Bank Sale -

Sri Lanka's Ceylinco group will exit Seylan Bank, a licensed commercial bank, as part of a strategy to raise funds and repay depositors in a troubled group company, chairman Lalith Kotelawala said in a public statement.

Golden Key Credit Card Company failed to repay customers who had placed funds in the firm as a deposit for a credit card. Kotelawala who met customers on Tuesday promised to repay them.

"I have therefore now taken a decision to divest the investment in my beloved bank, Seylan Bank, which I founded 20 years ago and honour the debts of Golden Key Card holders," Kotelawala said in a public statement placed in newspapers.

"I will be taking necessary steps to obtain permission from the relevant regulatory authorities in this regard."

Kotelawala said Seylan is the third largest private sector bank in the island. The bank has over 100 branches.

LBO learns that discussions are underway to find a local or foreign bank to take-over Seylan.

Seylan Bank closed down 75 cents at 15.75 Friday, but analysts say a controlling stake would be worth much more.

Commercial banking licenses are also no longer issued and the minimum capital requirement for a bank is around two billion rupees.

"I have always believed in doing the right thing in life, however painful it may be," Kotelawala said.

Seylan is Sri Lanka's fifth-largest licensed commercial bank, accounting for 5.7 percent of banking system assets at the end of the financial year 2007, according to a Fitch Ratings report.

The Ceylinco group holds 23 percent of its voting equity while several employee share ownership trusts collectively hold another 27 percent of Seylan's voting equity.

Seylan Bank has 43,560,000 Voting Ordinary Shares in issue which valued at the current price of 15.75 rupees a share would be worth 686 million rupees.

Seylan Bank had total deposits of 119 billion rupees and total assets of 166 billion rupees as at September 30, 2008 while total performing loans and advances were at 93.7 billion rupees, according to a stock exchange filing.

In July Fitch Fitch Ratings downgraded Seylan Bank's national long term credit rating by one notch to 'BBB+' which is still in the investment grade category.

The rating agency said at the time that the downgrade reflected the increased challenges faced by the bank in absorbing credit losses in a weakened economy with a relatively low capital cushion and profitability, and challenges in raising fresh equity capital.