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| Tuesday, 1 July 2003 |
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HNB to open Rs.2 billion debenture issue By Chandani Jayatilleke Hatton National Bank (HNB) will open a Rs. 2 billion debenture issue on Thursday to raise the bank's capital adequacy and mobilise funding for long term lending to match expected opportunities following a recovery in the economy. The initial issue will be of Rs. 1,500 million unsecured subordinated redeemable debentures with a maturity of five years. Additional debentures to the value of Rs. 500 million will also be issued in the event of an over subscription, HNB's Deputy General Manager (Corporate Finance), Duleep Daluwatte told the Daily News yesterday. He said that though the debenture issue is not listed at the time of launching, they are hoping to list it in the Colombo Stock Exchange (CSE) in six months. There are two types of debentures: 2003-A and 2003-B. Type 2003-A has fixed the interest rate of 10% per annum payable bi-annually and Type 2003-B has a variable interest rate of six months treasury bill rate plus two percent per annum payable bi-annually. HNB's existing Rs.1 billion subordinate debentures which were issued in 1998, will also be redeemed this week and this, coupled with additional fund requirements to enhance its long term lending portfolio, creates the platform for the issue. The issue to be opened on July 4 will be open for 14 market days. Asked if the timing of the issue is correct at a time investors are more focussed on the stock market Daluwatte said that the potential is still great. "There's lot of surplus money in the money market and we have priced it attractively. Also our first debenture is redeeming this week and we expect the debenture holders to reinvest their money in the new issue. Considering these facts, we are confident of an over subscription of the issue," he said. In addition, it will provide the public an opportunity to participate in an alternative fixed income investment. This will also contribute to the development of the debt securities market in Sri Lanka, which has been identified as an area for development by the Government. HNB successfully completed a Rs. 2 billion debenture issue in September last year. "HNB, like most commercial banks in the country, is currently looking at diversifying its loan book by expanding its long term lending portfolio. The debenture issue should raise long term funds to the Bank, thus providing the platform for such a diversification," Hasitha Premarathne of HNB Stockbrokers said. In a Banking sector report - "Good Times For Banks", dated January 28 2003, the HNB Stokbrokers said that the additional fund requirements, may lead the way for HNB to issue another block of debentures. Premarathne said that the growth in the loan book would create a need for fresh capital infusion, as HNB's Capital Adequacy Requirements (CAR) needs improvement. Further with Foreign Currency Business Units (FCBU) being considered as 100% risk weighted assets from mid 2003, we believe that the Bank should strengthen its capital base. The Commercial Bank has already raised funds through a debenture and preference share issue, and most of the other banks would require capital infusions once the FCBUs become 100% risk weighted assets." "We believe that HNB will offer medium to long-term value once it starts exploiting the advantages of scale. It has already established a presence in the North East and is well prepared to take advantage of its expected economic development. HNB recorded significant capital gains during the recent Bull Run on the stock market," he said. |
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