Commercial Bank expands its debt warehouse

Commercial Bank of Ceylon picked up another Rs. 325 million debenture to sit in its newly created debt warehouse, which offers to subscribe, hold and sell competitively priced paper above conventional savings products. Commercial Bank of Ceylon picked up another Rs. 325 million debenture to sit in its newly created debt warehouse, which offers to subscribe, hold and sell competitively priced paper above conventional savings products. Sri Lanka’s most profitable privately held listed bank partnered with Investec Capital Ltd (a new investment bank) to privately place the secured paper belonging to Commercial Leasing Co. Ltd (CLC).

The debentures are secured by specific finance lease contracts of CLC, and the principal and interest payments are unconditionally and irrevocably guaranteed, officials said on Monday.

The funds will be utilised to feed CLC’s Rs. 6 billion leasing portfolio, which grew by 41.8 percent in 2004.

On average, CLC raises over a billion rupees each year to keep its leasing business ticking.

“We plan to raise about Rs. 2 billion this year, mostly through securitisation. With this issue (the private debenture), we have raised about Rs. 1.5 billion todate,” says
Malinda Samaratunga – Finance Manager/Treasurer, CLC.

The 44 month paper is structured in a way that, interest rates are fixed for notes with tenures falling within the first two years, while a variable rate (average weighted prime lending rate plus) is applicable for the balance two years.

Set up in 1988, CLC provides a wide range of services including finance leasing, operating leasing, hire purchase and debt factoring.

CLC posted a Rs. 237 million pre-tax profit in year 2004 and was able to notch a Rs. 80 million pre-tax profit in the first quarter of 2005 (up 60 percent over the previous quarter).

Having structured and invested in over Rs. 3 billion worth of paper over the past two-years, Commercial Bank, is now offering itself as a market maker and mover for prime corporate paper.

“We eventually play the role of market maker, warehousing issues of this caliber and offering them to the public providing them the opportunity to invest as well as exit from high quality debt instruments,” says Naveen Sooriyarachchi, Commercial Bank’s Chief Manager Corporate Finance.

He further added that Commercial Bank has recognised the lack of well capitalised market intermediaries for corporate debt as a key impediment and has decided to fulfill this important market need.

-LBO Newsdesk: LBOEmail@vanguardlk.com