Emerging market rout prompts Sampath Bank to suspend bond issue

Sampath Bank PLC yesterday said it decided to suspend its planned dollar bond issue quoted in the Singapore Exchange as the unfriendly international capital market conditions have prompted the issuer to rethink about the timing of the issue.  

Sampath Bank in July revealed plans to issue US dollar denominated debentures to raise US $ 100 million to prop up its tier II capital base and 
accelerate lending. 

Sampath Bank’s loans have grown faster than the sector average. In 2017, the bank grew its loans by 24 percent followed by a further 10 percent growth during the first half of 2018. 

“Due to the current elevated market volatility in global bond markets, the lead manager to the aforesaid issue has informed us that the pricing of the proposed debenture issue would be relatively high”, the bank said in a stock exchange filing yesterday. 

Outflows from the emerging market bonds and stocks intensified in recent times as investors took out funds to put back into US treasuries and stocks as they recalibrated their portfolio allocations when the yields and returns rose in the US due to their strong economy. 

This may have left a liquidity vacuum in the emerging markets sending the yields of the existing bonds higher, which makes potential issuers to raise funds at a higher rate. 

“Thus the bank is of the view that current market rates are not attractive and accordingly it has been decided to suspend the issuance of the aforesaid debenture until market conditions are more conducive for such an issuance”, the filing added.  

Sampath Bank in December 2017 raised Rs.6.0 billion via a rights issue and further Rs.12.5 billion this April. 

The bank retained Rs.12.7 billion in profits by issuing scrip dividend in 2017 as the lender was bracing for higher capital ratios under the forthcoming full implementation of BASEL III regulations from January 1, 2019. 

By end of June, the bank’s tier I capital ratio improved to 12.25 percent and tier II capital ratio to 16.70 percent. 

On January 1, 2019, the minimum tier I and II requirements will increase to 10 percent and 14.0 percent respectively.   

Last week, Fitch Ratings affirmed Sampath Bank’s national long term rating at ‘A +’ with a Stable outlook given its evolving franchise, high-risk appetite and improving but lower than peers’ capitalization. 

Fitch said it expects Sampath Bank to maintain adequate buffers above the Basel III minimum regulatory requirements. 

While a temporary suspension of the planned bond issue may not affect Sampath’s rating, a prolonged  delay or failure to raise the required funds in an alternative capital issuance might prompt Fitch to revisit Sampath’s rating given its rapid growth in loans.