Circular to shareholders

(Company Registration No. PQ 9)

NOTICE OF

EXTRAORDINARY GENERAL MEETING

NOTICE is hereby given that an Extraordinary General Meeting of Seylan Bank PLC will be held on Tuesday, 11th day of January, 2022 at 11.00 a.m. as an on‐line audio‐visual meeting with arrangements for the on‐line meeting platform made at the registered office of the Company at Seylan Towers, 90 Galle Road, Colombo 3, for the following purpose:

WHEREAS, the Board of Directors ("the Board") of Seylan Bank PLC ("the Bank") decided to raise a maximum sum of Rupees Twenty Billion (LKR 20,000,000,000/‐ ) by issuing up to a maximum of Two Hundred Million (200,000,000) Basel III Compliant, Tier 2, Rated, Unsecured, Subordinated, Redeemable Debentures with a feature for Non‐Viability Conversion to Ordinary Voting Shares by the Bank ('Subordinated Debentures') to qualified investors as defined in the Circular to Shareholders accompanying this Notice in the manner explained in the said Circular;

AND WHEREAS in the eventuality of a conversion of the said Subordinated Debentures to Ordinary Voting Shares due to the occurrence of a Trigger Event, as explained in the Circular to Shareholders accompanying this Notice of Extraordinary General Meeting (EGM), approval of the shareholders is required by Special Resolution for the resultant issuance of the Ordinary Voting Shares in terms of Rule 2.2.1.(l) of the Listing Rules of the Colombo Stock Exchange and waiver of the pre‐ emptive right entitlement of the Shareholders in terms of Article 4(iv) of the Articles of Association of the Bank and Section 53 of the Companies Act No. 7 of 2007 (as amended).

AND WHEREAS it has become necessary to consider and if thought fit to pass the following as a SPECIAL RESOLUTION:

"That the Board of Directors ("the Board") of Seylan Bank PLC ('the Bank' or 'the Company') be and is hereby authorized:

1. To issue upto a maximum of Two Hundred Million (200,000,000) Basel III Compliant, Tier 2, Rated, Unsecured, Subordinated Redeemable Debentures with a Non‐Viability Conversion to Ordinary Voting Shares by the Bank (hereinafter referred to as 'Subordinated Debentures') of the par value of Rupees Hundred (LKR 100/‐) each amounting to Rupees Twenty Billion (LKR 20,000,000,000.00); and that:

1. the Subordinated Debentures shall be issued by the Bank in one or more issuances during the calendar year, 2022 subject to the maximum of Two Hundred Million (200,000,000) Debentures;
2. the Subordinated Debentures shall be offered to 'Qualified Investors' as defined under the Listing Rule No.2.2.1(m) of the Listing Rules of the Colombo Stock Exchange;

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(Company Registration No. PQ 9)

Seylan Towers, 90, Galle Road, Colombo 3; Tel: 011 2456582, 2456589, 2456594

CIRCULAR TO SHAREHOLDERS

Dear Shareholder/s,

ISSUE OF BASEL III COMPLIANT TIER 2 RATED UNSECURED SUBORDINATED REDEEMABLE DEBENTURES WITH A FEATURE FOR NON-VIABILITY CONVERSION TO ORDINARY VOTING SHARES BY THE COMPANY (SOLELY IF INSTRUCTED BY THE CENTRAL BANK OF SRI LANKA)

We refer to Seylan Bank PLC's ('Seylan Bank' or 'the Bank' or 'the Company') announcement dated 29th October 2021 on the above subject which was published in the website of the Colombo Stock Exchange, informing the decision of the Bank's Board of Directors ('the Board') at the meeting held on 27th October 2021, to raise a maximum sum of Rupees Twenty Billion (LKR 20,000,000,000.00) by issuing up to a maximum of Two Hundred Million (200,000,000) Basel III Compliant, Tier 2, Rated Unsecured, Subordinated Redeemable Debentures with a Non‐viability Conversion (hereinafter referred to as 'Debentures' or 'Subordinated Debentures') of the par value of Rupees One Hundred (LKR 100.00).

1. INTRODUCTION

1.1 PURPOSE OF THIS CIRCULAR

The Bank is required to obtain the prior approval of the shareholders for the issuance of Subordinated Debentures, as in the event of there being a 'Trigger Event' as defined in the Banking Act Direction No. 1 of 2016 (as amended) on Capital Requirements under Basel III for Licensed Commercial Banks (LCB) and Licensed Specialised Banks (LSB) [hereinafter sometimes referred to as 'the said Banking Act Direction' or 'Banking Act Direction No.1 of 2016'], the Central Bank of Sri Lanka (CBSL) will instruct the Bank to convert the Subordinated Debentures into Ordinary Voting Shares of the Bank. This is referred to as 'Non‐Viability Conversion' in the said Banking Act Direction. Therefore, a Notice of Extraordinary General Meeting (EGM) accompanies this Circular, for the purpose of seeking approval of the shareholders at the EGM in this regard.

Further information on the proposed Subordinated Debenture issue, namely the purpose of a debenture issue, features of the Subordinated Debentures/issue, the relevance of such Debentures to the shareholders in view of the non‐viability conversion of the Debentures to Ordinary Voting Shares of the Company in an eventuality, are described in following sections of this Circular.

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1.2 ISSUANCE OF DEBENTURES

The proposed issue of a maximum of Two Hundred Million (200,000,000) Debentures of the par value of Rupees One Hundred (LKR 100.00) amounting to a value of Rupees Twenty Billion (LKR 20,000,000,000.00) will be offered/issued in the following manner:

• Offered to the public but limited to 'Qualified Investors' as defined under the Listing Rules of the Colombo Stock Exchange (CSE) and as described under section 3.3 of this Circular.
• The Debentures will be issued by the Bank in one or more issuances during the calendar year, 2022.
• The size of the issuance, coupon (interest) rate/s, frequency of coupon/s, maturity period/s (tenure/s), issue price, etc., will be determined by the Board and notified and published in the prospectus of the issue or each issuance as the case may be prior to the opening of the issue.
• The maturity period (tenure) of the Debenture issue will not be less than five (05) years.
• The Debentures will be listed on the CSE upon issue and allotment and/or in accordance with the requirements of CBSL for inclusion of the Subordinated Debentures in the Tier 2 Capital of the Bank.

1.3 PURPOSE, FINANCIAL AND MARKET RATIONALE FOR ISSUANCE OF DEBENTURES

As published in the Seylan Bank's latest Interim Unaudited Financial Statements for the nine months' period ended 30th September 2021, we wish to inform you that the Bank made a profit of LKR 3.2 Billion (Group profit was LKR 3.3 Billion). Total Equity of the Bank increased from LKR 48.966 Billion as at 31st December 2020 (as per the Audited Financial Statements for the year ended 31st December 2020) to LKR 50.607 Billion as at 30th September 2021 (Group ‐ LKR 53.742 Billion).

The Total Capital Ratio of the Bank reduced from 14.30% as at 31st December 2020 to 13.87% as at 30th September 2021. The decrease was mainly attributed to the reduction of the Common Equity Tier 1 and Total Tier 1 Capital due to the losses on Other Comprehensive Income (OCI) during the first three quarters of the year; the adjustments for Total Capital due to debenture discounts and further, due to the increase in risk weighted assets in view of lending growth during the year.

Even though the said ratio is well within the current minimum regulatory capital requirement of 12.50% applicable for licensed commercial banks other than Domestic Systemically Important Banks as per the Banking Direction No.1 of 2016, based on the periodic review of the Bank's Capital Adequacy Position, the Board recommended that the Bank should take appropriate action to infuse more capital, for an additional buffer so that the Capital Adequacy Ratio of the Bank can be maintained at prudent levels. During the early part of the year 2021, the Bank successfully concluded a Subordinated Debenture Issue totaling to Rupees Six Billion (LKR 6,000,000,000.00), whilst also redeeming a total capital sum of LKR 1,727.72 Million in respect of those Subordinated Debenture Capital issues which matured during 2021. Therefore, it was decided to plan a further issuance of subordinated debentures up to a maximum of Rupees Twenty Billion (LKR 20,000,000,000.00, to be offered for subscription in one or more issuances during the calendar year, 2022

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