Thursday, May 3, 2012

Value of TFC stake held with NSB falls

By Mario Andree

 The major deal which took place last Friday (27) at the Colombo Stoke Exchange is drawing serious attention with brokers and bank employees questioning the deal. National Savings Bank has brought over 7,863,362 shares of The Finance Company gaining a stake of 13.2 percent for Rs. 391 million, but with the share price falling over two day’s the bank’s holding is now worth Rs. 259.5 million.

"NSB has been keen on purchasing shares of TFC and has paid a 66 percent premium, buying a share at Rs. 50 (Rs. 49.74) when the market price stood at Rs. 30 on Friday. However on what grounds the bank purchased these shares is yet to be revealed," several brokers told The Island Financial Review.

NSB is a public bank and could only go ahead with such a transaction under direct supervision of the Central Bank. However the deal has met all regularity requirements of the CSE, but why did the bank pay a 66 percent premium is a question many market analysts are asking.

"NSB has won the heart of many Sri Lankans who are depositing their funds despite a minimum interest paid, and for the bank to even make a ten percent profit out of the Rs. 391 million investment the share would have to be sold at Rs. 55, however the market conditions seems to be disturbing with the value of The Finance shares held by the bank dropping to Rs. 270 million on Monday with a share price of Rs. 34.40, and declining further on Wednesday to Rs. 33, for a total value of Rs. 259.5 million," a broker said.

"If the bank really wanted to purchase shares it could have purchased the non-voting shares providing a slight relief to the depositors of The Finance who had some of their deposits converted into shares."

In March 2011 The Island Financial Review reported that the country’s largest non-bank financial institution has recovered from turmoil and is ready to make profits, ranking the company among the top financial institutions.

TFC Chairman Preethi Jayawardana also highlighted the opportunities and the success and how the company was going to perform in the future.

TFC bailed out by converting Rs. two billion in deposits to shares which the company if not had to pay interest for. Also the company so far has not paid dividends or payment to these share holders, brokers said.

With the difficulties faced by the Ceylinco Group in 2008 and 2009, TFC could be highlighted as a loss making company for the last three years, the broker said. In the 2010/2011 financial year the company made a loss of 87.5 percent and the loss per share also being 23.6 percent.

In the 2011/2012 financial year for the first three quarters the company had managed to make a profit of Rs. 15.85 million, it made a profit of Rs. 26.4 million in the first quarter followed by a profit of Rs. 6.96 million in the second and a loss of Rs. 17.5 million in the third quarter. The net assets per share are also at -23.57, the broker said.

In the same financial year the earnings per share for the nine months stood at Rs.0.10, brokers pointed out.

The share which closed at Rs. 30 on last Thursday made a gain of 46.67 percent to Rs. 44 by Friday after the controversial deal, brokers said.

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