Ishara Nanayakkara-controlled Browns Investments PLC (BIL) has raced in quick time to become the single largest shareholder at the second-largest private sector bank HNB (Hatton National Bank).
Yesterday BIL picked up bulk of the 8.47 million HNB shares (at Rs. 130 each) generating a turnover of Rs. 1.1 billion. The stock closed at Rs. 128.25, down by Rs. 1.50 whilst it hit an intra-day high of Rs. 130.75.
Daily FT learns BIL now holds 9.9% voting stake in HNB and ranks as the single largest shareholder, though Sri Lanka Insurance Corporation via two funds owns 13.35%, whilst business tycoon Harry Jayawardena via Milford Exports (Ceylon) Ltd., Stassen Exports Ltd. and Distilleries Company controls 17.83%, and Employers Provident Fund owns 9.75%.
Deals on HNB accounted for 36.5% of the day's turnover yesterday. Separately Browns Investments saw 139 million of its shares traded for Rs. 917 million or 30% of the turnover. Collectively the duo accounted for 67% of turnover on a day when the Colombo Bourse remained bearish with indices down 1%.
The acquisition of the 9.9% stake in a month at an estimated cost of Rs. 5 billion also marks the return of Browns Group to HNB, which it founded in the late 1880s and incorporated as a limited liability in 1970.
Yesterday’s seller is believed to be Norges Bank, which as at 31 December 2020 held 19.37 million shares or 4.72%. Foreign holdings in DFCC Bank decreased by 6,134,698 shares yesterday according to NDB Equities. Overall foreign holding at HNB is 75 million voting shares or 18% of the total voting shares. Early this year foreign holding amounted to over 91 million shares or 22%.
Unnoticed by most analysts, BIL has been collecting available HNB shares from April. HNB has seen selling mostly by foreigners. Between the last week of March and end April or last week, HNB has seen net foreign selling of Rs. 1 billion amounting to 8 million shares.
A spokesman for BIL said the acquisition of an HNB stake was an investment on value. “We saw good value and the stake is purely an investment,” he added.
Market saw the re-entry of Browns Group to HNB as strategic though the spokesman dismissed speculation. Browns, and related party LOLC collectively, is also the largest private shareholder at Seylan Bank with over 23% stake (Browns 13.8% and LOLC 9.36%).
The Browns acquisition also comes hot on the heels of the Central Bank in its 2020 Annual Report released on Friday renewing its call for consolidation within the banking sector, to address existing weaknesses and boost resilience, although the sector saw higher growth in assets, deposits and profits in 2020.
In its 2020 Annual Report, the monetary authority said, with respect to enhancing lending capacities of financial institutions in the context of envisaged high economic growth and the low interest rate environment, the possibilities of financial sector consolidation should be actively pursued.
“Such consolidation would enhance the resilience of the domestic financial sector, while also addressing the existing weaknesses in the sector through the creation of a large capital base, enhancing its potential to finance large-scale transactions and attract foreign investment, widening the range of financial services, and thereby improving the efficiency and profitability of the overall financial sector in the economy,” the Central Bank said.
It added that most importantly, stronger balance sheets of financial institutions would enable improved credit flows to needy and productive sectors, while increasing capacity to service the growing financing needs of the economy.
By end 2020, the banking sector comprised 30 banks – 24 Licenced Commercial Banks (LCBs), including 11 branches of foreign banks, and six Licensed Specialised Banks (LSBs).
The banking sector asset base increased by Rs. 2.1 trillion during the year, surpassing Rs. 14.6 trillion by end December 2020, recording a year-on-year growth of 17.1% compared to that of 6.2% reported as at end 2019.
The sector’s profit before corporate tax was Rs. 190 billion in 2020, which was Rs. 17 billion higher than the previous year. Profit after tax of the banking industry rose by 21.7% to Rs. 136 billion during 2020 due to changes in tax policies commencing from year of assessment 2020/21.
Brown and Company owns 46% stake in BIL whilst related parties hold few more stakes. LOLC owns nearly 70% stake in Brown and Ishara holds 80% stake in LOLC.