DFCC - NDB merge to head to Parliament?

Though the Central Bank has deemed the merging process of the DFCC and NDB Banks as successful, it is said that a Parliament Act should be passed to merge the two entities.

The reason is because the DFCC was founded under a special Act while the NDB was established under the Banking Act.

It is said that in order for the merger to take place, the Parliament Act on which the DFCC was established, should be amended in Parliament, reports say.

However, in terms of assets, the NDB is ahead of the DFCC.

The biggest stakeholders of both entities are state corporations, Employees' Provident Fund (EPF) and the Employees' Trust Fund (ETF).

From the private sector based stakeholders, Harry Jayawardena's Distilleries Group take the lead in DFCC bank while at the NDB, it is Ashok Pathirage, MD / Chairman of the Softlogic Group.

Meanwhile, the DFCC, in a company disclosure to the Colombo Stock Exchange, announces that its Director, C Royle Jansz has been appointed as new Chairman Elect of the Bank. At the present, the post is held by Rajan Brito.

Britto is to retire in March 2014 on completion of 09 years as a Director of the Bank, the disclosure adds.

The company disclosure is as follows :

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Renuka Shaw Wallace ties up with CJ Patel in Fiji

Group restructuring to strengthen manufacturing and product portfolio

Renuka Shaw Wallace PLC announced in a Stock Exchange filing on Friday that its 100% subsidiary, Renuka Consumer Products Limited, has sold slightly over 19.7 million ordinary voting shares in Shaw Wallace Ceylon Limited for Rs.211.2 million representing 21.12% of the voting shares in issue to C.J. Patel & Co. Ltd. of Fiji.

Shaw Wallace Ceylon is a subsidiary of Renuka Consumer Foods and the two companies have an agreement with C.J. Patel to develop their manufacturing capabilities and product portfolio, the filing said.

The C.J. Patel group with headquarters in Fiji operates in ten countries, Australia, New Zealand, Papua New Guinea, Samoa, Tonga and India among others.

The group’s business includes manufacturing noodles, confectionery, dairy and fish products and distribution of international brands such as Wetabix, Kimberlu Clark and Nivea. The company is also into media and automotives among others.

Renuka Consumer Foods now owns 42.24% of the issued voting shares and 75.87% of the issued non-voting shares of Shaw Wallace with C.J. Patel and its nominees also holding 42.24% of the issued Shaw Wallace voting shares.

Friday’s filing by Renuka Shaw Wallace also said that Renuka Teas Ceylon (Pvt) Ltd. has purchased from Renuka Agri Foods 100% of the shares of Renuka Teas comprising 1.25 million ordinary voting shares and 1.25 million ordinary non-voting shares for a consideration of Rs.96.9 million.

Renuka Agri Foods PLC announced that the proceeds of the sale will be used for investment in its core business of plantations/farming, manufacturing, marketing, export and local distribution of coconuts, dairy and fruit products.
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Sri Lankan NBFI sector consolidation forced and too quick, report says

Although the economic rationale for Sri Lankan domestic consolidation in the Non Bank Financial Institution (NBFI) is beyond question, many believe that the process appears forced and the time lines too severe for a meaningful amalgamation, according to a research report.

“However, in the process there would be opportunities for the equity investor, mostly in target NBFIs with cleaner balance sheets. The larger NBFIs, whose core businesses and valuations we were bullish on, may have their return on equities suffer in the short run in the amalgamation process,” according to a report by Bartleet Religare Securities.

Sri Lanka’s monetary regulator is urgently calling for an amalgamation in the financial sector in the country with the current 58 NBFIs, which account for only 6.6 per cent of the financial system’s gross assets and bring them down to a target 20.

This consolidation process has already been done in East Asian countries like Malaysia, Taiwan and Singapore. While domestic consolidation has occurred in most Asian countries, the restructuring progress has varied across the region. In the more developed countries in the region, domestic consolidation has been a success story for both the regulator and the equity holder.

The report said the category ‘A’ NBFIs will prioritise and move in fast to identify and acquire well run NBFIs in the target group. “However, we are concerned that these companies will be priced at a premium. If the ‘clean balance sheet premium’ does not falter during the negotiations, this may hurt the balance sheet strength and the ROE of the acquirer.”

The report said the regulator may be in a position to call a ‘shotgun wedding’ and assign the less appealing NBFIs to larger NBFIs/banks who did not make the deadline. “Given the woes of the balance sheets (including fleets of commercial vehicles), unprofitability and at times negative Net interest income (in the case of The Finance) this will take off some shine away from the acquirers’ balance sheets, in addition to management impetus.”

The disconnect between the asking multiples (price) and an agreeable price will likely be settled – if needed with regulator intervention, the report said.

The most prominent efforts in domestic consolidation are seen in South Korea and Japan. Both countries are facing reforms as a result of problems that have developed over time for comparable reasons. Taiwan, which had overbanking issues, has reformed and revamped its banking sector. Singapore on the other hand is one of the most proactive countries in the region that has implemented successful banking reforms to gain a leading position in the region.

The Sri Lankan case study is different to what was in the ASEAN countries as this differs from a market-oriented approach, the report said. The key drivers of consolidation remain better transparency, economies of scale, advancement of marketing and product initiatives, improvements in overall credit risk and technology exploitation, it added. The rapid development of the global financial markets has also induced large and financially sound regional banks to consider mergers amongst themselves. “The key deterrent in this case is the imposition by the regulator here that no jobs could be cut.

This from a market perspectiv`e forms the possibility of improvident job duplications in the short to medium term and reduces the possible saving from amalgamation,” the report said.

It added that in the proposed merger between NDB and DFCC, there are clear benefits of scale for the large scale development bank. “The two banks however have comparable current account to savings account ratio bases, branch networks, similar books and the similarities come down to each bank having their own Investment Banking units and Stock brokering arms. Voluntary Retirement Schemes (VRS) may be a possible tool the management has at hand, but we see VRSs being expensive for the firm both in terms of the explicit cost and from unintended key job losses. Hence, even-though the major development bank makes sense from a Treasury perspective it may be hard to make economic sense to equity holders in the medium term.”
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Touchwood investors raise concerns

By Duruthu Edirimuni Chandrasekera

Questions are being raised on whether authorities should suspend trading in stocks of the troubled forestry firm Touchwood when the company is not fully functional, industry sources said.

One depositor told the Business Times that no one picked up the phones at the company office. “I found out that their office has been relocated to Nawala from Joseph Lane, Colombo 4.” He raised concerns as to why the regulators are allowing this share to trade on the stock exchange

Asked about these concerns, Touchwood Investments chairman, Lanka Kiwlegedara confirmed that they are in the process of shifting their Colombo 4 office to Nawala. “All the former staff (more than 70 of them have abandoned the company. There is now 10 new staff,” he told the Business Times. He added that they will start operations at the new office on April 1. The Securities and Exchange Commission (SEC) says that since there is a case concerning Touchwood in court, with an investor seeking to wind up the company, they are unable to suspend trading as it’s a matter of subjudice.

SEC officials said however they are pursuing the company’s founder Chairman Roscoe Maloney and his wife Swarna for questioning on alleged frauds related to inter-company transfer of funds. Last year Touchwood trading was suspended twice but lifted after clarifications by the company.

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Sampath Bank profits fall Possible absorption of Siyapatha Finance

By J. Kurukulasuriya

Ceylon FT: Sampath Banking group have shown a 33% fall in operating profits to Rs 3,367 million for the year ended 31 December 2013, its usual financial year close.

The Central Bank of Sri Lanka, requested all finance companies to take necessary steps to comply with the financial sector consolidation programme which was announced after the last budget.

Currently Siyapatha Finance Company is in negotiations with the bank, explanatory notes to the accounts indicate.

Overall group income increased 21% to Rs 48 million, but this did not help the bottom line due to several factors – a Rs 6.5 million rise in interest expenses, a 34% fall in "other operating income" to Rs 2,716 million, and a 595% "collective impairment" reversal of Rs 3,008 million.

The balance sheet of the group indicated improvements in "Reverse repurchase agreements", to Rs 18,043 million – up 450%, and "financial investments held to maturity, up to Rs 1,845 million, from 10 million.

The bank has a stated capital of Rs 4,460 million, and reserves of Rs 27,210 million.

During the year the bank credited itself with Rs 9.65 million worth of unclaimed dividends.

The company has 167 million shares on issue. 85% of the shares are held by the public, and 15% by directors and their associates. Vallibel One PLC holds 15% of the shares in the bank, The Employees' Provident Fund holds 9.98% of the shares.

Dhammika Perera is Chairman of Vallibel One PLC as well as Sampath Bank PLC and the total shares held by Vallibel One PLC is categorized under "institutions".

During the last quarter ended 31 December, the shares traded at a high of Rs 179 and low of Rs 161.60.

Directors have recommended a final cash dividend of Rs 8.00 per share to be paid for the financial year ended 31st December 2013. This dividend is to be approved by the shareholders at the AGM to be held on 31 March 2014.
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Ceylinco Insurance profits grow, Life Insurance a big contributor to revenue

By J. Kurukulasuriya

Ceylon FT: Ceylinco Insurance Co PLC released its interim financial statements for the 12 months ended 31 December 2013, showing an increase in Gross Written Premia of 4.6% to 23,691 million, with both Life and Non Life Insurance increasing. Net Income increased 12% to 30,396 million.

Revenue from subsidiary companies increased 31%, and investment/other income was up 36% to Rs 8,099 million, but finance costs increased 128% during the 12 months. Life Insurance was the main contributor to revenue.

The consolidated profit after tax for the period improved by 37% to Rs 2,869 million over the previous year.

The balance sheet shows a stated capital of Rs 1,324 million, with reserves and retained earnings of Rs 16,460 million. Among the Group's liabilities, 'other financial liabilities' increased markedly from Rs 16 million to Rs 1,777 million.

The number of shares in issue as at 31December 2013, was voting–20,000,000 and non voting -6,414,480 shares. Stated Capital was Rs 1,324 million.

During the quarter, shares traded at a high of Rs 1,400 and low of Rs 1,100 for ordinary shares and a high/low respectively of Rs 409 and 355 for non voting shares.

The company's main shareholders are Ciesot Private Ltd., with 22%, Global Rubber Industries Private Ltd., with 21%, and Pictet & Cie with 10%.

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