Sri Lanka shares end down; econ woes, budget proposals weigh

Reuters: Sri Lankan shares fell for a third straight session on Tuesday as concerns about the new budget proposals and the prime minister's recent warning about slowing economic  growth weighed on sentiment, dealers said.

Market players were also uneasy after the Sri Lankan police on Monday detained a former chairman of the country's stock market regulator amid an investigation into financial misappropriation, days after detaining another top regulatory official.

The International Monetary Fund on Monday said Sri Lanka's 2016 budget raises questions about its ambitious revenue and capital expenditure targets as the government is falling far short of steps needed to improve the tax system.

Investor sentiment was also dented after Prime Minister Ranil Wickremesinghe's warning last week of lower economic growth in 2016 due to the global slowdown.

The main stock index ended down 0.14 percent at 6,849.09, its lowest close since March 31.

"Thanks to a block deal today the turnover is healthy but we are not seeing too much of activity going into the holiday season," said a stockbroker, asking not to be named.

Foreign investors were net sellers of 3.42 billion rupees worth of equities so far this year, but they bought a net 12.8 million rupees worth of shares on Tuesday.

A block trade in CIC Holdings Plc, which rose 9.20 percent, accounted for 52 percent of the day's turnover of 982 million rupees ($6.86 million).

Shares of Ceylon Tobacco Company Plc and Distillers Company of Sri Lanka Plc fell nearly 2 percent each while Sri Lanka Telecom Plc eased 0.86 percent.

The government on Nov. 20 announced a raft of measures, including the removal of a 0.3 percent share transaction levy, to stimulate trading in the share market and increase liquidity.

Rating agency Fitch on Nov. 24 said Sri Lanka's 2016 budget provides no clear plan for fiscal consolidation over the medium term and the absence of such a framework will put more pressure on the fiscal deficit. 

($1 = 143.2000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

SEC reopens ERI case

By Ishara Gamage

Ceylon Finance Today: Sri Lanka's Securities and Exchange Commission (SEC) has started a fresh investigation against former Environmental Resources Investments PLC (ERI) Directors for alleged stock market manipulation, SEC sources told Ceylon FT.

They also said that SEC has also reopened cases against the directors of two other companies also on the same charges.

When contacted, SEC chairman Thilak Karunaratne, on the ERI case said, "I neither accept nor reject the reopening of the ERI case.

But there are several legal angles which we can take in to consideration.

According to those legal angles we have the power to reopen closed cases."

Meanwhile, last month, speaking to media, the SEC Chairman said that the SEC has reopened three cases as part of probes that will be carried out by an expanded investigations and enforcement division. An SEC reorganization will be completed in November 2016, and an upgraded surveillance system will be in place next year, Karunaratne had told Lanka Business Online.

"When the new commission took over I impressed upon them the need to revisit these cases," he said.

Earlier, SEC had fined ERI and three directors for giving misleading information and not revealing material information about the firm in time.

ERI has been asked to pay Rs 3.3 million, executive directors Kosala Heengama and Gregory Scott New some Rs 3.3 million each and chairman Lalith Heengama Rs 500,000.
Independent directors G.S. Munasinghe and H.B. Dissanayake had had been warned.

Few months ago Prime Minister Ranil Wickremesinghe slammed corrupt sections of Sri Lanka's private sector to the extent of naming few businessmen including ERI's former directors Scott New man and Kosala Heengama.

"There are a number of allegations of violations of the Colombo Stock Exchange market rules and Securities and Exchange Commission regulations. The minor ones were compounded. Thirteen large cases were abandoned purportedly due to the lack of evidence," Prime Minister had told parliament.

"I would like this to be recorded in the Hansard. I have requested the Securities and Exchange Commission to go into these cases. If necessary, I will bring legislation to permit such inquiry. I am also seeking the appointment of a Parliamentary Select Committee to inquire into these transactions. Since some of the issues raised are under consideration by the committee, I prefer to give an answer elaborately after the report is submitted. We plan to table this report in Parliament," he had then said.

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Six reasons for bourse's fall

By Paneetha Ameresekere

Ceylon Finance Today: The stock market fell for the third consecutive market day at yesterday's trading bogged down by the six reasons of retailers staying away from the bourse; paradoxically, market manipulators who previously gave volumes and values to the market also keeping away; foreign investors being bearish due to expectations that the Federal Reserve System will raise its near zero interest rates which have being that way for the past seven years at next week's Fed. Open Market Committee meeting.

The rise in the plethora of indirect taxes in Budget 2016; increase in financial services tax and barring banks from engaging in the leasing business from June of next year and expectations that the low interest rate regime may come to an end, bolstered by a rise in private sector credit growth, not backed by a rise in market liquidity.

As a result, the benchmark ASPI fell by 0.16% to 6,858.63 points; the more sensitive S&P SL 20 Index by 0.15% to 3,632.93 points on a low Rs 388.92 million turnover and 13.36 million share volume (SV).

The companies which shares declined were nearly three times as much compared to gainers, with losers being 102 and gainers 44.

Nevertheless, with the arrest of certain high profile former Securities and Exchange Commission officers involved in the misuse and abuse of power during the tenure of the previous regime and a seeming attempt to clean-up the bourse which was allegedly in amoral hands during that period (see also separate articles found elsewhere on this page), such actions will help to once more restore confidence in the stock market among both local and foreign investors, the sources said.

The market also enjoyed a net foreign inflow of Rs 55.45 million yesterday, though in the calendar year to date it has suffered a net foreign outflow of Rs 3.11 billion.

Blue chip Access Engineering was the only stock to enter the Rs 100 million turnover club yesterday, with a figure of Rs 103.37 million on a share volume (SV) of 4.59 million. In the process, Access saw its share value decline by 0.88% to Rs 22.40 a share.

Access' Rs 103.37 million turnove, constituted 26.58% of the day's total turnover and its SV of 4.59 million, equivalent to 34.32% of yesterday's total SV.

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Litro Gas completes Hambantota terminal

Litro Gas has exhibited a significant sales growth of above 30pct in the domestic market during the first 10 months of this year. This complements with the imposed price reductions by the government.

The recent decision taken by the government to reduce the price of 12.5 kg domestic LP gas will further have a positive impact on its sales and volume, which are expected to surge by end this year,the company said yesterday.

The price reductions imposed within a year is significant (44pct) benefitting the lower and middle-lower customer segments, and this has allowed households in both urban and rural areas throughout the country to switch from the traditional firewood to LP gas which today is an affordable cooking fuel.

Litro Gas enjoys a market share of around 73pct and is increasingly capable of catering to the growing demand of the entire LP gas market in the country with its current infrastructure.

Litro Gas Lanka Executive Chairman Shalila Moonesinghe said 'We've had a very positive performance during the last ten months with favourable market conditions. Our increased storage capacity and sales channels shows our ambitious plans to expand our reach of domestic LPG gas to every household in the country.'

Recently the company completed its new LP gas terminal located at the port of Hambantota consisting a storage capacity of 3,000 m/t. The storage facility of Litro Gas now increases up to 11,000 m/t with this new addition.

Litro Gas also moved its' filling operations to its new filling plant in Kerawalapitiya, which is one of the largest LP gas filling plants in the Asian continent.

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CLC enters world of Alternate Finance

Commercial Leasing & Finance PLC has taken yet another revolutionary step towards delivering the best of innovative financial solutions.

As the Islamic Finance industry in the country grows at a steady pace, CLC also takes part in providing Shari'ahcompliant financial solutions for the benefit of many existing and potential customers. Thus, the company unveils 'CLC Islamic Finance'.

This specialized Islamic Business Division (IBD) is a dedicated Business Unit set up under the Commercial Leasing and Finance PLC (CLC) regulatory license to implement Shari'ahcompliant finance solutions monitored by three-member Shari'ah Supervisory Board, and operated by a well trained staff through all existing CLC touch points.

This business unit ensures that all products, services and the procedures taken will offer a complete 'Shari'ah Compliant' finance product together with essential firewalls created in terms of Products & Services, Funding, Accounting, IT,Bank Accounts etc.

Mudharabah Profit Sharing Investments enables the customer/investor and the company to carry out business projects and share the profits on a pre-determined ratio agreed by both parties.Mudharabah Term Deposit, which is a long term investment plan that extends from one month up to sixty months, offers profit payments monthly, annually or at maturity, depending on the preference of the customer.

Mudharabah Savings Accounts facilitates a flexible and convenient way of deposits and provides easy access to the savings through a savings pass book, an internationally accessible ATM/Debit card which is accessible from any HNB ATM machine and through CLC's online banking facility.

Wakala Investment - refers to a Fixed Term investment plan where the company as the Agent manages Investor's funds for an agreed profit rate. The term can be from one month up to 60 months.

Through Ijarah (Leasing), CLC will lessen the burden of capital expenditure by providing fixed term leasing facilities for vehicles, machinery and equipment.

Murabaharefers to the sale of goods at a price which includes a profit margin in addition to the cost. This service will be available for Trade Finance and for the purchase of property, vehicles, machinery and equipment.

Diminishing Musharaka refers to property financing where CLC partners with the client for a common ownership of an asset. However since the client has the ability to purchase the company's share periodically, it diminishes the company's ownershipand increases the client's share eventually passing complete ownership to the client.

To satisfy working capital requirements of the customer CLC Islamic Finance provides Wakala Lending (short term business and working capital finance)

Commercial Leasing and Finance PLC is one of Sri Lanka's leading financial service providers that offers solutions ranging from leasing, fixed deposits, savings, loans and factoring.

The company has equity overRs. 10 billion coupled with an ICRA (A) rating. With 27 years of excellence, CLC continues to spread its influence and steadily expands its business activities by providing innovative financial solutions, through a network of 60branches Island wide.

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GDP to remain robust -Moody's

Moody's says that the operating environment for banks in Sri Lanka will remain healthy and that asset quality and profitability will be stable over the next 12 to18 months, offsetting some moderate deterioration in funding and liquidity.

In their Banking Sector Outlook for Sri Lanka, Moody's says the GDP growth rates in Sri Lanka will remain robust. "We expect annual growth of 6.7% over 2015-16."

An accommodative monetary policy supports the growth outlook.

In addition, investments are likely to have more participation from the private sector, compared with the public-sector-led approach of the past few years, a shift which should provide an impetus to loan growth.



The gross nonperforming loan (NPL) ratio has improved over the past 18 months, coming down to 4.0% in September 2015 from 5.6% in December 2013.

Problems in the pawning sector the key reason for the pick-up in NPLs in the recent past have been addressed. "At the same time, banks' underwriting standards have been fairly tight over the past two years, as reflected in only moderate loan growth in 2013-14 even as the economy was growing rapidly."

"On the one hand, net interest margins (NIMs) will remain under pressure, primarily due to the low interest rate environment. On the other hand, have Sri Lankan banks have already made significant investments in their branch networks and personnel in recent years, so faster loan growth will lower their cost-to-income ratios. Some banks will also benefit as elevated credit costs associated with pawning NPLs are no longer required, "the report further states.

The current level of liquidity in the system is adequate with the statutory liquidity ratio in the domestic book at 36%. However, liquidity should tighten over the outlook horizon, as we expect annual loan growth of around 20%, faster than deposit growth of 16%.

This should put pressure on the banks' funding profiles as they will need increase their dependence on more expensive sources of borrowing, including foreign-currency borrowings.

"Sri Lanka has a track record of providing systemic support to banks when needed and we assume that such support would be forthcoming, if required. Sri Lankan banks need to comply with Basel III capital norms, as well as liquidity coverage ratio (LCR) norms, from January 2016 onwards."

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Govt to review motor import tax in 2017

Chairman Stassen Group and Aitkin Spence, Harry Jayewardene and Dilmah Tea Chairman and Founder Merrill J. Fernando strongly criticized the move by the government to import tea to the country subsequent to the Budget 2016 proposals.

Speaking at the Business Forum on budget 2016 organized by Sri Lanka Rupavahini Corporation at Waters Edge yesterday, the duo said that this move would have severe negative impacts for the local industry. "It would dilute the quality of the Sri Lankan brand name of tea which we have strived for years to create."

Minister Ravi Karunanayake said that there had not being an increase in the size of the tea industry and this move was to inspire the local industry. He also said that Sri Lanka also needs to innovate.

However both Jayewardene and Fernando disagreed and said that the decision on import of tea has to be re-looked.

Responding to a query by Chairman of the Sri Lanka Vehicle Importers' Association, Indika Sampath Merinchige the Minister said that they needed to balance the budget with fuel prices and this was the reason for them to increase the tax of electric vehicles. "We request the industry to bear with us for about one and half years in this regard."

Managing Director, CEO of Caltex Lubricants Lanka Limited said that there is an imbalance by default Sri Lankan Human Resources. "Sri Lanka is exporting house maids and importing Senior Managers, CEO's. This must change."

John Keells Group Deputy Chairman, Ajith Gunawardne said that tourism industry is well positioned to move from US$ 2 billion industry to a US$ 10 billion industry in five years.

He said that though some points may not directly involved in the budget, Sri Lanka must strive to get the right tourist to the country. "For this, standards should be maintained in service standards and also when building high rise hotels in coastal areas."

Dharma Dheerasinghe, Chairman Commercial Bank said that they saw two key issues in the macro economic background in which the budget was presented. "One is the fiscal imbalance that prevailed in economy and those issues relating to the fiscal sector that needs to be fixed. And also we have a growing balance of payment deficit and this too has to be addressed."

National Chamber of Commerce, Chairman, Tilak Godamanne said that most of the features were accepted by them.

"The proposal to set up a venture capital and give them a tax holiday for five years is welcome."

Minister of Finance, Ravi Karunanayake said that it is a very good idea to send suggestions to the Government mainly through Chambers without going behind politicians.

(SS)

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Anti-graft code of conduct for corporate sector

The Bribery Commission will soon introduce a code conduct for the corporate sector amending the existing laws, Bribery and Corruption Commission's Director General, Dilrukshi Dias Wickramasinghe said

Speaking at a breakfast forum organised by Shipper's Academy Colombo at Hotel Galadari she said that we must also make private companies liable if they are involved in bribery and corruption.

She said that bribery and corruption also takes place among private companies as well. The Director General said said that she was pleased to say that almost all multi-nationals and top corporates do not get involved in corruption. She recalled that she personally knew of an instance where Hemas Holdings destroyed a consignment of Bio Oil mid sea since a Customs officer wanted a huge bribe to clear it.

She said that she will also look at the Customs Ordinance as she has received many complaints that tougher legislation is needed to reduce corruption in that institution.

Wickramasinghe said that today some are afraid to come out and expose corruption since they think that they will be harassed by authorities and in courts. "This is a myth. What you just got to do is to dial 1954 and just give us a detailed account and we will follow it up from there."

Speaking to 'Daily News Business' she said that her officials are every honest but they need to think newly. "For this we are obtaining the services of two officials from US and UK with the assistance of their Embassies in Sri Lanka."

She also said that Finance Minister Ravi Karunanayake too is backing her and has allocated Rs. 500 million to strengthen the Commission. The UNDP too has offered us funds as they feel corruption should be not reduced but eliminated.

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