At least two DFIs expected to take part in SDB bank’s Rs.4.5bn SPO

By Nishel Fernando
At least two development finance institutions (DFI) have expressed interest in participating in Sanasa Development Bank’s (SDB bank) upcoming Rs.4.53 billion secondary public offering (SPO), which is likely to be the last capital raising endeavour of the bank for the next several years. 

SDB bank has announced plans to issue up to 88 million new ordinary voting shares, priced at Rs.51.50 per share to the public, via an SPO in two tranches—initial issuance of 68 million shares followed by further issuance of 20 million shares in the event of an oversubscription of the initial issue, at the discretion of the board of directors of SDB.

The resolution was approved by the shareholders of the bank at the Extraordinary General Meeting held on the 28th of last month and currently the approval of the Colombo Stock Exchange is pending.  

“Certainly, there will be DFI participation. Already, I’m told that two DFIs will participate and they will take significant proportions as well. There will be local participation too. We are fairly confident that we should be able to cross the bridge without much of hassle even during these difficult times,”

SDB Bank CEO Thilak Piyadigama told a webinar organised by CT CLSA Securities (Pvt.) Ltd, last week.
As of March 31, Dutch Development Bank (FMO) has a 10 percent stake in the bank while the International Finance Corporation (IFC) and Singapore-based SBI-FMO Emerging Asia Financial Sector Fund have 5.9 percent and 3.1 percent stakes in the bank.

In addition, the U.S. government’s development bank, U.S. International Development Finance Corporation (DFC), early this year committed a US $ 40 million loan to SDB bank, to support small and medium enterprises (SMEs) and female entrepreneurs of the country.

Leading businessman Prabhash Subasinghe-controlled Ayenka Holdings (Pvt.) Ltd is the single largest shareholder of SDB bank, with a 12.4 percent stake, followed by Senthilverl Holdings (Pvt.) Ltd, owned by high-net-worth investor Dr. T. Senthilverl, with a 11.5 percent stake in the bank.

With the proceeds from the upcoming SPO, SDB bank plans to double its capital base to around Rs.21 billion by 2024 (inclusive of cumulative profits), as the bank prepares itself for a possibility of an introduction of a single banking licence through the New Banking Act, which is expected to be enacted in mid-next year.

As a licensed specialised bank, SDB Bank is subjected to a lower capital requirement compared to the licensed commercial banks. However, the bank fears this benefit could be eliminated, if a single banking licence is to be introduced for all banks. 

However, Piyadigama noted that the announced SPO would be the last instance for the bank to raise capital through the market in several years to come.

“We will be good to go for another few years without requiring any additional capital. This one would be one of the last for years to come,” he said.

Meanwhile, SDB bank remains open for opportunities that will be created via an industry consolidation plan mooted by the Central Bank.

The bank currently accounts to around one percent market share and caters to SMEs and retail customers who account to over 80 percent of its loan book. 

“Consolidation is always a good thing to happen for the sector to be more efficient. We know this story has been around since 2015, although it never materialised. If there are opportunities for consolidations, I’m sure we will be open to look at them,” Piyadigama remarked. 

He emphasised that the new Banking Act could possibly define and decide the nature of the consolidation.