State-run Bank of Ceylon is shopping in the local and foreign markets for debt capital, to fund ongoing business activities and expand its capital base, a top official said Monday. An international road show to raise US$ 75 million in two-year bonds has already commenced with presentations made to investors in Singapore and Hong Kong, while a rupee denominated bond is expected later this year.
Citibank N. A. which is the lead arranger has an option of raising a further US$ 75 million if the need arises.
"We have already completed some of the presentations to foreign investors and the issue should close before the end of this month," Bank of Ceylon's General Manager, S N P Palihena told LBO.
The dollar bond comes with a one-year put option and the pricing is believed to be a premium of 0.48 percent above the London interbank offered rate or LIBOR plus an arrangers' fee.
The overseas issue does not carry a credit rating, though Bank of Ceylon's senior rupee debt carries a local rating of AA (sri) from Fitch Ratings Lanka.
Sri Lanka's largest commercial bank is also looking at raising around a billion rupees in debentures later this year to meet its Tier II capital requirements.
Palihena says the rupee issue is still not finalised, but will be raised through a private placement.
Merchant Bank of Ceylon – a unit of Bank of Ceylon – and Capital Alliance Holdings are believed to be the joint lead arrangers for the rupee debt.
Market watchers expect most of the proceeds from the dollar debt to be used up by state corporations and government enterprises like Ceylon Petroleum Corp.
As at March 31, 2005, government businesses took up 37 percent of the bank's Rs. 57 billion lending portfolio.
Fitch Ratings said in a recent report that 83 percent of loans to state entities are denominated in foreign currency. The loans are largely funded by the bank's retail foreign currency deposits.
The trend is expected to increase further over the next six to twelve months.
Bank of Ceylon and People's Bank currently control 55 percent of Sri Lanka's banking assets, followed by Commercial Bank of Ceylon, Hatton National Bank and NDB Bank.
Set up in 1939, BOC is the largest local bank in terms of assets and commands about a 17.3 percent market share.
-Mel Gunasekera: mel@vanguardlk.com