ECONOMYNEXT – Sri Lanka’s Sinhaputhra Finance Plc, said it was in talks with an investors for new capital after the central bank, which regulates non-bank lenders, warned that it may cancel its finance company license.
“..[A] comprehensive capital plan backed by an investor who has demonstrated financial credibility of meeting the regulatory capital requirement was submitted to the monetary board of the central bank and the company is awaiting their response,” the firm said in a stock exchange filing.
The central bank in a letter to the Securities and Exchange Commission, published on the stock exchange website said it had given notice of cancellation of the finance company license to Sinhaputhra.
The company has then filed objections as provided by law, saying they were in talks with an investor.
“As per the provisions in the law, the Monetary Board will have to consider the objections tendered by the Company and determine whether to withdraw the notice or cancel the license,” the central bank said.
According to CSE data the stock has last traded at 8.20 rupees. (Colombo/Sept02/2019)
Central Bank says… “Capital augmentation plan submitted by Sinhaputhra Finance PLC is being reviewed and forwarded for consideration of the Monetary Board”
Sinhaputhra Finance PLC (SFPLC) received a communique from the Central Bank of Sri Lanka (CBSL): in the form of a warning that it could even lead to the cancellation of the company’s license on the grounds of non-compliance with CBSL requirements. However, it further stated that the company has the option to file objections. And accordingly the company has forwarded its objections clearly which the Monetary Board has already acknowledged.
Further in response to the objections filed, the Central Bank by letter dated 02nd September 2019 has informed SFPLC that the objections tendered and the capital augmentation plan submitted to the Monetary Board are being reviewed and will be submitted for the consideration of the Monetary Board at an earliest date.
It was observed that the meeting with the investor was successful and therefore the capital augmentation plan could commence without further delay. Sinhaputhra Board of Directors accepts the requirement laid down by the CBSL with regard to infusion of fresh capital.
Sinhaputhra is a 40 year old finance company and, over the entirety of its existence has been concerned with maintaining the trust and loyalty of its valued fixed deposit holders.
SFPLC maintains an unblemished track record for over 40 years in protecting and honoring its depositors. It has always been a profitable company despite the present economic conditions and the increasingly stringent IFRS accounting standards. This has been possible due to the company’s investments being solidly backed by assets. SFPLC’s experience over 40 years of existence has shown that repayments are better and prompt when borrowers pledge valuable personal assets as security. It is because of this strategy that SFPLC towers over peers in its interest liability to cash collection ratio net of early settlements at 4 to 5 times. Therefore SFLPLC’s liquidity buffers are way above regulatory requirements.
Further, it boasts of over 1.2 Bn in valuable building and properties, approx. 540 Mn., in liquid cash reserves and access to over 1.2 Bn in securitizable assets. Further, company’s gross loan portfolio comprises of a much larger cash/gold or asset backed portfolio which is nearly 87%. Therefore liability of a 4.9 Bn deposit base is quite manageable for a well-established player like SFPLC in the market.
It is clear that CBSL is focused on a new investor in order to fulfill the regulatory capital requirement and hence a merger or a capital infusion strategy is encouraged. Given that the current investment group fits that “frame”, and is also acceptable to SFPLC’s management,
a smooth transition resulting in fresh capital infusion can allow SFPLC to grow six-fold or more.
The new investor is optimistic it will be the beginning of a new chapter for the only listed
finance company which is for all practical purposes head-quartered outside Colombo.