2013 Debenture Issue...This Prospectus is dated 29th November 2013. Citizens Development Business Finance PLC (Hereinafter sometimes referred to as òCDB ó or òthe Company ó) and

2013

Debenture Issue

Citizens Development Business Finance PLC

Prospectus


PROSPECTUS

Issue of Five Million (5,000,000) Subordinated Listed Rated Unsecured Redeemable Debentures at LKR 100.00 each with an option to issue up to a further Five Million (5,000,000) Debentures in the event of an oversubscription of the initial Five Million (5,000,000) Debentures

Issue Opens on 12th

December 2013

Managers to the Issue

Corporate Finance Division Citizens Development Business Finance PLC

No. 18, Sri Sangaraja Mawatha, Colombo 10.

To be listed on the Main Board of the Colombo Stock Exchange

Citizens Development Business Finance PLC | PROSPECTUS - DEBENTURE ISSUE 2013 2

Prospectus

This Prospectus is dated 29th November 2013.

Citizens Development Business Finance PLC (Hereinafter sometimes referred to as “CDB” or “the Company”) and its Directors having made all reasonable inquiries, confirm that to the best of their knowledge and belief the information contained herein is true and correct in all material respects and that there are no other material facts, the omission of which would make any statement herein misleading. While CDB has taken reasonable care to ensure full and fair disclosure, CDB does not assume responsibility for any investment decision made by the investors based on the information contained herein. In making an investment decision, prospective investors must rely on their own examination and assessments on CDB and the terms of the Debentures issued, including the risks involved.

No dealer, sales person or any other person has been authorized to give any information or to make any representation in connection with the Debentures other than the information and representations contained in this Prospectus and if given or made such information or representations must not be relied upon as having been authorized by CDB.

This Prospectus has not been registered with any authority outside Sri Lanka.

The delivery of this Prospectus shall not under any circumstance constitute a representation or create any implication or suggestion that there has been no material change in the affairs of the Company since the date of this Prospectus. If you are in any doubt regarding the contents of this document or if you require any clarification or advice you may consult your Stockbroker, Bank Manager, Lawyer or any other Professional Advisor in this regard.

THE COLOMBO STOCK EXCHANGE (CSE) HAS TAKEN REASONABLE CARE TO ENSURE FULL AND FAIR DISCLOSURE OF INFORMATION IN THIS PROSPECTUS. HOWEVER, THE CSE ASSUMES NO RESPONSIBILITY FOR ACCURACY OF THE STATEMENT MADE, OPINIONS EXPRESSED OR REPORTS INCLUDED IN THIS PROSPECTUS. MOREOVER, THE CSE DOES NOT REGULATE THE PRICING OF THE DEBENTURE, WHICH IS DECIDED SOLELY BY THE ISSUER.


Registration of the Prospectus

A copy of this Prospectus has been delivered to the Registrar of Companies of Sri Lanka for registration in accordance with the provisions contained in the Companies Act No. 07 of 2007.

The following documents were attached to the copy of the Prospectus delivered to the Registrar of Companies:

The written consent of the Lawyers to the Issue, Registrars to the Issue, Managers to the Issue and the Bankers to the Issue for the inclusion of their names in the Prospectus.

The written consent of the Company’s Auditors/Reporting Accountants for the inclusion of their name in the Prospectus.

The written consent of the Rating Agency to the Issue and the Trustee to the Issue for the inclusion of their names in the Prospectus.

A declaration made by each of the Directors of the Company confirming that each of them have read the provisions of the Companies Act and the CSE Listing Rules relating to the issue of the Prospectus and that those provisions have been complied with.

The said Lawyers to the Issue, Registrars to the Issue, Managers to the Issue, the Bankers to the Issue, Auditors/ Reporting Accountants to the Issue, The Rating Agency to the Issue and the Trustee to the Issue have not, before the delivery of a copy of the Prospectus for registration with the Registrar General of Companies in Sri Lanka withdrawn such consent.

All Applicants should indicate in the Application for Debentures, their Central Depository Systems (Private) Limited (CDS) number. As per the Directive of the Securities and Exchange Commission made under Circular No.08/2010 dated 22nd November 2010 and Circular No.13/2010 issued by the Central Depository System (Private) Limited (CDS) dated 30th November 2010, all securities allotted must be directly uploaded to the CDS accounts. As such, all Applicants should indicate their CDS account number in the Application Form. Applicants who do not have a CDS account are advised to open a valid CDS account prior to submitting the Application, in order to facilitate the uploading of allotted Debentures to their CDS account. Please note that upon the allotment of Debentures under this Issue, the allotted Debentures would be credited to the Applicant’s CDS account so indicated. Please note that DEBENTURE CERTIFICATES SHALL NOT BE ISSUED. Any Application which does not carry a valid CDS account number or indicates a number of a CDS account which is not opened at the time of the closure of the subscription list or which indicates an inaccurate/incorrect CDS account number, will be rejected and no allotment will be made. You can open a CDS account through any member/trading member of the CSE as set out in Annexure V or through any Custodian Bank as set out in Annexure VI of this Prospectus.


Table of Contents Page

1.0 Company Profile 7

2.0 Parties to the Issue 8

3.0 Salient Features at a Glance 9

4.0 Terminology 11

4.1 List of Abbreviations 11

4.2 Glossary of Terms Related to the Issue 12

5.0 Information Concerning the Issue 14

5.1 Invitation to Subscribe 14

5.2 Subscription List 15

5.3 Objectives of the Issue 15

5.4 Interest Rates 15

5.5 Payment of the Principal Sum and Interest 15

5.6 Taxes with Regard to Interest Payment 16

5.7 Redemption 16

5.8 Automated Trading System (ATS) 16

5.9 Trustee to the issue 16

5.10 Rights of the Debenture Holders 16

5.11 Risk Factors Specifically Associated With the Debentures 17

5.12 Benefits of Investing in the Debentures 18

5.13 Transfer of Debentures 18

5.14 Listing 19

5.15 Credit Rating of the Issue 19

5.16 Cost of the Issue 19

5.17 Underwriting 19

5.18 Inspection of Documents 19

5.19 Brokerage 19

6.0 Application Procedure 20

6.1 Prospectus and Application Forms 20

6.2 Who May Apply 20

6.3 How to Apply 21

6.4 Mode of Payment 24

6.5 Rejection of Applications 25

6.6 Allotment of Debentures 26

6.7 Refunds 26


6.8 Direct Lodgment and Trading of Debentures 26

7.0 Industry Outlook 28

8.0 The Company – Citizens Development Business Finance PLC 30

8.1 Vision and Purpose of CDB 30

8.2 Company Overview 30

8.3 Group Structure 34

8.4 Organizational Structure 34

8.5 Our Journey 35

8.6 Financial Highlights 37

8.7 Shareholding Structure 38

8.8 Share Capital Movement 39

8.9 Details of Borrowings 39

8.10 Human Resources 41

8.11 Future Strategy and Associated Risks 41

8.12 Dividend Policy 43

8.13 Taxation 43

8.14 Litigation, Disputes and Contingent Liabilities 43

8.15 Details of Penalties Imposed By Regulatory and State Authorities 44

8.16 Transactions Related To Property 44

8.17 Material Contracts 44

8.18 Details of Management Agreements 44

8.19 Details of Commission Paid 44

8.20 Dependence on Key Customers and Suppliers 44

8.21 Details of Benefits Paid to Promoters 44

8.22 Corporate Governance 44

9. 0 Board of Directors 47

9.1 Details of the Board of Directors 47

9.2 Profiles of the Board of Directors 48

9.3 Directors’ Statement 50

9.4 Directorships on Other Boards 50

9.5 Director’s Shareholding in the Company 51

9.6 Directors’ Remuneration 51

9.7 Directors’ Interests in Assets 51

9.8 Directors’ Involvement in Contracts or Arrangements 51

10.0 Senior Management 52

10.1 Managing Director/ Chief Executive Officer 52


10.2 Profiles of the Senior Management Team 52

10.3 Remuneration of Senior Management 53

11.0 Statutory Declaration 54

11.1 Declaration by the Directors 54

11.2 Declaration by the Managers to the issue 55

11.3 Declaration by the Company 55

Annexure I - Accountants Report and Five Year Summary Financial Statements 56

Annexure II - Audited Financial Statements for the Year Ended 31 March 2013 64

Annexure III - Interim Financial Statements 126

Annexure IV - Credit Rating Report 139

Annexure V - Collection Points 151

Annexure VI - Custodian Banks 157


1.0 Company Profile

Company/ Issuer


Company Secretary

S S P Corporate Services (Private) Ltd

101, Inner Flower Road

Colombo 03

Company Auditors

KPMG

Chartered Accountants

32A, Sir Mohamed Macan Markar Mawatha,

Colombo 03

Registered Address

No. 18, Sri Sangaraja Mawatha

Colombo 10

Tel : 0117388388, Fax : 0112429888

Email : [email protected]

Web : www.cdb.lk

Incorporation & Legal Form

A Public Quoted Company incorporated in Sri Lanka under the

Companies Act No 17 of 1982 and re-registered under the

Companies Act No 7 of 2007.

The Company is registered under the Finance Business Act No 42

of 2011, the Finance Leasing Act No 56 of 2000 and listed on the

“Main” Board of Colombo Stock Exchange.

Lawyers of the Company

Nithya Partners

No 97A, Galle Road, Colombo 03.

Bankers of the Company

Bank of Ceylon

Commercial Bank of Ceylon PLC

Deutsche Bank AG

Hatton National Bank PLC

Nation’s Trust Bank PLC

People’s Bank

Sampath Bank PLC

Seylan Bank PLC

Date of Incorporation

7th September 1995, Colombo – Sri Lanka

Company Registration Number

PB-232 PQ

Company Rating

RAM Rating BBB/P2

Board of Directors

Mr. D. H. J. Gunawardena - Chairman

Mr. W. P. C. M. Nanayakkara – Managing Director / CEO

Mr. S. R. Abeynayake

Mr. P. A. J. Jayawardena

Mr. D. A. De Silva

Dr. A. Dharmasiri

Mr. R. Mohamed

Mr. R. H. Abeygoonewardena

Mr. T. M. D. P. Tennakoon

Mr. S.V. Munasinghe

Mr. W. W. K. M. Weerasuriya

http://www.cdb.lk/


2.0 Parties to the Issue

Managers to the Issue Corporate Finance Division Citizens Development Business Finance PLC No. 18, Sri Sangaraja Mawatha, Colombo 10 Tel: +94 11 2429933 (Direct) +94 11 7388388 (General) Fax: +94 11 2429888 Lawyers to the Issue Nithya Partners

No. 97A, Galle Road Colombo 03 Tel: +94 11 4712625

Fax: +94 11 2328817 Registrars to the Issue SSP Corporate Services (Private) Limited

101, Inner Flower Road Colombo 03 Tel: +94 11 2573894 Fax: +94 11 2573609 Trustee to the Issue Deutsche Bank AG

Colombo Branch, 86, Galle Road, Colombo 3 Tel: +94 11 2447062 Fax: +94 11 2447067

Bankers to the Issue Seylan Bank PLC Colombo Fort Branch No. 69, Janadhipathi Mw Colombo 01

Tel: +94 11 2445840 Fax: +94 11 2445843 Credit Rating Agency RAM Ratings (Lanka) Limited No. 11, Melbourne Avenue Colombo 04 Tel: +94 11 2553089 Fax: +94 11 2553090


3.0 Salient Features at a Glance

Instrument Subordinated Listed Rated Unsecured Redeemable Debentures. These Debentures will be listed on the Main Board of the Colombo Stock Exchange.

Type of Debenture/ Interest Rates Type Interest

Rate (per annum)

Annual Effective Rate (per annum)

Interest Payment

Frequency

Tenor

A 16.00% 16.00% Annually

5 years

B 15.50% 16.10% Semi- annually

5 years

C 15.00% 15.87% Quarterly

5 years

Type A – Subordinated Listed Rated Unsecured Redeemable Five Year Debentures, of LKR 100.00 each bearing nominal interest at a fixed rate of Sixteen per cent (16.00%) per annum on the principal sum payable annually (AER 16.00%) at the expiry of every one year period from the date of allotment of the Debentures

Type B – Subordinated Listed Rated Unsecured Redeemable Five Year Debentures, of LKR 100.00 each bearing nominal interest at a fixed rate of Fifteen Point Five per cent (15.50%) per annum on the Principal sum payable semi-annually (AER 16.10%) at the expiry of every six month period from the date of allotment of the Debentures

Type C – Subordinated Listed Rated Unsecured Redeemable Five Year Debentures, of LKR 100.00 each bearing nominal interest at a fixed rate of Fifteen per cent (15.00%) per annum on the principal sum payable quarterly (AER 15.87%) at the expiry of every three months period from the date of allotment of the Debentures

Instrument Rating RAM Long Term Rating of BBB-

Issue Price LKR 100.00 per Debenture of Any Type

Face value LKR 100.00 per Debenture of Any Type

Number of Debentures to be issued Five million (5,000,000) Debentures with an option to issue up to a further Five million (5,000,000) Debentures in the event of an oversubscription of the initial issue

Amount to be raised LKR 500,000,000.00 with an option to raise up to a further sum of LKR 500,000,000.00 in the event of an over subscription of the initial issue


Minimum Subscription Minimum of Hundred (100) Debentures of LKR 100.00 each (LKR 10,000.00) and thereafter in multiples of Hundred (100) debentures of LKR 100.00 each (multiples of LKR 10,000.00)

Payment of Interest The payment of interest will be made within Three (03) Market Days from the due date

Mode of payment Interest and Principal will be paid to Debenture holders by cheques Marked “Account Payee Only” or through electronic fund transfer mechanism recognized by the banking system of Sri Lanka such as SLIPS or RTGS

Date of Redemption On completion of 5 years from the date of allotment of the Debentures

Issue Opening Date 12th December 2013

Issue Closing Date 3rd January 2014

Basis of Allotment In the event of an over subscription the basis of allotment will be decided by the Board of Directors of CDB within 7 market days from the date of closure of the issue


4.0 Terminology

4.1 List of Abbreviations

AER Annual Effective Rate

ATS Automated Trading System of the Colombo Stock Exchange

Bn Billion

CBSL Central Bank of Sri Lanka

CDB Citizens Development Business Finance PLC

CDS Central Depository Systems (Pvt) Ltd

CSE Colombo Stock Exchange

LFC Licensed Finance Company

LKR Sri Lankan Rupees

Mn Million

NIC National Identity Card

NBFI Non Banking Financial Institutions

POA Power of Attorney

RTGS Real Time Gross Settlements

SEC Securities & Exchange Commission of Sri Lanka

SLIPS Sri Lanka Interbank Payment System

USD US Dollar

VAT Value Added Tax

WHT Withholding Tax


4.2 Glossary of Terms Related to the Issue

Annualized Fifteen months accounts were converted to 12 months time period using (12/15) factor for the purpose of comparison

Date of Allotment The date on which the debentures will be allotted to the Debenture Holders as per the terms of this Prospectus

Date of Redemption On completion of 5 years from the Date of Allotment of the debenture

Debentures All types of Subordinated Listed Rated Unsecured Redeemable Debentures to be issued pursuant to this prospectus at an issue price of LKR 100.00 each.

Interest Payment Date

Type A – One year from the Date of Allotment and anniversary thereof until the Date of Redemption

Type B – Six months from the Date of Allotment and six monthly intervals thereafter until the Date of Redemption

Type C – Three months from the Date of Allotment and three monthly intervals thereafter until the Date of Redemption

The final interest payments shall be made with the repayment of the Principal Sum on the Date of Redemption of the Debentures

Interest would be paid within 3 market days from each Interest Payment Date

Interest Payment Period

Type A - Twelve month period commencing from an Interest Payment Date and ending on the date immediately preceding the next Interest Payment Date and shall include the period commencing from the Date of Allotment and ending on the date immediately preceding the first Interest Payment Date and the period commencing from the last of such Interest Payment Dates and ending the date preceding the Date of Redemption.

Type B - Six month period commencing from an Interest Payment Date and ending on the date immediately preceding the next Interest Payment Date and shall include the period commencing from the Date of Allotment and ending on the date immediately preceding the first Interest Payment Date and the period commencing from the last of such Interest Payment Dates and ending the date preceding the Date of Redemption.

Type C - Three month period commencing from an Interest Payment Date and ending on the date immediately preceding the next Interest Payment Date and shall include the period commencing from the Date of Allotment and ending on the date immediately preceding the first Interest Payment Date and the period commencing from the last of such Interest Payment Dates and ending the date preceding the Date of Redemption.

Market day Any day on which trading takes place at the CSE

Prospectus This Prospectus dated 29th November 2013 Issued by CDB


Record date Date on which a Debenture Holder would need to be recorded as being a Debenture Holder on the list of Debenture Holders provided by the CDS to the Company in order to qualify for the payment of any interest or any redemption proceeds

Redemption Repayment of the principal monies on these Debentures

Register The register of the Debenture Holders to be kept by the Company

Subordinated Claims of the Debenture holders shall in the event of winding of the Company, rank after all the claims of secured and other unsecured creditors of the Company and any preferential claims under any Statutes governing the Company but in priority to and over the claims and rights of the Shareholder/s of the Company

The Company/CDB Citizens Development Business Finance PLC

Trustee Deutsche Bank AG, Colombo branch

Trust deed Trust deed executed between Citizens Development Business Finance PLC & Deutsche Bank AG Colombo Branch with regard to this Debenture issue

Unsecured Repayment of the principal and interest on these debentures not being secured by any specific asset of CDB

Working day Any day (other than a Saturday or a Sunday or any statutory holiday) on which the Banks are open for business in Sri Lanka


5.0 Information Concerning the Issue

5.1 Invitation to Subscribe

The Board of Directors of the Citizens Development Business Finance PLC (hereinafter referred to either as “CDB” or “the Company”) by a resolution passed on 20th November 2013 resolved to borrow a sum of LKR Five Hundred Million (LKR 500,000,000.00) with the option to raise a further sum of LKR Five Hundred Million (LKR 500,000,000.00), increasing the borrowing up to LKR One Billion (LKR 1,000,000,000.00) in the event of an over subscription, by the issue of Subordinated Listed Rated Unsecured Redeemable Debentures.

CDB hereby invites applications from the public for the subscription of Five Million (5,000,000) Subordinated Listed Rated Unsecured Redeemable Debentures at an issue price of LKR 100.00 each payable in full as outlined in this Prospectus, with an option to issue up to a further Five Million (5,000,000) Debentures in the event of an oversubscription.

There are Three (3) types of Debentures as described below, which shall rank equal and pari passu with each other, without any preference or priority one over the other except for the interest coupon offered and the frequency at which the interest is paid. The rights of the Debenture holders for payment of Principal and Accrued Interest due would be subordinate to the rights of the secured and other non secured creditors of the Company but in priority to and over the claims and rights of the shareholders of the Company.

Debenture Types/Categories

The minimum subscription would be One Hundred (100) Debentures amounting to Rupees Ten Thousand (LKR 10,000.00) and thereafter in multiples of Hundred (100) Debentures of LKR 100.00 each (multiples of LKR 10,000.00) for any Debenture type.

These Debentures will be listed on the Main Board of the Automated Trading System of the CSE.

•Subordinated Listed Rated Unsecured Redeemable Five Year Debentures, of LKR 100.00 each bearing nominal interest at a fixed rate of Sixteen percent (16.00%) per annum on the Principal sum payable Annually (AER 16.00%) at the expiry of every one year period from the date of allotment of the Debentures

Type A

•Subordinated Listed Rated Unsecured Redeemable Five Year Debentures, of LKR 100.00 each bearing nominal interest at a fixed rate of Fifteen Point Five percent (15.50%) per annum on the Principal sum payable Semi-annually (AER 16.10%) at the expiry of every six month period from the date of allotment of the Debentures

Type B

•Subordinated Listed Rated Unsecured Redeemable Five Year Debentures, of LKR 100.00 each bearing nominal interest at a fixed rate of Fifteen percent (15.00%) per annum on the Principal sum payable Quarterly (AER 15.87%) at the expiry of every three month period from the date of allotment of the Debentures

Type C


5.2 Subscription List

Subject to the provisions contained below, the subscription list for the Subordinated Listed Rated Unsecured Redeemable Debenture issue will open at 9.30 a.m. on 12th December 2013 and shall remain open for 14 market days until closure at 4.30 p.m. on 3rd January 2014. In the event of an over-subscription of initial Five Million (5,000,000) Debentures, the subscription list will close at 4.30 p.m. on the same day on which it is fully subscribed, with the notification to the CSE, unless otherwise decided by the Company to keep the subscription list open until subscription of a further 5,000,000 Debentures or part there of as may be decided by the Company. In such event the subscription list will close at 4.30 p.m. on the day on which a further Five Million (5,000,000) Debentures or part thereof as may be decided by the Company have been subscribed, with the notification to the CSE or on 3rd January 2014 whichever is earlier.

Applications may be made forthwith. Accordingly duly completed applications in the manner set out under the Procedure for Application in Section 6 of this Prospectus will be accepted.

5.3 Objectives of the Issue

Following are the objectives of the issue

To finance the Company’s anticipated future business growth, in lending portfolio of leases, hire purchase and other loans. Total funds raised by the issue will be used for the growth of the Company’s lending portfolio.

To reduce the asset and liability mismatch of the Company. This issue will also help to strengthen the Tier 2 capital base of the Company in order to maintain a healthy capital adequacy ratio.

5.4 Interest Rates

Interest payable in respect of Debentures of Types A, B and C shall be as follows: Type A Interest Rate of Sixteen per cent (16.00%) per annum on the principal sum payable

Annually (AER 16.00%) at the expiry of every one year period from the date of allotment of the Debentures

Type B Interest Rate Fifteen Point Five per cent (15.50%) per annum on the Principal sum payable Semi-annually (AER 16.10%) at the expiry of every six month period from the date of allotment of the Debentures

Type C Interest Rate of Fifteen per cent (15.00%) per annum on the principal sum payable Quarterly (AER 15.87%) at the expiry of every three month period from the date of allotment of the Debentures

The interest calculation shall be based upon the actual number of days in each Interest Period (Actual/ Actual).

5.5 Payment of the Principal Sum and Interest

Payment of principal and interest will be made in Sri Lankan Rupees after deducting any taxes and charges thereon (if any) to the debenture holders registered as at the Record Date (in case of joint debenture holders, the payment will be made to the one whose name stands first in the Register of Debenture Holders) either by cheque/s marked “Account Payee Only” dispatched to the address provided by the Debenture Holders to the CDS at the risk of the Debenture Holders or through electronic fund transfer mechanism recognized by the banking system of Sri Lanka such as SLIPS


and RTGS to a bank account provided to the CDS by the Applicant. Interest payable will be made within three (3) market days from the end of each period.

5.6 Taxes with Regard to Interest Payment

As per current tax legislation in Sri Lanka, Interest income on Debentures listed after 01st January 2013 is exempted from Income Tax (including Withholding Tax). However, any statutory taxes and dues that might be brought in subsequently will be deducted.

5.7 Redemption

The Company shall redeem the Debentures on the expiry of 5 years from the date of allotment. These Debentures will not be redeemed by CDB prior to maturity for any reason whatsoever, except due to unforeseen circumstances beyond the control of the Company. Repayment before maturity of the Principal Sum on a Debenture in any circumstance shall be subject to the prior approval of the holders of 3/4th of the face value of the Debentures outstanding at that time and the approval of the Central Bank of Sri Lanka.

If the date of maturity/ redemption falls on a non-working day on which the banks are closed for business in Sri Lanka, then the Debentures shall be redeemed on the immediately preceding working day of the date of maturity / redemption.

5.8 Automated Trading System (ATS)

In order to accommodate the Debenture interest cycles in the Automated Trading System (ATS) the Debenture Holders to whom interest shall be paid shall be those holding Debentures in the ATS as of the Record Date (entitlement date). If the entitlement date is a holiday interest shall be calculated including the entitlement date.

5.9 Trustee to the Issue

Deutsche Bank AG, Colombo Branch has been appointed as the Trustee to this Debenture Issue. The Company has entered in to an agreement with the Trustee hereinafter called the Trust Deed. Debenture holders in their application for subscription will be required to, irrevocably authorize the Trustee, subject to any overriding clauses in the Trust Deed to act as their agent in entering into such deeds, writings and instruments with the Company and to act as the Trustee for the benefit of and Interest of the Debenture holders on the terms and conditions contained in the said Trust Deed.

The rights and obligations of the Trustee are set out in the Trust Deed, which is available in the websites of the Company and the CSE. Further the Trust deed will be available for physical inspection at the company head office.

The fee payable to the Trustees will be LKR 25,000.00 per month plus statutory levies. There is no conflict of interest with the company, except that the Trustee is one of the banks rendering banking services to the company.

5.10 Rights of the Debenture Holders

Debenture Holders are entitled to:

Receive the Principal Sum on the date of maturity / redemption and interest on the Debentures as per Sections 5.5 and 5.7 of this Prospectus

Calling and attending meetings of Debenture Holders as set out in the Trust Deed Rank above the shareholders of the Company in the event of liquidation


Receive the Audited Financial Statements of the Company in accordance with the listing rules of CSE. The Audited accounts will be sent in CD form, unless a specific request for a hard copy is received by the Company

Debenture Holders are not entitled to:

Receive notice, attend and vote at the meetings of shareholders and other type of debenture holders of the Company

Receive any dividend or distributions or share the profits of the Company Participate in any surplus assets of the Company in the event of liquidation

Obligations on the Debentures:

The company shall repay the Principal sum on the Date of Maturity/ Redemption and interest on the Debentures as per sections 5.5 and 5.7 of this Prospectus and the provisions contained in the Trust Deed and comply with all other terms and conditions stipulated in the Trust Deed with respect to these debentures

When making payment of the Principal and interest on debentures, the company shall always act on the information furnished by the CDS and each Debenture Holder must ensure that the information in respect of the securities account maintained with the CDS is up to date and accurate. Each Debenture Holder shall absolve the Company, CDS and CSE from any responsibility or liability in respect of any error or absence of necessary changes initiated by the Debenture Holders in the information recorded with the CDS

5.11 Risk Factors Specifically Associated With the Debentures

Subscribers to the Debentures will be exposed to the following risks. However, it is important to note that these risks are not unique to CDB Debentures and apply generally to any fixed income security, fixed deposit or any other term or money deposit.

a) Interest Rate Risk

Assuming all other factors are equal, the price of a Debenture will change inversely with a change in the market interest rates. If market interest rates rise, price of the Debenture may fall and as market interest rates fall, the price of the Debenture may rise. However, if an investor sells a Debenture prior to maturity when the market interest rate is higher than CDB Debenture interest rates, the investor may incur a capital loss. Similarly, if an investor sells a Debenture prior to maturity when market interest rate is lower than the CDB Debenture interest rate, investor may receive a capital gain. This uncertainty is known as interest rate risk.

b) Reinvestment Risk

A Debenture pays a periodic interest to the investor and CDB shall pay interest on the Debentures of Type A, Type B and Type C annually, semi-annually and quarterly respectively. The investor may decide to reinvest this interest payment and earn interest on interest. Depending on the prevailing market interest rates, the Debenture holder may be able to reinvest the paid interest at a higher or lower interest rate than that is offered by the CDB Debenture. This uncertainty is known as reinvestment risk.

c) Credit Risk

Also known as Default risk, credit risk refers to the risk that the issuer of a debenture may default i.e. the issuer will not be able to pay the interest and/or the principal when due. It is advisable for potential investors to take in to account the past performance, earnings and asset growth of CDB, present financial strengths as reflected in the balance sheet of the company, its risk management policies, credit rating of CDB and the highly experienced directors and senior management team


when forming an opinion on default risk. RAM Ratings Lanka has assigned a credit rating of BBB- to these Debentures, which will be periodically reviewed.

d) Liquidity Risk

Liquidity Risk refers to the ease with which the Debenture can be sold in the secondary market, after the initial placement. As these Debentures are listed on the CSE, investors will be able to sell them in the secondary market at any given point of time and convert them to cash to exit from the investment.

5.12 Benefits of Investing In the Debentures

Provides an opportunity to earn a fixed interest income for a period of five (5) years Provides an opportunity to realize capital gain according to interest rate fluctuations in the

financial markets As these Debentures are listed on the CSE, investors have the opportunity to exit from the

investment at any time Can be used as collateral to obtain credit facilities from banks and other financial

institutions As per the current tax legislation of Sri Lanka, interest income earned on Debentures listed

on a stock exchange after 1st January 2013 is exempt from Withholding Tax (WHT) and income tax

5.13 Transfer of the Debentures

a) The Debentures shall be freely transferable and the registration of such transfer shall not be subject to any restriction, save and except to the extent required for compliance with statutory requirements. There are no restrictions on non-residents acquiring debentures through the secondary market.

b) The Debentures shall be transferable and transmittable through the CDS as long as the Debentures are listed in the CSE. Subject to the provisions contained herein, the Company may register without assuming any liability any transfer of Debentures, which are in accordance with the statutory requirements and rules and regulations in force for the time being as laid down by the CSE, SEC and the CDS.

c) In the case of the death of a Debenture holder, a. the survivor where the deceased was a joint holder; and b. the executors or administrators of the deceased or where the administration of the

estate of the deceased is in law not compulsory, the heirs of the deceased where such Debenture holder was the sole or only surviving holder; shall be the only persons recognized by the Company as having any title to his/her Debentures.

d) Any person becoming entitled to any Debenture in consequence of bankruptcy or winding

up of any Debenture holder, upon producing proper evidence that he/she sustains the character in respect of which he/she proposes to act or his/her title as the Board of Directors of CDB thinks sufficient, may at the discretion of the Board be substituted and accordingly registered as a Debenture holder in respect of such Debentures subject to the applicable laws, rules and regulations of the Company, CDS, CSE and SEC.

e) No change of ownership in contravention of these provisions will be recognized by the Company.


5.14 Listing

An Application has been made to the CSE for permission to deal in and obtain a quotation on the Main Board and has been approved in principle for these Subordinated Listed Rated Unsecured Redeemable Debentures set out in this Prospectus.

However, the CSE assumes no responsibility for the accuracy of the statements made or opinions expressed or reports included in this prospectus. Admission to the Official List is not to be taken as an indication of the merits of CDB or of these debentures.

5.15 Credit Rating of the Issue

A long term rating of BBB- has been assigned to these debentures by the RAM Ratings (Lanka) Limited (RAM). A copy of the Rating report issued by RAM is set out in Annexure IV of this Prospectus.

5.16 Cost of the Issue

The Directors of the Company estimate the total cost of the issue including the Listing Fees, Trustee Fees, Brokerage, Postage, Printing, Marketing and other costs will be approximately LKR 18 Mn. These costs will be borne by the Company from the internally generated funds.

5.17 Underwriting

This Debenture issue is not underwritten and is not conditional to any minimum subscription being met. In the event of an under subscription, the Company is confident that any short fall in the funds required to meet the objectives of the Issue can be financed through internally generated funds and other credit facilities.

5.18 Inspection of Documents

The Articles of Association of the Company, the Trust Deed, Rating Report by RAM, the Audited Financial Statements of the Company for the last five (5) financial years preceding the Issue and all other documents pertaining to the company to which references are made in this Prospectus can be inspected by the public during normal working hours at the Registered Office of the Company from the date hereof until the Date of Redemption of the Debentures.

In terms of Rule 3.2.16(b) of the CSE Listing Rules; the Prospectus, the Trust Deed and the Articles of Association of the Company will be available in the CSE website (www.cse.lk) and the Company website (www.cdb.lk) from the date of opening of the Debenture issue until the Date of Redemption of the Debentures.

5.19 Brokerage

Brokerage at a rate of 25 cents per Debenture will be paid in respect of the number of Debentures allotted on applications bearing the stamp of any member or trading member firm of the CSE or any agent appointed by the Company.


6.0 Application Procedure

6.1 Prospectus and Application Forms

Copies of the Prospectus and the Application Forms may be obtained free of charge from the following places/Institutions:

a) Registered Office/Head Office of the CDB

b) All Branches of the CDB listed in Annexure V

c) Registrars to the Issue – SSP Corporate Services (Pvt) Ltd

d) Member firms and Trading Members of the Colombo Stock Exchange listed in Annexure V

Prospectus and Application forms could also be downloaded from www.cse.lk and www.cdb.lk

6.2 Who May Apply?

Applications are invited from the following categories of applicants:

a) Citizens of Sri Lanka who are resident in Sri Lanka and above 18 years of age.

b) Corporate bodies and societies registered / incorporated / established in Sri Lanka and authorized to invest in Debentures.

c) Approved provident funds, trust funds and contributory pension schemes registered/incorporated/ established in Sri Lanka and authorized to invest in Debentures. In the case of approved Provident Funds, Trust Funds and approved contributory Pension Schemes, the applications should be in the name of the Trustee/Board of Management in order to facilitate the opening of the CDS accounts.

Applications will not be accepted from individuals under the age of 18 years, foreign institutional investors, corporate bodies incorporated outside Sri Lanka, foreign citizens, Sri Lankan Residents outside Sri Lanka or in the name of sole proprietorships, partnerships or unincorporated trusts.

http://www.cse.lk/http://www.cdb.lk/


6.3 How to Apply

a) Applications should be made on the Application Forms issued with this Prospectus. (Exact size photocopies of the Application Forms too would be accepted)

b) Care must be taken to follow the instructions given in the Application Form. Applicants using photocopies are requested to inspect the Prospectus, which is available for inspection and also issued free of charge at the collection points listed in Annexure V. Application forms could also be downloaded from CSE website www.cse.lk and the Company website www.cdb.lk Applications that do not strictly conform to such instructions and the other instructions set out below or which are illegible may be rejected.

c) Applications should be made for a minimum of One Hundred (100) Debentures (LKR 10,000.00). Applications exceeding One Hundred (100) Debentures should be in multiples of Hundred (100) Debentures (multiples of LKR 10,000.00). Applications for less than One Hundred (100) Debentures or for a number, which is not in multiples of Hundred (100) Debentures, will be rejected.

d) Only one type of Debentures should be applied per Application form. Investors may apply for different types of Debentures on separate application forms using exact size photocopies. If several applications are received under one type of Debenture from single customer that would be considered as multiple applications. The Company reserves the right to decide on and reject multiple applications at their discretion.

e) Investors may apply for different types of Debentures on separate application forms using exact size photocopies. Once an application form has been submitted for a particular Type of Debentures, it will not be possible for an Applicant to switch between the types of Debentures.

f) Joint Applications may be made. An Applicant of a joint Application will not be eligible to send a separate application individually or jointly in respect of the same category. Only one Application for one type should be made for the benefit of any person or corporate body. Refunds (if any), interest payments and the redemption will be remitted in favour of the principal applicant as given in the Application form.

g) The Company shall not be bound to register more than three (3) natural persons as joint holders of any Debentures (except in the case of executors, administrators or heirs of a deceased member).

h) Applications by Companies, Corporate bodies, Societies, approved Provident Funds, Trust Funds and approved Contributory Pension Schemes registered/incorporated/established in Sri Lanka should be made under their common seal or in any other manner as provided by their Articles of Association or such other constitutional documents of such applicant or as per the statutes governing them. In the case of approved Provident Funds, Trust Funds and approved Contributory Pension Schemes, the applications should be in the name of the Trustee/Board of Management.

i) All Individual applicants should state their National Identity Card (NIC) Number in the Debenture Application Form. Passport Number will be accepted only when the NIC Number is not available. Companies/ Corporate entities should state the Company Registration Number in the application form.

http://www.cse.lk/http://www.cdb.lk/


j) As per the Directive of the SEC made under Circular No. 08/2010 dated 22nd November 2010 and Circular No.13/2010 issued by the CDS dated 30th November 2010, all Debentures shall be directly uploaded to the CDS accounts. Hence all Applicants should indicate their CDS account number in their Application Form. Applicants who do not have a CDS Account are advised to open a CDS account prior to making the Application in order to facilitate the uploading of allotted Debentures to the CDS. Please note that upon the allotment of Debentures under this issue the allotted Debentures would be credited to the applicant’s CDS account so indicated. Please note that Debenture certificates shall not be issued. Applications which do not carry the CDS account number, which is not opened at the time of the closure of the subscription list or which indicate an incorrect / inaccurate CDS account number shall be rejected, and no allotment will be made. New CDS accounts can be opened through any Member / Trading Member of the CSE as set out in Annexure V or through any Custodian Bank set out in Annexure VI of this Prospectus.

k) In the event the name, address or NIC number/passport number/Company number of the Applicant mentioned in the Application Form differ from the name, address or NIC number/passport number/Company number as per the CDS records, the name, address or NIC number/passport number/Company number as per the CDS records will prevail and be considered as the name, address or NIC number/passport number/Company number of such Applicant. Therefore, Applicants are advised to ensure that the name, address or NIC number/passport number/Company number mentioned in the Application Form tally with the name, address or NIC number/passport number/Company number given in the CDS account as mentioned in the Application Form.

l) Application Forms stating third party CDS accounts, instead of Applicants’ own CDS account numbers, except in the case of margin trading, will be rejected.

m) Applicants who wish to apply through their Margin Trading Account should submit the application in the name of the “Margin Provider / Applicant’s Name” signed by the margin provider, requesting a direct upload of the Debentures to the Margin Trading Account in the CDS. Margin provider should indicate the relevant CDS account number relating to the Margin Trading Account in the space provided in the Application form.

A copy of the Margin Trading Agreement should be attached with the Application Form.

n) Margin Providers can apply under their own name and such applications will not be considered as multiple applications.

o) In the case of the applications made under Powers of Attorney (POA) a copy of such POA, certified by a Notary Public should be attached with the Application Form. Original POA should not be attached.

p) Application Forms properly filled in accordance with the instructions thereof, together with

the remittance for the full amount payable on application should be enclosed in an envelope marked “CDB DEBENTURE ISSUE 2013” on the top left hand corner in capital letters


dispatched by post or courier or delivered by hand to the Registrars to the Issue at the following address;

q) Alternatively, Application forms could also be handed over to the head office/ any branch of CDB, any member firm or trading member of the CSE set out in Annexure V (Collection Points).

SSP Corporate Services (Pvt) Ltd No. 101 Inner Flower Road Colombo 03

Applications sent by post or delivered to any places mentioned in Annexure V (Collection Points) should reach the office of the Registrars to the Issue at least by 4.30 p.m. on the first working day immediately upon the closure of the subscription list. Applications received after the said period will be rejected even though they have been delivered to any of the Collection Points prior to the Closing Date or carry a postmark dated prior to the Closing Date.


6.4 Mode of Payment a) Payment should be made separately in respect of each Application by cheque/s or bank

draft/s or bank guarantee drawn upon any licensed commercial bank operating in Sri Lanka or RTGS transfer through any licensed commercial bank operating in Sri Lanka, as the case may be, subject to the following conditions. However, Cash will not be accepted.

1. Payment for Applications for Debentures of a value of below LKR 100,000,000.00

The application should be supported by a cheque or bank draft. In such instances, the Application Form should be accompanied by only one cheque or bank draft and should be issued for the full amount indicated in the Application Form. An Application for Debentures of a value of below LKR 100,000,000.00 accompanied by multiple cheques/bank drafts/bank guarantees or RTGS transfers will be rejected at the outset.

2. Payment for Applications for Debentures of a value of LKR 100,000,000.00 or above

Applicants will be permitted to submit;

I. Multiple bank drafts/cheques drawn upon any licensed commercial bank operating in Sri Lanka, each of which should be for a value less than LKR 100,000,000.00

II. Bank guarantee issued by a licensed commercial bank III. RTGS transfer with value on the date of the issue Opening Date

b) Cheques or Bank Drafts should be made payable to “CDB Debenture Issue 2013” and

crossed “Account Payee Only” and must be honoured on the first presentation.

c) In case of bank guarantees, such bank guarantees should be issued by a licensed commercial bank in Sri Lanka in favour of “CDB Debenture Issue 2013” in a manner acceptable to CDB, and be valid up to minimum of one month from the Issue Closing Date.

Applicants are advised to ensure that sufficient funds are available in order to honour the bank guarantees, inclusive of charges when called upon to do so by the Registrars to the Issue. It is advisable that the Applicants discuss with their respective bankers the matters with regard to the issuance of bank guarantees and all charges involved. All expenses with regard to such bank guarantees should be borne by the Applicants.

d) In case of RTGS transfers (only for Application values above and inclusive of Sri Lanka

Rupees One Hundred Million (LKR 100,000,000.00)), such transfer should be made to the credit of “CDB Debenture Issue 2013” bearing account number 0300-33464350-001 at Seylan Bank PLC with value on the Issue Opening Date (i.e. the funds to be made to the above account on the Issue Opening Date).

The Applicant should obtain a confirmation from the Applicant’s bank, to the effect that arrangements have been made to transfer payment in full for the total value of Debentures applied for, to the credit of “CDB Debenture Issue 2013” bearing account number 0300-33464350-001 at Seylan Bank PLC with value on the Issue Opening Date (i.e. the funds to be made to the above account on the Issue Opening Date) and should be attached with the Application Form.

For such RTGS transfers, interest will be paid from the date of such transfer up to the Date of Allotment, at the rate of 8% per annum (on actual/actual basis). If any transfers are


effected prior to the Issue Opening Date, no interest will be paid prior to the Issue Opening Date. No interest will be paid if the RTGS transfers are not realised before the Issue Closing Date.

e) The amount payable should be calculated by multiplying the number of debentures applied

for by the issue price of LKR 100.00 per debenture. If there is any discrepancy in the amount payable and the amount specified in the cheque/bank draft or bank guarantee or the RTGS Transfer the application will be rejected.

f) All cheques/bank drafts received in respect of the Applications for Debentures will be

banked commencing from the Working Day immediately following the Issue Closing Date. g) In the event that cheques are not realised prior to the date of deciding the basis of

allotment, the monies will be refunded and no allotment of Debentures will be made. Cheques must be honoured on first presentation for the Application to be valid.

6.5 Rejection of Applications

a) Application Forms and the accompanying cheques/bank drafts or bank guarantees or RTGS transfers, which are illegible or incomplete in any way and/or not in accordance with the terms, conditions and instructions, set out in this Prospectus will be rejected at the sole discretion of CDB.

b) Applications from persons under the age of 18 years, foreign institutional investors, corporate bodies incorporated outside Sri Lanka, foreign citizens, Sri Lankan Residents outside Sri Lanka or in the names of sole proprietorships, partnerships of unincorporated trusts will also be rejected.

c) An Applicant of a Joint Application will not be eligible to submit a separate Application either individually or jointly under the same type of Debentures. Only one Application should be made by any person or entity in respect of the same type of Debentures. Multiple Applications for the same type of Debentures will be rejected.

d) Applications which do not carry the CDS account number, at the time of the closure of the subscription list or which indicate an incorrect / inaccurate CDS account number shall be rejected, and no allotment will be made. Application Forms stating third party CDS account numbers, instead of their own CDS account numbers, except in the case of Margin Trading Accounts, will also be rejected.

e) Any Application form, which does not state the NIC, Passport or Company Registration Number and CDS account number as the case may be, will be rejected.

f) In the event that Cheques are not realized prior to the date of deciding the basis of allotment and realized after such date the monies will be refunded and no allotment of Debentures will be made. Cheques must be honoured on first presentation for the Application to be valid. In the event cheques are dishonoured/returned on first presentation the Application will be rejected.

g) Applications delivered by hand to the Head Office / any branch of CDB, or to any Collection Points listed in Annexure V after the subscription list is closed will be rejected.


h) Applications received by post after 4.30 p.m. on the first Working Day immediately following the date of closure of the Issue, will also be rejected even if they carry a post mark dated prior to the closing date of the issue. Applications delivered to any places mentioned in Annexure V should also reach the office of the Managers/Registrars to the Issue at least by 4.30 p.m. on the first working day immediately upon the closure of the Issue. Applications received after the said deadline will be rejected even though they have been delivered to any of the said places prior to the closing date.

6.6 Allotment of Debentures

In the event of an oversubscription, the basis of allotment will be decided by the Board of Directors of the Company before the expiry of seven (07) market days from the closure of the Issue and will be announced to CSE. No preferential allotment will be made by CDB with regard to any specific individual or entity. The allotment will be made in a fair manner.

A written confirmation informing the successful applicants will be dispatched about their allotment within ten (10) market days from the date of closure of the issue (excluding the date of closure of the issue) as required by the CSE.

The Company reserves the right to refuse any Application or to accept any Application in part only, without assigning any reason thereof.

6.7 Refunds

When an Application is not accepted, subsequent to the cheque being realised the applicant’s money in full or where an application is accepted only in part, the balance of the applicant’s money will be refunded.

If the applicant has provided accurate and complete details of his bank account in the Application, the Company shall make such refund payments to the bank account specified by the applicant, through Sri Lanka Interbank payment system (SLIPS) and payment advice will be sent. In the event of refunds over Rupees Five Million (LKR 5,000,000.00) or If the applicant has not provided accurate and correct details of his bank account in the Application, the Company shall make such refund payment to the applicant by way of a cheque and sent by post at the risk of the applicants. In the case of joint applications, the cheques will be drawn in favour of the applicant’s name appearing first on the application form.

Applicants can follow the below mentioned web link in order to get accurate details on bank and branch codes;

http://www.lankaclear.com/products_and_services/sl_interbank_payment_system_guideline.php

Refund cheques on Debentures, which have not been allotted, will be posted before the expiry of Ten (10) market days from the Issue Closing Date (excluding the Issue Closing Date). Applicants would be entitled to receive interest at the rate of last quoted Average Weighted Prime Lending Rate (AWPLR) plus 5% for the delayed period on any refunds not made within this period.

6.8 Direct Lodgment and Trading of Debentures

a) If the Applicant’s CDS Account number is correctly stated in the Application Form the Debentures allotted will be directly uploaded to the CDS account stated in the Application Form before the expiry of eighteen (18) market days, from the Issue Closing Date. A written confirmation in this regard will be sent to the Applicant within two (02) market days of crediting the CDS account, by ordinary post to the registered address of such Applicant.


b) In terms of the CSE Listing rules, The Company shall submit to the CSE a ‘Declaration’ as set

out in the listing rules on the market day immediately following the day on which the investors’ CDS Accounts are credited with the Debentures. Trading of the Debentures on the secondary market will commence on or before the third (03rd) market day upon receipt of the declaration by the CSE.


7.0 Industry Outlook

NBFI Sector Performance in 2012

(Based on information contained in the Annual Report 2012 of the Central Bank of Sri Lanka)

The Non-Bank Financial Institutions sector (NBFIs) consisting of Licensed Finance Companies (LFCs) & Specialized Leasing Companies (SLCs) recorded a growth of 22 per cent in 2012 with the total asset base growing to LKR 597 billion. Expansion in the asset base was mainly fueled by the growth in the accommodation portfolio which grew by 21 per cent to LKR 472 billion by the end 2012.

Finance leases, hire purchase & other secured advances were the major sources accounting for 46 per cent, 26 per cent & 16 per cent respectively of the total accommodations in the NBFI sector.

Expansion

During 2012, 4 new companies obtained LFC license under the Finance Business Act No. 42 of 2011 (FBA) while another 4 SLCs were elevated to LFC status making the total number of LFCs to 47 and SLCs to 13 by the end of the year. The branch network too was expanded in the NBFI sector with 206 new branches being added during the year, bringing the total number of branches to 972.

When considering the liability side, deposits were the major source of funding for LFCs which grew by 37 per cent to LKR 254 billion by the end 2012, reflecting the increased public confidence in the LFC sector. Further deposits with LFCs has accounted for 43 per cent of the total liabilities of NBFIs. Borrowings were the major source of funding for SLCs, which accounted for 30 per cent of the total liabilities of NBFIs.

Capital funds of the NBFI sector were strengthened during the year due to the sustained profitability and infusion of new capital while LFCs and SLCs were required to increase their minimum core capital requirement from 01.01.2013. Capital funds amounting to LKR 5 billion were infused in the NBFI sector through rights issues. Due to the enhancement of capital funds, the

Product-wise Accommodations of the

NBFIs Sector

Composition of Assets & Liabilities of the NBFIs

Sector

Source: Central Bank of Sri Lanka, Annual Report 2012 Financial Sector Performance & System Stability - Chart 8.9

Source: Central Bank of Sri Lanka, Annual Report 2012 Financial Sector Performance &System Stability – Table 8.8


capital adequacy ratios of the NBFI sector remained above the required minimum levels where it was increased to 16 per cent as at end 2012.

Despite the pressure on margins and the deceleration in demand for vehicle leases due to the higher excise duty rates imposed on imported vehicles, the NBFI sector was able to maintain healthy profit levels. The sector has posted a Profit After Tax (PAT) of LKR 15 billion during 2012 though it has declined from last year’s level of LKR 19 billion.

During 2012, the total amount of Non Performing Accommodations (NPA) has increased by 19 per cent to LKR 24 billion where the distressed companies being the main contributors to NPAs. The total provision coverage for NPAs increased slightly to 55.6 per cent as at end 2012 as against 55.4 per cent as at end 2011. However NPA ratio has improved slightly but remains challenged by the increased rates.

Regardless of the increase in market interest rates and the slowdown in credit growth, the NBFI sector continued to generate sustained earnings during 2012. Net Interest Margin increased slightly to 6.8 per cent for 2012 while the net interest margin increased by 22 per cent to LKR 40 billion during the year.

Following an increase in the earnings of LFCs, the overall liquidity levels were in excess of the statutory minimum requirement. As per the new direction on liquidity, all SLCs were required to maintain the liquid assets from 01.09.2012 which too were in excess of the stipulated minimum requirements.

However, several prudential requirements remain to be achieved in respect of the restructured companies in order to improve the soundness of the overall sector. During the year, investigations were carried out by Central Bank on institutions allegedly engaged in finance business without authorization. More over many public awareness campaigns were carried out during the year on the risk of investing in unauthorized finance business.

Non-Performing Accommodations of the

NBFIs Sector

Profitability Indicators of the NBFIs Sector

Source: Central Bank of Sri Lanka, Annual Report 2012 Financial Sector Performance &System Stability - Chart 8.11

Source: Central Bank of Sri Lanka, Annual Report 2012 Financial Sector Performance &System Stability - Chart 8.10


8.0 The Company – Citizens Development Business Finance PLC

8.1 Vision and Purpose of CDB

Vision

“To be the Financial Power House that will foster entrepreneurial innovation and workmanship towards building up our nation’s economy to make sustained gains in living standards of Sri Lankans.”

Purpose

“Enriching people’s life through extension of financial services”

8.2 Company Overview

Citizens Development Business Finance PLC (CDB) is a Public Quoted Company incorporated in Sri Lanka under the provisions of the Companies Act No 17 of 1982, and re-registered under the Companies Act No 7 of 2007. CDB is registered with the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No 42 of 2011, and registered with the Central Bank of Sri Lanka under the Finance Leasing Act No 56 of 2000.

CDB was incorporated on the 7th of September 1995, with a dedicated staff of around 15 and expanded its operations gradually. The Company was introduced to the Colombo Stock Exchange on the 6th of October 2010, and is now listed on the main board with a market capitalization exceeding Rs.2 Bn. Further, the Company is assigned with a credit rating of BBB/P2 by RAM Ratings Lanka (Pvt) Ltd, and the CDB brand is ranked at the 50th place among the 'Most valuable leading brands in the country' by Brand Finance Sri Lanka in 2012 (Brands Annual 4th Edition, April 2012).

The Board of CDB consists of 11 directors which comprises of three independent non-executive directors, three non-executive directors and five executive directors. The five executive directors operate in the capacities of Managing Director/CEO, Chief Financial Officer, Chief Marketing and Sales Officer, Chief Credit Officer and Chief Operations Officer. CDB has always been a responsible corporate citizen with the highest level of respect imparted to enterprise governance which encompasses both corporate governance and business governance. CDB’s commitment to enterprise governance goes beyond the statutory and regulatory requirements.

At present, CDB’s outlet network consists of 56 locations with a wider coverage throughout the island via a dealer network and Area Development Officers (ADOs) spread around the country. This is further strengthened with the dedicated staff of over 1,000 employees working for the Company. It is expected to further expand its presence throughout the island with more branches, service centers and an enhanced ADO network.

8.2.1 Nature of Business

Since inception, CDB has been operating as a distinctive financier in the country, servicing a spectrum of customers ranging from micro, to Small and Medium Enterprise (SME) sectors to high end and corporate market segments.

CDB’s services are spread over a range of financial services covering Fixed Deposits, Savings Accounts, Leasing, Hire purchase, Trade Finance/Bill Discounting, Business Loans, Margin Trading, Guarantees, Pawn Broking, and Money Exchange. Further, Debit Cards and Islamic Finance too have been introduced to CDB’s product portfolio recently.


8.2.2 Key Products

Citizen’s Development Business Finance PLC is a Licensed Finance Company with its principal activities comprising of Fixed Deposits, Savings Accounts, Leasing, Hire Purchase, Loans, Operating Leases, Pawn Brokering, Investment and Other Financial Services.

The Company’s main products and services include the following:

Category

Key Brands

Product Description

Fixed Deposits

Savings Accounts

Customer aspirations in life means a lot

to CDB, that’s why the Company has

introduced “Dhana Surekum” Fixed

Deposits to bring our customers one step

closer to realizing their dreams.

CDB introduced “CDB Aee” focusing on

the female community. When they open

an “Aee” Fixed Deposit, they will receive

free gift vouchers for Gold Jewellery or a

Valuable Health Insurance Policy.

“Deeghayu” Fixed Deposits focus on the

senior citizens of the country with 1%

additional interest and many more

benefits

This is a new product which protects

health and wealth of depositors which

provides a Medical Cover. CDB “Suwa

Dhana” will cover the cost of

hospitalization in case of hospitalization

due to an accident or illness

“CDB Saver” is the normal savings

account at CDB which offers high tech

gifts for the savers

“CDB Real Savings” offers customers with

hi-tech products when they save with

CDB


CDB “Rankati” is a minor savings account

which ensures a flourishing future for

children by offering an amazing array of

gifts and benefits through different

savings plans to suit your needs

Leasing

This is the main brand of CDB when it

comes to leasing.

These two brands will focus on providing

lending to small truck segment

CDB Small car leasing is a brand which

facilitates lending for small cars which

are below 1000cc

This brand will focus on attracting three-

wheelers

Hire Purchase

Hire purchase category deals with

providing lending to registered vehicles

Loans

CDB Loan Segment comprises business

loans, housing loans, vehicle loans and

cash backed loans. CDB “Ran Nidahasa” is

the brand which focuses on conducting

pawning facility at CDB


Other

CDB Money Exchange facilitates

customers in exchanging accepted foreign

currency into Sri Lankan Rupees

In partnership with Money Gram

International, a leading global payment

services Company operating money

transfer services worldwide as well as bill

payment services in the US through a

global network of more than 203,000

agent locations, CDB is a sub agent for

Hatton National Bank

CDB Meezan”, is the Islamic Finance Unit

of CDB which operates under the

guidance of Islamic SHARIA concept.

Hence, Mudharabah (deposit) ,Ijarah

(Leasing) and Murabah (Trading)

products are introduced with the

objective of serving the growing demand

for SHARIA Compliant product financing

CDB Visa Debit card provides customers

the facility to withdraw cash from any

Visa ATM & conduct purchases at Visa

merchants by directly utilizing funds in

their savings accounts


8.3 Group Structure

The group structure of Citizens Development Business Finance PLC is as follows.

8.4 Organizational Structure

Citizens Development

Business Finance PLC

CDB Microfinance

Limited

100%


8.5 Our Journey

1995 •Incorporation

2001 •Started Leasing business

2003 •For the first time, Company generates a positive net interest income

2004

•Company recorded a net profit figure of Rs. 10 Mn • Assets base reached Rs. 1.5 Bn

2005 •Assets base reached Rs. 2.5 Bn

2006 •Revenue surpassed Rs. 500 Mn •Total Assets reached Rs. 4 Bn

2007 •Net profit recorded Rs. 50 Mn •Total Assets surpassed 5 Bn

2008 •Total Assets base reached Rs. 6.8 Bn •Expanded Branch Network up to 30

2009 •Became a deposit taking institute regulated by CBSL •Shareholders' funds reached Rs. 500 Mn & Net profit figure surpassed Rs. 75 Mn

2010

•Became a listed entity on CSE •Total Assets reached Rs. 10Bn •Obtained an investment grade rating

2011

•CDB brand ranked among the 50 most valuable brands in the country •Credit Rating upgraded to BBB/P2 by RAM Ratings •Winner in the Specialized banking & Financial services category at National Business Excellence

Awards (NBEA) 2011

2012

•Total Assets reached Rs. 20Bn •Implementation of Core Banking system • Signed up with Lanka Clear for SLIPS transfers

2013

•Launched CDB VISA Debit card •Initiated Islamic Finance •Started ATM Network


Today CDB stand as a trend setter in the industry and CDB has completed a decade of our journey from 2003 and is moving to a new decade on a strong platform. The Company has surpassed many barriers during the past years of business and today CDB is a Company standing on a strong and sound financial platform with great potential to emerge as a market leader.

Achievements and Momentous Events of the Company in the Recent Past

Introduction of the CDB VISA Debit Card in February 2013, by becoming the first non-banking financial institution to obtain the approval of VISA International to operate VISA debit cards

Signed up for the Sri Lanka Interbank Payment System (SLIPS) through Commercial Bank, the first-ever to do so in the non-banking financial institutions category, with transfers in operation from October 2012

The Core Banking System went live in May 2012, where CDB became the only finance Company in Sri Lanka to own a core banking system

First to obtain a license for money exchange Initiated Islamic Finance Obtained license to operate as a Margin Provider from April 2013 Won the Bronze Awards at the Annual Report Awards 2012 in the Finance Companies

Sector presented by the Institute of Chartered Accountants of Sri Lanka Annual Report 2012/13 won the Silver Award at the “2012 Vision Awards” in the Financials

Diversified Services category, presented by the League of American Communications Professionals (LACP). Also, the annual report has been ranked in the regional (Asia Pacific) top 50 honours and awarded the top national honours as well

Was honoured with the prestigious award for Branding & Marketing Excellence at the 4th CMO Asia Awards, held at Pan Pacific Hotel in Singapore. The award ceremony was hosted by the World Brand Congress. CDB was recognized for Excellence in Branding and Marketing in the Banking, Financial & Insurance Sector

Started an ATM net work in March 2013 Obtained the first foreign funding from Belgian Investment Company for Developing

Countries (BIO) for USD 6 Mn

FYE 31/12/2003

Total Assets 891 Mn Revenue 123 Mn Net Assets (106 Mn) Net Profit/Loss (44 Mn)

FYE 31/03/2013

Total Assets 24,482 Mn Revenue 4,312 Mn Net Assets 3,004 Mn Net Profit/Loss 535 Mn


8.6 Financial Highlights

Profitability Growth in Assets

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Mill

ion

s

Total Income

Net Interest Income

Profit / Loss After Taxation

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Mill

ion

s Total Assets Loan Book

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Net Investments in Hiring Contracts

Loans & Advances

Net Investments in Leases

46%

16%

22%

11% 3% 2% Small Ticket

Leasing

Hire Purchase

Vehicle Loans

Pawning

Other

11%

11%

72%

2% 4% Shareholders’ Funds

Corporate Debt

Deposits

Savings

Other Liabilities

-

5,000

10,000

15,000

20,000

25,000

Mill

ion

s

Total Deposits Total Borrowings

Mill

ion

s

Growth in Lending

Portfolio

Growth in Deposits & Borrowings

Lending Portfolio as at 30th Sep 2013

Funding Portfolio as at 30th Sep 2013

Mill

ion

s


8.6.1. Financial Ratios

Ratio 2011/12 2012/13 6 Months 2013/2014

Interest Cover Ratio (Times)

1.41 1.28 1.21

Net Debt/EBITDA (Times)

2.79 2.56 4.79

8.7 Shareholding Structure

Major Shareholders

Ordinary Voting Shares – List of 10 Major Shareholders as at 12th November 2013

No Name Shareholding Percentage

1 CEYLINCO INSURANCE PLC A/C NO 1 (LIFE FUND) 14,642,163 31.63%

2 CDB ESOP TRUST FUND (PRIVATE) LIMITED 12,500,000 27.00%

3 CEYLINCO INSURANCE PLC A/C NO 2 (GENERAL FUND) 1,853,287 4.00%

4 NATIONAL DEVELOPMENT BANK PLC/T.SENTHILVERL 1,664,100 3.59%

5 PERPETUAL CAPITAL (PRIVATE) LIMITED 1,602,245 3.46%

6 THE FINANCE COMPANY PLC A/C NO 1 1,250,000 2.70%

7 ASIA MANAGEMENT CONSULTANCY (PRIVATE) LIMITED 706,622 1.53%

8 E.W. BALASURIYA & CO. (PVT) LTD 535,103 1.16%

9 MR. D. KOTTHOFF 515,573 1.11%

10 LITTLE SMILE ORGANIC (PVT) LTD 416,500 0.90%

Subtotal of Top 10 Share Holders 35,685,593 77.08%

Others 10,613,630 22.92%

Total 46,299,223 100.00%

Ordinary Non Voting Shares – List of 10 Major Shareholders as at 12th November 2013

No Name Shareholding Percentage

1 J.B. COCOSHELL (PVT) LTD 1,051,291 13.13%

2 DEUTSCHE BANK AG AS TRUSTEE FOR JB VANTAGE VALUE EQUITY FUND

683,653 8.54%

3 CDB ESOP TRUST FUND (PRIVATE) LIMITED 562,499 7.03%

4 SEYLAN BANK PLC/HVA LANKA EXPORTS (PRIVATE) LIMITED

388,896 4.86%

5 CEYLINCO INSURANCE PLC A/C NO 2 (GENERAL FUND) 320,541 4.00%

6 MR. H. N. ESUFALLY 208,999 2.61%

7 MR. M. J. FERNANDO 208,999 2.61%

8 MR. S. PRABAGAR 207,000 2.59%

9 E.W. BALASURIYA & CO. (PVT) LTD 204,413 2.55%

10 MR. M. A. H. ESUFALLY 194,000 2.42%

Subtotal of Top 10 Share Holders 4,030,291 50.34%

Others 3,975,693 49.66%

Total 8,005,984 100.00%


8.8 Share Capital Movement

Year

Details

Share Type

Basis

No of Shares Issued

No of Voting Shares (After Issue)

No of Non Voting shares (After Issue)

New Capital Raised (Rs.)

Prior to Introduction

Voting Shares

- 39,685,048

-

2010

Introduction

- 39,685,048

-

2011

Rights Issue

Voting Shares @ Rs.70.00

1 for every 6 Voting shares

6,614,175

46,299,223

462,992,250.00

Non Voting Shares @ Rs.45.00

1 for every 7 Voting shares

5,669,293

46,299,223

5,669,293

255,118,185.00

2012

Scrip Issue

Non Voting Shares

1 for every 22.222224 Voting shares & Non Voting shares

2,336,691

46,299,223

8,005,984

-

8.9 Details of Borrowings

8.9.1 Details of Securitizations

Corporate Issues

Issue No

Asset type

Face value Investor Maximum Period

Trustee Capital Balance As at 31/10/2013 (LKR)

D4 Lease 246 Mn Seylan Bank 36 months Deutsche Bank AG

13. 29 Mn

D4 Lease 200 Mn National Savings Bank

36 months Deutsche Bank AG 42.50 Mn



D6 Lease/ Hire Purchase

300 Mn Nations Trust Bank


D7 Lease 400 Mn Sampath Bank 36 months Deutsche Bank AG 211.11 Mn




300 Mn Nations Trust Bank

36 months Deutsche Bank AG 226.23 MN


400 Mn

Investrust Capital, Mahapola Higher Education Trust Fund & NTB PLC


D11 Lease 400 Mn Sampath Bank 36 months Deutsche Bank AG 400 Mn


8.9.2 Details of Loan Facilities

Corporate Issues

Loan Type Asset type Loan value (LKR)

Investor Maximum Period

Capital Balance As at 31/10/2013 (LKR)

Term Loan Property 100 Mn Seylan Bank 120 months 89.53 Mn

Term Loan Lease/ Hire Purchase

200 Mn Pan Asia Bank 40 months 165.00 Mn

Term Loan Lease/ Hire Purchase

300 Mn Seylan Bank 36 months 252.91 Mn

Term Loan Property 200 Mn Seylan Bank 84 months 198.67 Mn

Foreign Loan

N/A 786.78 Mn

Belgian Investment Company for Developing Countries NV/SA -BIO

48 months 786.78 Mn

8.9.3 Details of Current Debenture Issues

Debenture

Debenture Type Total

value

Issue

Date

Tenure Investor Balance As at 31/10/2013

Rated

Unsecured

Redeemable

Unlisted

Debentures*

Type – II Rs 62.50

mn 30 Dec 10 36 months

Ceylinco

Insurance

PLC- Life

Rs 62.50 mn

Type - III Rs 62.50


Ceylinco

Insurance

PLC- Life

Rs 62.50 mn

Type - IV Rs 62.50


Ceylinco

Insurance

PLC- Life

Rs 62.50 mn

*RAM Ratings Lanka upgraded the respective long- and short-term financial institution ratings of Citizens

Development Business Finance PLC, from BBB- / P3 to BBB / P2 in January 2012. At the same time, RAM

Ratings Lanka has also upgraded the long-term rating of CDB’s LKR 250 million Unsubordinated Unsecured

Redeemable Unlisted Debentures, from BBB- to BBB.

The Company does not have any convertible debt securities in issue as at 31st October 2013.


8.10 Human Resources

The Company believes that its dynamic and youthful team of employees has been crucial to its success in the past and aims to create a workforce which is innovative, dynamic and diverse. The Company is an equal opportunities employer and endeavors to foster employee diversity at all levels of the work place. Total number of permanent staff of the Company as at 31st October 2013 is 1,079.

Category No of Employees

Senior Management (including Executive Directors)

9

Management 19

Middle management 63

Executive 246 Non Executive 742

Total 1,079

The employees of the Company are not members of any Trade Union and there are no significant agreements entered into between any labour union and the Company.

8.11 Future Strategy and Associated Risks

8.11.1 CDB Future Plans

The finance industry that CDB operates in is a dynamic and challenging environment. Therefore, this spurs us to focus more on diversification, innovation, value addition and customer service excellence to successfully face these challenges. The Core Banking Solution, now in full operation, will be the focal imperative in giving us a competitive advantage in ensuring efficiency, efficacy, productivity, astute management practices and developing a well appointed product and service portfolio.

The Company will also aim to continue decreasing its NPL ratio, maintaining it well below the industry average, while the Collection Ratio will also be targeted at remaining above 95%.

Being cognizant of external trends, emerging threats, opportunities, strengths and weaknesses and adding them into the formula for the secret of the Company’s success is what has given CDB the exalted status it now enjoys in the NBFI sector. To prove its unique individuality and in honing its own persona, CDB has evolved with the changing times, absorbed external shocks and overcome internal challenges.

As the next step ahead in its journey, CDB will focus on promoting the CDB VISA debit card using penetrative campaigns and initiatives, deploying strategies to grow the Company’s deposit base and thus, the usage of the Debit Card, while continuing to infuse further value additions to our products. CDB intends augmenting brand image by promoting “CDB Sithumina” and fuel more IT processes to delegate and decentralize operations to branch levels for a better more efficient and speedier service. Becoming the preferred total financial services provider is CDB’s motivator for this journey.

The Company will continue to explore market opportunities and in increasing its presence in the areas outside Western province, will add further strategies that will complement its entire product and service portfolio.