“Most don’t want to sell, but are eyeing opportunities to merge with strategic partners. In order to do that they need to be attractive to the bigger counterparts with whom they want to merge with. They cannot strengthen their assets ‘in a hurry’, but they can increase their capital base with private equity investors and funding lines,” a senior finance company CEO told the Business Times.
Industry sources said that while three firms have already sourced such funding, some small firms are also in discussion with international agencies for similar partnerships. Commercial Credit and Finance PLC, with an asset base of Rs. 24.3 billion as at December 31, 2013 is one of the recent examples which followed this route. They announced last week that frontier markets private equity investor, Creation Investments Capital Management LLC through its wholly owned subsidiary, Creation Investments Sri Lanka LLC has agreed to invest Rs. 1.68 billion (US$12.8 million equivalent) into Commercial Credit and Finance PLC (CCF). The transaction will involve the issuance of 80 million new shares for a consideration of Rs. 1.68 billion or approximately 25.15 per cent of CCF. The transaction will be completed subject to shareholder approval.
Senkadagala Finance last Tuesday also said that the International Finance Corporation has agreed to invest some US$ 7 million (as a loan facility) to support the growth of micro and small businesses across the country.
Nation Lanka Finance Plc, which is getting Rs. 700 million rupee equity investment from Global Emerging Markets (GEM) intends to boost its capital in a few months. GEM also will have the chance to buy unlisted warrants at Rs. 9.90 over the next two to four years, which could bring in another Rs. 674 million rupees, according to company officials.
In line with the recent budget proposal where small finance companies are to be merged reducing the number of finance companies to 20 from a current 58 and strengthening at least five Sri Lankan banks to double their assets to Rs. 1 trillion from a current Rs. 500 billion, most large finance firms will be discussing with their smaller counterparts to acquire them. The proposals are due by next month end.
This week some firms which have less than Rs. 8 billion in assets will be meeting the Central Bank team with their suggestions and for further discussions on this, a finance company CEO said.