Sri Lanka Monetary Policy Review – August 2015 - Policy Rates Unchanged

Headline inflation remained in the negative territory for the second consecutive month, recording -0.2 per cent in August 2015 on a year-on-year basis. Headline inflation, on an annual average basis, moderated further to 1.0 per cent in August 2015 from 1.3 per cent in the previous month. Meanwhile, core inflation, which reflects the underlying price movements in the economy, increased to 3.9 per cent in August 2015 on a year-on-year basis, from 3.5 per cent in the previous month. Going forward, the inflation outlook and expectations remain favourable for the remainder of the year, supported by improved domestic supply conditions and subdued global commodity prices. 

Although some pressures in the short term interest rates were observed along with declining liquidity levels in the domestic money market, most market interest rates continue to remain at low levels. Supported by the prevailing low interest rates, the year-on-year growth of credit extended to the private sector by commercial banks accelerated to 19.4 per cent in June 2015 compared to 17.6 per cent in May 2015. Credit disbursed in absolute terms increased by around Rs. 55 billion during the month of June, while on a cumulative basis, credit to the private sector increased by around Rs. 205 billion during the first half of 2015 compared to a decline of Rs. 53 billion during the corresponding period in 2014. The expansion in private sector credit in the first half of the year was largely due to higher disbursements of credit to the Industry and Services sectors. Nevertheless, the rapid increase in the imports of consumer durables including motor vehicles driven by credit available at low interest rates, among other things, has raised some concerns. The Central Bank is closely monitoring these developments in order to ensure that credit continues to be available to support productive economic activity while avoiding excessive expansion in credit in the period ahead. Meanwhile, driven by the expansion in private sector credit along with increased bank borrowings by the public sector, the year-on-year growth of broad money (M2b) remained at 15.3 per cent in June 2015 compared to 15.4 per cent in the previous month. 

In the external sector, increased expenditure on imports relative to earnings from exports widened the trade deficit in the month of June 2015 as well as on a cumulative basis during the first half of the year. However, regular inflows of remittances and earnings from tourism continued to support the current account balance. In the meantime, net inflows to the financial account moderated further during this period, largely responding to expected developments in the advanced economies. In addition, reflecting the repayments made under the IMF's Stand-By Arrangement (SBA) and the payments made to the Asian Clearing Union (ACU), as well as the intervention by the Central Bank to reduce excess volatility in the domestic foreign exchange market, gross official reserves, which stood at US dollars 7.5 billion at end June 2015, are estimated to have decreased to US dollars 6.8 billion by end July 2015. However, official reserves are expected to increase during the remainder of the year with higher inflows arising from improved business outlook and investor confidence along with the realisation of the remaining proceeds of the currency swap arrangement with the Reserve Bank of India (RBI) amounting of US dollars 1.1 billion and long term financial flows to the government, including the planned term loan of US dollars 500 million. Reflecting the domestic and global developments, the Sri Lankan rupee has depreciated by 2.3 per cent to Rs. 134.30 against the US dollar so far during the year. 

Taking the above developments in the economy into consideration, the Monetary Board, at its meeting held on 31 August 2015, was of the view that the current monetary policy stance is appropriate. Accordingly, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.00 per cent and 7.50 per cent, respectively. 

Sri Lanka bond auction yields soar; 5-year up 97bp

ECONOMYNEXT - Sri Lanka's 5, 6 and 11 year bonds yields rose sharply at Tuesday's auction, with 2020 bonds rising 97 basis points to 9.35 percent from the last auction on August 11, data from the state debt office show.

The debt office sold 5.5 billion rupees of the bond maturing on 01.05.2020.

The average yield of a six year bond maturing on 01.08.2021 rose 64 basis points to 9.71 percent up from the last auction on August 04 at 9.07 percent. A total of 1.755 billion rupees of the bond was sold.

The debt office also sold 24.063 billion rupees of a bond maturing on 01.06.2026 to yield 10.34 percent.

There was no recent auctions of the same maturity but bond maturing on 01.09.2025 were auctioned on August 25 for 9.97 percent.

Bond yields have tended to rise higher when there is a large rollover, with the Central Bank saying that all bonds will be auctioned from this year, but then eases. However with state spending racheted up in January with a revised budget, Sri Lanka's doemstic credit has risen requiring higher interest rates to keep the economy in equilibrium.

On September 01, about 79.5 billion rupees of bonds and 15 billion rupees of coupons are due, dealers said. The debt office raised a total of 31.31 billion rupees of bonds from this auction.

On August 25, another 30 billion rupees of bonds were sold to be settled on September 01. 

Sri Lankan shares slip ahead of c.bank policy move

Reuters: Sri Lankan shares snapped three straight sessions of gains to end lower on Monday as investors booked profits and waited for cues from the central bank's August monetary policy meeting later in the day.

The Central Bank of Sri Lanka is expected to keep its policy rates unchanged at record lows at the policy meeting, a Reuters poll showed.

The country's main stock index ended 0.59 percent lower, or down 43.58 points, at 7,306.94, not far off its lowest close since July 23 hit last Tuesday.

"Investors are sceptical and the market is down on low trade," said Reshan Kurukulasuriya, chief operating officer of Richard Pieris Securities (Pvt) Ltd.

Foreign investors were net buyers for the first time in seven sessions on Monday, purchasing a net 29.7 million rupees ($220,817.84) worth of shares on Monday. They have however been net sellers of 3.35 billion rupees worth of shares so far this year.

Turnover stood at 517.8 million rupees, its lowest since July 21 and around half this year's daily average of 1.16 billion rupees.

Shares in conglomerate John Keells Holdings fell 1.69 percent while Ceylon Tobacco Company Plc fell 1.59 percent, dragging down the overall index. 

($1 = 134.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lanka milk firm caught by pincer state controls

ECONOMYNEXT - Sri Lanka's milk powder distribution is caught between high import taxes and price controls, despite plunging world prices, Lanka Milk Foods, a dairy company has said, in line with pincer controls seen in several other sectors.

Global milk powder prices reached high levels two year ago amid but most food commodities including oil and metals are now falling as the US Federal Reserve has stopped excessive money printing and the dollar is going up.

Sri Lanka's rulers who imposed price controls when global food prices went up, then started to tax import milk powder. Taxes on milk powder was raised from 57 to 82 and to 135 rupees a kilo.

After a January 2015 budget, rulers forced firms to cut prices by 152 rupees a kilo.

"Simultaneously, the increasing import duty on imported milk powder will continue to make milk powder a luxury and not a necessity, as should be the case for the citizens of the country," Lanka Milk Foods told shareholders in the annual report.

"The maximum retail price imposed by the government authorities serves to have a detrimental effect on the selling price of the final product, thereby affecting the accessibility to a nutritious essential product such as milk, which provides the dietary calcium requirement for children and adults."

LMF said it had resumed distribution of Lakspray branded milk powder after a six month gap.

Though Sri Lanka got independence from the British in 1948, freedom activists say native rulers then intensified controls on the people, using tool inherited from the British such as customs department to try to make the population dance to their tune.

One of the ruler fads is to force people to drink liquid milk, though the price of liquid milk has been driven up to unaffordable levels by state mandated farmgate prices which are raised to create an autarky due to nationalist ideology imported from Europe or to win elections, analysts say.

As a result in Sri Lanka liquid milk is higher than the rest of the world, and there is no incentive for dairy farmers to improve productivity. The rulers have tried to undermine the milk powder industry despite many households being unable to afford refrigerators.

LMF group also has its own farms set in the hill country where high yield milk cows are grown. It runs Ayrshire and Friesian breeds.

The firm said the heard at Ambewela Dairy Farm & New Zealand Dairy Farm is constantly improved from selected imported cattle semen. Fodder maize and imported varieties of rye grass are also being grown as pasture.

Analysts say other sectors in the food industry such as poultry has also been caught by state pincer controls preventing the ability of the people to feed themselves.

Chicken is price controlled but the price of maize is kept high through import duties to create an autarky, hurting chicken farmers and pushing them out of business. Sri Lanka's chicken prices are also out of line with world prices due to the maize autarky.

Protein malnutrition is high among poorer children in Sri Lanka, which analysts say is partly due to a vicious National-socialist style autarky to create self-sufficiency through high prices and import controls.

Mandatory offer for PMB too Low, says independent advisor

NDB Investment Bank, (NDBIB) in an independent opinion on the joint mandatory offer by the People’s Bank and People’s Leasing and Finance PLC (PLC) to purchase all the remaining ordinary shares of People’s Merchant Finance PLC (PMB) has advised that the offer price of Rs. 22 per share is not attractive to shareholders of PMB and has recommended that they should not accept it.

The offer was triggered by the People’s Bank and PLC together acquiring almost 6.5 million shares (9.75%) of People Merchants Finance at a price of Rs.22 per share on July 3 this year.

Currently the joint offerors with slightly over 32.9 million shares hold 48.77% of PMB. The recent acquisition triggered the joint mandatory offer requirement of the SEC’s Takeovers and Mergers Code with the Rs.22 price now offered being the highest they, acting in concert, have paid for PMB shares within the previous 12 months.

The Takeovers and Mergers Code requires that an independent opinion on the offer should be made available to shareholders of companies being taken over or merged to assist them to take a decision on whether they would retain their shares or sell out.

The People’s Bank is one of the largest commercial banks in the country with over 13 million customers - the largest customer base of any bank in the country. People’s Leasing and Finance (PLC) is the country’s largest finance company with an asset base exceeding Rs. 100 billion with approximately Rs. 35 billion in customer deposits.

PLC currently operates five subsidiaries and is active in business segments including insurance, finance, micro finance, fleet management and property development. As a subsidiary of the People’s Bank, it enjoys government protection along with private sector flexibility.

Currently the People’s Bank is the top shareholder of PMB with 30.93% followed by PLC with 17.84%, the Capital Trust Group (22.1%) and other shareholders (31.02%).

PMB has run up losses of Rs. 91.4 million after taxes in 2012/13, Rs. 219 million in 2013/14 and Rs. 104.9 million (unaudited) up to December 31, 2014. As at December 31, 2014 PMB’s total assets exceeded Rs.4.9 billion whilst its total liabilities stood at approximately Rs. 4 billion.

NDBIB has calculated the net asset value of PMB at Rs. 13.9 per share and said that the Rs. 22 price offered represents a premium of 56.7% to the net asset value per share.

With a price to book value ratio (median of the identified peer companies as at March 31, 2015) they have estimated the value of an ordinary PMB share at Rs. 25.12 and said that based on this valuation Rs. 22 price offered by the joint offerors represent a discount of 12%.

The NDBIB opinion states that the share price of PMB has largely remained below the offer price since January, 2012 and liquidity too has been low. With a favourable swing in momentum seen in the ASPI during mid 2014, the PMB share too had moved accordingly and had been thinly trading above the offer price.

With the uptick in the ASPI last year, the price of the PMB share has remained largely above the offer price since April, 2014 and weighted average price to date for the period ended July 2, 2015 was Rs. 24.93.

"Therefore, the offer price of Rs.22 is at an 11.74% discount to the weighted average market price," the opinion said.

It also made the point that with the joint offerors emerging as the single largest shareholder group of PMB, it can be expected that the company would be better positioned to draw on the strengths of its parent company. This may potentially result in the ability to mobilize deposits at a faster pace when compared to peers while being able to leverage on available expertise in order to achieve growth in lending assets.

"Hence, PMB may be able to generate above average growth and deliver attractive returns to its shareholders in the medium to long term," the opinion said. Also, the emergence of a controlling shareholder of PMB would enable prompt and smooth execution of new business plans which may potentially enhance the value of the company.

NDBIB has also said that with Sri Lanka having over 40 registered finance companies in operation, there was stiff competition for deposit mobilization and lending products. This situation, in the absence of financial sector consolidation may lead to lower net interest margins and higher marketing costs in order to grow businesses.

"This may potentially result in PMBs turnaround strategy being prolonged and investors having to be patient until the company returns to profitability and is able to generate adequate shareholder returns," the opinion said.

www.island.lk

Ceylon Printers to raise Rs30mn through rights issue

(LBO) – Sri Lanka’s stationery merchants and printing firm, Ceylon Printers is to raise 30 million rupees by way of a rights issue, the company said in a stock exchange filing.

Subject to the necessary approvals, the company is to issue 25 thousand shares at 1,200.00 rupees each in the ratio of 5 for every 7 shares.

The proceeds will be utilized to invest in the expansion and the upgrading of company’s printing and packaging facilities.

Accordingly, the board has made a special resolution, subject to the necessary shareholder approval to purchase machinery worth 30 million rupees through the funds raised by the rights issue.

The stock closed at 1,800.00 rupees on Thursday.

Sri Lanka Com bank joins Dialog mobile money venture

ECONOMYNEXT – Commercial Bank of Ceylon has joined ‘eZ Cash’, Sri Lanka’s mobile money service, enabling customers to withdraw cash from selected ATMs island wide.

With this facility, in addition to the 16,000 retail points, eZ Cash account holders can withdraw money at their convenience from any Commercial Bank ATMs displaying the eZ Cash logo, a statement said.

The minimum withdrawal value is 100 rupees and the maximum is 5,000 rupees during a single transaction.

eZ Cash was launched in June 2012 by Dialog Axiata, enabling subscribers to send and receive money directly via mobile, and do utility and institutional payments.

With the advent of the Etisalat and Hutch mobile phone firms on to the network, eZ Cash has grown to a subscriber base of two million Sri Lankans with over 20,000 agent locations and merchant points island wide.

Commercial Bank operates the country’s single largest ATM network, and the largest online 24-hour cash-dispensing system in the country.

Sri Lanka's DFCC Bank, DVB shareholders approve merger

ECONOMYNEXT – Shareholders of Sri Lanka's DFCC Bank and its commercial banking subsidiary, DFCC Vardhana Bank, approved their merger from October 01 at an extraordinary general meeting Friday.

Shareholders of DVB, other than DFCC, are to be paid 52 rupees a share in lieu of their shareholding in DVB as at the date of amalgamation, a stock exchange filing said.

The merged entity will go as DFCC Bank Plc. DFCC started as a World Bank backed development lender.

Sri Lankan shares rise for third day; investors snap up battered stocks

Reuters: Sri Lankan shares rose more than 1 percent on Friday, rising for a third straight session, as investors bought into select battered stocks like conglomerate John Keells Holdings Plc after recent falls.

The main stock index ended 1.06 percent, or 77.38 points, higher at 7,350.52, moving further away from its lowest close since July 23 hit on Tuesday.

The index had lost 3.2 percent in the two sessions through Tuesday as foreign investors sold off risky assets on fears of a China - led global economic slowdown, and on selling by retail investors for month-end settlements.

"Some recovery is taking place, but not at full scale," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd. "There is selective buying of some of the stocks that fell sharply during the past few days."

Foreign investors were net sellers of 175.5 million rupees ($1.31 million) worth of shares on Friday, extending the year-to-date net foreign outflow to 3.38 billion rupees.

Turnover stood at 1.06 billion rupees, less than this year's daily average of 1.17 billion rupees.

Shares of John Keells jumped 3.20 percent, Ceylon Tobacco Company Plc rose 2.04 percent, Sri Lanka Telecom Plc gained 2.97 percent and Dialog Axiata Plc advanced 0.88 percent. 

($1 = 134.3000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Financial sector consolidation set to improve further

The coming year looks set to bring further consolidation to Sri Lanka’s financial sector, with market forces expected to drive the trend,the Oxford Business Group said.

Last year saw the the Central Bank of Sri Lanka (CBSL), take steps to bolster the sector’s operating environment by promoting consolidation amongst the country’s banks and non-banking financial institutions (NBFIs).

The CBSL had targeted a sector of around 20 NBFIs upon completion, roughly one-third of the 58 operating when the master plan was published. The roadmap also outlined higher minimum capital requirements for commercial and specialised banks, with a focus on the adoption of risk management best practices.

Progress thus far has been fair, with seven NBFIs completing some form of consolidation as of the end of last year; however, most of the benchmarks set out in the plan have yet to be achieved,the OBG said. A planned merger between DFCC Bank and National Development Bank (NDB), agreed to in early 2014, was called off in May, and most other consolidation has been limited to small NBFIs or subsidiaries of larger banking groups.

State pressure for lenders to consolidate was largely replaced by market momentum – an approach favoured by many analysts – with the victory of the United National Party in the parliamentary elections expected to reinforce this more hands-off approach. Officials from the CBSL told local media in May that the consolidation process would be part of the new administration’s long-term economic policy, to be carried out in a more systematic manner.

Many industry players agree that while consolidation is needed, the sector will be better served if market forces dictate the process. In particular, market-driven consolidation could help avoid accumulation of weak assets amongst non-banking institutions forced to merge. However, others in the industry see a place for guided consolidation, especially if the interests of stakeholders are not being protected by the market.

Signs that market forces are already at work are in evidence, with DFCC Bank and DFCC Vardhana Bank announcing plans in May to combine their operations. The news came just one week after the lenders called off the planned merger with NDB.Financial sector consolidation is expected to further improve the credit profile of Sri Lanka’s financial institutions, Fitch noted, strengthening franchises and reducing supervisory burdens.

Consolidation would be beneficial to the sector in the long term, while being credit neutral in the short to medium term, the report found.

Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Asia, Middle East, Africa and Latin America and the Caribbean.
www.dailynews.lk

Fitch maintains Ceylon Income Fund on Watch Negative

Fitch Ratings has maintained the ‘(A(lka))’ National Fund Credit Quality Rating of the Ceylon Income Fund on Rating Watch Negative.

The National Fund Volatility Rating is ‘V-NR’.

The maintenance of the RWN is driven by an increase in the proportion of the fund rated only by Lanka Rating Agency (LRA) following redemption activity in the fund.

The Securities and Exchange Commission of Sri Lanka issued a statement in July 2015 saying that LRA is not entitled to assess, evaluate or review the creditworthiness of listed securities or securities to be listed.
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BoC leads first half growth with Rs. 6.7 b profit

The Bank of Ceylon (BoC) continued to lead its growth course in first half of 2015 with Rs. 9.1 billion Profit Before Tax (PBT) achieving 6% growth over the previous year.

Profit After Tax (PAT) stood at Rs. 6.7 billion resulting in 8% growth. \The Group reported Rs. 9 billion PBT resulting in 5% growth over the corresponding period of the previous year and the Bank dominates the results of the Group accounting for 96% of total earnings and 97% of the Group’s assets.

Total operating income for the period stood at Rs. 31 billion and shows a 24% increase which has been accelerated through 52% growth in net interest income and 53% growth in other operating income.

Net interest income has increased due to higher interest income complemented by a 12% reduction in interest expenses depicting a greater efficiency in deposit mix management by the Bank which has contributed to improve the Net Interest Margin (NIM) by 36% to 3.4% on YoY basis.

Despite the increase in personnel expenses, the Bank has been able to maintain other expenses 17 % lower than those of the corresponding period in 2014, allowing only a marginal increase of 2% in total operating expenses.

BoC has grown its total assets by a further 6% to Rs.1.4 trillion as of end June 2015.

Loans and advances accounted for 56% of the Bank’s total assets base and gross loans stood at Rs. 837 billion.

Recovering from the slow credit growth in 2014, the loan book has grown by 8% during the first half of 2015. The investment portfolio also showed an upward movement due to increased investment and treasury activities.

Deposits accounted for 71% of the Bank’s liabilities as at end June 2015 and showed a marginal increase of 1% compared to the end 2014 position which is an 8% increase compared to end June 2014.

Deposit mix has improved favorably achieving a higher CASA mix (current and savings account to total deposits) of 45% resulting in 437 bp increase on YoY basis.

The Bank’s domestic liquid asset ratio was 30.8% as of end June 2015 while the off-shore liquid asset ratio was 28.9% standing well above the Central Bank’s required benchmark of 20%.

The Bank managed to maintain better trade-off between liquidity and interest earning assets.

The Bank also continued to sustain CAR by maintaining Tier I at 8.4% and Tier II at 11.9% levels against the Central Bank’s minimum requirements of 5% and 10% respectively.

Further, the Bank has created history once again by being ranked among the top five banks in the Asia – Pacific region (excluding China and Japan) in terms of return on capital by “The Banker” magazine, becoming the first Sri Lankan bank to achieve such a performance ranking.
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Listed corporates earn Rs 47B in 2Q

Earnings of listed corporates for the quarter ended 30 June 2015 showed a 10% year-on-year growth to Rs 47 billion amidst the slowdown depicted 'Quarter On Quarter basis (-12.8%) mainly on the back of continuously underperforming plantation and oil palm sectors, First Capital Research report said.

Positive contributions derived from growing consumption led Banking and Finance, Food and Beverage and Manufacturing sectors have assisted earnings to maintain at sustainable levels, the report stated.

According to report, the top contributor, the Banking and Finance sector continued its earnings uptrend by recording an earnings of Rs 4.4 Billion (31% YoY) amidst the boost in private sector borrowings.

"However, the positive contribution emanated from banks and finance companies was diminished by the negative impact derived from insurance companies, resultant to trading losses incurred due to slow movements in interest rates in the economy."

Manufacturing and Food and Beverage sectors also experienced a growth momentum owing to increasing demand for products coupled with improved disposable income.

Plantation and oil palm sectors were the main negative contributors to the June quarter earnings (139%YoY and 62%YoY respectively) due to lower commodity prices together with political and economic unrest prevailed in main export destinations.

As a result of lower trading gains recorded in the year, investment trusts sector's earnings also plunged by 70% to Rs 357 million, the report stated.

Low interest rate regime, higher disposable income and stable exchange rate are likely to drive Colombo Stock Market earnings for next March quarter positively affecting Banking and Finance, F & B, Manufacturing and Trading sectors while indirectly affecting diversified sector as well, the report said.

Realizing its June quarterly review, First Capital Research said that market returns are likely to stay low amidst the current uncertainty in the political front.

"Market returns to be strong once the prevailing uncertainty settles down. However, we expect a slowdown in economic conditions beyond June 2016 due to possible rise in interest rates affecting companies across the board ", it stated.

As a result the report predicted that Market earnings to slowdown for the earnings period Dec 2016E / Mar 2017E resulting in an earnings forecast of 4%-5% YoY.
www.ceylontoday.lk

CSE listing rules amended

The CSE Listing Rules pertaining to the basis of determining the Reference Price and the eligible persons to carry out such task in the event of an Introduction of shares have been amended.

This is to be in line with those of an Initial Public Offer of shares. Accordingly, Section 3.4.8 and 3.4.11 (a) (ii) have been amended to reflect these requirements.
www.dailynews.lk

Unity Plaza to get new look

On'ally Holdings PLC will invest money to modernize the Unity Plaza building to international standards to maintain its competitive edge.

On'ally Holdings Managing Director Brian Selvanayagam said the company has already engaged with an internationally renowned real estate company, named Jones Lang LaSalle to advise them on this process. He is confident that modernization process of Unity Plaza will result in an improved performance of On'ally Holdings. (IH)
www.dailynews.lk

Hayleys Amaya to enter Maldives

Shirajiv Sirimane shirajivs@gmail.com

Hayleys PLC will be entering the leisure market of the Maldives for the first time.

This will be through their leisure arm Amaya Leisure PLC which consists of Amaya Lake in Dambulla, Amaya Hills in Kandy and Langdale by Amaya in Nuwara Eliya.

Hayleys have already leased a lagoon from the Maldivian government for 55 years for this operation. Managing Director, Amaya Resorts and Spa, Lalin T. Samarawickrama said that they wanted a property where a guest could travel from the airport in speed board under half an hour.”

He said that the group hopes to invest around US$ 65 million for this project offering around 100 keys and hope to start operations in 36 months.

Samarawickrama said they are looking to build an ultra luxurious property comprising of beach bungalows. “We hope to market each property for around US$ 450 mainly for the luxury travellers.”

Amaya Leisure PLC acquired a 51% stake in the 125-room Sun Tan Beach Resorts for Rs 563 million, in Passikudah. It was earlier known as Centara Passikudah Resorts. “We have now have our foot print in key leisure areas in Sri Lanka and the Male expansion is towards extending our international reach.”

He said that with the Maldives resort they would be now in a position to market both destinations in one package.

Commenting on their local expansions, he said they will also focus to have several bungalows in tea estates. “We would also invest to refurbish some of the properties we operate.”

He said that the leisure sector was doing well and this was another reason for them to re invest in the industry. “For example Kingsbury Colombo which started operations with a Rs. 500 million loss in the first year and in the second year they were able to post a Rs. 32 million profit.” In the second year of operation we recorded a Nett Profit of over Rs.300 million and hope to end the financial year with a 20% increase against the previous year.”
www.dailynews.lk

Sri Lanka shares up as investors snap up battered stocks; Keells leads

Reuters: Sri Lankan shares ended firmer on Thursday as investors bought in some select battered shares such as conglomerate John Keells Holdings Plc after recent falls, but foreign outflows from the island nation's risky assets continued.

The main stock index ended up 0.46 percent, or 33.04 points, at 7,273.14 on Thursday, further moving away from its lowest close since July 23 hit on Tuesday.

The index had lost 3.2 percent in the two sessions through Tuesday as foreign investors sold off risky assets on fears of a China - led global economic slowdown, and on selling by retail investors for month-end settlements.

"The market is recovering after a sharp fall due to global worries," said Harsha Fernando CEO at SC securities in Colombo.

Foreign investors were net sellers of 456.6 million rupees ($3.40 million) worth of shares on Thursday, extending the year to date net foreign outflow to 3.2 billion rupees.

Turnover stood at 1.44 billion rupees, more than this year's daily average of 1.17 billion rupees.

Shares in John Keells rose 1.66 percent, while Dialog Axiata Plc advanced 1.79 percent. 

($1 = 134.1500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

CHC mandatory offer for Taprobane Holdings

(LBO) – Sri Lanka’s CHC Investment will be making a mandatory offer to shareholders of financial services firm Taprobane Holdings after it bought a 30.99 percent stake at 5.50 rupees, CHC said in a statement to the Colombo Stock Exchange.

The mandatory offer will be at 5.50 rupees per share. A detailed offer will follow shortly, the company said.

On Monday, Taprobane Securities said CHC Investment bought a 31 percent stake of 310.8 million shares of Taprobane Holdings worth 1,709.4 million rupees.

I C Nanyakkara sold 225.9 million shares and P S W Rupasinghe sold 84.9 million shares to CHC Investments in this sale.

Sri Lanka’s Treasury bill yields up across maturities; 12 month yield up 25bps

(LBO) – Sri Lanka’s Treasury bill yields were up across maturities at Wednesday’s auction with 12-month yield up 25 basis points to close at 6.97 percent, data from the state debt office showed.

3-month yields were up 17 basis points to close at 6.53 percent while 6-month Treasury bill yields were up 21 basis points to close at 6.87 percent.

The auction was oversubscribed with bids amounting to 38.5 billion rupees being received and it was decided to accept 17.3 billion rupees from the auction.

Treasury bills of 18.0 billion rupees were scheduled to be issued through the auction held today.

Sri Lanka IOC unit to enter Malaysia, Indonesia lubricant markets

ECONOMYNEXT – The Sri Lankan unit of Indian Oil Corporation plans to expand export markets and has said it will enter the Malaysian and Indonesian lubricant markets.

“Our growth plans have not been limited to the domestic market,” Lanka Indian Oil Corp. Managing Director Subodh Dakwale said.

LIOC has done a study on entering export markets with its premium lubricants and is currently testing the markets of Indonesia and Malaysia with the appointment of a small number of distributors for Lanka IOC lubricants.

“Plans for exporting lubricants will be unrolled during the year to test the markets of Indonesia and Malaysia,” Dakwale told shareholders in the company’s annual report.

“Although I do not anticipate significant revenue contributions from market development initiatives over the short term, I believe export markets will open up new revenue opportunities over the longer term.”

Sri Lanka shares recover from near 5-week closing low

Reuters: Sri Lankan shares edged up on Wednesday, rebounding from near five-week closing low hit in the previous session as investors bought in some select shares after two days of losses, but further gains were capped due to foreign selling in some stocks.

The main stock index was up 0.12 percent, or 8.52 points, at 7,240.10 on Wednesday, edging up from its lowest close since July 23 hit on Tuesday.

The main stock index lost 3.2 percent in the two sessions through Tuesday as foreign investors sold off risky assets on fears of a China - led global economic slowdown, and on selling by retail investors for month-end settlements.

Foreign investors were net sellers of 1.21 billion rupees worth of shares on Wednesday, extending the year to date net foreign outflow to 2.75 billion rupees.

Shares in John Keells Holdings Plc, which saw net foreign outflow of 6 million shares on Wednesday ended down 2.72 percent.

Turnover stood at 2.37 billion rupees, twice of this year's daily average of 1.16 billion rupees.

"The market is recovering with some selected buying," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

"There was heavy foreign selling in Keells," Mathew added.

Shares in Dialog Axiata Plc rose 0.90 percent, while Sunshine Holdings Plc jumped 9 percent, helping the index to remain up. 

(Reporting by Ranga Sirilal; Editing by Anand Basu)

Lanka IOC to invest Rs 400m on more outlets

Lanka IOC is planning on investing Rs. 400 million to add another 20 fuel stations to the current network, while also completing refurbishments of the existing fuel outlets, Lanka IOC Managing Director Subodh Dakwale said.

The company has also plans to export lubricants to test the markets of Indonesia and Malaysia.

The company’s market share of the lubricants sector will also be expanded through promotional campaigns by utilising the growing fuel station network as retail points. In this regard, extensive market surveys have already been conducted and revamped Lanka IOC lubricants will be launched in the new financial year(2015/2016). “Although I do not anticipate significant revenue contributions from market development initiatives over the short term, I believe export markets will open up new revenue opportunities over the longer term,”Dakwale said.

Lanka IOC bunkering operations are currently facing severe price competition from Indian ports that are able to offer lower prices due to domestic production of fuels, while Lanka IOC has to accommodate the additional costs related to fuel imports. However, he is hopeful that company’s technical expertise and extensive range of services will continue to provide a competitive advantage to ensure sustained revenue growth in the new financial year. (IH)
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Sathosa Motors turns down dividend increase at AGM

The Board of Sathosa Motors has turned down several demands made by shareholders to increase their dividend yesterday.

The company held its annual general meeting at the Institute of Chartered Accountants auditorium.

It was decided to pay a dividend of Rs 7 per share.Several shareholders at this AGM however requested that this amount be increased to an amount between Rs 10 to Rs. 22.50 per share.

This request was made since Sathosa Motors is one of the few companies that paid the lowest dividend per share. It was also pointed out that other companies such as United Motors allocated 49 percent, DIMO allocated 30 percent of the profit as dividend for their shareholders.

Sathosa Motors Chairman Sumal Perera pointed out that this dividend amount cannot be increased immediately as the company earnings too had to be increased. "My target is to give a 50% dividend out of the nett profit to the shareholders when the company gets into a comfortable financial standing."

The company recorded a nett profit of Rs 270 million for the last financial year. Several share holders also queried from Perera if construction work of Sathosa Motors is being awarded to Access International owned by Sumal Perera without proper procedure. Perera answered in the negative. (HDH)
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First Capital Holdings maintains momentum in Q2

First Capital Holdings PLC recorded a consolidated profit after tax of Rs. 176 million for the quarter ended June 30,2015.

Consequent to the policy rate reductions in April 2015 the company's structuring and placement arm First Capital Limited, which specialises in mobilised listed debentures, asset backed securitisations and commercial papers, successfully generated a fee income of Rs. 27 m during the period under review (2014/15 - Rs. 13m).

While the group's primary dealer First Capital Treasuries Limited realised a trading gain of Rs. 77 m for the quarter,capitalising on prevailing market conditions.

"While we are pleased with our performance to date, we seek to transform the prevailing macro-economic factors to our favour. The Group will continue to build on the current growth momentum across all its subsidiary businesses while expanding on corporate advisory and broader investment banking services," CEO Dilshan Wirasekara said.

Meanwhile during the first half of the financial year 2015/16, the group's Wealth Management and Unit Trust, First Capital Asset Management Limited, reflected a growth of Rs. 2.9 b, increasing the division's total assets under management to Rs. 7.1b With a return of 13.13% for the year ended June 30,2015, First Capital Wealth Fund continuing its steady performance.

Consistent with the mixed performance of the Colombo Stock Market, as foreign participants exited the market due to political uncertainty the Stockbroking division First Capital Equities (Private) Limited saw lower trading volumes resulting in lower broking income.

The company divested its 25% stake in Orient Finance PLC resulting in a capital gain of Rs. 27.5 m for the quarter. The investment realized a total gain of Rs 260.8 m, including gains recorded in the previous financial year amounting to Rs. 233.3 m.
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Sri Lanka shares fall to near 5-week low on foreign selling

Reuters: Sri Lankan shares fell more than 1 percent to hit a near five-week closing low on Tuesday as foreign investors sold off risky assets on fears of a China-led global economic slowdown and panic selling by retail investors for month-end settlements.

The main stock index ended down 1.36 percent, or 99.51 points, at 7,231.58, its lowest close since July 23. The index has fallen 3.2 percent in the last two sessions, mainly due to a global selloff.

Turnover stood at 1.44 billion ($10.73 million), above this year's daily average of 1.16 billion rupees.

"With the huge fall yesterday there was some panic selling," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd. "The market will be slow, dull and in the red this week."

Mathew expects the market to recover in September.

Foreign investors were net sellers of 199.7 million rupees worth of shares on Tuesday, extending the year to date net foreign outflow to 1.53 billion rupees.

Shares in conglomerate John Keells Holdings Plc fell 2.12 percent, while Nestle Lanka Plc fell 2.19 percent, dragging the index down. 

($1 = 134.2500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

Sri Lanka sells Rs30.5bn in 08 and 09 year treasury bonds

(LBO) – The issue of treasury bonds amounting to 40.00 billion rupees have been oversubscribed with 127.1 billion rupees of bids received from investors.

The Central Bank has accepted 10.2 billion rupees of 08 year bonds maturing on 01 September 2023 at a weighted average yield rate of 9.76 percent.

The bond auction held on Tuesday also accepted 20.2 billion rupees of 09 year and 11 month bonds maturing on 01 August 2025 at a rate of 9.97 percent.

The Central Bank rejected 52.7 billion rupees of bids received for the 04 year bond and 14 year bond.

Sri Lanka’s Fitch rates HDFC Bank at BBB

(LBO) – Sri Lanka’s Fitch Ratings on Monday assigned Housing Development Finance Corporation Bank of Sri Lanka a National Long-Term Rating of ‘BBB(lka)’ and a Stable Outlook.

The full text of the rating announcement is reproduced below.

Fitch Ratings-Colombo-24 August 2015: Fitch Ratings has today assigned Housing Development Finance Corporation Bank of Sri Lanka (HDFC Bank) a National Long-Term Rating of ‘BBB(lka)’ and a Stable Outlook. At the same time, Fitch has assigned HDFC Bank’s proposed senior debentures of up to LKR4bn an expected National Long-Term Rating of ‘BBB(lka)(EXP)’ and outstanding senior secured debentures a National Long-Term Rating of ‘BBB(lka)’. A full list of rating actions is at the end of this rating action commentary.

The proposed issuance, which will have tenors of five and 10 years and carry fixed and floating coupons, will be listed on the Colombo Stock Exchange. HDFC Bank expects to use the proceeds to reduce asset and liability maturity mismatches.

The final rating on the issuance is subject to the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS

NATIONAL RATINGS AND SENIOR DEBT
HDFC Bank’s rating reflects Fitch’s expectation that the bank would receive extraordinary support from the state, if needed, given that the state effectively holds 51% of the bank. It also reflects Fitch’s view of the bank’s quasi-policy role in supporting the state’s initiatives to develop more housing for low- and middle-income families. However, the potential for state support is lower than for larger state-owned banks in Sri Lanka due to HDFC Bank’s lower systemic importance.

The state holds most of its stake in HDFC Bank through the National Housing Development Authority, a state-owned corporation that is tasked with formulating and implementing the national housing policy. The rest of the stake is held through the Condominium Management Authority and the Urban Development Authority. The majority of board members represent state institutions.

Housing loans accounted for 91% of HDFC Bank’s total loans at 1H15. The bank has the authority to grant to members of the Employees Provident Fund (EPF) housing loans that are secured against EPF balances (34.5% of total loans at 1H15). HDFC Bank’s reported gross NPL ratio has been extremely high (20.88% at 1H15) due to non-payments on EPF-backed housing loans, which are often used by individuals to access the balances in their EPF accounts. The Central Bank of Sri Lanka annually reimburses the bank for the instalments of EPF-backed loans that are in arrears for over three months.

HDFC Bank’s capital ratios have been declining alongside the expansion in its assets. Regulatory capital ratios benefit from zero risk weights accorded to housing loans backed by EPF balances. HDFC Bank is required to meet a minimum capital requirement of LKR5bn as a licensed specialised bank by 1 January 2016. The central bank has granted approval to extend the deadline to comply with the minimum capital requirement to 1 January 2018. Fitch believes that although the bank is likely to meet the first interim target of LKR3bn, an infusion may be needed in order to meet the LKR5bn requirement as internal capital generation may not be sufficient.

Interest rate risk is significant for HDFC Bank, given the maturity mismatches between its assets and liabilities. Management is looking into regular issuance of medium- to long-term debentures as a means of reducing asset and liability maturity mismatches.

The outstanding and proposed debentures are rated in line with HDFC Bank’s National Long-Term Rating. The issues rank equally with the claims of company’s other senior unsecured creditors. Fitch has not provided any rating uplift for the collateralisation on the senior secured debentures as the secured debentures’ recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

HDFC Bank was established as a building society in 1984. It was converted into a government corporation in 2000 and then into a regulated licensed specialised bank in 2003.

RATING SENSITIVITIES

NATIONAL RATINGS AND SENIOR DEBT
A change in Fitch’s expectation of state support to HDFC Bank due to a weakening of the linkages with the state, including a dilution of state’s majority ownership of the bank or a revision of Fitch’s view of HDFC Bank’s policy role, could result in a downgrade of the ratings.

The ratings on the proposed and outstanding debentures will move in tandem with HDFC Bank’s National Long-Term Rating.

The rating actions are as follows:
National Long-Term Rating assigned at ‘BBB(lka)'; Outlook Stable
Outstanding senior secured debentures assigned ‘BBB(lka)’ rating
Proposed senior unsecured debentures assigned ‘BBB(lka)(EXP)’ rating

High spice prices seen luring Sri Lankan plantations firms

ECONOMYNEXT – High prices for spices should make it more attractive for Sri Lankan plantations companies to take up spice cultivation, diversifying from the main crops of tea, rubber and coconut, an industry official said.

M C M Zarook of the Spices and Allied Products Producers and Traders Association (SAPPTA), said 15 of Sri Lanka’s regional plantations companies are now cultivating spices.

“They have plenty of land for spice cultivation. The only problem is investment,” he said.

Zarook said it had been difficult for the chief executive and managements of the plantations companies to convince investors to invest in spices because of fluctuating commodity prices.

“The prices of the main spices all exceed 1,000 rupees a kilo,” Zarook, outgoing chairman of SAPPTA told the association’s annual general meeting. “So it is an attraction for plantations companies to come into it.”

Exports earnings from spices had gone up in 2014 although volumes shipped had not increased because prices had risen, he said.

“There were good prices for our prices like cinnamon, cloves, pepper, cardamon, nutmeg and mace.”

All spices and allied products produced in Sri Lanka are exported and none go waste, Zarrook said.

“Whatever produced is used for exports to bring in foreign exchange.”

Fitch: policy clarity from new Sri Lankan government is key

Improved economic policy credibility and coherence would strengthen Sri Lanka’s resilience to growing investor uncertainty towards emerging Asia. The establishment of a new government with a clear electoral mandate following parliamentary elections on 17 August, should mitigate some political uncertainty, though the direction of economic policy and the stability of the likely coalition remain unclear.

The broadly peaceful election campaign, which follows the orderly transition of the presidency in January 2015, will further reinforce the perceptions of Sri Lanka as a functioning democracy with relatively strong institutional capacity - in line with its ‘BB-’ rating.

The new administration inaugurated in January under President Maithripala Sirisena has made some progress in addressing perceived governance shortcomings, in particular by adopting a constitutional amendment limiting presidential powers and launching anti-corruption investigations. However, there has been no corresponding strengthening in economic management. A populist budget was introduced in February that raised public sector wages and reduced publicly administered prices. The government has also disclosed that the 2014 budget deficit was around 1pp higher than previously thought, owing to revenue shortfalls. This indicates that fiscal consolidation has stalled. Sri Lanka has the fourth-highest share of government debt - 72% of GDP - of any country in the ‘BB’ range, after Portugal. Hungary and Croatia.

Monetary policy has also been accommodative, allowing credit growth to accelerate sharply to 17.6% yoy in May 2015, from almost 0% in 3Q14. This has fuelled a 45% yoy rise in consumer goods imports in the first five months of the year at a time when exports were unchanged owing to stagnant agriculture and textiles. A rise in tourism receipts and remittances has acted as a buffer, although the trade deficit widened to USD3.4bn in May, up from USD3.1bn in May 2014. The current account deficit had narrowed to 2.7% of GDP in 2014 from 7.8% in 2011, but should widen back to 3.0% this year.

Gross foreign reserves had dropped sharply to USD6.8bn by end-May 2015 from USD7.5bn a month earlier, further highlighting pressures on external balances. The authorities indicated that reserves had been bolstered back up to USD7.5bn by end-June through a USD650m sovereign dollar debt issue and USD338m Sri Lanka Development Bond, though the latest data for end-July show reserves had fallen back down to USD6.9bn. External liquidity has been buffered by a USD1.1bn swap facility with the Reserve Bank of India in July. These factors have buffered external liquidity recently, though it is not a sustainable way of improving the stability of the external accounts.
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Richard Pieris Finance posts Rs 200 m PAT in second year

Richard Pieris Finance Limited, the newest subsidiary of Arpico Group was able to record Rs 200 million profit after tax in its second year, a top official said.

The company currently operating at Hyde Park Colombo plans to set up eight branches in the during this year. The company has performed well during the short span of two years, Chief Executive Officer K.M.M Jabir told Daily News business.

“We are also going to open Richard Pieris Finance service centres in Arpico Super Centres and super markets, which is the biggest strength of the company,’ Jabir said.

Jabir said they plan to venture into all sectors under a finance company’s mandate. The company now two years has an asset base of Rs 6.5 billion. Jabir also said they have a strong customer base including major corporate in the country. The company is to focus on leasing Islamic financing and other business areas covering micro finance, he said.

The company acquired Chilaw Finance, a Rs 1.3 billion worth assets based company in the North Western Province.

“We have acquired Chilaw Finance company recently and it is now running as an independent entity,” he said.

He said that current government has not forced mergers and acquisition of financial entities like the previous government.

“We are still in the process of ironing out certain issues of the company.”

Although the consolidation programme is ideal to create a strong banking and financial sector in the country, the Sri Lankan financial sector was not ready at that time to accept the consolidation programme of the previous government, he said.

“Since we could witness a rapid economic development in the North Western Province it is an opportunity to make our presence felt in the area with the acquiring of Chilaw Finance Company,” he said.

The company also won the emerging financé company of the year award.
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Ceylon Tea Brokers musters Rs. 278.27 m turnover for 2014/15

Ceylon Tea Brokers PLC registered Rs. 278.27 million as revenue during the 2014/15 financial year compared to Rs. 259.20 million in 2013/14.

The gross profit for the year under review accounted for Rs. 209.54 million as against 202.56 million in 2013/14 and Profit Before Tax (PBT) of Rs. 72.86 million as against Rs. 77.23 million in 2013/14 was achieved said, Suranga Perera, Director / Chief Executive Officer in the annual report.

“In view of the diluted demand from some of the key international markets for Ceylon Tea, resulting in sharply declining auction prices, the company implemented strategies to intensify effortsto improve the operational efficiencies and also focus on the cost factors that could be reduced without disturbing the quality of service.

These changes which were carried out with the concurrence of the entire team made sure that everyone understood the importance of a lean but an efficient operation in moving forward at this crucial juncture.”

“At the risk of creating controversy, we are of the view that we should examine the hotly debated topic of making Sri Lanka a Tea Hub without compromising the inherent value of marketing Pure Ceylon Tea.

We believe that there could be a happy medium said Ceylon Tea Brokers PLC, Chairman.Chrisantha Perera.

“When analysing Sri Lanka’s tea export profile, it will be found that our exports to some of the major markets where we had a dominant position have declined, whilst exports to the so-called “Tea Hubs” such as UAE & Turkey have increased. In fact, Turkey is presently the single largest export outlet for our tea although it is likely that most of this tea is traded out of Turkey either to the neighbouring Middle Eastern countries or Russia & other CIS countries.”

“An encouraging trend which we must develop is the emergence of China as a potential large export outlet for our teas. A significant feature that has taken place in 2015 is also the substantially higher quantities of exports to India.

“We should endeavour to maximize the potential of our Free Trade Agreement with Pakistan.”

Airing their future plans he said that they would be investing in a Warehousing Complex. “This project is well underway with potential land identified as well as the incorporation of a separate Company for this purpose,” Ceylon Tea Brokers PLC, Chairman. Chrisantha Perera

Suranga Perera, Director / Chief Executive Officer

The Daily News business inadvertently carried Tea Traders Association musters Rs. 278.27 m turn over for 2014/15 on its August 21 issue. The error is regretted.
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Mercantile Investments posts Rs 631 m profit

Mercantile Investment and Finance PLC (MI) has posted a solid performance for the financial year ended March 31, 2015 with Gross Income reaching Rs. 4.29 billion.The profit after tax has come down marginally from Rs. 675.4 from previous year to Rs. 631.3 this year.

Founded by George Ondaatjie and is still largely owned by his family, Mercantile Investment and Finance said its success over the years is attributable to its unique business model that exemplifies strategic thinking and precise execution.

The group with three quoted hotel companies - Grand Hotel Nuwara Eliya, Tangerine Beach Hotel and Royal Palm Beach Hotel - along with the unquoted Nilaveli Beach Hotel, has recently launched a new 3 star hotel in Wellawatte.

Chairman Saro Weerasuriya said the national economy growth forecast looks very positive with GDP growth levels expecting to be hovering around 7% even in the medium term. This should pave the way for the corporates to exploit emerging opportunities to their advantage and thrive”

MI’s Managing Director Gerard Ondaatjie says in the annual report “We have kept our promise of generating stakeholder value and therefore celebrate this fiftieth anniversary with a real sense of achievement” He elaborated further saying that “The year had seen growth in the licensed finance company sector fuelled by the resurgence of the economy in key sectors and improved spending power of the people.

This indeed sustained the steady demand to provide finance support to purchase brand new as well as registered motor vehicles, while demand for non-traditional lending such as personal loans, property mortgage loans and microfinance showed potential as lucrative areas of focus for the sector” MI’s dividends payment to its investors was Rs. 89 million, up from Rs. 30 million of the previous year.

Sound financial results and retaining profits provided the strength for the company to ensure consistent increase in shareholder funds which exceeds Rs. 7.5 billion as at March 31,2015.

- See more at: http://www.dailynews.lk/?q=business/mercantile-investments-posts-rs-631-m-profit#sthash.46L3BGWD.dpuf

NSB 1H pre-tax profit up 68% to Rs. 6.2 b

Savings giant NSB has recorded the highest half yearly profits in its history with an impressive Profit Before Tax (PBT) growth of 68% as compared to same period last year.
The profitability for the first half for 2015 reached Rs. 6.2 billion with the increase mainly fuelled by growth in its traditional lines of business. 

The Profit After Tax (PAT) was reported at Rs. 3.9 billion for the first half of 2015. These profits were reported following prudent provisioning policies adopted for any adverse impact on declining gold market prices.

The bank’s loans and advances grew by 6.9% during this period with investments in Government securities increasing up to Rs. 519 billion. The total assets of the bank surpassed the Rs. 800 billion milestone by end of June indicating a growth of 4.7%.

A concerted effort to aggressively mobilise deposits during first and second quarters reaped benefits to the tune of Rs. 21.5 billion in incremental deposit balances of which Rs. 11.9 billion generated through savings related products. The total deposits of the bank stood at Rs. 575 billion at end of June 2015.

The bank’s Tier 1 capital adequacy ratio stood at 19.9%, while total capital adequacy for the reviewed period was at 18.5%. These ratios remain well above the regulatory standards for well capitalised banks.

The bank will continually evaluate initiatives to further enhance business and develop infrastructure as appropriate. Further improvements in customer delivery standards could be envisaged to maintain momentum in order to build competitive advantages with focus on information technology.  

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C H C Investment buys 31-pct stake in Sri Lanka's Taprobane Holdings for Rs 1.7bn

ECONOMYNEXT - C H C Investment (Pvt) Ltd. has bought a 31 percent stake in the diversified Taprobane Holdings PLC at 5.50 rupees a share in a deal worth 1,709.4 million rupees, a stock exchange filing said.

C H C Investment (Pvt) Ltd. bought 310.8 million shares of Taprobane Holdings PLC at 5.50 rupees a share amounting to 30.99 percent of the firm’s issued capital,Taprobane Securities,a fully owned subsidiary of Taprobane Holdings, said in a statement to the Colombo bourse.

The trade was in two blocks with Ishara Nanayakkara who held a 22.53 percent stake being one seller and P S W Rupasinghe, with an 8.46 percent stake, the other.

Sri Lanka to auction Rs40bn in 5 to 10 year bonds

ECONOMYNEXT - Sri Lanka has called offers to sell 40 billion rupees of 5, 6, 8 and 10 year bonds ahead of a bond maturity with yields moving up slightly over the past week.

The debt office is offering 4.0 billion rupees of 5-year bonds maturing on 01.05.2020, which is not liquid in the secondary market, dealers said.

Bonds maturing on 01.07.2019 were quoted around 8.18/28 percent Friday, up from 8.20 levels on August 18.

Ten billion rupees of 8-year bonds maturing on 01.09.2023 is also offered. Similar bonds were quoted around 9.45/50 percent.

The debt office is also offering 12.5 billion rupees of 10-year bonds maturing on 01.08.2025 and 15-yaer bonds maturing on 15.05.2030.

Ten year bonds were quoted around 9.65/70 percent on Friday, up from 9.45 percent on August 18.

Indicative quotes for the 15-year bond ranged around 10.05/25 percent.

The auction which closes on August 25, has a settlement date of September 01.

There is a 79.5 billion rupees bond maturity of September 01 and yields tend to spike ahead of suc roll-overs encouraging more investors to buy and also for dealers to bid with leveraged funds and sell-them down later.

However in the short end, the Central Bank has started buying up large volumes of Treasury bills to print money and resist an increase in interest rates, which analysts warn is generating pressure on the balance of payments as well as foreign reserve losses.

Sri Lanka company earnings growth picks up in June quarter

ECONOMYNEXT – Sri Lanka’s company earnings growth picked up in the June 2015 quarter as consumption increased, driven by low borrowing costs and higher disposable incomes, a research report said.

Overall market earnings growth in the June 2015 quarter picked up 10.7 percent year-on-year to 46.7 billion rupees after a slowdown to 2.2 percent year-on-year during the March 2015 quarter, CAL Research said.

Trailing 12 month market earnings grew 16.5 percent from a year ago to 207 billion rupees due to low interest rates and improving disposable incomes driving up consumption, compared with a contraction of 8.4 percent during the same period last year, they said.

CAL Research, the research unit of Capital Alliance Ltd., said the Banks, Finance & Insurance sector of firms listed on the Colombo bourse contributed 40 percent to earnings growth, the largest sector-wise contributors to market earnings in the June 2015 quarter.

They were followed by the Beverage, Food and Tobacco sector with a contribution of 18 percent and Diversified Holdings with 13 percent.

Earnings from firms in the Chemicals and Pharmaceuticals sector grew the fastest, up 180 percent from a year ago, followed by those in the Stores and Supplies sector, up 137 percent, and Motor Sector firms, up 78 percent.

But plantations sector firms suffered the most in the June 2015, with earnings falling by 138 percent from the previous year, followed by those in the Hotels & Travels sector, whose earnings slumped 95 percent, and Investment Trusts whose earnings fell 66 percent.

CAL Research said the Colombo Stock Exchange currently trades on a Trailing Twelve Month Price-to-Earnings Ratio of 14.4x and a Price-to-Book Value of 1.6x.

The largest individual contributors to June 2015 quarter earnings on the CSE came from Ceylon Tobacco Company (6.5 percent), Commercial Bank (5.7 percent), Hatton National Bank (5.1 percent) and John Keells Holdings (4.7 percent).

Lanka India Oil Corp. (LIOC) reported a net profit of 171 million rupees in the June 2015 quarter against 1.2 billion rupees in the same 2014 period.

Carson Cumberbatch and Bukit Darah, whose earnings are influenced by palm oil prices, saw net profit declines of 58 percent and 67 percent from the previous year.

The combined earnings of these three firms accounted for 2 percent of market earnings in the June 2015 compared with 9 percent of market earnings the year before.

Excluding LIOC, Carson and Bukit Darah, overall market earnings grew 18 percent in the June 2015 quarter from the year before, CAL Research said.

Sri Lanka shares fall to near 3-week low on global selloff

Reuters: Sri Lankan shares fell about 2 percent to a near three-week low on Monday, posting their biggest daily fall in nearly seven months, after foreign investors exited risky assets as fears of a China-led global economic slowdown churned world markets.

Alarm bells rang across world markets as a 9 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.

The main stock index fell 1.87 percent, or 140.08 points, to 7,331.09, its worst single-day percentage loss since Feb. 2 and hit its lowest since Aug. 4.

"Panic selling came in with the global market meltdown. There was heavy selling in stocks with foreign exposure," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

"This trend will continue for the next couple of days and there could be some margin selling too as the index fell steeply in a very short period," Mathew said.

Foreign investors were net sellers of 163.6 million rupees ($1.2 million) worth of shares on Friday, extending the year to date net foreign outflow to 1.33 billion rupees.

The day's turnover stood at 3.37 billion rupees, the highest since July 29 and about thrice of this year's daily average of 1.16 billion rupees.

Shares in conglomerate John Keells Holdings Plc fell 2.96 percent, while the country's biggest listed lender Commercial Bank of Ceylon Plc fell 2.46 percent, dragging the index down. 

($1 = 134.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

SL’s regional competition offers more for less, says Eden boss

A major player in the tourism industry has said that significant foreign investment has been made in the country’s tourism industry with local hotels and companies now facing intensified competition with regional challengers offering "more for less."

Mr. Kapila Jayawardene, Chairman of Eden Hotels Lanka PLC, an LOLC company, has said that foreign investment has flown into the hospitality sector here in the context of projected significant growth in the mid to long term.

"Sri Lanka is also facing competition from the region which offers more at a lesser price which causes immense challenges to the local industry," he said in the Eden annual report.

This has resulted in the local industry facing the challenging of reduced margins as well as price pressure coming from markets which were attractive in the past but are currently not performing as a result of the global economic crisis, he noted.

The result was Eden incurring a substantial group loss of Rs. 273.2 million in the year ended March 31, 2015, down from a profit of Rs. 58.9 million the previous year. At company level, there was a loss of Rs. 212.3 million against a profit of Rs. 14.8 million a year earlier.

Jayawardene attributed the lower performance mainly to falling occupancy, reduced room rates and increased operational expenses. Average occupancy for the year in review was down to 58% from 62% the previous year, he said.

However, during the winter season, there was a significant increase in the numbers they hosted and resulting revenue. The average occupancy in the final quarter starting in January was 76% which resulted in revenue of Rs. 252 million in that quarter.

He was optimistic that despite reduced performance against the previous year, the company which had a strong asset base of Rs.4.8 billion as at March 31, 2015 was well positioned for the future.

They had completed a major refurbishment covering the rooms and had also acquired Dickwella Resorts (Pvt) Ltd in the previous financial year in order to strengthen their overall value proposition.

"With the development of the tourism industry in future years, the company is expected to reap the benefits of these investments which will have a positive impact on the company’s profitability and overall value proposition," he said.

He further noted that they had the advantage of LOLC Group resources to strengthen occupancy, increase margins and manage costs.

Dickwella Resorts has ocean frontage on three sides of the property providing sea views for all of its 76 rooms. The sea-water swimming pool and diving centreare also popular, the Director’s report said.

The report said that the directors had reviewed an investment opportunity in Maldives and identified it as one with potential for high returns.

Palm Garden Hotels PLC (46.21%), Confifi Management Services (Pvt) Ltd (10.7%) and the ETF (9.98%) are the top shareholders of Eden. The ETF too owns 3%. Palm Garden and Confifi Management are LOLC companies.

Eden has stated capital of Rs. 525 million, reserves of Rs.1.6 billion and retained earning of Rs.180.8 million in its books. Total assets ran at Rs. 5.03 billion and liabilities at Rs.2.7 bullion.

The Directors of Eden are Mr. W.D.K. Jayawardene, Mrs. K.U. Amarasinghe, Prof. M.T.A Furkhan, S. Furkhan, D.S.K. Amarasekera and Dr. J.M. Swaminadan. 

www.island.lk

Kelani fears dumping of Chinese tyres here

Global supplies exceed demand, China looks for alternative markets in face of prohibitive U.S. duty

The Chairman of Kelani Tyres had warned that the global outlook for tyres originating from manufactures like Sri Lanka looks bleak due to supply being substantially over demand.

"This situation has been further aggravated with the US Government imposing prohibitive duties on Chinese tyre imports which has forced Chinese manufactures to start dumping in alternate markets in Africa, the Middle East and Asia including Sri Lanka," Mr. Chanaka de Silva, Chairman of Kelani Tyres has said in the Company’s annual report.

"Although we did not experience the negative effects of this in Sri Lanka up to now, it is possible that this situation would have serious repercussions on volumes and margins in our business beginning in the next financial year (2015/2016)."

While production in the year ended March 31, 2015 by the Joint Venture (JV) company, CEAT Kelani Holdings (Pvt) Ltd (CKH) which handles the manufacturing business for Kelani Tyres was down slightly to 15,440 mt from 15,469 mt the previous year, the JV’s average profit after tax was slightly over Rs.1.5 billion against Rs. 1.3 billion a year earlier.

De Silva said that the JV was able to maintain its top market position in truck/bus, three-wheeler, tractor tyres and passenger car/van tyres and the second position in motorcycle tyres. CEAT is by far the highest selling tyre in the local market and continues to be placed as the ‘best value’ quality tyre locally.

The year under review had seen 20 new sizes introduced to the market with a state-of-the-art passenger car radial tyre manufacturing facility declared open in June last year.

"We have been able to capture 30% in the domestic radial car tyre segment," de Silva said. "The production of radial tyres would increase to 37,000 monthly with the new facility and we are looking at further expansion and growth in sales in the local market with the introduction of 32 new sizes expected to be introduced to our range in the coming financial year."

He said that the board of the JV continues to take a positive outlook of the industry and they are taking several decisions which would have a positive impact on Kelani Tyres as and when economic opportunities and trends emerge.

The JV had increased its capacity for the manufacturing of motorcycle tyres this year and had commissioned its new state-of-the- art facility in Kelaniya. The initial capacity will be 162,000 tyres a year in 17 sizes, some with all new tread patterns suitable for local conditions.

"This is expected to enhance the CEAT product portfolio in two-wheel segment," de Silva said.

They were investing Rs.365 million on a new compounding/mixing line with most of the items needed for this already ordered. The line will be functional by the end of the next financial year. A further Rs. 165 million is being invested to expand two-wheeler tyre production with the resulting increased production expected before the close of the current financial year.

De Silva thanked the Ministry of Finance for its continued support towards bringing them closer to achieving their objective of import substitution of the country’s total tyre requirement with a quality product on par with international standards and brand names.

He said that based on the performance of the company in the year under review and a subsequent dividend received by JV, the directors have declared an interim dividend of Rs. 1.50 per share amounting to a payout of Rs. 120.6 million for 2015/16.

The Kelani Tyre Group’s share of the results of the joint venture for the year under review was Rs. 750.2 million, up from Rs. 693.3 million a year earlier. Group earnings per share at Rs.8.92 was up to from Rs.8.19 a year earlier while the company’s earning per share was up to Rs.2.07 from Rs.1.65 per year earlier.

Kelani Tyres has a stated capital of Rs. 402 million, and group retained earnings of Rs. 2.23 billion in its books. At company level, retained earnings stood at Rs. 141.2 million. Total group assets stood at Rs.3.2 billion and total liabilities Rs. 188.15 million.

Silverstock Ltd with 41.69% followed by Ceybank Unit Trust (9.69%) Mr. M. Ganaraja (7.88%) and Messrs M.M. and H.M. Udeshi (5.4%) are the principal shareholders of Kelani Tyres. The EPF (2.008%) and the Bank of Ceylon (1.55%) are also among the main shareholders.

The Directors of the Company are Messrs Chanaka de Silva (Chairman), Rohan T. Fernando (MD), Lasantha P. Fernando (Executive Director) T. Bevan Perera (Executive Director) D.S.K. Amarasekera and Ms. S.S. Jayatilaka.

www.island.lk

Ceylon Investment continue stock picking to good advantage

Rs. 986 million profit earned under "exuberant market conditions"

Ceylon Investment PLC, owning a quoted share portfolio worth Rs. 4.6 billion and is a subsidiary of Ceylon Guardian Investment Trust PLC, the country’s biggest quoted portfolio holder, has posted a profit of Rs. 996.9 million in the year ended March 31, 2015, up from Rs. 889.5 million a year earlier according to Company’s Annual Report.

The Company’s Chairman, Mr. I, Paulraj, said that the year under review had been a memorable one with the Colombo Stock Exchange recording a strong positive growth of 14.28% after two years of subdued activity.

The Ceylon Investment’s portfolio has outperformed the market during the year posting 23% growth against the index appreciation of 14.28% with the discretionary portfolio outperforming the market by 7.68% in a three-year horizon and 5.86% on a five-year horizon.

"The Company recorded a profit after tax of Rs.986.8 million given exuberant market conditions," Paulraj said. "Our portfolio value increased to Rs. 13.35 billion from Rs. 11.86 billion, recording an appreciation of 12.52% without adjusting for the distribution of dividend an inclusive of the strategic portfolio."

He said that the company’s portfolio is built for long term sustainability and continuity. Rather than getting into risky but lucrative short-term positions, they believed in holding consistently good companies for continued value creation.

Paulraj admitted that this may mean that their cash resources can sometimes remain uninvested until good equity opportunities are found.

He said that Ceylon Investment remains confident on the long term potential of Sri Lankan equities and the sustainability of the economic development plans set in place. They believe that the long term development potential of the country will flow through to its equity markets if the country continues to adopt good policy frameworks providing a strong foundation for economic activity and good governance.

"Needless to say, serious investor confidence will improve when policy makers as well as corporates take action to demonstrate vibrancy with stability," he said.

However, Pauraj said that the depth of capital markets remain a challenge as investors need a variety of companies to invest in, particularly state-owned enterprises and other top private sector corporates so that the market is more representative of the economy.

Guardian Fund Management Ltd, managers of the Ceylon Investment portfolio, explained that their buy and sell decisions are influenced by whether share prices are above or below intrinsic value. The portfolio was divided into long term core holdings and a short term trading portfolio.

During the year, divestment of holdings generated sales proceeds of Rs.1.25 billion and they had made purchases worth Rs.1.67 billion which made Ceylon Investment a net buyer in the market.

The divestment of the long term segment of the portfolio had focused mainly on Commercial Bank of Ceylon, their largest holding in the banking sector. The stake was cut back "with the superlative share price performance" and the banking portfolio rebalanced by buying intp HNB which they identified as an undervalued stock both in fundamental and relative terms.

"HNB is one of the largest commercial banks in Sri Lanka with an asset base of Rs. 624 billion and is poised for better performance in its strongest segments," the managers said. "However, Commercial Bank yet continues to be one of our largest holdings as we believe that it could deliver consistent steady growth in the long term as the most efficient and highest return-generating private sector bank."

JKH, the largest market-cap company quoted on the CSE was traditionally given high weightage in the Ceylon Investment portfolio. They have now moderated exposure to this stock taking advantage of the spike in share prices during mid year and await the outcome of its new mega real estate development project They saw a stable performance in JKH’s diverse sectors going forward.

They had sold out their total holdings in Hemas Holdings during the period under review. This stock was one of the best performing on CSE and had reached valuation targets sooner than expected.

The managers said that they will continue to hold their stake in Sampath Bank where they see further value-creation opportunities and an upside to their banking model.

The Ceylon Investment portfolio had continued to lean heavily on the banking and finance sector with substantial holdings in HNB, Commercial Bank, Sampath and Central Finance. The managers said that they were very bullish on the banking and finance sector which they believe will yield good medium to long term results capturing the first economic tide of the country.

They were underweight in beverage, food and tobacco and diversified sectors due to their portfolio stance on the multi-national companies and large conglomerates represented in the sector as being perceived as over-valued and continue to be so on forward valuation.

Ceylon Investment has booked Rs. 538.29 million net realized gains from disposals from their long term portfolio during the year under review. The company had used cash of Rs. 58 million for its operations and its earnings per share had increased to Rs.10.02 from Rs. 9.03 a year earlier-an increase of 11%.

The company had paid an interim dividend of Rs.2.50 per share similar to the previous year and a scrip dividend of Rs.1 for the year under review maintaining consistent dividend policy matching shareholder expectations.

The managers also noted that the net asset value of the Ceylon Investment share amounted to Rs. 133 per share based on fair value of the portfolio. However, a share had been trading at a discount of CSE over the past few years with a market price of Rs. 91 as at March 31, 2015.

Ceylon Investment has a stated capital of Rs. 673.53 million, capital reserves of Rs.187.14 million and revenue reserves of Rs.12.24 billion. Total assets stand at Rs.13.38 billion and total liabilities at Rs.274.8 million.

Ceylon Guardian Investment Trust with 64.36% is the controlling shareholder of Ceylon Investment with all other individual shareholders holding less than 1.5%.

The Directors of the Company are Messrs: I. Paulraj (Chairman), D.C.R Gunawardene, A.P. Weeratunga, Mrs. Rose Cooray, V.M. Fernando, K. Selvanathan and T.C.N Chia. www.island.lk