Sri Lanka stocks edge up on foreign buying

(Reuters) - Sri Lankan shares edged up in thin trade on Thursday led by blue-chips and on foreign buying, but an impending U.N. resolution on the country's human rights record later this month dented sentiment.

The main stock index ended up 0.04 percent, or 2.51 points, at 5,914.56.

Foreign investors were net buyers for the first time in five sessions, buying a net 52.1 million rupees worth of shares on Thursday. Net outflows stood at 4.1 billion rupees so far in 2014, and clocked 22.88 billion rupees in 2013.

The day's turnover was 263.3 million rupees ($2.02 million), well below a third of this year's daily average of about 907.4 million rupees.

Analysts said investor sentiment has been dented on concerns over the U.N. resolution, which could have an impact on the country's economy. Many potential buyers in risky assets are staying on the sidelines awaiting clear direction.

Shares in biggest listed lender Commercial Bank of Ceylon PLC gained 1.03 percent, while top conglomerate John Keells Holdings edged up 0.05 percent.

Earlier this month, Sri Lanka questioned the independence of the human rights office of the United Nations after the United States asked it to investigate violations by the Sri Lanka government related to the civil war.

A vote on the resolution is scheduled for the next week. 

($1 = 130.6000 Sri Lanka rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

Sri Lanka shares close flat

Mar 20, 2014 (LBO) - Sri Lanka's shares close slightly higher amid thin price increases in the index heavy stocks, brokers said.

The Colombo benchmark All Share Price Index closed 2.51 points higher at 5,914.56 up 0.04 percent. The S&P SL20 closed 6.69 points higher at 3,231.91, up 0.21 percent.

Turnover was 263.33 million rupees, down from 640.97 million rupees a day earlier with 93 stocks close positive against 97 negative.

Commercial Bank closed 1.20 rupees higher at 117.70 rupees with market transactions of 50.60 million rupees contributing to 19 percent of the daily turnover.

Foreign investors bought 105.47 million rupees worth shares while selling 53.33 million rupees of shares.

Union Bank closed 90 cents higher at 18.30 rupees and Blue Diamonds closed 30 cents higher at 3.50 rupees, attracting most number of trades during the day.

Indo Malay closed 150.00 rupees higher at 1,650.00 rupees and C T Holdings closed 5.40 rupees higher at 140.00 rupees.

Hatton National Bank closed 1.70 rupees lower at 156.20 rupees.

Bukit Darah closed 8.90 rupees higher at 560.00 rupees and Lion Brewery closed 9.00 rupees lower at 385.00 rupees.

Ceylon Cold Stores closed 5.70 rupees lower at 141.00 rupees and Nestle Lanka closed 2.90 rupees higher at 1,953.10 rupees.

Ceylon Tobacco Company closed 10 cents lower at 1,099.90 rupees and John Keells Holdings closed 10 cents higher at 218.10 rupees.

JKH’s W0022 warrants closed 1.10 rupees lower at 62.70 rupees and its W0023 warrants closed flat at 67.10 rupees.

Sri Lanka's Softlogic Retail rated 'BBB-' by RAM

Mar 20, 2014 (LBO) - Sri Lanka's Softlogic Retail (Pvt) Ltd, a consumer durables and apparel retailer has been given a 'BBB-' domestic rating by RAM Ratings Lanka.

" The ratings are upheld by the Company’s strong competitive position backed by its diversified target markets and a retail branding strategy which caters to the various niches of the local retailing industry," RAM said in a statement.

"The Company’s “Softlogic Max” branded showrooms cater to the high-end market segment, whilst the “Softlogic” branded showrooms cater to the countries mass market as a whole, even encompassing the rural populace of the country.

"Furthermore, SRL also remains as the market leader in the branded apparel market segment, and has grown exponentially in this segment over the past few years by introducing many international brands such as Mango, Nike, Giordano, DKNY, Levis, and Charles & Keith exclusively under its retail wing."

But RAM the rating was moderated by weak debt protection metrics and exposure to foreign vendor and supplier concentration risks.

The Group’s total borrowings most for expansion had more than doubled to 3.47 billion rupees in March 2012 from 1.66 billion in March 2011.

Its gearing ration increased to 3.57 times from (2.94 times excluding borrowings from related parties) from 1.95 times in 2011

By March 2013 gearing had marginally improved to 3.37 times and to 2.49 times by March 2014 financial year after a 398 million capital infusion.

The full statement is reproduced below:-

RAM Ratings Lanka assigns BBB-/P3 Corporate Credit Ratings to Softlogic Retail (Private) Limited

RAM Ratings Lanka has assigned respective long- and short-term corporate credit ratings of BBB- and P3 to Softlogic Retail (Private) Limited (“SRL” or “the Company”); the long-term ratings carry a stable outlook. SRL is an electronic and clothing retailer, which is involved in the import and distribution of home electrical appliances, office automation items, and apparels. The Company is also an authorised agent for a number of automobile brands in Sri Lanka. SRL and its subsidiaries are collectively referred to as the Group.

The ratings are upheld by the Company’s strong competitive position backed by its diversified target markets and a retail branding strategy which caters to the various niches of the local retailing industry. SRL has devised a retail branding operation, which caters to the various niches of the local retailing industry.

The Company’s “Softlogic Max” branded showrooms cater to the high-end market segment, whilst the “Softlogic” branded showrooms cater to the countries mass market as a whole, even encompassing the rural populace of the country. Furthermore, SRL also remains as the market leader in the branded apparel market segment, and has grown exponentially in this segment over the past few years by introducing many international brands such as Mango, Nike, Giordano, DKNY, Levis, and Charles & Keith exclusively under its retail wing.

The ratings are also upheld by the robust improvements in the Company’s financial performance in recent times. SRL’s revenue has charted an uptrend in the recent years, demonstrating a compounded annual growth rate (CAGR) of 60.52% from FY Mar 2009 to FY Mar 2013. The Group’s growth was recorded at 10.55% in FY Mar 2013, from the higher growth levels of FY Mar 2012 and FY Mar 2011 on the back of adverse economic and market conditions encountered by the entire retail industry.

Nevertheless, SRL’s revenue continued to grow in Q3 FY Mar 2014, increasing by 23.52% y-o-y (Annualised) on the back of an increase in demand for consumer electronics and branded apparels in the country. The Group’s operating profit before depreciation, interest and tax (OPBDIT) margin, which declined to 8.97% in FY Mar 2013 from 9.48% in FY Mar 2012, also rebounded marginally in Q3 FY Mar 2014, increasing to 9.01% amidst a rise in demand for consumer electronics and branded apparels on the back of an improved economic and financial climate. However, the Group’s bottom-line growth remained fairly stagnant on the back of higher finance costs coupled with fixed costs pertaining to the opening of new outlets.

Furthermore, the outlook for the retail sector of Sri Lanka is also expected to progress, driven by improved market balances, favourable economic conditions and an increase in the overall consumer spending levels.

The preceding positives are, however, moderated by the Company’s weak debt protection metrics coupled with SRL’s exposure to foreign exchange and supplier/ vendor concentration risks. The Group’s total borrowings, which were largely raised for expansion purposes, more than doubled to LKR 3.47 billion in FY Mar 2012 from LKR 1.66 billion in FY Mar 2011.

Consequently, SRL’s gearing ratio increased to 3.57 times (2.94 times excluding borrowings due to related parties) in FY Mar 2012 from 1.95 times (1.64 times excluding borrowings due to related parties) in FY Mar 2011. Nonetheless, SRL gearing levels showed marginal improvement in FY Mar 2013, improving to 3.37 times (2.75 times excluding borrowings due to related parties) and improved further to 2.49 times (2.02 times excluding borrowings due to related parties) in Q3 FY Mar 2014 on the back of equity inflows amounting to LKR 398 million through a capital infusion in 2QFY 2014.

We also note that a bulk of SRL’s borrowings consist of working capital loans related to hire purchases. Thus, SRL’s gearing ratio excluding working capital loans related to hire purchases was at 1.31 times as at end- FY Mar 2013 and 0.82 times as at end- FY Dec 2013. Furthermore, SRL’s FFO debt coverage ratio continued to remain weak at 0.22 times in FY Mar 2013 (0.47 times excluding borrowings related to working capital loans related to hire purchases), regardless of the Company’s improved performance, due to the Group’s existing debt levels.

We also note that SRL has short-term borrowings consists of loans due to related parties amounting to LKR 1.00 billion as at end-3Q FY Mar 2014 (LKR64.80 million as at end- FY Mar 2013). Our ratings hinge upon the capitalization of LKR400million worth of related company loans on or before end-1Q FY Mar 2015 (June 2014), which is expected to further improve the Company’s gearing levels. RAM Ratings Lanka notes that the non-capitalization of this related company loan will trigger a negative rating action on the company.

More time needing Touchwood objects but petitioner proceeds with winding up

The much awaited Touchwood winding-up case was called in the Commercial High Court yesterday before High Court Judge Amendra Senevirathna, on 19 March 2014 for the inquiry of the Winding-up where the appearances and the legal representations of the parties were as before.

Counsel for the petitioner Avindra Rodrigo, proceeded with the inquiry of the winding-up amidst many objections by the counsel for the company Harsha Amarasekera P.C.

The company had delayed the inquiry on various grounds, promising a settlement from the time the matter was first heard in Court and it was apparent that the company attempted to postpone the inquiry, when the matter was taken up in Court yesterday. Inquiry will resume on 24 March 2014 on which date the company will be given the opportunity to make their submissions.

The counsel for the company requested Court to grant two more days to settle the petitioner and the intervening creditors, to which counsel for the petitioner and other counsel representing the intervening creditors objected, stating that it was yet another delaying tactic. As no payments were made by the company since the institution of action the petitioner and intervening creditors seemed adamant to proceed with the inquiry for the winding-up.

The petitioner filed action in the Commercial High Court Colombo, to wind-up Touchwood Investments PLC on 26 July 2013 as the company had failed to pay monies due to him. The company objected to the Winding-up Petition filed in court and stated that the company will settle all the investors of the Agarwood plantation in Thailand in accordance with a proposed payment plan.

The company proposed a settlement scheme to settle the petitioner in full in two installments, 50% of the payment by 14th January 2014 and 2nd installment of the remaining 50% by 14th March 2014. The company also admitted debt of seven other intervening creditors, and proposed a settlement plan to pay them in three instalments of 25% by 14 January 2014, 25% by 14 March 2014 and the remainder by 14 June 2014. The company failed to adhere to the terms of settlement they proposed, and no payments were made by 14 January 2014. The creditors who were deceived by the previous management of the company had a glimpse a hope of recovering their dues in the light of the proposed settlement plan presented by the new management, but soon realised that even though the management had changed hands not much has change. They were yet again left with only disappointment and regret.

On 27 January 2014 when the case was called in the Commercial High Court, counsel representing the company Harsha Amarasekara PC stated that the CEO of the Company, L.W. Kiwlegedara will issue cheques to the petitioner and seven other intervening creditors in settlement of the 1st instalment that was due on 14 January 2014. The cheques dated 27 February 2014 were issued from the personal bank account of the CEO and were presented to the creditors in open Court. Later when the case was called on 25 February 2014 the company requested the creditors to bank the cheques on 3 March 2014. The petitioner and the creditors accepted the said cheques even though they were post-dated cheques issued from the account of the CEO of the company and presented the cheques on 3 March 2014 as requested. The petitioner and the creditors have exhibited a great degree of tolerance towards the company by complying with numerous requests and by providing further time and opportunities for the company to settle their dues.

However, when the cheques presented in open Court were returned, the petitioner and the intervening creditors had no other recourse but to proceed with the winding-up. Numerous assurances given by the company in open Court were treated with no regard disrespecting the entire Court system and the legal proceedings of Court.

Avindra Rodrigo stated in his submissions that the petition for the winding-up had been made in compliance with the provisions of the Companies Act 7/2007 and the company had not at any instance disputed the monies owed to the petitioner. The company had given numerous assurances to the petitioner that his dues will be settled in a timely manner. Five cheques issued to the petitioner by the company before instituting legal action too had been returned as the said cheques were issued from a closed account. The Board of Directors of the company is said to have been changing frequently exhibiting the instability of the company. The counsel further stated that it is established beyond doubt that the company has no money to pay the investors as it had adopted a ‘Ponzi’ scheme where old investors are paid with the money invested by new investors, and the company is now faced with a liquidity crisis as there are no new investors.

Counsel further stated that directives issued by the SEC imposing a restriction on the management and alienation of the assets of the company will prevent the company from alienating its assets, however, as there is no official, such as a liquidator to take over or monitor the management of the company these directives may be of no effect in practice. It was further stated that a company which has failed to settle the petitioner and seven creditors as per the settlement plan is deemed unable to pay the admitted debts of 257 other creditors of the company and that alone reveals the insolvent state of the company. Counsel further submitted that the company has not only failed to pay its investors but also the salaries of its employees for the past few months and that the company now has no registered office.

Counsel further emphasised the urgency of concluding this matter as further delay would only increase the improbability of recovering the investors’ dues. Counsel further drew an analogy to other similar incidents of the recent past where public quoted companies collapsed leaving the investors with no hope of recovering their dues.

Several counsel appearing for the intervening creditors supported the submissions made on behalf of the petitioner and made submissions in support of the winding-up. They also drew Courts’ attention to the fact that investors of other companies using the brand name Touchwood such as Touchwood Ltd., in Thailand and Touchwood Forestry Company Ltd. in Hong Kong, may resort to other courses of action to recover their dues.

Several questions in relation to the accuracy and reliability of the information contained in the Annual Report of 2013 of the company were raised by a counsel for an intervening creditor.

Inquiry will be resumed on 24 March 2014 on which date the company will be given the opportunity to make their submissions.

Counsel Avindra Rodrigo instructed by Messrs. FJ&G De Saram appeared for the Petitioner while Harsha Amarasekara instructed by Messrs. Paul Rathnayake Associates appeared for Touchwood Investments PLC.
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