Media Centre

                                                       Ms.Manohari Gunawardhena – Senior Vice President Corporate Banking and Capital Markets

DFCC Bank is set to launch its Senior Rated Redeemable Unsecured Debentures to raise Rs 3 billion for a period of 3 years. The Issue was recently approved by the Colombo Stock Exchange to list the debt securities on the main board which will be open to the public on the 7th of August. In this interview, Manohari Gunawardhena DFCC Bank’s Senior Vice President Group Corporate Banking and Capital Markets talks about DFCC’s success in mobilizing long term funds and the special features of this Issue.

DFCC has had a successful track record of mobilizing long term funds over the years. What is the strategy behind this and what factors have affected the success of this strategy?

DFCC Bank has played a catalytic role in sustainable development financing for nearly 60 years, helping to transform rural economies, bolster livelihoods, generate employment and encourage capital formation across Sri Lanka. In doing so, a critical priority of the Bank is to ensure long term financing to supplement its project lending.

One of the main ways that we have been able to gain access to long terms funding is by fostering strong relationships with institutions both multilateral and bilateral. DFCC Bank is well reputed amongst the international financial community. In fact, The World Bank has stated that DFCC Bank is one of a small number of Development Finance Institutions that was not only viable, but also successful in transforming itself into a multi-product and robust financial institution in a changing international and local environment. This special recognition means that it is the preferred conduit for funding from multilateral and bilateral institutions. The objectives of the lending agencies are also fully realized in their ability to contribute towards key sectors and long term development of the country.

DFCC Bank is also a member of the Association for Development Financial Institutions in the Asia Pacific regions (ADFIAP), and the Bank’s Chief Executive at the time Mr. Nihal Fonseka held the position of Chairman from 2010-2012. Our membership in ADFIAP gives us access to networking opportunities with over 100 Development Finance Institutions in a diversity of nations that include some of the leading economies in the world.

What are the most significant features in this Debenture Issue?

The minimum investment value required is Rs 10,000 which would enable retail investors to participate in the Issue. Investors are presented with three attractive options addressing their cash flow requirements, where their alternative mode of investment may well have been deposits.
The three interest rate options to select from are 8.24 % payable quarterly, 8.33% payable semi annually and 8.50% payable annually. Both quarterly and semiannual interest rates result in an annual effective rate of 8.50%.

How much funds do you hope to raise with this Issue?

We hope to raise Rs 3 billion, issuing 30,000,000 Senior, Unsecured, Redeemable Debentures with a face value of Rs 100 each. The Issue also comes with an option to retain over-subscription up to Rs 2 billion, aggregating to a total of Rs 5 billion.

What goals do you hope to achieve with this Debenture Issue?

There are two factors that have propelled this Issue. Firstly, DFCC always looks to strengthen its funding base through tenor, source of funding and instruments to diversify its funding mix. Managing the long term funding mix is a dynamic process which involves simulation of cash flows, liquidity mismatches and interest rate forecasts, which collectively helps to mitigate DFCC’s interest rate risk by reducing maturity mismatches. In addition it will supplement the diversification of the borrowing base and further strengthen the SME loan portfolio through the ability to offer fixed rates of interest.

Secondly, the three options with attractive interest rates present an innovative investment opportunity which will contribute towards growing the long-term investor base in the country.

The Bank last issued public Debentures in 2006, and the current Issue is an invitation to the investing public to contribute directly towards the economic development of the country, as the funds raised from this Issue will be utilized for the medium to long term lending activities of the Bank.

This fund raising initiative is being carried out at the lowest coupon rate in the market. How are you able to achieve this?

The Bank’s success can be attributed to its ability to read interest rate trends in the market when it comes to long-term lending. Naturally, there is a tenor premium attached to interest rate with an increased tenor. The current declining interest rate scenario has assisted us in selecting the timing for the Issue.

How will an investor benefit from investing in this Debenture Issue?

There are basically two types of investors who would be investing in the Issue; the individual investor and the institutional investor. The individual investor will obtain the coupon rate of interest absolutely free of both income and withholding tax, whilst the institutional investor will enjoy the same benefit based on the category that they belong to. Some may receive the tax benefit only on the interest margin. The listed corporate debt market currently has Rs 138.4 billion in debt outstanding. The debt issued is significant enough for market players to trade actively in the secondary market which will provide trading and exit opportunities to investors.

We also hope to use debt capital markets innovatively using additional features in the future which will enhance the scope of investments to the investor at the same time building our funding base.

What purposes will these funds be utilized for?

Contributing towards the sustainable development of the country is the strategic focus and core determinant of the business model at DFCC Bank. Thus, the funds would be used to supplement and strengthen the funding base utilized for the project lending activities of the Bank. The importance of SME’s in the Bank’s portfolio will remain a priority; a faction which we believe infuses a considerable force into the country’s economic development.

Further, the Government has expressed the importance of developing the 5+1 hubs in its drive to shift Sri Lanka into being a middle income economy. As the pioneering development bank in the country, we feel we have an inherent responsibility to support this endeavor and are well poised to play an active role, having based our strategic plans aligning to the 5+1 hub initiative.

Tell us about DFCC’s Investment Banking facilities,

Our Investment Banking activities are carried out through Acuity Partners (Pvt) Ltd, a full service Investment Banking firm which is a Joint Venture between DFCC Bank and HNB PLC. It is the only integrated Investment Bank in Sri Lanka that offers a comprehensive suite of products and services including corporate finance, fixed income securities, IPO’s, debt structuring, equity trading and venture capital financing. Possessing a successful track record, they were awarded Best Corporate Finance Firm Sri Lanka, Best Stock broking Firm Sri Lanka and Best New Asset Management Company Sri Lanka in 2014.

DFCC is a part of a well diversified group, having shifted from a narrowly focused specialized bank to a fully fledged financial services group contributing diverse functions of financial expertise, information technology and consultancy services. Drawing from the vast experience and knowledge across the Group, DFCC is well equipped and will continue to play a pivotal role in the country’s development agenda.