NDB summons EGM to get shareholders approval to raise Rs. 11 bn. zero cost equity

The National Development Bank PLC (NDB) has summoned a virtual extraordinary General Meeting on April 9 to get shareholder approval for a rights issued and a private placement of shares to the Norwegian Development Fund for Developing Countries fully owned by the Government of Norway to raise over Rs. 11.1 billion zero cost equity capital for the bank.

Existing shareholders of NDB will get their rights shares at Rs. 75 per share while the Norwegian fund will pay Rs. 82.50 – both less than half the bank’s net asset value per share of Rs. 192.49.

The rights issue/private placement will see the bank issuing approx. 106.78 million new shares by way of rights and up to approx. 37.67 million shares through the private placement in the proportion of 28 new shares for every 61 already held (rights) at Rs. 75 a share. Unsubscribed shares will be aggregated and allotted to shareholders seeking additional shares at the same 75-rupee price on what the bank’s directors regard to be a “reasonable basis” depending on availability and subject to shareholding restrictions placed by the Banking Act.

Shares remaining unsubscribed will be initially allotted to Norfund up to 9.99% of bank’s equity and thereafter, if available, to others including legal entities seeking unsubscribed shares, NDB said last week in a circular to shareholders. This will be subject to Banking Act restrictions.

It said that the maximum number of shares Norfund can subscribe for will not trigger the SEC’s mandatory offer requirement under its Takeovers and Mergers Code. This requires any person/entity acquiring up to 30% of any listed company to offer other shareholders the highest price paid for the share in the preceding 12-month period.

Norfund which currently hold a stake in Soflogic Life Insurance as its only investment here

is looking for further potential investments in Sri Lanka, NDB said. This fund which has committed investments worth over 2.88 million USD up to the end of 2019 prioritizes investments in clean energy, financial institutions, green infrastructure and scalable enterprises aligned with UN sustainable development goals, has invested in 163 projects in 29 core strategy countries in Asia, Africa and Latin America.

If it succeeds in achieving its objective of investing in a 9.99% stake in NDB, it will be the second largest shareholder in the bank behind the EPF which holds 10%. Other big shareholders include the Bank of Ceylon (8.36%) Sri Lanka Insurance Corporation (SLIC) general fund (6.39%), SLIC life fund (4.37%) and Dr. Sena Yaddehige (4.37%).

Softlogic Insurance, ETF and Perpetual Treasuries, Richard Pieris, HNB and Phoenix ventures are the other biggest private shareholders while individually, Messers. Ashok Pathirage and Merril J. Fernando are also in the Top 20 list of shareholders of NDB.

In the event Norfund is unable to to secure any shares under the rights issue, a maximum of 37.67 million ordinary shares will be allotted to it at the Rs. 82.50 price raising over Rs. 3.1 billion zero cost equity for NDB.

“The private placement will only take place in the event Norfund is unable to get the 9.99% stake under the rights issue,” NDB said.

The funds raised will be used to further strengthen NDB’s equity base and improve its capital adequacy ratios in line with Central Bank guidelines, NDB said

Two years ago an NDB rights issue (at a much higher price than this) was heavily under-subscribed in the context of the bank’s share trading in the secondary market at prices substantially below the rights price. Given the structuring of the present offer, analysts do not expect an under-subscription of this issue.

The NDB share closed on Thursday at Rs. 80, trading between Rs. 79-80 for a small quantity of 28,343 shares transacted in 66 trades. Friday’s close was also Rs. 80 with 30,060 shares transacted between Rs. 79.20 – 80 in 47 trades.

The rights may be traded on the CSE and brokers expect them to command a price.