Oct 17, 2013 (LBO) – A planned 8.0 billion rupee debt offer by state-run Bank of Ceylon is seeing strong demand with preliminary orders and interest assessed at about 15 billion rupees, officials said. Tier II capital instruments are normally not intended for retailers, but only to institutions who are expected to keep an eye on a bank.
The securities have been rated ‘AA(lka)’ by Fitch, one level below the ‘AA+(lka)’ rating of the bank.
Bank of Ceylon is the country’s largest commercial bank and is state-owned and systemically important.
The subordinated debt with tenors ranging from 5 to 10 years offer has tax free annual interest of up to 13.75 percent.
P A Lionel head of Treasury and International at Bank of Ceylon said the 8.0 billion rupee offer is expected to be twice oversubscribed when it opens Monday (October 21).
Bank of Ceylon chairman Razik Zarook said there was strong demand from institutions including insurance funds. Pension funds are also require long term opportunities to invest.
Zarook said the bank also expected retail investor interest.
Zarook said the funds will be used for infrastructure projects and also to repay some existing maturing debt.
The longer term funds will allow the bank to clear asset-liability maturity mis-matches, he said.
For 5-year debentures, a fixed annual coupon of 13.0 percent, 12.6 percent every six months or floating rate 100 basis points above the 6-month Treasury bill yield is offered.
For 8-year bonds, a 13.25 percent annual fixed rate or a floating rate of 100 basis points above the weighted average 6-month Treasury bill yield is offered.
For 9-year bonds, a fixed rate of 13.25 percent or a floating rate of 125 basis points above the 6-month Treasuries yield is offered.
A 10-year bond with a 13.75 percent fixed coupon or a floating rate of 125 basis points above the 6-month Treasury bill yield is also offered.
There has been a rush for debt issues in 2013 after the finance ministry made them free of both withholding and corporate income tax.
The Bank of Ceylon debentures are subordinated, and are used to boost Tier II capital, indicating that the money will be used to pay off depositors in the event of liquidation.