Union Bank to sell off its finance arm
Union Bank has plans to dispose of its finance arm, UB Finance, officials said.
“The primary objective of acquiring this was to dispose of the entity after restructuring efforts are carried out,” a senior official told the Business Times, adding that the bank is expected to gradually dispose its stake in the medium term, thereby recording capital gains over the same period.
This has come on the back of the government’s budget proposal stipulating that any finance company which is a subsidiary of another holding company, and finance companies which are subsidiaries of banks, should be absorbed into the main company/bank operations.
The official added that there has been some inquiries pertaining to their finance company, but nothing has been concrete as yet. With the budget proposal this process will be expedited, he added.
Approximately some 80 per cent of UB Finance’s deposits had been converted to equity following a direction by the Central Bank and Union Bank wasn’t required to infuse further capital following Sampath Bank acquiring 7.5 per cent in it in 2002.
Union Bank acquired 81.27 per cent of financially distressed UB Finance for Rs 600 million while the rest of the shares were acquired by Shorecap Union Bank II Ltd – an international equity fund. The finance company had been acquired as a medium-to-long-term investment. Incorporated in 1961, it had previously belonged to the Ceylinco Group; approximately 40 per cent of UB Finance’s assets comprise real estate investments. Prior to the acquisition, the then managing agent had converted about 80 per cent of its customer deposits (or about Rs 1.4 billion) into shares as part of UB Finance’s restructuring.
Sri Lanka currently has 21 banks and 58 finance companies. There are 20 big finance companies (in terms of asset size) holding 90 per cent of this business.