MBSL proposes Rs. 999.1 m Rights to shore up Tier I capital as the Merchant Bank of Sri Lanka & Finance PLC moves to strengthen its capital base and address regulatory requirements following recent supervisory action.
MBSL proposes Rs. 999.1 m Rights to shore up Tier I capital amid regulatory pressure
Merchant Bank of Sri Lanka & Finance PLC (MBSL) announced that its Board has resolved to recommend a Rights Issue valued at Rs. 999.1 million, aimed primarily at enhancing its Tier I capital position. The decision was taken on 30 April as part of a broader strategy to restore compliance with minimum regulatory thresholds and support future business operations.
The proposed capital raising will be executed through the issuance of 99,912,312 non-redeemable, non-convertible, non-cumulative preference shares priced at Rs. 10 each. These shares will carry a variable non-cumulative dividend, which will be reviewed every five years. The dividend structure will be benchmarked against the prevailing five-year Government securities yield, with an added premium of 100 basis points, subject to a maximum annual payout of Rs. 1.05 per share.
Under the terms of the offer, the Rights Issue will be extended to existing ordinary shareholders on the basis of four preference shares for every 21 ordinary shares held. This structure is intended to provide current investors with the opportunity to participate proportionately in the company’s recapitalisation effort.
MBSL proposes Rs. 999.1 m Rights to shore up Tier I capital in response to regulatory pressures stemming from non-compliance with minimum capital requirements. The Central Bank of Sri Lanka had imposed certain operational restrictions on the company on 17 April after determining that it had fallen short of required capital levels as at 31 March 2026.
These restrictions have underscored the urgency of strengthening the company’s capital framework. By increasing Tier I capital, MBSL aims to reinforce its financial stability, improve its regulatory standing, and position itself for sustainable growth in the financial services sector.
The company stated that the proposed capital infusion, combined with the continued support of its parent entity, is expected to enable it to meet the stipulated regulatory thresholds. Successful completion of the Rights Issue would also facilitate the removal of the restrictions currently imposed by the Central Bank, allowing the company to resume normal operations.
From a strategic standpoint, the move reflects a broader effort to align with Finance Companies Direction No. 3 of 2018, which outlines capital adequacy requirements for licensed finance companies in Sri Lanka. Compliance with these standards is critical for maintaining market confidence and ensuring the long-term viability of financial institutions.
In addition to regulatory compliance, the strengthened capital base is expected to support MBSL’s future expansion plans. By improving its Tier I capital position, the company will be better equipped to pursue lending opportunities, enhance service offerings, and compete effectively within the financial sector.
However, the proposed Rights Issue remains subject to several regulatory and shareholder approvals. These include clearance from the Colombo Stock Exchange, particularly a waiver under Listing Rule 5.1.1, as well as approval from shareholders at an Extraordinary General Meeting.
Market observers note that the success of the Rights Issue will depend on shareholder participation and broader investor confidence in the company’s recovery strategy. The pricing of the preference shares and the dividend structure are likely to play a key role in determining investor appetite.
At the same time, the involvement and commitment of the parent entity are seen as positive signals, indicating support for the company’s recapitalisation and long-term stability. Such backing could enhance investor confidence and improve the prospects of achieving the targeted capital raise.
MBSL proposes Rs. 999.1 m Rights to shore up Tier I capital as part of a critical phase in its operational restructuring, reflecting both regulatory necessity and strategic intent. The outcome of this initiative will be closely watched by stakeholders, as it will influence the company’s ability to stabilise its financial position and restore normal business operations.
The development also highlights the importance of capital adequacy within Sri Lanka’s financial sector, particularly in a regulatory environment that places increasing emphasis on resilience and risk management. For MBSL, the Rights Issue represents not only a compliance measure but also a pathway toward rebuilding its market position and reinforcing stakeholder confidence.