Sri Lanka’s MBSL Insurance to get Rs1.2bn capital injection

ECONOMYNEXT – Sri Lanka’s Merchant Bank of Sri Lanka and Finance PLC said it will inject 1.2 billion rupees in to an insurance unit, with 700 million rupees coming from a strategic investor.

MBSL debentures have also been transferred to a Watch List by the Colombo Stock Exchange after the company made a 96 percent provision amounting to 495 million rupees in 2017 on its 516 million-rupee investment in MBSL Insurance, and a further 18.2 million on the goodwill of the insurer.

"The parent company has already taken proactive measures and remedial action to revive MBSL Insurance and is currently in the process of facilitating a capital infusion of 700 million rupees by way of private placement of shares with a strategic investor," MBSL said in a stock exchange filing.

MBSL Insurance has 34 branches and reported a loss of 53.6 million rupees in the year to end December 2017, with accumulated losses reaching over 1 billion rupees.

Life and general insurance operations were halted in 2017 when the Insurance Regulatory Commission of Sri Lanka suspended the licenses due to inadequate capital.

MBSL said it had called for expressions of interest to invest in a ‘significant’ minority stake in the insurance company for which two bids were received and evaluated, the bank said.

It’s awaiting regulatory approvals to proceed with the private placement.

"Simultaneously, MBSL intends to invest a sum of 500 million rupees in MBSL Insurance to meet the balance regulatory capital requirement."

This capital infusion is subject to regulatory approvals and restoration of MBSL Insurance’s license which had been suspended by the Insurance Regulatory Commission of Sri Lanka.

"MBSL has already received approval of the Central Bank (which regulates banking and finance institutions) and the in-principle approval of state Bank of Ceylon (MBSL’s parent) for the capital infusion subject to conditions," MBSL said.





What those conditions are were not disclosed.

The Colombo Stock Exchange had transferred MBSL’s debt securities on to the watch list effective 17 July 2018 on account of the hefty 96 percent provisioning on the MBSL Insurance investment.

If the matter is not resolved within 15 months, trading in the securities will be suspended, and delisted 12 months from then, MBSL said.

According to MBSL’s 2017 annual report, the board of directors had earlier decided to sell the entire stake in MBSL Insurance after it’s licenses were revoked.

"Sri Lanka’s insurance industry presents significant upside potential given the relatively low penetration levels. We have therefore decided to retain a controlling interest in our insurance arm, MBSL Insurance," Sujeewa Lokuhewa told shareholders in MBSL’s 2017 annual report.

Litigation claims against MBSL Insurance had also reached 789 million as at end December 2018, MBSL said. (COLOMBO 20, July 2018)

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