Tag Archives: corporate debt

“International Investor Perspective on Local Currency Solutions”

Colombo: A specialized and distinct seminar entitled “International Investor Perspective on Local Currency Solutions” was recently held at the Cinnamon Grand Hotel, Oak Room Colombo.  Jointly organized by Netherlands-based The Currency Exchange Fund (TCX), GuarantCo, FMO – the Dutch Development Bank, and Frontclear together with locally based investment bank First Capital Holdings PLC, the main focus of the event was to raising awareness among local Banks, NBFIs and Micro Finance Institutions about Foreign Currency Funding options and facilitating local participants to access funding from Development Financial Institutes (DFIs) and Foreign Investors.

First Capital Holdings PLC Group CEO Dilshan Wirasekara introducing GuarantCo Chief Investment Officer Lasitha Perera to the Keynote Speaker, Deputy Governor Dr. Nandalal Weerasinghe.  During the event GuarantCo revealed its ambitious plans to expand its markets to Sri Lanka by completing its first Rupee denominated project financing, to help extend the average tenor of corporate bonds from five to 10 years and also to have a Sri Lankan GuarantCo.
First Capital Holdings PLC Group CEO Dilshan Wirasekara introducing GuarantCo Chief Investment Officer Lasitha Perera to the Keynote Speaker, Deputy Governor Dr. Nandalal Weerasinghe. During the event GuarantCo revealed its ambitious plans to expand its markets to Sri Lanka by completing its first Rupee denominated project financing, to help extend the average tenor of corporate bonds from five to 10 years and also to have a Sri Lankan GuarantCo.

 

Delivering the Keynote Address Deputy Governor Dr. Nandalal Weerasinghe highlighting the demand for funding within the corporate sector, given the number of investment plans that had been given the green light since the end of the civil war and the need to facilitate a deeper corporate debt market to fulfil the additional funding needs faced by the Sri Lankan corporates. There is likely to be plenty of demand among insurance companies, provident funds and other institutional investors for higher yielding new financial instruments,” he stressed. The Deputy Governor said local currency solutions would mitigate the risk and generate cheaper funding with a minimum currency risk, while providing guidance on funding. Therefore instruments such as, hedging, credit guarantees, local currency bonds issued in the international market would help investors to find new methods and ways to finance their funding needs, he added.
Delivering the Keynote Address Deputy Governor Dr. Nandalal Weerasinghe highlighting the demand for funding within the corporate sector, given the number of investment plans that had been given the green light since the end of the civil war and the need to facilitate a deeper corporate debt market to fulfil the additional funding needs faced by the Sri Lankan corporates. There is likely to be plenty of demand among insurance companies, provident funds and other institutional investors for higher-yielding new financial instruments,” he stressed. The Deputy Governor said local currency solutions would mitigate the risk and generate cheaper funding with a minimum currency risk, while providing guidance on funding. Therefore instruments such as, hedging, credit guarantees, local currency bonds issued in the international market would help investors to find new methods and ways to finance their funding needs, he added.

 

Senior Vice President Jerome Pirouz drew attention to TCX’s role in Sri Lanka through supporting local currency inflows from offshore investors. He explained that the firm hedges the currency and interest rate mismatch which is created in cross-border investments between international investors and local market participants in frontier and less liquid emerging markets.
Senior Vice President Jerome Pirouz drew attention to TCX’s role in Sri Lanka through supporting local currency inflows from offshore investors. He explained that the firm hedges the currency and interest rate mismatch which is created in cross-border investments between international investors and local market participants in frontier and less liquid emerging markets.

 

Matthijs Pinxteren Director Treasury FMO, the Dutch Development Bank promoting private sector growth in more than 85 developing countries and emerging markets offering capital knowledge and networks presenting at the event reflected its roles in the Sri Lankan financial sector for the past three decades and the company’s intentions to expand their presence inline with the economic progression of the country.
Matthijs Pinxteren Director Treasury FMO, the Dutch Development Bank promoting private sector growth in more than 85 developing countries and emerging markets offering capital knowledge and networks presenting at the event reflected its roles in the Sri Lankan financial sector for the past three decades and the company’s intentions to expand their presence inline with the economic progression of the country.

 

Frontclear Senior Vice President Andrei Shinkevich addressing the gathering explained the role of Frontclear as a facilitatator providing access to financial markets for local institutions to local and global markets through the provision of  credit guarantees to cover their counterparty credit risk. Adding that the compnay provides technical assistance with product implementation and systemic constraints which are beneficial for emerging markets.
Frontclear Senior Vice President Andrei Shinkevich addressing the gathering explained the role of Frontclear as a facilitatator providing access to financial markets for local institutions to local and global markets through the provision of credit guarantees to cover their counterparty credit risk. Adding that the compnay provides technical assistance with product implementation and systemic constraints which are beneficial for emerging markets.

 

LCY Photo - 7Audience comprising of professionals representing the Banks, Non-Bank Financial Institutions and Micro Finance Institutions based in Sri Lanka.

Audience comprising of professionals representing the Banks, Non-Bank Financial Institutions and Micro Finance Institutions based in Sri Lanka.

 

LCY Photo - 8Panel discussion featured First Capital Holdings PLC Group CEO Dilshan Wirasekara, Moderator Nisthar Cassim, TCX Senior Vice President Jerome Pirouz, GuarantCo Chief Investment Officer Lasitha Perera, FMO Director Treasury Matthijs Pinxteren, Frontclear Senior Vice President Andrei Shinkevich and SBI Ven Capital Executive Vice President Arno De Vette.

Panel discussion featured First Capital Holdings PLC Group CEO Dilshan Wirasekara, Moderator Nisthar Cassim, TCX Senior Vice President Jerome Pirouz, GuarantCo Chief Investment Officer Lasitha Perera, FMO Director Treasury Matthijs Pinxteren, Frontclear Senior Vice President Andrei Shinkevich and SBI Ven Capital Executive Vice President Arno De Vette.

CDB announces LKR 1 Billion Debenture Issue

CDB Debenture 2016 - Managed by First Capital Limited

Colombo, 17 May 2016 : Citizens Development Business Finance PLC (CDB), one of the leading Licensed Finance Companies in Sri Lanka announced its intention to issue Listed Rated Subordinated Guaranteed Redeemable Debentures worth LKR 1 billion.

The debenture issue has received [SL] ‘A-‘(SO) with Stable Outlook by ICRA Lanka Ltd., and the Rated 5 year debentures are guaranteed by Seylan Bank PLC. The issue opens for subscription on 27th May 2016 and will close in 14 days of its opening date unless oversubscribed before the closing date.

With a 10 million debentures at a face value of LKR. 100/- each. The issue will offer two types of 5-year debentures, Type A with a fixed rate of 12.75%p.a paid semi-annually and Type B with a floating rate of, the 6-month net Treasury Bill plus 1.5% paid semi-annually (the floating rate has a cap of 15% and a floor of 10%). Further enhancing the investors’ return is the tax concessions applicable to listed debentures.

CDB is a company rated [SL] ‘BBB’ with a stable outlook by ICRA Lanka Limited and is a licensed finance Company registered under the Finance Business Act No. 42 of 2011 and a Company registered under the Finance Leasing Act No. 56 of 2000. Also a Public Limited Company registered under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 7 of 2007.

The main objective of the debenture issue is to raise funds for CDB to strengthen its Tier II Capital and grow its lending book.

First Capital Limited and Citizens Development Business Finance PLC will act as joint Mangers to the issue and is geared to handle queries regarding the debenture. The Prospectus and Application Form can be downloaded from www.cdb.lk | www.­firstcapital.lk | www.cse.lk.

Investing in Corporate Debt

By Naveen Samarasekera, Manager – Corporate Finance First Capital Limited

Steering through diverse investment tools can be perplexing for the average investor. Investor education is crucial as knowledgeable and empowered investors contribute towards a vibrant market. Corporate Debt instruments are one of many investment options available to investors and the following explores the mechanisms of listed debenture investment options in the Sri Lankan market.

What is a debenture?

In general, debt instruments may be issued by the Government or a Corporate. Government debt is termed Treasury Bills and Bonds. Corporate debt comprises of instruments such as debentures (secured/unsecured, rated/unrated, listed/unlisted), securitized paper, promissory notes and commercial paper. The specifications are important when considering an investment and will also determine the risk, return and liquidity of the investment.

A debenture is a medium to long-term corporate debt instrument, issued by a company (issuer) to borrow money with the aim of fulfilling capital requirements, sourced at a fixed rate of interest or floating, usually pegged to a Government Treasury Bill rate. Debenture investments are considered a fixed income asset as it produces a fixed income to the holder(s) (lender) by paying a specified percentage of coupon payment on designated dates and repaying the principal value of the borrowing at maturity.

Is it different from buying shares of companies?  (How does debt differ from equity?)

Yes it is different.

The process of buying shares of a company refers to buying securities or a stake of a particular company that has listed its equity capital for investors to purchase through the Colombo Stock Exchange (CSE). Earnings for shareholders come from the growth in share prices and dividend payments (share of profits) if and when the company declares a dividend.

However, shareholders are the last to get settled on liquidation if the company goes into default. The share prices of companies that are under performing may also result in the price of shares declining and the investors losing the value of their investment.

In contrast, debt holders of a company cannot claim ownership or have any claims to future profits of the business. The investor will only be lending capital to the company and the borrower’s only obligation is to repay the loan with interest.

Unlike dividends which will generally depend on the earnings made by the company, the issuer is contractually obliged to pay the lender interest payments until their obligations are met.

Listed debt can also be traded in the secondary market similar to shares. In Sri Lanka this process is facilitated by the DEX System of the CSE. The secondary market trading of debentures are a means of transferring of asset from one lender to another. The swift transferring of debentures increases liquidity and gives lenders a way of trading debt instruments in the market.

Is it a popular investment option?

The average Sri Lankan is generally aware of the equity (stock) market than of the debt market. However, in 2015 Sri Lanka saw LKR 83,414,408,000 being raised through debt IPOs and in 2014 the value was LKR 54,234,870,000, compared to LKR 329,564,800and LKR 2,693,834,800 in equity IPOs in 2015 and 2014 respectively.

As mentioned above, listed corporate debt is traded through the CSE and anyone interested in debentures can find upcoming issues on the CSE website.  Further, investment banks will have information regarding listed debentures available for trading and unlisted corporate debt instruments such as securitized paper, promissory notes and commercial paper currently available in the market.

Who does these investment option suit the most?

Currently, there are high-net-worth individuals, corporates, unit trust funds, provident funds trust /endowment funds and a small base of retail investors.

The key is to understand your investment objectives. Although there are risks such as credit and interest rates risks to be aware of, a competent intermediary such as an investment bank will guide you through the process of identifying the best investment for you based on your risk appetite and overall investment portfolio.

What are the risks and benefits for investors investing in corporate debt?

The most significant benefits of investing in corporate debt are the tax holidays (for listed debt) and flexibility of transferring through the secondary market.

Additionally, debt instruments are considered less risky than investments in the stock market as the market is less volatile, and if the company is liquidated it’s debtors come before the shareholders.

It is important to remember that investors in debt instruments are subject to credit risk arising from a borrower failing to make required payments, liquidity risk limiting the transferability of your debt portfolio and interest rate risk, by which the value of instruments rise or decline based on interest rate changes.

The Role of Regulators

The capital market of Sri Lanka is regulated by the Securities and Exchange Commission (SEC) which is the authority that consents to a corporate listing their debt, while the CSE through its corporate affairs arm monitors and ensure that the company complies with all listing requirements.

Debentures must carry a minimum BBB credit rating to list on CSE and comply with the applicable sections of the companies act.

-END-

Note

This article is a part of First Capital Holdings PLC’s Investor Education Series. The Investor Education Series is aimed at improving investment education and financial literacy in Sri Lanka and enabling investors to make informed decisions about investments and the financial market and is not an endorsement of specific products.

About the Writer

Naveen Samarasekera, Manager – Corporate Finance First Capital Limited

Naveen counts more than 12 years of experience in various business areas both overseas and in Sri Lanka. Prior to joining First Capital he was working as a Business Development Consultant engaging in Financial Planning and Advisory Services for Corporates and High Net-worth Individuals.

He holds a Diploma in Business from the Auckland University of Technology, Diploma in Management from NZIM, a Bachelor of Commerce Degree from the University of Auckland, New Zealand and is an Associate Member of the Chartered Institute of Management Accountants UK
(CIMA).