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| Commercial Bank of Ceylon II |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 27163 |
| Company name | Commercial Bank of Ceylon |
| Country | Sri Lanka |
| Sector | Finance & Insurance |
| Environmental category | FI |
| Department | Global Financial Markets Group |
| Status | Pend PDS-IR |
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| Date SPI disclosed | July 2, 2008 |
| Projected board date | August 8, 2008 |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
The proposed project is to support Commercial Bank of Ceylon PLC (CBCL), an IFC investee company and the leading private sector bank in Sri Lanka, in the implementation of its strategic business plan and growth strategy focused on:
- expansion of the SME, retail banking and long-term finance business and
- regional expansion in Bangladesh and possibly Cambodia in the near term. |
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| Project sponsor and major shareholders of project company |
Established in 1969, CBCL is the largest, best performing private sector bank. The Bank is also trying to increase its presence in the region by expanding it existing operations in Bangladesh and to enter other regional markets.
CBCL has no identifiable sponsor and the shareholding is diversely held among local corporates, some institutional investors and a significant number of retail investors. CBCL is listed on the Colombo stock exchange and its shareholders include DFCC Bank (DFCC), 28.8%; IFC (14.5%); Sri Lanka Insurance Corporation (SLIC) 9.6%; Galleon Diversified Fund Ltd (5.23) and the Almeshaal (AIG) of Saudi Arabia, 3.1%. |
| Total project cost and amount and nature of IFC's investment |
| IFC’s total investment is up to $60 million, in the form of an A Loan for IFC’s own account. |
| Location of project and description of site |
| The Bank is headquartered in Colombo, Sri Lanka and provides services across Sri Lanka through a network of over 160 branches. |
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| Anticipated development impact of the project |
Institutional funding to support under-served segment, such as SMEs and retail financing: Within the Sri Lankan context, one of IFC’s main objectives in the country is to play a counter-cyclical role in supporting long term viable financial institutions with a mix of investment and advisory support. Additionally, there is a strong need to improve risk management and governance systems in the country to ensure that sustainability of the financial sector does not deteriorate in case of an economic downturn, going forward. This financing, together with the ongoing advisory services, allows CBCL to expand its reach to under-served sectors, such as SME’s and retail and long-term project finance. The proposed investment fits in well with this strategy and allows IFC to continuing playing an institution building role in the financial sector.
Regional expansion:
IFC has, in the past, helped CBCL expand in the region i.e. in Bangladesh. The new strategy, developed with assistance from IFC, looks at other countries such as Cambodia. The proposed project will thus help CBCL continue its expansion in Bangladesh and enter newer markets such as Cambodia in the near term, and possibly India and Middle East in the medium to long term. |
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| IFC's expected development contribution |
Due to the long-drawn civil war in the country, foreign inflow has been very small. Few multinationals are currently present or even exploring a presence in the country. There are many investment opportunities that IFC can select. Through this and several other investments that IFC has made or about to make, IFC helps select leading private sector financial institutions to access badly needed, countercyclical funding that would otherwise not be available to them. Additionally, the previously available concessional funding that Sri Lankan corporates had access to has been declining over the years and is now usually available only for limited purposes.
The project helps deepen the market by providing CBCL long-tenor, foreign currency resources. In the current macro economic context, globally and for Sri Lanka in particular, Sri Lankan companies have found it difficult to access foreign resources. While, the Central Bank of Sri Lanka (CBSL) is encouraging top rated corporates in Sri Lanka to access foreign resources in international markets to enable the country meet their (and the country’s) forex financing requirements, export oriented SMEs (such as in the textiles industry) would need to access such funding from banks. Furthermore, IFC is providing tenor that is not readily available. Presently, only 1-2 year money is being raised internationally, if at all. Hence, IFC’s transaction could help catalyze more foreign resources to Sri Lankan corporates and also help set a benchmark for long-tenor borrowing. Hence, if the operating environment of the Bank improves significantly before 5 years and there is keen interest in the Sri Lankan economy from external investors, IFC may consider a sell-down participation accordingly.
- Strengthen the Bank’s financial position to purse its strategy:
IFC’s investment will inject a significant amount of new long term resources into the Bank, to support its fast growth in the overseas business and in expanding its coverage of the SME and retail sector. This becomes especially critical in the current circumstances in the country whereby there are few institutional investors focusing on the country and long-term capital is increasingly hard to obtain due to uncertainties in the macro environment. Furthermore, IFC would play a role in CBCL’s overseas expansion by introducing the Bank to known partners and supporting the banks plans in this direction. |
| Environmental and social issues - Category FI |
This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.
During appraisal, IFC will analyze the Bank’s portfolio for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of:
- The IFC FI Exclusion List and/or
- The applicable National Social and Environmental Laws and regulations and/or
- The IFC Performance Standards
CBC is an existing IFC client (partner # 513802). As this project will follow IFC’s revised Environmental and Social Review Procedure, IFC will review the capacity of the Bank to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS) and suggest Supplemental Actions to address any gaps in their Sand E performance.
Based on the review, the Bank will be required to:
- Develop an or upgrade if necessary any existing SEMS, prior to disbursement to the satisfaction of IFC
- Identify responsible, qualified persons to manage and implement the SEMS
- Commit to implement the SEMS, to ensure that its investments/activities are in compliance with the Applicable Performance Requirements
- Continue to submit a periodic report to IFC as per a format to be provided by IFC. |
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| For inquiries about the project, contact: |
Nandika Buddhipala
Chief Financial Officer
“Commercial House”, 21, Bristol Street,
P.O.Box 856, Colombo 1, Sri Lanka
+94-011-2328064 (Tel)
+94-011-2449888 (Fax) /
E-Mail: nandika_buddhipala@combank.net
http://www.combank.ne |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
| Local access of project documentation |
Nandika Buddhipala
Chief Financial Officer
“Commercial House”, 21, Bristol Street,
P.O.Box 856, Colombo 1, Sri Lanka
+94-011-2328064 (Tel)
+94-011-2449888 (Fax) /
E-Mail: nandika_buddhipala@combank.net
http://www.combank.net |
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