Will Geneva act against Bourse?

By First Capital Equities Research

In a sign of further intensification of political pressures on Sri Lanka, the US-sponsored resolution on Sri Lanka was passed at the 25th Session of the United Nations Human Rights Council (UNHRC) in Geneva with the support of 23 countries. However, 12 countries, including China and Russia continued to extend their support to Sri Lanka.


Meanwhile 12 countries, including India, which previously supported the resolution for an independent investigation into Sri Lanka’s alleged war crimes abstained from voting. Although the US and EU stand firm in their belief of war crimes committed in the last phase of the Sri Lankan civil conflict and the on-going human rights violations, many foreign delegations in the post-war period who visited the former conflict zone have commended the progress in reconciliation efforts by the Sri Lankan Government.

With the UNHRC resolution bound to cause some concern among investors about Sri Lanka’s future in the economic and political spheres, we reiterate that any possible impact will be experienced in the long term when the investigation concludes and its findings revealed.

Negative impact on trade account
Among the strongest possible impacts of the UNHRC resolution on Sri Lanka is its impact on the external trade sector. During the previous two months, Sri Lanka witnessed a growth in export earnings and consequently a contraction in the trade account deficit.

With the US and EU being among Sri Lanka’s largest export markets (US and EU account for 85% of textile and garment exports in January 2014) we expect any measure adopted against Sri Lanka is likely to curtail exports to these regions and consequently have an adverse impact on the country’s trade account balance. Further, with the resolution shedding a negative light on Sri Lanka we can expect a possible reduction in tourist arrivals and FDI flows into the country.

Bullish market outlook remains
However in an encouraging sign, despite limited advances being witnessed in the bourse, market momentum continued to improve gradually with the ASPI reporting a gradual yet steady advance in the ASPI in the past few weeks. Despite the threat of the Geneva resolution against the country, Sri Lanka continued to attract a high volume of foreign inflows into the country while also witnessing an increase in retail activity.

The months of January and February 2014 witnessed high foreign outflows although the trend reversed in the month of March which saw a pickup in foreign and retail activity. It is noteworthy that the increase in foreign and retail activity during the month occurred against the backdrop of the Geneva resolution thus indicating strong positive investor sentiment.

With the bourse moving along an upward track we expect the bourse to cross the 6,000 resistance level in the coming days with a high volume of retail activity providing the necessary impetus.

Sri Lanka will stand firm
With investor confidence remaining resilient despite global political pressures, we expect the bourse to continue to gather steam as we head further into the year 2014. On a global platform with firm support from selected counters and their continued investment and contribution to the Sri Lankan economy, we believe Sri Lanka would remain firm and continue to enjoy economic expansion and market growth in the future.
www.ft.lk

Sri Lanka’s EPF’s investment in Glass firm shares goes up

Sri Lanka’s Employment Provident Fund, (EPF) the largest such fund in the country says, its investment in the listed Piramal Glass Ceylon PLC has reached 10-pct of the issued share capital of the firm.

The EPF announced this via a market disclosure.

www.news360.lk

Related News:

http://www.cse.lk/cmt/upload_cse_announcements/8631396004696_.pdf

Cheated Touchwood depositors meet on Wednesday

By Duruthu Edirimuni Chandrasekera

Adding to troubled forestry firm Touchwood’s woes, Sri Lankan expatriates in Dubai and Australia who invested in Touchwood plantations are joining forces with depositors in Sri Lanka in a new attempt to seek justice against the company.

The Maloney’s –Ross and Swarna who founded the company – are absconding abroad and sought by the Lankan authorities.

The Securities and Exchange Commission (SEC), which has intervened in a case where an aggrieved investor is seeking to wind up Touchwood Investments, said on Friday that they have completed their investigation and handed it over to the court. The case was taken up on Monday in the Colombo High Court and put off till April 3rd for written submissions by all involved parties.

Lakshan Dias, Attorney at Law representing some creditors of Touchwood, told the Business Times that a meeting of about 20 depositors will be held on Wednesday. One depositor who didn’t wish to be identified in a telephone conversation told the Business Times that he along with a dozen or so others had got ‘caught’ to Touchwood when a team from their Thailand office had done some promotions more than three years ago in Dubai. “Three of us are sending our proxies through our relations to attend this meeting,” he said.

Another depositor said that last September some Touchwood directors had met with them and informed that the company had obtained an expert opinion which said that if the depositors waited for three more years, their harvest in the plantations in Thailand which they invested in will double. “Some of us renewed our contracts for three more years,” he said. He added that some others who refused this proposition were given cheques from the directors’ personal accounts, but they had bounced.

Mr. Dias said that some depositors in Australia are also sending their power of attorneys for the meeting on Wednesday.

The Maloney’s sold the company to a group of investors led by present chairman Lanka Kiwilegedera whose efforts to revive the company have so far not succeeded. Swarna Maloney had been in contact with one depositor in a Skype-call from a South-East Asian country and promised to return the money by end-February. That promise is yet to be fulfilled.

SEC Deputy Director General Dhammika Perera told the Business Times that there are some “issues” in their report that could come under the Penal Code and warrant a CID investigation. “I can’t disclose the people that we suspect but while there are issues that could be dealt under the SEC Act, there are other issues that could come under the Penal Code,” he said.

Trading in Touchwood shares at the Colombo Stock Exchange has been suspended for several days.
www.sundaytimes.lk

Ceylinco Chairman punches price-cutting & staff poaching

Grows profitability and proposes dividend of Rs. 16 per share

The Chairman of Ceylinco Insurance PLC, the biggest player in the country’s insurance industry, has pointed an accusing finger at "alarming price cutting by some companies continuing unabated."

"This type of desperate sales tactic makes customers lose confidence in the business ethics of the insurance industry. It is high time such companies take steps to prevent an erosion of the industry," Ceylinco Chairman Godwin Perera said.

"Another unpleasant trend which surfaced during the year was the enticing of our senior sales persons with offers of high monetary rewards by competitors. We are flattered by the attention paid to our employees by our competitors. If Ceylinco Insurance is to be the training institute for insurance professionals, we will be quite happy to continue to play that role," he added.

Ceylinco Insurance closed the year ended December 31, 2013 by growing its profit before tax 25.37% to Rs.2.3 billion and its company after-tax profit to Rs.2.1 billion, up 28% from a year earlier.

At group level the after-tax profit was up 37% to Rs.2.87 billion with the company profit translating to an earning per share of Rs.80.20 of which Rs.16 has been proposed as a dividend per share to shareholders.

Perera said that Ceylinco had always managed its General and Life businesses as virtually two companies with separate head offices located in separate buildings, separate branches, separate sales force and separate support staff. As such, segregation of these two businesses in accordance with Regulation of Insurance Industry (Amendment Act) would pose no major problems.

He assured shareholders that their interest will be safeguarded and the details of the segregation will be presented to them at an extraordinary general meeting of which due notice will be given at the appropriate time.

Perera said that Ceylinco is very confident that even as two separate companies they will continue to do well providing protection and financial security of the highest quality.

Mr. Ajit Gunawardena, MD/CEO of Ceylinco’s General Insurance Division said that the company has maintained its leading edge in a market place where cutthroat competition was evident. Ceylinco’s General Insurance business has contributed Rs.878 million to the company’s profit with the Life Division contributing Rs.1.24 billion.

He also said that their `On The Spot’ claims settlement remained unique with no competitor able to emulate it.

Gunawardena also referred to the changing weather patterns globally with Sri Lanka too affected. Looking at the potential threat of this emerging phenomenon from an insurer’s perspective, he said that they would be able to face "any catastrophe of any magnitude" adding that they have already made re-insurance arrangements to absorb any such situation.

Mr. R. Renganathan, MD/CEO of the Life Division said that insurance potential in Sri Lanka remained largely untapped despite their best efforts. This represented an opportunity for all players but there were some "who seemed to forget the fundamentals of our business in their search of short-term gains to make their financial statements look more attractive."

Ceylinco had sold 147,091 new Life policies last year averaging 12,257 policies per month – "a respectable effort in the circumstances."

The Life Division’s investment portfolio had grown 14.83% to Rs.50.75 billion. At the end of the year under review, 40% of the portfolio was in government securities, 11% in licensed private banks, 21% in state banks, 10% in real estate, 15% in corporate debt and the balance three percent in other areas.

"As always, these investments are made in conformity with the investment guidelines stipulated under the Regulation of Insurance Industry Act No.43 of 2000 and are subject to regular monitoring by the Insurance Board of Sri Lanka (IBSL)," he said.

During the year under review the Life Division had acquired a stately colonial era mansion at Gower Street, Colombo 5 as a training centre for their staff and sales force. This graceful building was adjacent to the Ceylinco Life Tower and its acquisition was a significant addition to the division’s real estate portfolio.

Ceylinco has a stated capital of Rs.1.32 billion, retained earnings of Rs.10.54 billion, other reserves of Rs.2.4 billion and a re-valuation reserve of Rs.162 billion.

Total assets of the company stood at Rs.88.2 billion and total liabilities at Rs.66.33 billion. At group level total assets were Rs.87.42 billion and total liabilities Rs.69.02 billion.

The Ceylinco share with net assets of Rs.601.40 per share, up from Rs.475.60 the previous year, saw the voting share trading at a high of Rs.1,400 and a low of Rs.850. The non-voting share traded at a high of Rs.430 and a low of Rs.220.

The directors of the company are: Messrs. J.G.P. Perera (Chairman), A.R. Gunawardena (MD/CEO - General Insurance), Mr. R. Renganathan (MD/CEO – Life Insurance), H.D.K.P. Alwis (Deputy CEO – General Insurance), E.T.L. Ranasinghe (Deputy CEO – Life Insurance), Dr. W.C.J. Alwis , P.D.M. Cooray, K.I. Dharmawardena, P.M.B. Fernando, D.H.J. Gunawardena, P.A. Jayawardena, N.D. Nugawela, T.N.M. Peiris, U. Witharana, Gen. C.S. Weerasooriya (Retd) and S.R. Abeynayake.
www.island.lk

Geneva triggers foreign exit from CSE?

Net foreign outflows on the Colombo bourse last week had hit a seven-week high with some analysts attributing the foreign exit as a reaction to the UNHRC decision on Sri Lanka in Geneva on Thursday.

"Foreign sales on Friday rose sharply to Rs.2.9 billion, the highest outflow in a single day since February 6, 2014," the Weekly Stock Market Report from Acuity Stockbrokers said.

"Net foreign outflows from equities consequently rose to a 7-week high, helping extend the bourse’s year-to-date outflow position to Rs.6.99 billion."

This compared with a net foreign inflow of Rs.22.8 billion for the comparative period last year.

JKH, described as the blue chip that was the foreign investor favourite, bore the brunt of the sell-off, the report noted. But by close of trading both the ordinary shares and warrants (W0022) had gained 2.15% and 5.74% respectively.

"The ASPI’s failed to break the key 6,000 point resistance barrier due to selling pressure and profit taking in selected counters this week,’’ the report said.

"Nevertheless, the final decision on the long-awaited UNHRC vote subdued some of the volatility that has dominated markets in the run up to the meeting."

Both the ASPI and S&P SL20 closed the week in the green with the All Share Price Index gaining 34.30 points (0.58%) and S&P SL20 up 32.65 points (1.01%). The ASPI was up 0.58% week-on-week and S&P SL20 up 1.01%.

JKH was the highest contributor to the week’s turnover accounting for 52.54% of the total of Rs.3.3 billion as a result of heavy foreign selling of the counter.

Crossings on NDB on Thursday saw this stock post a turnover of Rs.1.29 billion to account 25.53% of the total while Janashakthi ran third with a turnover value of Rs.218.13 million accounting for 3.47% of the total.

John Keells Stock brokers said in its Stock Market Weekly that the ASPI had traded within a narrow range over the week with activity levels driven on Friday by large trades in JKH and NDB accounting for 73% of the week’s turnover.

Foreign participation picked up on the selling side over the week recording a net outflow of Rs.2.8 billion, JKSB said.
www.island.lk

Ceylinco’s major shareholders employees’ funds

Ceylinco Insurance PLC, the lead player in the country’s insurance industry in market share terms, is predominantly owned by its employees including its directors, the recently released annual report of the company reveals.

Ceisot (Pvt) Limited (Ceylinco Employees Share Ownership Trust) is the largest shareholder of the company with 22.86% of the voting shares followed by Ceylinco Insurance Employees Gratuity Trust Fund with 9.27% and the Ceylinco Insurance Pension Fund 4.56%.

The Pension Trust Fund of Ceylinco Insurance owns 2.74% while three directors, Dr. W.C.J. Alwis (2.63%), Mr. R. Renganathan (2.63%) and Mr. A.R. Gunawardena (0.62%).

The Gratuity Trust Fund of Ceylinco Insurance (Life Division) owns 0.42%.

A related company fund and The Finance Company Employees Medical Fund, owns 0.18% (36,284 shares).

Citizens Development Business Finance PLC, once a member of the Ceylinco group floated in the mid-1990s owns 3.14%.

The company’s former Chairman, Mr. Lalith Kotelawala, individually and jointly with his wife Mrs. S.P.C. Kotelawala, owns 0.27% (54,886 shares).

The second largest shareholder of Ceylinco is Global Rubber Industries (Pvt) Limited with 21.82% while Mr. Prabash Subasinghe connected to that company owns 9.27%.

Among the 20 top shareholders are Global Sea Foods (Pvt) Limited with 3.14%, David Pieris Motor Company 0.23% and DPMC Asset Line Holdings (Pvt) Limited 0.21%.
www.island.lk