The Merchant Bank of Sri Lanka (MBSL) is planning a Rs. 1 billion debenture issue (rated AA-) for itself and the veteran institution that has managed many successful corporate equity issues is also planning to aggressively promote corporate debt issues for its clients as it would be a much cost-effective method of raising capital rather than depending on bank loans.
Sri Lanka’s secondary corporate debt market remains relatively inactive compared to the more dynamic equities exchange and reviving the debt market would result in much more economic gains as corporate entities, state institutions and investors benefit. Debt instruments have also proven to be viable vehicles to finance public projects with private funds.
"Government securities are very active in the debt market (unlike private issues, mainly debentures) and rates are much lower than prevailing lending rates of the banking sector. This presents an opportunity for corporate entities to try and raise capital at much cheaper rates rather than relying on bank loans," MBSL Head of Corporate Advisory and Capital Markets A. M. A. Cader said.
The average weighted prime lending rate of commercial banks was 9.51 percent as at last Friday. This indicative rate reflects what banks offer their top clients. Government bond yields spread between 7.75 percent and 9.25 percent across tenures spanning 2 years to 15 years.
"We are in the process of finalising a Rs. 1 billion debenture issue for ourselves. The issue would be for unsubordinated redeemable debentures. While promoting IPOs, we are also actively engaging our clients and advising them to raise funds through a debt issue," Cader told The Island Financial Review.
Cader said many debenture issues and initial public offerings (equity issues) would role out over the coming months but declined to give names of the company’s until the proper announcements were made to the Colombo Stock Exchange.
"We are in talks with a local conglomerate for a Rs. 2.6 billion debt issue. This would be a hybrid issue with mixture of debt and equities. Among the IPOs planned out for the year are companies in the tourism, dairy and education sectors," Cader said.
MBSL, controlled by state-banking giant the Bank of Ceylon, engages primarily in Leasing and Hire Purchase, Trade Finance, Corporate Advisory Services, Capital Market Activities and Corporate Secretarial Services. It is perhaps more popularly indentified with some of the biggest and more successful initial public offerings in the country’s stock exchange in the recent past, totalling Rs. 5.75 billion, which included the Rs. 2.5 billion Laugfs Gas IPO.
The bank is also on the look out to creating private-public partnerships, funnelling private investments to public projects.
Cader said MBSL was doing a feasibility study for a project which if implemented would the country’s largest cement manufacturing plant.
SriLankan Catering recently raised Rs. 1 billion through a capital issue managed by MBSL while Mihin Lanka underwent restructuring with the aid of the bank.