Huge capital gain to MBSL on sale of MBSL Savings Bank

MBSL Savings Bank came under the purview of MBSL. As per the latest CSE release on May 17 2012, on their website.

In keeping with its core mission of functioning as an investment bank including Investment Banking, takes on the challenges of investing in distressed business entities with a view to resuscitating and converting them into viable ventures.

Accordingly, provision of required capital inflow and management support is provided, once resurrected and in the midst of resurrecting, is usually disposed of in an appropriate manner, generating profits to MBSL.

Based on this core mission and vision, MBSL stepped in to rehabilitate some of the Ceylinco Group of Companies, including the acquisition of Ceylinco Savings Bank. Similarly, the ailing ABC Insurance Company was also taken over and resurrected, thereby adding value to its financial base.

According to the statement submitted to the CSE, the process of acquisition of 78% of the voting shares of Ceylinco Savings Bank was initiated in April 2009 with an investment of Rs. 100 million at a price of Rs.1 per share.

Thereafter, the acquired entity was renamed as MBSL Savings Bank in order to infuse public confidence and once again gain credibility.

Furthermore, an additional Rs. 150 million has been infused to acquire 72% of the non-voting shares, taking the total investment to Rs 250 million.

With the unanimous decision of the Board on September 2 2010, Rs. 12.8 million of the voting shares have been disposed off at a price of Rs. 3 per share, thus generating a profit of Rs.25.6 million to MBSL.

Similarly, the unanimous consensus of the Board has been reached for the disposal of the balance 68% voting shares at a price of Rs.3.75 per share and the entire 100,000,000 non-voting shares at a price of Rs. 2.35 per share being the best possible price negotiated by the committee appointed by the Board, based on the valuation obtained from PriceWaterhouse Coopers for the purpose of the merger and the sale prices were far in excess of the valuation.

This transaction will also result in a profit of Rs. 325 million to MBSL.

MBSL Savings Bank continued to run at a loss despite efforts made by MBSL to rehabilitate the Bank.

Hence, if MBSL did not decide to dispose of the acquisition at this stage, it would have been required to immediately invest a further Rs. 1.3 billion to meet the capital adequacy requirements of MBSL Savings Bank in accordance with the requirements of the Central Bank of Sri Lanka.

The board of directors has very categorically stated that the bank has followed all relevant procedures in taking this decision, at the Board level and communicated this decision to the parent company (Bank of Ceylon) and the regulator, (Central Bank of Sri Lanka) and obtained formal approval from the Bank Supervision Department and the Non- Bank Supervision Division of the Central Bank of Sri Lanka, which is the direct regulator of MBSL.

Furthermore, for the purpose of public knowledge, the details of this transaction was comprehensively informed to the Colombo Stock Exchange (CSE) as far back as October 2011. In the recent press conference held in Grand Oriental hotel in line with the 16 branch opening of MBSL, the Board commented that the similar Merchant/Investment Banking Services of rehabilitating sick companies will be extended to SME and micro enterprises with the expansion of its branch network island wide.

When similar entities which are involved in Merchant banking are changing their direction into Finance companies, MBSL being the Pioneer Merchant Bank remains to be engaged in investment banking activities not only into the large scale entities but also extending it towards the SME sector as well.