Sampath Bank to test market with Rs.5bn debenture with an option to double the issue

Sampath Bank PLC last week announced plans to raise up to Rs.5.0 billion via a BASEL III-complaint subordinated debenture to bolster its Tier II capital, with an option to upsize the issue up to Rs.10 billion, in what could be seen as the first major test for the listed debt capital market after the economy crashed early this year. 

The bank said its board of directors resolved to raise Rs.5.0 billion by issuing 50 million debentures, at a par value of Rs.100, with an option to issue up to a further 20 million of the said debentures, raising another Rs.2.0 billion at the discretion of the bank in the event of an oversubscription of the initial issue. 

Going further, the decision carries a further option to issue another 30 million debentures, at the same par value, bringing in another Rs.3.0 billion upon the oversubscription of the first and the second tranches, taking the total amount raised up to Rs.10.0 billion. 

Analysts said the issue of this magnitude by a major issuer in the calibre of Sampath Bank would be a real test for the debt capital market, which went into hibernation for most of this year, as it would test the investor appetite for corporate bonds at a time when the risk-free returns are hovering above 30 percent. 

The bank hasn’t yet disclosed the coupon rate of the debenture. 
The debenture will be for five years and a comparative yield of a five-year bond issued by the government was averaging at 26.57 percent during the week ended on October 19.    

The Colombo Stock Exchange saw 14 companies raising over Rs.84.0 billion via debentures in 2021.

Through the debenture issue, Sampath Bank aims to ramp up its Tier II capital ratio, which fell to 13.82 percent by June-end, from 17.02 percent at the end of 2021, on the back of pressure on capital ratios coming from low profitability, stemming from soaring impairments. The regulatory minimum remains at 12.5 percent. 

      
Analysts and investors are awaiting to find out how banks navigated the most recent quarter ended in September, as many expect the banking sector to report low earnings on the back of muted growth, elevated impairments, higher employee-related costs and other operating costs.