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Union Bank of Colombo Plc (Pb 676 Pq) Circular to The

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Union Bank of Colombo Plc (Pb 676 Pq) Circular to The UNION BANK OF COLOMBO PLC (PB 676 PQ) CIRCULAR TO THE SHAREHOLDERS Dear Shareholders, ISSUE OF 742,156,249 ORDINARY SHARES AT LKR 15.30 EACH BY WAY OF A PRIVATE PLACEMENT AND ISSUE OF 218,281,250 WARRANTS AT A CONSIDERATION OF LKR 0.30 In its policy statement entitled “The Central Bank Road Map: Monetary and Financial Sector Policies for 2014 and Beyond” (the “Central Bank Road Map”), the Central Bank of Sri Lanka (the “CBSL”) stressed a need for consolidation in the banking and non-bank financial institution sectors. Accordingly, local banks with asset bases of less than LKR 100 billion are encouraged to merge with larger commercial banks or to grow organically to reach a substantial size by 2016. The CBSL has also increased the minimum capital requirement for local licensed commercial banks to LKR 5 billion with effect from January 1, 2015 and to LKR 10 billion with effect from January 1, 2016. As at June 30, 2014, the Company’s total asset base stood at LKR 36,588.6 million, whilst total equity was recorded at LKR 5,388.1 million. 1. Issue of 742,156,249 ordinary voting shares of the Company for LKR 15.30 each to Culture Financial Holdings Ltd. by way of a private placement (the “Private Placement”) In light of the above, the Board of Directors of the Company has decided to, subject to the approval of the shareholders of the Company, issue by way of a private placement, 742,156,249 ordinary voting shares of the Company (“Private Placement Shares”) at a consideration of LKR 15.30 per Private Placement Share to Culture Financial Holdings Ltd. (the “Investor”). Pursuant to the issue of the Private Placement Shares, the stated capital of the Company will increase from LKR 4,979.8 million to LKR 16,334.8 million, thereby exceeding the minimum capital requirement guidelines as outlined in the Central Bank Road Map, which will come into force by 2016 as described above. Each of the Private Placement Shares will, upon the issue thereof, rank paripassu in all respects with the existing ordinary voting shares of the Company with a right to (i) one vote on a poll at a meeting of the Company on any resolution, (ii) an equal share in dividends paid by the Company and (iii) an equal share in the distribution of the surplus assets of the Company on liquidation. Page 1 of 16 Upon the issue of the Private Placement Shares, the Investor will hold 68% of the ordinary voting shares of the Company. The Private Placement Shares will be directly uploaded to the securities accounts maintained by the Investor with the Central Depository Systems (Private) Limited. Following the issue of the Private Placement Shares, the public holding of the Company (within the meaning of the Listing Rules of the Colombo Stock Exchange) will be 29.9% of the total ordinary voting shares of the Company. 2. Issue of 218,281,250warrants for LKR 0.30 per warrant The Board of Directors has also decided to issue to the Investor, simultaneously with the issue of new ordinary voting shares to the Investor under the private placement, 218,281,250 Warrants (“Warrants”) at a consideration of LKR 0.30 per Warrant conferring the holder of the Warrants with the right to subscribe to one (1) new ordinary voting share per Warrant (the “Warrant Shares”) within a period of six (6) years from issue of such Warrants at a consideration of LKR 16.00 per share. The Warrants will entitle the holder thereof to subscribe for up to a total of 218,281,250 ordinary voting shares in the Company. The Warrants will also enable the Investor to support the future capital requirements of the Company and to meet any potential future minimum capital requirements that might be imposed by the CBSL. The Company’s stated capital will be enhanced by a further LKR 3,492.5 million if the Warrants are exercised in full. The holder of the Warrants may, at its option, exercise the Warrants in a single tranche within a period of six (6) years from the date of issue of the Warrants. The investor has informed the Company that the Warrants will not be exercised within a period of 24 months following the Private Placement. The ordinary voting shares to be issued pursuant to the exercise of Warrants will rank equal and paripassu with the ordinary voting shares of the Company upon the issue thereof. The terms and conditions subject to and upon which the Warrants are issued by the Company are set out in Annexure 1 hereto. The form of the notice of exercise to be issued to the Company by the holder of Warrants to exercise the Warrants is set forth in Annexure 2 hereto. The Warrants will not be listed on the Colombo Stock Exchange but will be privately transferable and tradable to any third party during their validity period. If all of the Warrants are exercised, the stated capital of the Company will increase to LKR 19,892,766,098 and the public holding of the Company (assuming that (a) the Investor acquires a maximum of 2% of the ordinary voting shares of the Company during the mandatory offer from all of the remaining shareholders, (b) all of the Warrant Shares are issued to the Investor and (c) the non-public shareholders of the Company and their shareholding as at the completion of such mandatory offer remains otherwise unchanged) will be approximately 23.3% of the total ordinary voting shares of the Company. The Private Placement price and exercise price of the Warrants have been determined based on the net asset value and the profitability of the Company on a consolidated basis. The Company and its consolidated subsidiaries have posted earnings of 30 cents for every share for the financial year ended December 31, 2013. The net asset value of the Company and its consolidated subsidiaries was recorded at LKR 14.09 per share on the same date. Accordingly, the Private Placement price of LKR 15.30 constitutes a premium of 9% to the Page 2 of 16 net asset value of the Company and its subsidiaries and the exercise price of the Warrants constitutes a premium of 14% on the same basis. Further, the Private Placement price is equivalent to 51 times the Company’s earnings per share, and the exercise price of the Warrants is equivalent to 54 times the earnings reported for the financial year 2013. 3. Introduction to the Investor The Investor is a Cayman Islands exempted company incorporated under the Companies Law of the Cayman Islands on March 28, 2014 with company number MC-286507, whose registered office address is c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The principal activity of the Investor is the carrying on of business as an investment holding company. The directors of the Investor are as follows: I. Ronald Cami; and II. John Viola TPG Asia VI, L.P., one of the flagship investment funds sponsored by TPG, and its related entities indirectly hold a 100% equity interest in the Investor through TPG Asia VI SF Pte. Ltd. TPG is one of the largest diversified alternative investment firms in the world, with total assets under management of approximately USD 59 billion as of December 31, 2013. Since 1992, TPG has had lead responsibility for more than 200 investments around the world. TPG’s founders, David Bonderman and James G. Coulter have worked together for over twenty years, and have substantial experience investing globally, across investment stages, within various capital structure elements and through differing economic cycles. Certain affiliates of TPG are regulated by the United States Securities and Exchange Commission. TPG Global Advisors, LLC, among other TPG affiliates, is registered as an investment adviser with the United States Securities and Exchange Commission under the United States Investment Advisers Act of 1940, as amended. TPG Global Advisors, LLC provides investment advisory services to affiliated management companies (the “TPG Management Companies”), including TPG Asia VI Management, LLC, and, together with the TPG Management Companies, to investment funds (the “TPG Funds”). The investors in the TPG Funds are primarily “qualified purchasers,” as defined in the United States Investment Company Act of 1940, as amended, and include, among others, institutional investors, such as government plans, sovereign wealth funds, funds of funds, insurance companies and pension and endowment funds, as well as high net worth individuals and charitable foundations. As of September 30, 2013, TPG had over 250 investment and operating professionals in 17 offices across the globe. Its global footprint, expert professionals, and collaborative culture have helped TPG build an integrated investment platform across geographical regions, skill sets, and asset classes. TPG is one of the longest standing private equity firms in Asia, having made its first investment in the region (in China) in 1995. Collectively, TPG Asia funds have raised approximately USD 7.0 billion in capital and made 58 investments as of December 2013. Page 3 of 16 TPG Asia maintains one of the largest Asian private equity teams with 58 investment and operational professionals (as of December 2013) throughout the region and across offices located in Beijing, Chongqing, Hong Kong, Melbourne, Mumbai, Shanghai, Singapore and Tokyo. Through its long history in the region, TPG Asia has helped to transform the private equity landscape by executing transactions in each major region across Asia. TPG Asia has defined itself as a regional leader in banking and financial services having invested USD 2.3 billion in 13 financial service companies as of December 2013.
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