Defends recent Rs.12.1bn rights issue

Sampath Bank says its recent Rs. 12.1 billion rights issue was a success, as all key shareholders and over 80 percent of its foreign shareholders subscribed to the issue despite the initial under subscription.

The bank offered 89 million shares at a discounted price of Rs.136 each in the proportion of seven new voting shares for every 23 held.

The rights issue was undersubscribed initially with only 78 percent of rights being purchased by the bank’s shareholders at the time of the official closing of the issue.

However, later, the bank was successful in allotting all the shares that remained unsubscribed.

Sampath Bank Managing Director Nanda Fernando said all key shareholders purchased the offered rights except for a particular shareholder who subscribed to a lesser amount.

Defending the timing and pricing of the rights issue, he stressed that the bank was compelled to move forward with the issue to meet Basel III requirements and to support the bank’s expansion plans despite the challenging investment environment that arose after the Easter Sunday attacks.

“By the time we announced the rights issue, we knew the conditions were not the best, but we had to do it.

“Some rating agencies had pointed out that our capital adequacy ratios and buffers were insufficient when compared with some of our private sector peers. Hence we wanted to ensure that we have sufficient buffer,” he elaborated.

At the time the rights issue was announced on March 1, Sampath Bank share traded at Rs.230.90. Since then the share price started to come down significantly to the Rs.138 level.

However, following the allotment of shares, Sampath Bank share closed higher last week at Rs.150,recording around a 10 percent increase in the share price.

Fernando stressed that the pricing of the rights was correct, noting that the lowest point the bank’s shares reached was Rs.138, which was below the rights’ price of Rs 136. “We wanted to give the best benefit to our existing shareholders. That was why we thought of giving a deep discount at Rs 136,” he said.