Wednesday 26 March 2014

Sri Lankan stocks steady amid concerns ahead of UN resolution voting

(Reuters) - Sri Lankan stocks ended little changed on Wednesday amid concerns ahead of a U.N. resolution on the country's human rights record.

The prospect of a resolution that could hurt the country's economy has dented investor sentiment, analysts said. Several potential buyers of risky assets are awaiting a clear direction.

Sri Lanka has questioned the independence of the United Nations human rights office after the United States asked it to investigate violations by the government related to the civil war. A vote on the resolution is scheduled on Thursday.

The main stock index ended 0.03 percent, or 1.81 points, weaker at 5,950.97, near its two-week high hit on Tuesday.

"Trading was sluggish. There were some crossings which boosted the turnover," a stockbroker said.

Turnover was 762.1 million rupees ($5.83 million), the highest since March 11, helped by market heavyweight Ceylon Tobacco Co Plc and top Conglomerate John Keells Holdings.

However, it was less than this year's daily average of 859.3 million rupees.

Ceylon Tobacco fell 1.36 percent to 1,083 rupees, while John Keells ended steady at 218 rupees.

Sri Lanka's 2.47 trillion rupee bourse saw a net foreign outflow of 41 million rupees worth of shares, extending the net selling so far this year to 4.17 billion rupees.

It had recorded a 22.88 billion rupee inflow in 2013.

($1 = 130.6500 Sri Lanka Rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Sri Lanka stocks close flat

Mar 26, 2014 (LBO) - Sri Lanka's stocks close flat Wednesday with some index heavy stocks losing ground, brokers said.

The Colombo benchmark All Share Price Index closed 1.81 points lower at 5,950.97 down 0.03 percent. The S&P SL20 closed 4.56 points higher at 3,261.05, up 0.14 percent.

Turnover was 762.29 million rupees, up from 416.42 million rupees a day earlier with 78 stocks close positive against 88 negative.

John Keells Holdings closed flat at 218.00 rupees with market transactions of 246.09 million rupees contributing to 32 percent of the daily turnover.

JKH’s W0022 warrants closed 50 cents higher at 63.50 rupees and its W0023 warrants closed 10 cents higher at 67.10 rupees.

The aggregate value of all off market transactions accounted for 19 percent of the turnover.

Foreign investors bought 384.82 million rupees worth shares while selling 425.80 million rupees of shares.

Piramal Glass Ceylon closed 10 cents lower at 3.50 rupees attracting most number of trades during the day.

Ceylon Tobacco Company closed 14.90 rupees lower at 1,083.00 rupees and Carson Cumberbatch closed 9.60 rupees lower at 360.00 rupees.

Bukit Darah closed 24.80 rupees higher at 587.00 rupees and Nestle Lanka closed 19.20 rupees higher at 1,983.10 rupees.

Cargills Ceylon closed 3.00 rupees lower at 137.00 rupees and CT Holdings closed 4.00 rupees lower at 136.00 rupees.

Commercial Leasing and Finance closed 20 cents higher at 4.00 rupees and George Steuart Finance closed 24.20 rupees lower at 73.10 rupees.

AIA Insurance closed 18.90 rupees higher at 289.70 rupees and Ceylinco Insurance closed 21.90 rupees higher at 1,392.60 rupees.

Richard Pieris and Company closed flat at 6.60 rupees amid the company proposing to issue up to 3.5 billion rupees worth debentures.

Sri Lanka Treasuries yields steady

Mar 26, 2014 (LBO) - Sri Lanka's Treasuries yield were steady at Wednesday's auction with the 3-month yield falling 01 basis points to 6.65 percent, data from the state debt office showed.

The 6-month yield fell 01 basis point to 6.82 percent and the 12-month yield was flat at 7.05 percent.

The debt office offered 10 billion rupees of maturing debt to the market and only accepted bids worth 8.2 billion rupees from the market.

Related News:
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20140326ea.pdf


Janashakthi to split insurance

Indunil Hewage (indunil.hewage@gmail.com)



Janashakthi Insurance is hoping to segregate the Long Term (Life) and Non-Life Insurance businesses into two separate entities by the end of 2014, Janashakthi Insurance Managing Director Prakash Schaffter said.

The company has made considerable progress to ensure it is well prepared for compliance with the regulations in February 2015.An internal task force was appointed to ensure regulatory compliance and a smooth operational transition by 2015.We have already received the board approval and hopefully we will be able to finalize this process by end of this year. Subsequently, Life insurance company which will probably be the holding company and Non Life Insurance will be the subsidiary. The Insurance Board has given certain guidelines that we have to follow in the splitting and subsequent operations and we are fully compliant with those requirements, Prakash Schaffter said.

“The company will continue a strategy of sustainable growth, that of growing our market share whilst always mindful of managing the impact of such growth on our bottom line. Whilst we will continue to focus on building on the strength of our Motor business, we will also look to increase the share of Non Motor business in our portfolio”, Schaffter said.

In an intensely competitive industry we are always mindful of the need for constant innovation in products and service in order to maintain the progress we have made. Janashakthi will thus continue to focus on the development of new products and services in keeping with rapidly evolving market needs, changing life styles, demographics and technology.

Janashakthi Insurance posts Rs 1 b PAT in 2013

Janashakthi Insurance reached its highest ever consolidated revenue of Rs 9.9 billion reflecting 20% growth , stemming from attractive returns generated from Janashakthi’s solid investment. Building on this strong performance, Janashakthi Insurance was able to deliver 22% Return on Equity to its shareholders, as well as a net asset per share of Rs 12.48 , reflecting a 34% year on year growth, the company Annual Report 2103 said.

This strong growth with highest profit after tax of Rs 1 billion and largest recorded customer base of 700,000 customers, has placed the company in a stellar position to meet the impending regulatory split.

The company achieved these results while honouring over Rs 4.4 billion in claims over the past year alone.

Janashakthi also reported a total asset base of Rs 18.6 billion, while its stated capital of Rs 1.49 billion is the highest in the category.

In addition , the company achieved Rs 8.7 billion Gross Written premium , more than 75% of which is made up of non-life premiums, reflecting the company’s renewed focus on diversification. The life segment increased by 8.3% to reach Rs 2.19 billion, while non life business contributed Rs 6.5 billion to revenue, an increase of 10% compared to the previous year.

The solvency margin of Janashakthi’s life insurance increased from 440% of the required margin level has increased to 710% by year end , 2013.Total Assets of the company have reached Rs 18.65 billion in 2013 from that of Rs 15.84 billion in 2012.
http://www.dailynews.lk

Touchwood winding-up ensues heated exchanges; written submissions fixed for 3 April

The inquiry of the Touchwood winding-up case was resumed in the Commercial High Court before Amendra Senevirathna H.C.J, on 24 March, where the appearances and the legal representations of the parties were as before.

Counsel for the Petitioner Avindra Rodrigo and Counsel for the intervening creditors made their submissions in favour of the Winding-up Petition on the last date of the Inquiry (19 March 2014). 


Counsel for the Company, Harsha Amarasekera P.C. made his submissions, opposing the Winding-up Petition when the case was taken up last Monday.

The company admitted the monies owed and payable to the Petitioner and other intervening creditors who have invested in the Agarwood plantation in Thailand amount to a total of Rs. 73 million.

The company admitted that they presented several schemes of settlement in Court and out of Court at various instances and the company even admitted that they issued cheques to its creditors which were eventually unrealised. They further admitted that the cheques issued from the personal account of the CEO of the company in open Court too had not realised for insufficiency of funds in the account.

Counsel for the company went on to say that the company has complied with all the Directives issued by the SEC imposing certain restrictions on the management of the assets of the company. The Counsel further assured that the company has not in any way attempted to siphon out funds or alienate its assets after winding-up proceedings were instituted.

Counsel further stated that the company owns not only the land used for the Sandalwood plantations in Sri Lanka but also the Land of Agarwood plantations in Thailand. However, the valuation report filed by the company discloses only land of local sandalwood plantations worth Rs. 335 million (including the value of the trees) and the company strongly believes that the debts can easily be settled by utilising the assets of the company.

The company stated in its submissions that it is not unusual for a company to undergo a liquidity crisis as in the present case. Counsel further explained by drawing an analogy with a bank where all of its depositors would want to draw their money out of the bank at the same time and stated that in such a scenario the bank will not be in a position to meet the demand of all of its depositors but would not be considered insolvent.

The company displayed a tendency to delay Court proceedings from the time of instituting legal action. Overcoming such delaying tactics the Counsel for the Petitioner and other intervening creditors insisted on proceeding with the inquiry for the Winding-up amidst objections from the company on the last occasion.

Amidst such objections from the company and certain objections from the SEC the Petitioner commenced the inquiry on 19 March 2014. Even though the inquiry for the winding-up is underway, the company still seems to believe that they are not insolvent and that they have sufficient assets to settle the creditors. The company strives continuously to convince Court that a solvent company such as Touchwood Investments PLC should not be wound-up.

Several questions were raised by the Honourable Judge during the submissions of the Counsel for the company. Among other queries it was questioned as to why cheques were issued from the personal account of the CEO if the company claims to be solvent.

Counsel for the Petitioner Avindra Rodrigo made further submissions at the conclusion of the company’s submissions. He emphasised that the company has no liquid cash at present to pay its creditors and for that simple reason the company is deemed insolvent. The fact that the company may have valuable assets should not be considered in deciding the insolvency of the company at present and Counsel further stated that the Court is not in a position to speculate the status of the company taking into account the assets of the company if it is obvious that the company has no cash. Whether the company could raise funds in the future to pay its debts is irrelevant to decide the status of the company at present.

The Counsel for the Petitioner further stated that the amounts due to the creditors by the company was never an unforeseen debt or liability as the company was aware of the period of maturity of the plantations. The time duration was stated in the contracts entered into and therefore the company should have made provision for the amounts payable to its investors. Counsel went on to state the fact that the company is faced with a cash flow crisis cannot be adopted by the company as a defence to the winding-up as the company had ample time to overcome such a liquidity crisis and prove its solvency.

Counsel for the Petitioner further stated even though the company claims to own land in Sri Lanka and Thailand and has filed a valuation report of its assets, not a single Title Deed verifying their ownership over such assets has been filed or produced in Court.

Counsel for the SEC Dr. Harsha Cabraal stated that an investigation carried out by the SEC has been concluded and that the report of the investigation will be filed in Court. From the submissions made by the Counsel for the SEC one could infer that SEC was not favouring the winding-up of the company even though they have not clearly disclosed if they were in support of or against the winding-up of Touchwood. Counsel for the Petitioner objected to the submissions of the SEC stating that they are neither a creditor nor a contributory of the company and therefore, has no authority to oppose the winding-up of the company.

Oral submissions by the parties were concluded and the case will be called for the filing of written submissions on 3 April 2014.

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

COMBank only private sector bank to cross Rs. 10 b PAT

Commercial Bank Chairman Dinesh Weerakkody in a wide-ranging interview talks about the opportunities and challenges for Commercial Bank and the financial sector in general. Weerakkody is also a Director of many other listed and un-listed companies. Following are excerpts:


By Shanuka Tissera

Q: 2013 was a challenging year for all banks with PAT down for most banks. How would you describe Commercial Bank’s performance in 2013?
A: Commercial Bank turned in a strong performance in 2013. Total assets crossed the Rs. 600 billion mark and reached Rs. 607 billion, reflecting a growth of 18%. Deposits from customers and loans and advances grew by 15% and 12% to reach Rs. 451 billion and Rs. 418 billion respectively. Net interest income and non-fund based income recorded reasonable growth in line with the growth in business volumes and net profit for the year growing by 4.9% to reach Rs. 10.573 billion further reinforcing our pre-eminent position as the largest and the most profitable private sector bank. We continue to be the only Sri Lankan private sector bank to cross the 10 Billion PAT both in 2012 and 2013, and also to be ranked among the World’s Top 1000 Banks. We were also No. 2 in the Business Today, all-sector ranking in 2013.

Q: What is the foundation for this strong performance?
A: I would say the passion and contribution of all our employees, our loyal and valued customer base and all our valued partners, both state and private. To give you a helicopter view, organisations win by creating a competitive advantage, which is doing something unique that competitors cannot easily copy and that customers’ value. The competitive advantage comes from the people in the organisation, the culture and finally leadership.

Q: With competition intensifying what is Com Bank doing to stay ahead of competition?
A: In a nutshell, putting innovation to the spotlight, increasing productivity, delivering great experiences across all customer touch points. To elaborate, we will continue to explore new markets where we can expand our remittance business. Building on our strength in technology will enable us to realize new levels of cost-efficiency while dramatically improving the delivery of products and 24/7 customer services. We hope to widen the scope of our fee based services and our business advisory. We will continue to expand our regional presence into markets that historically have been underserved, while at the same time strengthening our valuable existing customer networks in Sri Lanka, Bangladesh and the Middle East.

Q: Internet banking is changing the way service is getting delivered, how is Commercial Bank responding to this?
A: Commercial Bank has one of the best Retail Internet Banking Portals in Sri Lanka. It supports almost every type of financial transaction, incorporates advanced security features, and provides a very pleasant user experience. At present, we have more than 100,000 users. In the coming year we intend replicating our product leadership to Corporate Internet Banking, giving our customers the flexibility of anywhere, anytime banking.

Q: What are some of the new features Commercial Bank planning in the area of mobile banking?
A: Commercial Bank has taken a measured approach to developing this channel. From the early days of SMS Banking almost a decade ago, through to the launch of the first Tri-lingual Mobile Banking system in Sri Lanka in 2011, Commercial Bank now offers applications using WAP, USSD, iPhone, and Android. This approach has allowed us to provide ‘fresh’ user experiences as the underlying telecommunications and handset technology has evolved with the result that we have more than 80,000 customers using this channel. In the months to come we will expand our support for person-to-person mobile payments and also look at how we can incorporate ‘lifestyle’ content to provide a rich user experience.

Q: What plans are in the pipeline to increase efficiency and delivery of service in 2014?
A: We have several centralisation projects in the pipeline that will enhance the experience at our customer touch points. The focus will be on reducing the turnaround time for serving our customers. Our Loan Origination System has been a big success not only with streamlining the loan approval process but also to free time at the counter to improve service delivery and customer acquisition.

Q: Do you as a bank leverage data analytics to deliver greater revenue per customer and value for customers?
A: With competition intensifying we need to serve our existing customers even better by deepening existing relationships and by adding new customers. This requires us to analyse how our customers use our products and services, and try to identify how we can improve their experience. This analysis also needs to determine what products and services we are not offering our customers as these are clearly lost revenue opportunities. Therefore effective cross-sell strategies are critical to improve revenue per customer and to do that banks need to know their customers at a deeper level for cross selling across segments.

Q: What is the bank’s strategy for employee development?
A: Our strategy is to deepen the bank’s talent pool by investing in training and development, and by fostering their leadership abilities to build a leadership brand that reflects the expectations of the customers outside the bank.

Q: Moving on, your views on the proposed Central Bank road map for consolidation?
A: The consolidation of financial institutions in my view will be beneficial for the stability of the financial sector in the long term and for the country. Consolidation will enhance the size of the banks and rev up their ability to source oversees borrowing and risk taking capacity to enable private banks to participate in large state and private sector projects to a greater degree than at present and derive scale benefits with regard to functioning costs and finally deliver greater value to all stakeholders.

Q: Are there Lessons that we can borrow from other countries?
A: There are many examples of financial sector consolidation initiatives carried out in countries such as Malaysia and Singapore. Especially after the Asian financial crisis there was a big push to merge weak financial institutions with strong institutions. In Malaysia for example, impaired assets of the weak institutions were moved out to be managed separately and financial and technical assistance was provided for recapitalisation of undercapitalised financial institutions. In general, acquisitions worked faster and the integration was not that messy.

Q: Overall what more is required to ensure the Central Bank consolidation Road map deliver value to all stakeholders?
A: As I said before consolidation is a good thing for the industry. By creating an enabling environment it can encourage consolidation and also help to create a very strong financial sector. However, setting and meeting deadlines set for the consolidation could be a challenge for the industry. However, voluntary consolidation of business institutions is a normal business. When businesses go into such consolidation voluntarily, they look for synergy and to protect their stakeholder interests and would not join in any consolidation unless there is a clear business case for M&A. Then, all the stakeholders can expect to get the best out of M&A moves. The timelines given for consolidation could be made bit more flexible to give more space to ensure that informed and robust decisions are taken. Certainly there needs to be timelines that must be met. The other area is M&A advisory, which is crucial for sound valuations and to manage the culture integration.

Q: People issues are one of the biggest challenges in a merger and often not given adequate attention. Your thoughts?
A: In a firm it is HR’s job to find recruit, train and develop, engage workers, resolve conflict, and keep an eye on productivity. However in most M&A deals HR professionals usually have little involvement at the pre-deal stage, which goes a long way to explaining why people, organisation and culture issues tend to get overlooked, often the members of the deal team have no skills to assess the HR soft issues that are so critical for integration. A merger has a profound effect on the people of both companies, and managing this impact is an important part of managing a successful transition to a unified leadership, business model, and organisation. By recognising and responding appropriately to the impact of the deal on each employee, HR managers can set the tone for long-term success or failure of the new company. In the pre-deal stage, it is the organisational design that needs focus, particularly assessing and selecting the right leadership talent. Remuneration also plays a key role and needs to be considered from a multiple perspective to identify the impact on employer, employee, and cost. Maintaining and building morale and loyalty, treating people fairly are the other areas in this stage that plays a significant role. In the post-deal stage, it is the responsibility of HR to plan and manage the integration process to ensure a successful integration, to do that effectively, HR needs to manage employee communication, manage the change and the new culture, focus on talent retention and selection, integrate the HR functions, integrate pay and performance and also the Leadership development. By managing this effectively the new entity would be able to engage employees in productive work and keep their motivation/commitment levels at the highest possible levels to achieve the desired goals and also retain the key talent needed to manage the merged entity.

Q: What is your outlook for 2014 and beyond?
A: With interest rates expected to remain low, we anticipate a corresponding rise in demand for credit in the private sector. This renewed credit activity is expected to stimulate the entire Sri Lankan economy, and with Sri Lanka poised to become a regional and an international services hub, there would be new opportunities for public-private partnerships. A continued low-interest environment may also spark growth in the property market, with an increase in both commercial real estate financing and consumer housing loans. We also expect to see new life and general buoyancy in capital markets. 

Furthermore in light of the Government’s move to create an enabling environment for M&A, with a view to create larger and stronger financial institutions that are well capitalised, with strong regional presence, the banking sector would derive scale benefits with regard to operational cost and also be able to participate in large scale infrastructure projects both public and private to a greater degree than now.

Q: Finally, in terms of the banking act direction 11 you will be completing your nine-year term in July. How practical is this given the shortage of competent and the need for independent Bank Directors?
A: This is good practice and in line with some of other good governance codes applicable in many developed markets. Term limits provide a painless way for people to retire gracefully and automatically. Admittedly, this is a pragmatic argument—and the downside is that a director who is doing a fantastic job may get forced out early. My view is term limits reduce the likelihood that a few individuals dominate board decisions forever and they also help to provide periodic injections of new energy and ideas. Then on the subject of skills and competence of Bank Directors, the Central Bank has been investing time and money to build the required capability and the bench strength in the banking sector. However, there is no debate bank Boards require people with varied skill sets, tech-savvy and people who are independent in their thinking to ensure the Board has the breadth and depth of skills and experience to enable adequate oversight of the bank business now and in the future.

(The writer is a graduate in Accounting and Finance from the University of Leicester UK and is engaged in financial/investment advisory in Sri Lanka and the UK)
www.ft.lk