Strong appetite for listed corporate debt

Offers being snapped up on opening day

There has been a strong appetite for listed corporate debentures with a clutch of offers that have recently been made being over-subscribed and snapped up on the opening day, financial analysts noted.

Central Bank Governor Ajith Nivard Cabraal confirmed that the Employees Provident Fund (EPF) had been taking substantial stakes in these issues locking in long-term funds at attractive interest rates in the context of falling rates.

The insurance industry too has been interested in these debentures and has been among the big subscribers and fund managers also have been interested in placements in the context of long-term positioning.

However these debentures are not being actively traded on the Colombo Stock Exchange. Most analysts believe that this is largely because many of the subscribers are long term investors looking for a steady income from the interest flow rather than short-term trading profits.

``The listed debentures carry the advantage of tax free interest which is particularly attractive to companies,’’ one analyst explained. ``Tax paying individuals in the higher income brackets are liable to only an 8% withholding tax on fixed deposit interest. But companies have to pay 28%.’’

Analysts said that listed debenture offers that closed last week had all been over-subscribed and closed on the opening day itself comfortably raising over the Rs. 17.5 billion on offer.

Several previous offers too had been similarly grabbed.

The NDB’s Rs. 10 billion offer has been the biggest yet from a single offeror with tenures with tenures of five, 10 and 12 years giving investors a range of choices in step with the bank’s own internal demand for funds.

Asked whether these debenture offers had hurt the deposit mobilizing ability of finance companies, the NDB’s Vajira Kulatillake noted at a news briefing on Thursday that several finance companies have successfully floated their own debentures.

NDB CEO Rajendra Theagarajah remained tight lipped at the news conference on speculation of whether the NDB and the DFCC, the country’s pioneer development banks that has subsequently entered the commercial banking field, have begun exploratory talks on a possible merger.

In a post-budget discussion with Treasury Secretary P.B. Jayasundera organized by Ernst and Young, the well known Chartered Accountants and attended by many of the country’s business leaders, Theagarajah welcomed the budget speech reference to consolidation in the banking sector.

He told Thursday’s news conference that any further disclosure on this matter must await the presentation of the Central Bank’s 2014 financial road map to be presented in early January.

Meanwhile analysts said that the Central Bank is moving towards encouraging mergers of finance companies now crowding the country’s financial services industry with as many as 58 licenced finance companies in business.

``The Central Bank seems to be looking at about 20 finance companies in the medium term,’’ one knowledgeable source said. ``For instance business leader Dhammika Perera controls LB Finance and Vallibel Finance and merging these companies will not be difficult. Malaysia brought down the number of finance companies in that country from 40 to eight.’’

Governor Cabraal had a meeting with directors of the licenced finance companies on Friday. Bank sources said that there were as many as 438 directors in these companies.

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