Dusting Cobwebs

The Merchant Bank of Sri Lanka (MBSL) is exploring ways to wipe off its accumulated losses through a balance sheet clean up process.
The bank is contemplating converting Rs. 800 mn worth of preference shares issued to Bank of Ceylon, into ordinary shares.rn

rnThe move, if approved, would wipe off Rs. 1.4 bn in accumulated losses. But first, MBSL needs its key shareholder Bank of Ceylons blessings. Bank of Ceylon, in turn needs to get Treasury approval to execute the deal.rn

rnIn the meantime, MBSL is coming out with a Rs. 200 mn debenture to fuel its booming leasing portfolio.rn

rnThe four-year unsecured redeemable debenture will be quoted on the secondary board of the Colombo Stock Exchanges debt securities board.rn

rnThe issue is priced at 10.38 percent (fixed annually), 10.12 percent (fixed bi-annually) and 10.00 percent (fixed quarterly). rn

rnInvestors also have the choice of opting for a floating interest rate which is priced at two-percent over the one-year treasury bill rate. But the floating rate issue comes with a floor of 8.5 percent and is capped at 12.5 percent.rn

rnCEO Sunil Wijesinghe says leasing now accounts for over 50 percent of MBSLs net profits.rn

rnMBSL recently announced an after-tax profit of Rs. 71 mn on a turnover of Rs. 384 mn for the year ending Dec. 31, 2003. rn

rnldblquote Leasing is a very steady source of income, particularly when times are bad and revenues from other areas like stockbroking and corporate finance dry up,
dblquote he told journalists on Monday.rn

rnIn 2003, MBSL disbursed Rs. 900 mn as leases, and Wijesinghe is upbeat the portfolio can be raised to Rs. 1 bn in 2004.rn

rnA bulk of its leasing portfolio is on account of vans and cars (60 percent), closely followed by buses (25 percent), says Gamini Karunaratne, Head of Leasing/Trade Finance.rn

rnMost leasing companies opt to raise fresh cash through securitising their portfolio. MBSL says they would take that route later this year, to raise around Rs. 200 mn. rn

rnA credit rating is also on the cards, once the banks balance sheet is cleaned up.rn

rnCommenting on the interest rates, Head of Corporate Finance Jayantha Perera says, they dont expect a major shift in the countrys macro economic fundamentals.rn

rnldblquote If interest rate go up, investor may get hit and it will push the banks interest income down. But we dont expect a big upswing in rates, unless there is an outbreak of war,
dblquote Perera said.rn

rnSuren Liyanage, Analyst at Lanka Securities says a change of government may not see a major policy shift on the economic front.rn

rnldblquote Policies of the Peoples Alliance and the ruling UNP are almost the same. If the ceasefire continues, we dont expect any major fluctuations,
dblquote says Liyanage.rn

rnMagu Murgesu, CEO of Lanka Securities says retail investors should look at the issue as a safe bet to park their funds in alternative investments.rn

rnldblquote Retailers are always the first to get burnt. In a bullrun they come in late and they are nearly always too late to cash out when the market is going down. So locking part of your savings in a four-year issue should ride you through the rough times,
dblquote he advised.rn

rnThe issue opens on February 26. MBSL stays on as Managers to the issue, Bank of Ceylon as bankers and Commercial Bank comes in as the Trustee.rn

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-LBO Newsdesk: LBOEmail@vanguardlanka.comrn

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