|Tuesday, 11 March 2003|
IFC makes strategic investment in Commercial Bank
The International Finance Corporation (IFC), the private sector arm of the World Bank group, will make a strategic investment in the Commercial Bank of Ceylon (CBC) with the acquisition of 15 per cent of the bank's voting shares.
The transaction marks the IFC's largest equity investment to date in the Sri Lanka's financial sector and is also the first instance where the IFC has acquired existing shares in a company. Its usual practice is to participate in IPOs.
The IFC's acquisition of 5.85 million Commercial Bank shares, an investment of Rs 965.25 million at Rs 165 per share, follows a decision by the Government to divest up to 20 percent of Commercial Bank shares from the 29.92 percent stake currently held by the Sri Lanka Insurance Corporation Ltd., (SLIC). The IFC offer was accepted by the SLIC with the concurrence of the Secretary to the Treasury and the approval of the Monetary Board of Sri Lanka which was required because the IFC's stake is above the threshold of 10 per cent in a bank permitted to a single shareholder, in terms of the banking regulations in Sri Lanka, a bank official said.
A Memorandum of Understanding (MoU) covering the terms and conditions of a long-term strategic relationship between the IFC and the Commercial Bank was signed in Colombo last week.
As part of its global policy, the IFC provides technical, financial and other support to selected private sector companies in different countries, enabling them to improve their corporate stability and overall performance. On a very selective basis the IFC also considers equity participation in some of these companies, in addition to providing the financial and technical support needed by them.
Sanjiva Senanayake, IFC's Country Manager for Sri Lanka and the Maldives said that the Corporation had identified Commercial Bank of Ceylon Limited (CBC) with whom it has had a dialogue over the last few years, as a corporate body which meets the support-criteria of the IFC. In this backdrop, the decision of the Government of Sri Lanka to divest up to 20per cent of the CBC's voting shares currently held by the Sri Lanka Insurance Corporation (SLIC), which is in the process of being privatised, provided a unique opportunity for the IFC to consider a strategic investment in CBC with an acquisition of a 15 per cent stake.
Commercial Bank Managing Director Amitha Gooneratne said the Bank has decided to acquire the balance 5 per cent of CBC shares from the SLIC through a share-trust on behalf of its employees. The IFC, as a further goodwill measure has offered to provide a bridging loan to the Share-Trust, enabling it to acquire these shares. However the Bank finally decided to finance the Share-Trust out of its own funds, in view of the exchange rate risk associated with such bridging loans. Nevertheless, the IFC is pleased to see that this transaction too is going through shortly, enabling the CBC employees to acquire these shares, under an ESOP, which will be the third in CBC's history, the IFC spokesman said.
Gooneratne said the IFC's equity participation will benefit the CBC in many ways. The investment of 15 per cent by the IFC and 5 per cent by the Share-Trust will first and foremost further diversify the CBC's shareholding and strengthen its corporate stability.
With its 15 per cent investment in CBC voting shares, the IFC will be offered a seat on the CBC board. With the IFC's international standing and expertise, this new tie-up will no doubt further promote the CBC's overall standing in the market and the Bank is very likely to benefit by the IFC's technical, financial, risk management and IT expertise. CBC will also be able to develop more environmental-friendly lending policies, given the IFC's firm commitment in this area.
In addition to the 15 per cent equity investment and the offer to provide bridging finance to the Share-Trust, the IFC has also offered a term loan facility of US $ 10.0 million to further strengthen the CBC's medium term loanable-fund base. The terms and conditions of this term loan are still being negotiated by the two parties.
Produced by Lake House