NDB rights issue in question as shares trade below rights issue price of 105

September 26, 2018 (LBO) – The woes of the Colombo Stock Exchange (CSE) threaten to disrupt the capital raising efforts of one of Sri Lanka’s most prominent financial institutions.

CSE listed National Development Bank (NDB) is attempting to raise funds via a rights issue to bolster the capital of the bank. The bank is trying to raise over Rs6bn through a heavily discounted rights issue in comparison to their net asset value of close to Rs200/share.  The last date for rights holders to accept and pay for shares of NDB at Rs105/share is October 4th.

Shares in NDB have been moving sharply lower in recent days ion line with the general weakness of the CSE.  The stock last traded around Rs103/share which is now two rupees below the rights issue price.  With stock market weakness expected to continue, it is possible that the stock will trade at an even bigger discount to the rights issue price as the date of acceptance and payment approaches.

Analysts say State owned entities, which own close to 30% of the shares of the bank, are likely to subscribe to the rights even if the issue price is above market.  However, for other investors the incentive not to subscribe is becoming more attractive by the day, making it likely that the rights issue will raise far short of the envisioned Rs6bn.

Some market watchers say that the prudent thing for the bank to do would be to either cancel, or reprice the rights issue to be more in line with market conditions.