Sri Lanka sets presidential poll for Jan. 8

(Reuters) - Sri Lanka's Election Commission on Friday scheduled the presidential election for Jan. 8, a day after President Mahinda Rajapaksa declared his intention to seek an unprecedented third term.

Rajapaksa, 69, came to power in 2005 and won a second six-year term in 2010 on a wave of popularity after the military defeated Tamil Tiger separatists, ending a 26-year civil war.

His poll ratings have fallen sharply since.

(Reporting by Ranga Sirilal; Writing by Shihar Aneez; Editing by Nick Macfie)

Fitch: Prospects Improve for Sri Lankan Consumer Durable Retailers in 2015

(The following statement was released by the rating agency)

COLOMBO, November 21 (Fitch) Fitch Ratings says that lower borrowing rates, reduced electricity tariffs and an upcoming cut in the value added tax (VAT) will create a more favourable environment for retailers of consumer durables in Sri Lanka in 2015. With improvement in their purchasing power, Sri Lankan consumers are increasingly looking to upgrade to new, more efficient consumer electronics and household white goods. Fitch believes that a recovery is likely for the consumer durables sector in Sri Lanka in 2015. Demand for consumer electronics and white goods tend to be volatile across business cycles due to their non-essential nature and larger price tags. Fitch expects retailers of consumer durables to achieve modest revenue growth supported by increasing consumer purchasing power following a 25% reduction in domestic electricity tariffs from September 2014 and a cut in the VAT rate to 11% from 12% that will be implemented in 2015. The consumer durables industry faced a challenging environment in 2013 due to pressure on disposable income and introduction of the VAT, which retailers found difficult to pass on to consumers leading to a negative impact on margins. As a result, Fitch-rated retail corporates' revenue grew only by 2% in the financial year ended 31 March 2014 (FY14) against 11% in FY13. The sluggish demand also resulted in build-up of inventory, leading to higher working capital requirements. Higher working capital requirements coupled with lower profitability saw leverage of Fitch rated retail corporates deteriorate in 2014. Retailers usually have high leverage as they borrow to finance their in-house hire purchase operations. Fitch rated retail corporates' average net adjusted debt to EBITDAR increased to 6.4x at end-March 2014 from 4.3x at end-March 2013. Fitch expects higher sales and better working capital structure to have a positive impact on the retailers' leverage in 2015. The consumer durables industry is characterised by few key players, like Singer (Sri Lanka) PLC (A-(lka)/Stable), Abans Limited (BBB+(lka)/Negative) and Softlogic Holdings PLC, dominating the market. These companies have strong brand portfolios and extensive distribution networks, which are hard to replicate given the investment required and brand equity of established players. This protects the existing players from competition to a certain extent. 

Contact: Dilranie Mudannayake +94 1 1254 1900 Analyst Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Centre Colombo 01, Sri Lanka Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available at www.fitchratings.com. 

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Upgrades Union Bank of Colombo to 'BB+(lka)'

(The following statement was released by the rating agency) 

COLOMBO/TAIPEI, November 21 (Fitch) Fitch Ratings Lanka has upgraded Sri Lanka-based Union Bank of Colombo PLC's (UB) National Long-Term Rating to 'BB+(lka)' from 'BB(lka)'. The Outlook is Stable. 

KEY RATING DRIVERS - NATIONAL RATING The upgrade of UB's rating reflects the sharp increase in its capitalisation and ongoing structural improvements in the bank's credit profile. UB's Fitch core capital ratio rose to 46% at end-3Q14 from 14% at end-2013 after an LKR11.4bn (USD87m) private placement of shares to Culture Financial Holdings Ltd., an affiliate of Texas Pacific Group (TPG) in August 2014. The placement gave TPG a 68% stake in the Sri Lankan bank, which could increase if TPG exercises warrants to invest a further LKR3.4bn within six years. TPG has approval from the Central Bank of Sri Lanka to increase its holding in UB to 75% and reduce it to 15% in 15 years. UB is in the process of putting in place a new management team, which is likely to focus on improving the performance of the bank under the direction of TPG's representatives on the bank's board. Fitch will monitor the bank's execution and management of its revised strategy. Fitch believes that ongoing improvements to the bank's risk management processes and systems, and its plan to move to extend its customer base beyond its previous focus on SMEs could help support better asset quality. Consequently, Fitch expects UB's capitalisation to decline alongside its expected expansion, but believes that the bank could sustain stronger capitalisation than in the past in the medium term. UB's asset quality remained weaker than that of the sector and deteriorated in the nine months to September 2014 and in 2013. The bank's reported gross NPL ratio (excluding UB Finance Limited) increased to 11.6% at end-3Q14 and 8.2% at end-2013 from 5.4% at end-2012. This reflected in part the increase in NPLs from pawning (gold-backed) advances, which was seen across the banking sector in the aftermath of the decline in gold prices. In addition, NPLs at its subsidiary UB Finance Limited remained significant and accounted for 22% and 34% of the group's total NPLs at end-3Q14 and end-2013. UB has addressed some of its operational weaknesses by the implementation of systems in 2Q14 to support core banking transactions. Its risk management capabilities have also been enhanced through the implementation of more sophisticated systems. 

RATING SENSITIVITIES - NATIONAL RATING An upgrade of UB's rating is contingent upon UB having achieved a fundamental improvement in its asset quality, moderation of its risk appetite and a strengthened franchise. Aggressive growth that could increase capital impairment risks or a further deterioration in asset quality could lead to a downgrade of UB's ratings. Established in 1995, UB is a small licensed commercial bank accounting for less than 1% of the Sri Lankan banking sector's assets at end-2013. The bank had a network of 61 branches at 3Q14. 

Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +941 1254 1900 Fitch Ratings Lanka Ltd 15-04, East Tower, World Trade Center Colombo 1, Sri Lanka Secondary Analyst Kanishka de Silva Analyst +941 1254 1900 Committee Chairperson Jonathan Lee Senior Director +886 2 8175 7600 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. 

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, and "Evaluating Corporate Governance", dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here 

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Rates Abans' Debentures 'BBB+(lka) (EXP)'

(The following statement was released by the rating agency) 

COLOMBO/SYDNEY, November 21 (Fitch) Fitch Ratings has assigned Abans Plc's proposed issue of senior unsecured redeemable debentures of up to LKR2bn an expected National Long-Term rating of 'BBB+(lka)(EXP)'. The rating is contingent upon the final transaction documents conforming to information already received. The proposed debentures are rated in line with the Sri Lanka-based retailer's National Long-Term Rating of 'BBB+(lka)', as they will rank equally with the company's other senior unsecured creditors. The debenture is expected to be issued in three tranches with maturities of three, four, and five years at fixed coupon rates. The proceeds will be used to re-finance part of the company's short-term borrowings and will help to reduce Abans' exposure to refinancing- and interest rate risk. 

KEY RATING DRIVERS 
Weakening Credit Metrics: Abans' net leverage, as measured by adjusted net debt/EBITDAR (excluding finance subsidiary Abans Finance Plc), increased to 8.05x in the financial year ended 31 March 2014 (FY14) from 5.25x in FY13. Abans' fixed-charge coverage (EBITDAR/gross interest + rent, excluding finance subsidiary Abans Finance Plc) deteriorated to 0.82x in FY14 from 1.34x in FY13. The deterioration was mainly due to EBITDAR margin (excluding Abans Finance Plc) contracting to 6.5% in FY14 from 9.2% in FY13 because of subdued demand, intense competition and a shift towards lower margin products. Although the company has plans to reduce its debt, Fitch expects Abans' leverage to remain above 4.5x in the medium term due to a weak recovery in EBITDAR margins. Leading Consumer Durable Retailer: Abans is one of the leading retailers of consumer durables in Sri Lanka, and it has a strong brand portfolio and extensive distribution network. Abans' revenues are supported by its in-house hire-purchase operations, which contributed to 40% of revenue in FY14. Abans' hire-purchase book is prudently managed with higher down payment requirements and an efficiently and closely monitored recovery system, which has helped the company maintain a low delinquency rate. Real Estate Project Risk: Abans' investment in a mixed-use development called Colombo City Centre will be capped at LKR1.9bn, most of which was incurred in FY14. Even though the equity contribution is capped, any delay in debt funding or pre-sales of the project could result in further capital calls for Abans. Furthermore, any delays to construction, which is due to run from FY15-FY17 could increase the business risk for Abans. Abans is undertaking the project, which has retail, hotel, and apartment components, with Singapore-based Silver Needle Hospitality. 

RATING SENSITIVITIES 
Negative: Future developments that may, individually or collectively, lead to a negative rating action include: - A sustained increase in Abans' adjusted net debt/EBITDAR excluding Abans Finance Plc to over 5.5x - Fixed-charge coverage reducing below 1.25x on a sustained basis - A material delay in progress on the Colombo City Centre project or additional capital calls for the project - Any delay in the scheduled repayments from related parties. 

Positive: No positive rating action is expected given that the rating is on Negative Outlook. However, future developments that may individually or collectively lead to the Outlook being revised to Stable include: - Smooth progress of the Colombo City Centre project, which will limit Abans' financial liability to the initial investment value. - Improvement in the retail environment as reflected in sustained improvement in EBITDAR margins above 7% 

Contact: 
Primary Analyst Nadika Ranasinghe, CFA Vice President +94 11 254 1900 Fitch Ratings Lanka Limited Level 15-04 East Tower World Trade Center Colombo 01 Secondary Analyst Shyamila Serasinghe Analyst +94 11 254 1900 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. 

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 28 May 2014, and 'National Scale Ratings Criteria', dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage hereNational Scale Ratings Criteria here Additional Disclosure Solicitation Status here 

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

HDFC Bank maintains growth momentum

Housing Development Finance Corporation of Sri Lanka (HDFC Bank) has recorded Rs 586.2 million profit before tax for the nine month period ending 30 September 2014 as against Rs 307.4 million in the corresponding period of 2013, an increase of 91%.The profit after tax had beenRs 295.4 million as against Rs 158.9 million in the previous year an increase of 86%. The bank's interest income has grown from Rs 2,576.6 million to 3,232.3 million an increase of 25%.

Housing Development Finance Corporation of Sri Lanka (HDFC Bank) has recorded Rs 586.2 million profit before tax for the nine month period ending 30 September 2014 as against Rs 307.4 million in the corresponding period of 2013, an increase of 91%.The profit after tax had beenRs 295.4 million as against Rs 158.9 million in the previous year an increase of 86%. The bank's interest income has grown from Rs 2,576.6 million to 3,232.3 million an increase of 25%.

The interest expense stood at Rs 1902.7 million as against Rs 1,778 million in the corresponding period during 2013 an increase of seven per cent. The net interest income has grown from Rs 796.7 million to 1,329.6 million an increase of 67%. The fee-based income has shown a decline from Rs 208.8 million to 170.6 million. This was revealed by the Chief Executive Officer/ GM, Nimal Mamaduwa in a press release announcing the bank's 3Q 2014 performance.

The bank's loan portfolio stood at Rs 22.3 billion as against Rs 19.7 billion as at 31 December 2013 an increase of 14%. The deposit portfolio has increased to Rs 23.4 billion from Rs 18.9 billion an increase of 24% during the first nine months of the year 2014.

The Return on Assets (ROA) stood at 2.64% as against 1.82% in the corresponding period 2013 an increase of 45% and the return on equity has risen from 8.13% to 13.8% an increase of 66%. HDFC Bank met the capital adequacy requirement stipulated by the CBSL as at 30 September 2014. T1 and T2 capital adequacy ratio stands at 14.5% and 14.9% respectively as against five per cent and 10% regulatory requirement. The bank also maintains statutory liquid asset ratio of 30.2% as against 20% regulatory requirement as at the end of the 3Q 2014.

The above-mentioned satisfactory financial indicators have become possible mainly due to the banks product diversification plans implemented in the year 2013 and 2014. Under the Dirimaga Micro Finance Loan Scheme the Bank had been able to successfully identify micro entrepreneurs to commence self-employment schemes or to improve existing small businesses. The bank is also engaged in commercial scale dairy development loan scheme (CSDDLS) throughout its 33 branches islandwide with the participation of CBSL on several training programmes for entrepreneurs and financial literacy programmes on regional basis.

During the 1Q 2014 the bank commenced implementation of 'HDFC Leasing' which has been particularly focused for small and medium entrepreneurs who require commercial vehicles, three-wheelers, motor cycles and vehicles for professionals and others. HDFC Bank housing finance facilities are available to all socio-economic groups in the country. 

Over the year HDFC has strategically distributed its loan portfolio proportionately among all income segments of the population. Over 70% of the loan portfolio has been distributed to the low and middle income populations that represent 60% to 70% of the population. As a result, HDFC's main market is the low and mid-income sectors which include rural and urban populations.

The bank expects to open branches in Nittambuwa, Nikawaratiya, Ambalangoda, Polonnaruwa, Kiribathgoda and Deniyaya in the near future for which regulatory approval has already been obtained.
www.ceylontoday.lk

Renuka Hotels, Cargo Boat Development to construct Rs. 2 b office complex in Colombo 2

Renuka Land Ltd., a joint venture between Renuka Hotels Ltd and Cargo Boat Development Company Plc, has initiated a project to construct a modern rentable ‘Class A’ office building complex in Colombo catering to the much-needed requirement of such a facility in the rapidly developing city.

Enabling convenience and affording accessibility, the building will be located on company-owned land at No. 29, Braybrooke Street, Colombo 2, in the heart of the metropolis.
The total investment for the Board of Investment (BOI) approved project has been estimated at Rs. 2 b.

The building will adhere to modern international standards and criteria at all stages of construction along with the introduction of new and innovative features to its design.

The construction of the building, which is scheduled to commence in December this year, will culminate in April 2017.

The property will consist of 204,343 sq ft, out of which 108,138 sq ft will be available for rent. The design comprises of the ground floor, basement and 13 levels, out of which five levels will be allocated for parking with 160 parking bays, and eight levels will consist of state-of-the-art rentable office space. The ground floor will consist of the main entrance lobby, coffee shop, administration offices and services.

The construction contract will be awarded to a C1 contractor and the design has been done by a dedicated team at Design Group 5, one of Sri Lanka’s well established architectural firms and the winner of the Best Office Architecture Award for the Asia-Pacific region. As such, following contemporary design practices that best suit the needs of end users of the building, Design Group 5 has incorporated recreational and utility facilities such as a coffee shop, a gymnasium, a rooftop terrace and a laundry and dry-cleaners into its blueprint with the aim of providing maximum convenience to their tenants.

The service facilities of the building include high speed passenger lifts, 100% backup generator for the entire facility and advanced safety and fire detection systems that will be built according to international specifications. There is also the option of getting office space tailor-made according to a tenant’s specific requirements at the initial stages of the development of the project.

Renuka Hotels Ltd. and Cargo Boat Development Company Plc have been in the industry of managing hotels and property development and management for decades. Cargo Boat Development Company Plc owns and manages 75,000 sq ft of office space in Janadhipathi Mawatha, Colombo 1 and Renuka Hotels Ltd owns and manages Renuka Hotel and Renuka City Hotel.

The Board of Directors of Renuka Land Ltd. include R. B. Thambiayah, N. A. Thambiayah, S. R. Thambiayah, A. L. Thambiayah, N. R. Thambiayah, M. A. Jayawardena, W. D. Nimal Hemasiri Perera and S. M. Tishan Harendranath Subasinghe.
www.ft.lk