MBSL looks to a successful rights issue

State-owned Bank of Ceylon’s (BOC) subsidiary Merchant Bank of Sri Lanka and Finance PLC (MBSL) plans to raise Rs.2.24 billion in fresh capital via a rights issue. 

The main purpose of the issue is to comply with the minimum capital rules of the Central Bank of Sri Lanka (CBSL). Approval for the capital raising has been obtained from the boards of MBSL, its majority owner BOC and the regulator, the Central Bank of Sri Lanka (CBSL). 

Exhibiting full confidence in the capital raising effort and in the management of their majority owned subsidiary and thereby guaranteeing a successful outcome to the capital raising effort, BOC with a near 75 percent direct ownership stake in MBSL, will be subscribing for its entire entitlement in full.  

The issue will be on the basis of nine new shares for four held, resulting in the issuance of 373.2 million new shares, at Rs.6 each. The stated capital of MBSL at present is Rs.2.12 billion. The MBSL share price closed at 6.90 on August 4, 2021, 15 percent above the 52-week low of Rs.6 set on Apr 7, 2021. Its net asset value as of March 31, 2021, was Rs.10.42, up from Rs.8.85 at year end 2020, a growth of near 18 percent. The percentage of MBSL shares held by the public numbering some 10,900 shareholders as of March 31, 2021 was 25.51 percent.

This rights issue is the culmination of MBSL efforts to regain momentum after reporting a loss in 2020. Its turnaround came in quick succession. For the first quarter 2021, MBSL reported a profit, a near 265 percent growth compared to the pre-tax loss recorded in the same period in 2020. The profit turnaround was based on a 70 percent increase in net interest income, compared to the same period in 2020. Then more recently in early June 2021, came the announcement of the appointment of a new CEO Dammika Hapuhinna, a veteran with senior overseas finance company experience. 

The capital raised will enable MBSL, for its part to comfortably meet regulatory and funding requirements going forward and provide a stronger base on which to achieve its medium-term goals. 

Referring to the rights issue Hapuhinna said, “I am grateful to our parent bank BOC for the confidence placed in MBSL and look forward for a close partnership with them in pursuing our corporate plan that justified their investment.”