Seylan Bank’s Rs.10bn debenture issue to open on Wednesday

• Funds to anchor new lending and additional capital buffers 

Seylan Bank PLC will raise Rs.10 billion in corporate debentures as the bank is shoring up capital to fund its loan growth and to meet the elevated capital ratios under the new BASEL III rules. 

The debenture will have two tranches. The initial issue will see the bank issuing 60 million notes at Rs.100 each. The bank will upsize the issue by another 40 million notes of the same debenture in the event of an over subscription of the initial tranche.  The notes will carry fixed coupons and have maturities of 5, 7 and 10 years.  Fitch Ratings assigned a BBB + rating to the subordinated debenture, one notch below A- rating assigned on the bank, to reflect the notes’ subordinated status and higher loss severity risks relative to senior unsecured instruments. 

Unlike other sub-debt, these debentures would convert into equity upon the occurrence of a trigger event as determined by the Monetary Board of the Central Bank. 
The subscription for the debenture issue will start on March 21. The bank devised the plans for the debenture as early as July or August, last year.  
Sri Lanka’s banks are seen racing to issue BASEL III complaint Tier II debt during 2018 as the banks face a steeper increase in minimum capital ratios from January 2019. 

“Most banks will need to raise capital to meet higher BASEL III requirements that take full effect in January 2019 and to support balance sheet expansion”, Fitch Ratings said at the beginning of the year. 

As of December 31, 2017, Seylan Bank had a capital adequacy ratio of 11.16 percent under Common Equity Tier I, including the capital conservation buffer, while the Tier I and Tier II ratios stood at 11.16 percent and 13.25 percent respectively.  This is against the minimum requirement of 5.75 percent, 7.25 percent and 11.25 percent for each. 

However, by January 1, 2019, these minimum requirements need to go up to 7.00 percent, 8.50 percent and 12.50 percent respectively for banks with less than Rs.500 billion in assets.

According to Fitch, there were around Rs.119 billion in qualifying legacy BASEL II Tier II instruments—that are subject to a 20 percent discount per year— outstanding at end 3Q17. Besides Seylan Bank, Sampath Bank will raise Rs.7.5 billion in BASEL III, Tier II compliant five year notes with fixed coupons in March. 

The bank in December raised Rs.6.0 billion in similar instrument and further Rs.7.6 billion in a rights issue. 

Sampath Bank will raise a further Rs.12.5 billion capital in a rights issue opening in March end. 

In 2017, Seylan Bank reported earnings of Rs.13.68 a share or Rs.4.82 billion, up 20 percent from a year earlier supported by 19 percent growth in new loans.