised in the Governments development agenda.
What impact will the Issue have on the consolidation of DFCC and NDB which is expected to go through?
Well, there is a lot of preliminary work that needs to be done at this stage and all three banks that is DFCC Bank, DFCC Vardhana Bank and the National Development Bank are working together with the utmost cooperation. The consolidation will result in the coming together of very strong players in the financial industry and result in many positive outcomes for the financial sector.
The funds raised from this Issue will contribute towards our financial strength. DFCC Bank also possesses diversity of financial business, untapped value of key assets and with DVB a multiplicity of distribution channels to name a few. When it comes to our intangible assets, DFCC’s stature in the banking industry is impeccable, our expertise in the realm of project financing is unmatched; time and time again we have proven ourselves as the preferred partner for project financing because we have been willing to go the extra mile to help entrepreneurs in their early and risky start up stages to progress into thriving enterprises.