Citizens Development to raise up to Rs.2bn to fund rapid growth

• Company projects at least 30% portfolio growth in the medium-term 

Citizens Development Business Finance PLC (CDB) is raising up to Rs.2.0 billion via corporate bonds to fund its aggressive growth during the ensuing financial year, as the company has been seeing some handsome growth in assets and profits during recent quarters. 

In a stock exchange disclosure, the licensed finance company with an asset base of Rs.68 billion said it was issuing 10 million subordinated, unsecured, redeemable and rated debentures at an issue price of Rs.100 each with an option to upsize the issue by a similar amount at the discretion of the company in the event of an oversubscription of the initial tranche. 

The debentures will be listed in the Colombo Stock Exchange and the subscriptions will begin on March 20. 

ICRA Lanka Limited, a group company of Moody’s Investors Service last November issued a BBB rating with a Stable outlook for the instrument, following an upgrade of the issuer (CDB) from BBB to BBB+. 

The instrument is issued with a rating of one notch below the issuer rating to reflect its subordination to senior unsecured debt.   

The November 2017 upgrade of the issuer rating by a notch was a result of, “CDB’s comfortable and stable asset quality indicators with the improvement in the portfolio risk profile, growth amid competition and reasonable overall profitability indicators,” ICRA Lanka said.

“Asset quality of CDB remains better than systemic levels, because of its increased focus on safer asset classes and prime borrower segments; gross NPA was 3.2 percent as in September 2017 vis-à-vis 3.1 percent in March 2017 and 3.6 percent in March 2016,” ICRA Lanka added. 

However, during the most recent quarter ended December 31, 2017, the company’s provisions against possible bad loans soared and the gross non-performing loan ratio showed some weakness. 

The company provided Rs.127.2 million against profits for possible bad loans, an increase from Rs.46.4 million reported for the corresponding quarter, last year. 
The gross non-performing loan ratio rose to 3.41 percent from 3.08 percent. 

For the quarter ended in December 31, 2017 (3Q18), CDB reported earnings of Rs.6.03 a share or Rs.327.3 million compared to Rs.3.34 a share or Rs.181.1 million in total earnings reported for the corresponding period, last year.

The net interest income rose by a healthy 37 percent year-on-year (YoY) to Rs.983 million and the net fee and commission income jumped 90 percent Yoy to Rs.124.1 million.

Meanwhile, for the nine months ended December 31, 2017, the company reported earnings of Rs.15.84 a share or Rs.860.3 million, up 37 percent YoY. 
CDB is also seeing narrowing of margins as the company has gradually been trimming its exposure to high risk asset classes such as three-wheeler financing and increasing its exposure to safer asset classes such as about cars and van leases. 

The net interest margin of the company came down to 5.43 percent by end December 2017 from 5.52 percent in March 2017 and 6.9 percent in March 2016. 
During the nine months, the company expanded its loan book by Rs.11.3 billion or 26.2 percent to Rs.54.5 billion. 

Auto financing accounts for 90 percent of the total loans but the company is seen gradually diversifying into non-auto assets classes such as pawning, personal loans and property loans. 

CDB is expecting to growth its loan portfolio at 25 to 30 percent annually during the medium term, which is aggressive given the muted credit growth in the economy. 
Meanwhile, the company grew its deposits by 34.7 percent or Rs.11.3 billion to Rs.43.9 billion. Fixed deposits account for 70 percent of CDB’s funding profile while debt instruments and other bank borrowings account for the balance. 

As of December 31, 2017, Ceylinco Life Insurance Limited held 33.54 percent in CDB followed by Janashakthi Insurance group with a 10 percent in the company.