Sri Lankan shares end steady; higher rates weigh

Reuters: Sri Lankan shares ended steady on Friday as gains led by consumer shares were offset by losses in the telecom stocks amid investor sentiment dented by foreign outflow and rising interest rates.

Yields on treasury bills edged up by between 5 and 27 basis points to near three-year highs at a weekly auction on Wednesday despite the central bank left key policy rates steady for a third straight month.

The benchmark stock index ended up 0.04 percent, or 2.45 points, at 6,571.21, recovering from its lowest close since April 29 hit on Thursday, and posting a fall of 0.94 percent this week.

"The retail and high-net-worth investors are concerned on the rising interest rates. Until the IMF money comes in, the market will be volatile," said Dimantha Mathew, head of research of First Capital Equities (Pvt) Ltd.

"Foreign selling continued and it is worrying the investors."

Foreign investors net sold 657 million rupees ($4.49 million) worth of shares on Friday, extending the year-to-date net foreign outflow to 5.57 billion rupees worth of shares.

Turnover stood at 1.08 billion rupees, the highest since May 19 and well above this year's daily average of around 796.6 million rupees.

Shares in Ceylon Tobacco Company Plc climbed 1.82 percent while Dialog Axiata Plc slipped 1.8 percent.

($1 = 146.4300 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips)

SL Funds: Equity Unit Trusts now outperform market, says Guardian Acuity

There’s good news in fund management. Most of the professionally managed funds that invest in the Colombo market tend to outperform the market.

In 2014, for instance, the Guardian Acuity Equity Fund, gave a return of 37.9 percent, compared with the All Share Price Index (ASPI) which rallied 23.4 percent.

Sri Lankan equity funds, or open-ended growth funds, outdid the market in 2012 and 2013 as well. They gave returns of between 8.2 and 15.86 percent annually, although some didn’t do so well.

Even in 2015, which wasn’t a good year for stocks, Guardian Acuity gave a return of 2.5 percent, when the S&P Sri Lanka 20 index plunged 11.33 percent.

For investors who want higher returns linked to Sri Lanka’s emerging market, equity Unit Trusts offer an attractive proposition. But outperforming the market isn’t the only criterion for evaluating a fund.

Lanka Business Online, which plans a series of articles on Sri Lankan Unit Trusts, spoke to the fund managers at Guardian Acuity to get their insights.

Similar to mutual funds in the U.S., the Sri Lankan variety gives investors tax-free returns. Foreign investors can invest as well.

But picking an equity fund is a bit like picking a stock. An investor should have good timing, be willing to ride the waves, and in Sri Lanka, take a three to four year view.

“We encourage investors to take a three to four year view rather than look for short-term returns,” said Ruvini Fernando, the joint CEO of Guardian Acuity Asset Management. She highlighted that steady long-term returns is a good option within this asset class.

After the end of a war with Tamil Tiger separatists in 2009, Sri Lanka is showing strong growth, with some sectors such as tourism booming. Many Sri Lankan companies offer attractive ROEs, but it generally takes a fund manager to extract those returns.

Since the fund launched in 2012, the 410 million rupee Guardian Acuity Equity Fund has given a 65.5 percent absolute return as of April 2016. In comparison, the All Share Price Index has grown by 18.9 percent.

In annualized terms, the fund has given a return of 12.8 percent, compared with a 4.25 percent annualized return on the All Share Price Index during this period.

Equity funds in Sri Lanka have to compete with government securities which often crowd out the private sector. One-year treasury bills at the beginning of 2012 yielded 9.3 percent, which rose to 11.38 percent at the beginning of 2013. They ranged around 6-7 percent for most of 2014 and 2015 and currently yield 10.3 percent.

Risk-free Treasury bills, which are an important benchmark for Unit Trusts in Sri Lanka, should experience a structural adjustment downwards as alternative instruments are better priced.

Share owning democracy

Although the current Sri Lankan government has promoted share ownership to the public, it seems individual investors would be better off investing via an equity fund.

“A share owning democracy is a great idea, but the way people can manage risks and volatility better is by using an instrument like a unit trust,” she said.

This is because they often don’t have the time to monitor, react to market developments and pour over research.

“If you are a professional and you want to access capital markets, be it securitizations or commercial paper, or stocks and bonds, there are fund managers who will dedicate their time to doing that for you,” she said.



Regulated by Sri Lanka’s Securities and Exchange Commission, investors get the benefit of diversification and liquidity to extract funds.

The tax free returns, when grossed up, compare well against bank fixed deposits, said Asanka Jayasekara, a fund manager at Guardian Fund Management.

If the corporate tax rate is 28 percent, a 10 percent yield when grossed up increases to around 13.8 percent.

A good pedigree is important too, and the parent companies of Guardian Acuity are blue-chip Carson Cumberbatch, HNB and DFCC Bank.

Guardian Acuity discloses its top five stock allocations monthly, which are currently Distilleries, Sampath Bank, Seylan Bank, Dialog Axiata and Aitken Spence Hotel Holdings.

Fernando said they disclose a lot more information such as fund allocations and credit quality of investments than required to by Sri Lanka’s SEC. Some of the better managed Unit Trusts follow the same practice, she said.

For investors who want predictable returns over a short-term horizon, Guardian Acuity has a Money Market Gilt Fund, with 410 million rupees under management, and a Money Market Fund with 4.5 billion rupees under management.

The Money Market Gilt fund sticks to treasury bills and repurchase agreements, and the Money Market Fund diversifies into fixed deposits, government securities and commercial paper.

“We have an emphasis on quality. We make sure all investments are investment grade and above. We don’t rely on the ratings alone, but have an internal research team dedicated to analyzing companies, cash flows and balance sheets,” Sumith Perera, senior fund manager at Guardian Acuity Asset Management, said.

Over 70 unit trusts are regulated in Sri Lanka and registered with the Unit Trust Association of Sri Lanka (utasl.lk) under categories such as open-ended income funds, index funds, balanced funds, shariah funds, IPO funds and gilt and money market funds. Analysts say closer public scrutiny is needed to highlight the strong performers as well as the under-performers in the industry.

Sri Lanka ups taxes on larger cars, SUVs up by two million

ECONOMYNEXT - Sri Lanka has cut taxes on small cars with engines capacity below 1,000 cubic centimetres but upped taxes on larger cars, motor trade officials said.

A Nissan X-Trail were taxes were earlier about 4.6 million rupees had gone up to 7.9 million which may push the street price to 10 to 11 million rupees, an importer said.

The tax on an Outlander which was about 5.4 million had now gone to 7.96 million rupees. The retail price may move close to 13 million, sources said.

A mid-sized Axio hybrid which had a tax of about 2.8 million would now draw a tax of 29.8 million rupees taking the retail price to around 6.4/6.5 million. The prices of Aqua and Fit cars will also go up.

The taxes on a Wagon-R which was about 1.5 to 1.6 million would now come down to about 1.35 million, sources said.

However auction prices in Japan had already started to move up on small cars.

The auction prices on larger cars can also come down, when import demand falls.

Secondary market price tax free permits of the elected ruling class and state workers will also go up, giving them more tax-arbitrage profits.

A permit which a member of parliament could sell at about 20 million rupees up to yesterday, may now go up to about 30 million or more depriving tax to the state said, firm prices are not yet available.

Sri Lanka sells Rs47.7bn in 2 to 10 year bonds, yields up

ECONOMYNEXT - Sri Lanka has sold 47.7 billion rupees of 2 to 10 year bonds accepting near announced volumes in all maturities with yields edging up, data released by the state debt office showed.

The debt office sold 12.86 billion rupees of 2-year 4-month bonds maturing on 15.10.2018 to yield 11.83 percent after offering securities worth 10 billion rupees, 11.6 billion rupees of 5-year 4-month bonds maturing on 15.10.2021 to yield 12.48 percent after offering 15.0 billion.

On May 19, 15.11.2018 bonds were sold at 11.75 percent.

It also sold 14.1 billion rupees of 7-year 7-month bonds maturing on 01.01.2024 to yield 12.77 percent (up 37 basis points from May 19), after offering 12.0 billion and 8.1 billion rupees of 10 year bonds maturing on 01.06.2026 to yield 12.98 percent (up 16bp from May 19) after offering 8.1 billion rupees.

On May 10, 01.01.2024 bonds were sold at an average yield of 12.40 percent and 01.06.2026 bonds were sold at 12.82 percent.

The bonds have a settlement date of 01 June 2016.

Ceylinco to settle all flood claims by June 3

Ceylinco Insurance will settle all claims of flood victims on or before June 3.The sum is expected to be in the excess of Rs. 1.6 billion.

Ceylinco General Insurance Chief Executive Officer Ajith Gunawardane said they have received over 2,000 claims which include 800 for motor vehicles and around 1,200 for property which also include factories and other business establishments. “We have all ready paid ove Rs. 425 million so far.”

Gunawardane said that they will look at the issue from a humanitarian angle as they did for the 2004 tsunami. “If any of our customers are affected and have

made a claim we will settle it 100%. We have gone a step further and have decided to pay a percentage to other damages sustained by our customers.” If a person has taken car insurance and his property or business was not insured Ceylinco Insurance will pay a percentage of that damage as well.” Gunawardane said Ceylinco has also taken a decision to pay a percentage of damage to community centers that also include places of religious, health and others who are never insured.

The company has made huge profits and we are ready to give them back to

people who need it now. “We have now appointed a special task force for this.”

He recalled that during the tsunami too Ceylinco paid the highest claims in

the Sri Lanka history to the tune of Rs. 4 billion.

Meanwhile an official from Sri Lanka Insurance said they too received claims to the value of over Rs. 1.5 billion. “We will start paying them from Friday.”

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Sunshine packaging arm to expand with US$ 2 mn

Sunshine Packaging Lanka is poised for further expansion following the receipt of US$ 2 million in Foreign Direct Investment (FDI) from Primeco Holdings Limited , a conglomerate incorporated in Hong Kong.

The FDI infusion is via an issue of new shares amounting to a 40% stake in Sunshine Packaging by Primeco Holdings which has interests in steel, coal and other commodities.

The funds from the new investment will be used for further enhancement and expansion of the operations of Sunshine Packaging – which at present manufactures tea caddies, confectionary tins and printed tin sheets. With the new investment, Sunshine Packaging expects to step up its focus on the lucrative export market and significantly increase its business volumes – particularly by expanding its international orders via the partnership with Primeco Holdings.

“The investment from Primeco Holdings reflects the strong confidence of international investors in the companies of the Sunshine Holdings Group,” Sunshine Holdings Group Managing Director Vish Govindasamy said.
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Ceylinco Life’s Life Fund crosses Rs 70 billion in 28 years

Ceylinco Life said the company’s Life Fund crossed Rs 70 billion at end April 2016, making it the only local life insurer to achieve the feat in 28 years.

The Life Fund had grown by Rs 2.75 billion in four months, enabling it to become the fastest to cross Rs 70 billion in Sri Lanka.

“This is an important milestone for the company because the size of the life fund is one of the key benchmarks for the financial strength of a life insurance company,” Ceylinco Life Managing Director and CEO R. Renganathan said.

Ceylinco Life also reported that total assets of the company had grown by 4.3 per cent since December 2015 to Rs 83.6 billion at the end of April and that its investment portfolio had increased by Rs 2.57 billion over the four months.

“The quality of our investments has always reinforced our operational strength, as represented by the premium income of the company,” Renganathan said disclosing that investment income for the first four months of 2016 had exceeded Rs 2.49 billion.

The company’s investment portfolio at 30th April 2016 comprised of Government Securities (62 per cent); Licensed Private Banks (7 per cent); State Banks (1 per cent); Real Estate (8 per cent); Corporate Debt (21 per cent) and Other Investments (1 per cent).

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

Ceylinco Life commenced operations in January 1988 and has been the market leader in Sri Lanka’s life insurance industry for 12 consecutive years since 2004. The company has close to a million lives covered by active policies and is acknowledged as the benchmark for innovation in the local insurance industry for its work in product research and development, customer service, professional development and corporate social responsibility.

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Hemas Holdings posts Rs 4 bn profit for 2015-16

Hemas Holdings PLC (HHL) and its subsidiaries achieved consolidated revenues of Rs.37.9 bn, a year-on-year (YoY) growth of 16.9% for the twelve months ended March 31, 2016.

During this period operating profit reached Rs.4 bn and earnings Rs.2.7 bn, growth of 17.5% and 37.7% respectively. An additional interest income of Rs.280 mn was earned from investing the proceeds of the rights issue.

The FMCG sector achieved total revenues of Rs.14.3 bn for the twelve months, a 20.2% YoY increase over the previous financial year. Operating profits were Rs.1.8 bn, 50.5% YoY growth, whilst earnings grew at 37.2% to stand at Rs.1.4 bn. Strong performance was underpinned by our Bangladesh operation maintaining excellent revenue and profit growth, as well as strong sales across all our major brands in the domestic market and relatively weak commodity prices for key raw material inputs. Overall healthcare sector revenue for the twelve months under review stood at Rs.16.1 bn, a YoY increase of 16.0%, whilst earnings grew at 22.8%. During the year, Hemas Hospitals opened its first wellness centre at Orion City, three new laboratories and invested in building capabilities in the Urology specialty. Our hospitals growth in revenue contributed 34.7% of the overall segment’s revenue growth. Hemas pharmaceutical distribution operation registered a YoY topline growth of 8.2% maintaining its market leadership position. Our pharmaceutical sales growth continues to be driven by our strong presence in growing therapeutic segments.

JL Morison posted a YoY growth of 22.8% and earnings growth of 43.4% for the twelve months ended March 31, 2016. Revenue growth was largely driven by the increase in sales from the buyback arrangement with Government of Sri Lanka and sales growth in key diagnostics agencies.

The significant growth in operating profit resulted from increases in revenues in both consumer/OTC products and pharmaceutical segments, efficiency and capacity gains at the plant after a period of closure of the plant in Q1 2014/15 and a restructured distribution network. Transportation sector reported a revenue of Rs.1.8Bn, a 17.2% YoY topline growth. Revenue growth was driven by higher volumes through our domestic logistics operation with warehouses operating at high levels of capacity, higher volume throughput at our container depot and new 3PL customers,

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