KARACHI: Bondholders of Summit Bank Ltd have approved a one-year extension in the maturity date of a Rs1.5 billion term finance certificate (TFC), the bank said on Friday.
This means the bank will pay its bond- or TFC-holders the redemption amount, including the accrued mark-up, on the revised maturity date of Oct 27, 2023.
The Rs1.5bn bond was issued on Oct 27, 2011, for an initial tenor of seven years. However, the bank started facing capital adequacy problems, which affected its ability to repay the bondholders.
As a result, the bank extended the tenor and the payment of applicable redemption amounts four times in 2018, 2019, 2020 and 2021 by means of extraordinary resolutions passed by bondholders.
The latest extraordinary resolution was passed by three-quarters of the total TFC holders in a meeting held on Oct 27.
The bank is supposed to pay its bondholders a mark-up of six-month Karachi interbank offered rate plus 325 basis points. However, the bond carries a lock-in clause under which neither interest nor principal can be paid even at maturity if it’ll result in a shortfall in the bank’s minimum capital requirement and capital adequacy ratio — or an increase in the existing shortfall in either of the two benchmarks.
The TFC is currently rated “D” — or default — because the bank invoked the lock-in clause and didn’t make the latest mark-up payment.
Summit Bank expects to overcome its undercapitalisation challenges after a consortium, led by a UAE-based investor, formally acquires the majority shareholding. “The investor continues to be fully committed to consummating the transaction and has deposited Rs6 billion with the bank, which would later be transferred to the shares subscription account,” the bank CEO said in an Oct 25 note to shareholders.
Summit Bank incurred a net consolidated loss of Rs1.3bn in the July-September quarter, translating into accumulated losses of Rs40.7bn on its balance sheet. The bank’s capital adequacy ratio stood at negative 71.8 per cent against the minimum regulatory requirement of 11.5pc.
The lender is expected to convert itself into a full-fledged Islamic bank. It expects to generate liquidity by selling its pricey real estate assets, according to a bank official.
The bank’s share price decreased 1.2pc to Rs1.59 apiece on Friday.
Published in Dawn, November 5th, 2022