The purchase of shares of The Finance Company (TFC) by National Savings Bank (NSB) has caused a great deal of talk and confusion in the market among readers and investors. NSB purchased a strategic block of approximately 15% at a premium of Rs. 50.00 when it was trading in the market for Rs. 30.00
On the face of it, this transaction appears to have been done at a higher value. The sellers of this transaction purchased these shares in October 2011 at Rs 48.00 when it was trading in the open market at Rs. 38.00. Hence they paid a premium to acquire these shares from a seller who had a strategic quantity.
What value does a strategic quantity of this nature have? One could buy a thousand or two thousand shares in the market, at market price and one could also sell at the prevailing market price, depending on the supply and demand theory. But a large quantity of shares in the illiquid market needs to be negotiated and sold on the basis of additional values accrued. The purchase of shares by NSB into TFC meant not just an acquisition of shares, but moreover taking control of a company that
a. has a deposit base of 20 billion, which is bigger than some of the biggest banks
b. is one of the largest land banks of the country and
c. has the largest island wide branch network.
Therefore the purchase of TFC shares by NSB was not merely for the purposes of a share transaction but more importantly a strategic effort to acquire control of one of the largest and oldest companies in Sri Lanka.
Truth be told, it is no secret that after ‘The Great Golden Key Depression,’ TFC was left an ailing establishment. It is, or at least should be, of National interest to revitalize and put back on solid ground, an organization of such nature which rests on a huge deposit of over 20 billion. The Central Bank is mindful of this fact and it is its duty to safeguard the interests of the depositors. By NSB coming in with the capital infusion there would have been tremendous value that could accrue to TFC reflected in its share price, which would ultimately attribute to NSB as well. Unconventional as it may seem, these synergies are important in a developing economy.
“Everything is in a constant state of flux. Thus the question is whether we accept change passively and are swept away by it or whether we take the lead and create positive changes on our own initiative.”
- Daisaku Ikeda – Buddhist leader, peace builder, educator
Written by Granville Perera