From IPOs to REITs, mergers and acquisitions, and public-private partnerships, NDBIB is positioned to unlock emerging investment opportunities in post-COVID Sri Lanka
2021 is all set to become a year with heightened levels of capital market activity. Whilst the COVID-19 pandemic has taken center stage thus far, the policy responses to overcome its effects have led to a low interest rate environment which augurs well for capital markets. The search for investment opportunities that deliver meaningful returns has resulted in an increase in fund flows to equity as an asset class and alternative capital market products on the fixed income segment. Similarly, on the demand side the prevailing low interest environment coupled with investor friendly fiscal policies could lead to a surge in issuers wanting to tap into the capital markets to raise funds.
The challenges brought about by the pandemic also call for corporates to collaborate within their industries wherever possible to better face the adverse effects of the demand disruption due to the new norms.
Having identified the possible threats well in advance and being adequately prepared before the pandemic hit the country, NDBIB was able to serve its clientele and meet their expectations during and aftermath of the pandemic and lockdowns thus fulfilling its obligations and responsibility towards its valued clients. NDBIB adopted positive measures both physical and tech driven to encourage and motivate its staff under the new normal of “working from home” and roster-based arrangements to safeguard and protect the staff as well as its other stakeholders.
With the positive vibes emanating from multiple vaccines which have been approved by regulators worldwide, NDBIB looks towards 2021 and beyond with optimism and expects a return to normalcy to cheer up investor expectations in relation to growth in macro indicators and corporate earnings.
Equity IPOs Back in Vogue?
The subdued environment for capital raising via equity IPOs in Sri Lanka over the last several years is expected to end with both issuer and investor interest being upbeat for 2021. Encouragingly, the present government has placed significant importance on the sustainability and development of the local capital markets whilst providing attractive tax concessions covering a period of three years to promote listings on the Colombo Stock Exchange (CSE).
Given the supply of excess liquidity in the market which is met by a limited number of equity securities, NDBIB is of the view that high quality issuers which raise equity capital in the market could help create a balance between demand and supply thus ensuring a sustainable growth in the capital markets. Furthermore, NDBIB is committed to continue to build on its reputation for introducing innovative techniques and methodologies used in advanced regional markets to Sri Lanka. NDBIB takes pride in being the pioneering investment bank which introduced both the technique of book building (initially introduced during the IPO of Lanka IOC PLC) and cornerstone tranches (introduced during the IPO of R I L Property PLC) to benefit capital raising and catalyse investor interest.
NDBIB credentials as an IPO manager remains unrivalled having executed the largest IPO both in Sri Lanka and as well as in the Maldives. NDBIB’s dominant market position in executing landmark IPOs stands out having managed five out of the seven large IPOs (> c. Rs3 billion fund raise) carried out by Sri Lankan investment banks in the region.
With fixed income investments yielding rates at mid-single digit levels, investors have been aggressively looking for alternatives with capital markets being a natural beneficiary of this phenomenon through equity and instruments such as the recently introduced Real Estate Investment Trusts (REITs). The CSE has seen a multi-fold increase in daily turnover with the retail segment which has been subdued for many years leading the charge.
Whilst local institutions are expected to follow suit, the re-entry of foreign institutional investors, however, would be dependent on having clarity and visibility on the macro situation, especially in relation to external finances. As Sri Lanka’s premier investment bank, NDBIB continues to build on its strong IPO pipeline to match the needs of both issuers and investors.
Acquisitions as Means for Growth and Consolidation
NDBIB has also been in the forefront and witnessed heightened M&A activity in Sri Lanka. Transactions have mainly been either strategic in nature or aimed at consolidation within certain sectors. The Divestiture of Daintee, Sri Lanka’s leading confectioner, where Sunshine Holding emerged as the successful bidder was a case in point for strategic M&A transactions carried out by NDBIB during the COVID-19 impacted year which could give organizations an immediate foothold in new categories via inorganic means.
The adverse effects of the COVID-19 pandemic have also necessitated organisations to consolidate or partner with peers to strengthen their financial and market positions to better face the challenges both locally and globally.
The consolidation in the Non-Bank Financial Sector is a classic situation which will drive a flurry of M&A activity in the coming year. The sectors’ high degree of dependence on automotive financing at a time when vehicle importation has been banned indefinitely could adversely impact their ability to achieve loan book growth via traditional lending. This coupled with increasing capital requirements could mean that consolidation might be the only option for some of the players as spelled out in the NBFI Sector Road Map released by the Central Bank of Sri Lanka recently.
Similarly, other industries irrespective of regulatory pressure could pursue consolidation to achieve the above mentioned objectives. The low cost of funding could also benefit large corporates with strong balance sheets to pursue opportunistic M&A activity to strengthen their operations and market positioning through synergies and economies of scale.
Public Private Partnerships to Boost Inward Investments
The significant infrastructure investment requirements of Sri Lanka coupled with fiscal constraints and the investor friendly policy framework, augurs well for Public Private Partnerships. NDBIB expects highways, access to water, real estate and manufacturing operations centred around special economic zones to serve as catalysts in attracting FDIs and/or PPP style collaborations. Success in attracting FDIs would be key to the sustenance of the economic fundamentals as well. NDBIB together with the NDB Group’s strength and backing is well positioned to support and get involved in Government’s initiatives in this front.
Innovation to be Key for 2021
NDBIB made use of the challenges brought about by the pandemic to execute the first ever fully digitalized capital raising on the CSE for SDB Bank. NDBIB worked together with the leadership team of SDB Bank to carry out its Rs1.5 billion rights issue via completely digital channels whilst identifying new investors to take up unsubscribed rights ensuring an over subscription of the capital raise. This has now become the normal on the CSE with many companies following suit thereby improving the efficiency and reducing the cost of capital raising. NDBIB looks forward to the year 2021 to bring about many innovative instruments and methodologies to the Sri Lankan capital market to benefit both issuers and investors alike.
As the first and only investment bank in Sri Lanka to have been recognised internationally by the prestigious Euromoney Magazine, NDBIB secured the award for the “Best Investment Bank in Sri Lanka” for the ninth consecutive year and looks forward to a very active capital market in the year 2021.