Silk Bank to convert TFCs into ordinary shares

KARACHI: Silk Bank Limited planned to convert its term finance certificates (TFCs) worth Rs2 billion into ordinary shares in a bid to maintain the bank’s commercial viability, a bourse filing said on Thursday. 

Silk Bank Limited, in a notice to Pakistan Stock Exchange (PSX), said it would invoke loss absorbency of non-equity capital instruments clause of Basel-III for the conversion of TFCs. The conversion proposal would be presented before the extra ordinary general meeting of Silk Bank scheduled on August 11, added the PSX notice.

Silk Bank secured Rs2 billion through TFCs, including green shoe option of Rs500 million, in order to comply with the State Bank of Pakistan’s (SBP) regulation of maintaining minimum capital adequacy ratio.

The Basel-III clause says SBP will decide that a conversion or temporary/permanent write-off of tire-II capital is necessary without which the bank would become non-viable.

Under the terms and conditions related to TFCs issued by Silk Bank, the instruments, at the option of SBP, “will either be fully and permanently converted into common share or immediately written off upon the occurrence of a non-viability trigger event called the point of non-viability.”  The issuance of such additional shares to TFC holders will be based on the market value of the bank’s shares on the date of trigger of point of non-viability as declared by the SBP and will be subject to a cap of 1.238 billion shares resulting in a minimum share price of Rs1.615.

Silk Bank posted a profit of Rs135.828 million for the quarter ended March 31, 2017, translating into earnings per share of Re0.02.

The bank also planned to invest Rs11.536 million in its associated company SPI Insurance Company Limited to subscribe to 1.153 million right shares. 

“The investment is aimed at meeting the capital requirements of the associated company and generating funds by earning return on investment through dividend income in order to enhance overall profit of the bank and capital appreciation in the long term,” it said.