Contagious course change!

■ Now Commercial Bank Board revises plans on Rights hot on the heels of amendment by HNB

First it was HNB and now it’s the turn of Commercial Bank in terms of changing the previously announced course on the Rights Issue.

As opposed to the original move of raising Rs. 9.7 billion via Rights, it will now only go for half of it, i.e. Rs. 4.8 billion.

Commercial Bank said its Board considered concerns expressed by some of the major shareholders regarding the 1 for 7 rights issue for voting and nonvoting. It said the main concern was that, in the light of other capital market investments it may be called upon to subscribe to in addition to the Rights issue of Commercial, it would amount to a substantial cash outflow on all their investments.

Therefore the Commercial Bank Board has decided at its meeting on Monday to readjust the ratio of Rights to 1 for 14.

The Board also decided to endeavour to raise a further Rs. 5 billion in the form of Tier II capital to ensure it is within the statutory Tier I and II capital requirements during the next five years.

Though the ratio has been changed, the original price announced remains intact.

Unlike HNB, which revised twice, Commercial has only done so once. The latter also expressed regret over the revision, which it said was to accommodate some major shareholders. In both HNB and Commercial, State funds are the biggest shareholders.

As per the revised plan, Commercial will issue 25.4742 million voting shares at Rs. 181.65 each (raising Rs. 4,627 billion) and 1.745 million nonvoting at Rs. 130.13 per share (raising Rs. 227 million). Major shareholders appear to be satisfied with pricing, which includes features such as 13 cents on nonvoting.

Whilst market indices closed down yesterday, investors also perhaps read the change negatively as Commercial Bank’s voting share declined by Rs. 4 to close at Rs. 266 whilst nonvoting fared better, down by only 30 cents to Rs. 188.20. The sub division of shares on the basis of 1 to 1 post Rights will proceed as originally planned.

Post-revised Rights and sub division, the number of ordinary voting and nonvoting shares of Commercial Bank will be 764,225,988 and 52,364,848 respectively.

On 24 May, Commercial Bank originally announced the issuance of 50.9484 million voting shares and 3.49099 million non-voting shares. They will collectively raise Rs. 9.7 billion with voting offer raising Rs. 9.25 billion and the remainder Rs. 454.2 million via non-voting. If ESOP options are exercised by employees, the number of shares and amount rise accordingly.

The last time Commercial Bank went to shareholders with a Rights Issue, considered a means to raise zero cost capital, was in 2007 when a 3 for 10 Rights was made along with a 1 for 3 bonus. The sub division move also comes soon after it did a split on the basis of 1 for 2 last year.

Whilst HNB was unfortunate (on account of Board decision) to be exposing itself to the danger of being the laughing stock for the two-time revision, Commercial Bank too now joins the club, partially.

On 2 June Daily FT reported that adding fuel to growing speculation that there were growing differences of opinion within the HNB Board as well as among some of the major shareholders over the issue of how much to raise and which way; the change of stance was the second time in less than a month after the original move.

However, the HNB Board in announcing the latest revision officially took cover saying that “taking into consideration the recent developments in equities and debt market” it decided to revise the structure of the capital augmentation plan. It however didn’t express regrets over the two-time revision.

At its meeting on 1 June, the HNB Board of Directors decided to recommend to shareholders the issue of 35,753,936 new ordinary shares comprising 28.74 million of voting shares and 7.013 million in nonvoting by way of a 1 for 10 Rights Issue. There is no change in the pricing, with voting to be issued at Rs. 219.50 per share and nonvoting at Rs. 119.50 per share.

The new basis means HNB is only raising Rs. 7.14 billion via Rights, down from Rs. 14.3 billion previously under the second revision (Rights only) and Rs. 15.07 billion in the original announcement involving a combination of Rights and Private Placement with foreign investors.

The HNB Board also decided that Rs. 7 billion would be raised by way of long-term debt instruments as a move to raise Tier II capital.

source - www.ft.lk