The Union Bank of Colombo is taking a controlling interest in The Finance & Guarantee Ltd (F&G) by acquiring a majority stake in the company, the Colombo Stock Exchange was informed on Tuesday.
The bank said it was investing Rs 600 million in the former Ceylinco Group finance company and has been given approval by the Monetary Board of the Central Bank.
F&G is being managed by the Merchant Bank of Sri Lanka. The company has around 3000 depositors with a total deposit base of around Rs. 3.3 billion.
In a statement to the media, Union Bank Chairman Aijta de Zoysa stated that the bank together with ShoreCap II Ltd (SCII) USA, will invest in excess of Rs 1.1 billion to recapitalize F&G. He further stated that the acquisition is part of Union Bank’s diversification and expansion plan to increase focus and growth in the SME sector and it earmarks yet another stepping stone to further penetrate the Small enterprises segment.
Anil Amarasuriya Director/CEO of UBC said that the new look company with the backing of Union Bank will be able to restore public confidence in the troubled firm. Several depositors told the Business Times that F&G is delaying paying the due interest of depositors while failing to refund the capital of many depositors on maturity claiming a cash flow problem.
It has caused unbearable economic hardships for a large number of depositors including senior citizens and retired officials who solely depend on interest income, they said.
In response, Chief Executive Officer of the F&G Dulip Ranasinghe noted, “the company has paid the due interest payments up to December and since then it has been unable to make any payments as it has no business. A sum of Rs.1.5 billion has been paid as interest payments for depositors during the last two and half years only from loan recoveries.”
The F&G is also planning to convert 60% of its deposit liability to ordinary shares of the company while Rs. 1.4 billion worth deposits has already been converted to ordinary shares, he said. The company is also planning to raise Rs. 300 million from a strategic investor and a further Rs.100 million loan facility from the Central Bank (CB) under its Stimulus Package for failed finance companies.