The Sampath Bank is soldiering on with its rights issue of over 17.2 million ordinary shares priced at Rs.100 per share in the proportion of one for four despite its secondary market price falling sharply below the offer price.

The bank has summoned an extraordinary general meeting on October 29 to seek shareholder approval for this issue for which the approval of the Colombo Stock Exchange has been received in principle.

The original board decision to float the rights issue was taken on April 30 but towards the latter part of May the share price fell below the issue price leading to a board decision to consider revising the price after monitoring the bank’s share price over a period of time.

Following changes in the top management of the bank – Sampath has a new Chairman and a new MD/CEO has been named – the board after ``detailed deliberation’ decided to proceed with the original rights price, shareholders have been told.

On Friday, 81,100 Sampath was traded between a low of Rs.80 and a high of Rs.83.25 losing Rs.2.25 to close at Rs.80.

Sampath had also planned, subject to shareholder and regulatory approval, the issue of nearly 19.6 million ordinary shares by way of private placement to the International Finance Corporation, a World Bank affiliate, and Shorecap International, a well known US bank supporting micro finance.

In a circular dated October 3, the bank’s directors have told shareholders that both these institutions had later informed the bank’s board that they will not participate in the private placement ``within the present time frames.’’

The rights issue has not benn underwritten but the bank’s directors have told shareholders that their TIER I capital is above the stipulated minimum level and if the issue is not fully subscribed, "there will not be an adverse impact operationally."

The Sampath Bank commenced business in early 1987 under the name of Investment and Credit Bank. It later changed its name in September that year to Sampath Bank and attracted a broad based shareholding following a quotation on the Colombo Stock Exchange.

At that time, with over 18,000 shareholders on the register, Sampath had the largest number of shareholders of a quoted company in Sri Lanka.

Sampath was an immediate success revolutionizing the banking industry here with a customer focus and the dramatic reduction of transaction times.

It continues to be the leader in IT in the country’s financial services industry having been the first local bank to be fully computerized and pioneering the introduction of ATMs here.

The bank now has a branch network of 112, 30 personal banking centers with 150 ATMs which are fully on-line real time. Current staff strength is 2,230 during the first half of the current financial year.

From January 01 to June 30, 2008 Sampath posted a gross income of Rs.10.7 billion, net interest income of nearly Rs.3 billion, foreign exchange income of Rs.110 million, other income of nearly Rs.1.2 billion and a net income of over Rs.4.2 billion. Its profit before-tax was over Rs.1.3 billion for this period and the profit after-tax Rs.721 million.

The Sampath directors said that the rights issue is intended to increase the TIER I capital which stood at 6.97% as at June 30 in keeping with the bank’s expansion. The directors said that in their opinion, the issue price "is fair and reasonable" to the bank and its shareholders.

However the Sampath share has traded below the rights issue price in June, July and August, with a trading range of Rs.99 to Rs.95 in June, Rs.101 to Rs.95 in July and Rs.100 to Rs.95 in August.

In this context and the current sharp downturn in the share market, analysts wondered whether the bank can proceed with the rights issue at the Rs.100 price.