Sri Lankan shares close at 8-wk low; rates decision awaited

Reuters: Sri Lankan shares fell for a third straight session on Wednesday to hit a more than 8-week closing low as investors turned cautious ahead of a monetary policy rate announcement by the central bank later in the week.

The central bank will announce June monetary policy rates at 1230 GMT on Friday and the market broadly expects rates to be left steady for a fourth straight month, although a possible rate hike is not ruled out.

A decision by Moody's to revise downwards Sri Lanka's outlook on its sovereign rating, continued foreign fund outflows, rising interest rates, and a government proposal to reintroduce capital gains tax also weighed on investor sentiment, brokers said.

The benchmark Colombo stock index ended down 0.4 percent, or 26.08 points lower, at 6,420.80, its lowest close since April 26. The index shed nearly 1 percent last week.

"The biggest concern is the uncertainty over capital gains tax. The government has not clarified if it will be imposed on equities or not," a stockbroker said asking not to be named.

Sri Lanka's cabinet on June 15 approved a proposal to reintroduce the tax, especially on land sales, with a cabinet spokesman saying no decision had been taken on whether the tax would apply to capital gains in the share market.

Moody's Investors Service on Monday revised down Sri Lanka's outlook to negative from stable, citing further weakening in some fiscal metrics in an environment of subdued GDP growth, which could lead to renewed balance of payments pressure.

Overseas funds have offloaded 5.74 billion rupees ($39.11 million) worth of equities so far this year, but were net buyers of 46.9 million rupees worth of shares on Wednesday, buying on a net basis for the first time in five sessions.

Turnover stood at 570.1 million rupees, well below this year's daily average of around 752.5 million rupees.

Shares in Ceylon Tobacco Company Plc fell 1.43 percent, while Commercial Bank of Ceylon Plc lost 1.26 percent and conglomerate John Keells Holdings Plc dropped 0.57 percent.

Treasury bill yields rose between 1 and 3 basis points at a weekly auction on Wednesday. They have risen between 7 and 43 basis points since the central bank left the key policy rates steady on May 20.

The average prime lending rate edged up 3 basis points to 10.50 percent in the week ended June 17. Stockbrokers have said rising interest rates could be detrimental to risk assets if they jump beyond 12 percent. 

($1 = 146.7500 Sri Lankan rupees) 

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

Sri Lanka: Opportunities for value investors, rate hikes limited: JB Securities

Author LBO

(LBO) – Sri Lanka’s equity market offers opportunities for value investors as market multiples have contracted, JB Securities says in their latest research report.

Although the economy is forecast to grow 4.5 percent in 2016, compared with 4.8 percent last year, further increases in interest rates are likely limited to 25 basis points. Inflation too should stay within tolerable limits of 4 percent to 6 percent, the top securities firm adds.

“Market multiples have significantly contracted, quality counters that were trading at rich valuations have corrected offering quality at a fair price. Value investors can find attractively priced blue chip counters,” the Outlook for Equities report said.

Nevertheless, rising interest rates are unfavourable for equities. At the margin most retails investors will select fixed income instruments than equities to invest in, the report added.

“A rate hike larger than 25bps will likely not happen as headline inflation will remain within the Central
Bank’s tolerable range of 4 percent to 6 percent.”

Sri Lanka resorted to an IMF support facility of 1.5 billion dollars this year due to a widened budget deficit and an exit of capital from the government securities market. The IMF facility is expected to bring in discipline to government finances while making policy more predictable, JB Securities said.

“This is likely to stabilise risk sentiment which can support FII inflows in the 2H-2016,” the report said, referring to foreign investment.

“We are of the view that a further 25bps policy rate hike is still probable in 2H-2016.”

“Yields on government securities will likely come down due to inflows from FIIs reentering the market taking comfort from the ongoing IMF programme. Further, the government is hoping to go to the international markets to meet funding requirements for upcoming debt maturities thus limiting demand on domestic resources.”

The firm said they forecast USD/LKR to reach 149 by the end of the year.

“Upside risks to this view is more aggressive Fed tightening than expected, and a significant devaluation in the Chinese Yuan which would pressure on USD/LKR to move higher.”

Healthcare has been a star performer, while rising nominal interest rates are more propitious for large commercial banks with a wide retail franchise, JB Securities said.

Tourism remains a sunrise industry and the industry outlook remains favourable, although pricing power may abate due to new supply coming on stream.

Sri Lanka's Litro Gas tender to be probed by Sri Lanka Insurance

Public Enterprise Development Minister Kabir Hashim yesterday said Sri Lanka Insurance, which is the largest shareholder of State-run Litro Gas would be asked to probe accusations of non-transparency during its latest tender.

Litro Gas floated a tender for the supply of 250,000 metric tons of LP gas to Sri Lanka earlier this month. The tender is considered to be one of the largest tenders made by the Government annually and was estimated by analysts to be worth about $100 million.

The process of an open tender is to openly call out the bids of all companies once the bids are handed in but representatives of companies present at the closing of the tender charge that this process was overlooked, thereby hampering its transparency. They have also charged that the tender was kept open beyond the closing time to provide preferential treatment for a selected number of bids.

Litro Gas has rejected the allegations and insisted it conducted a transparent tender process based on obtaining the best price and best technical evaluation resulting in the Government making a savings of Rs.1.7 billion. A subsequent statement released by Litro Gas outlining the profit did not give details on the final bid price made by Shell Eastern Trading Ltd., who eventually won the tender.

“Concerns over this tender have been conveyed to Prime Minister Ranil Wickremesinghe as well,” acknowledged Minister Hashim, who added “The Board of Directors of Sri Lanka Insurance is empowered to call for an outside expert opinion if they feel due process was not followed in this instance. The board has done so on a previous occasion and I have confidence they would do the same in this instance as well.”

Minister Hashim also noted he would consider holding a press conference at a later date to discuss the controversial matter further.
www.ft.lk

Sri Lanka: Capital gains tax to be reality in a month!

By Uditha Jayasinghe

Capital Gains tax could be rolled out as early as end July since the Government is looking to fast-track its revenue sources, a top minister said yesterday.

Public Enterprise Development Minister Kabir Hashim insisted the Government would formulate a structure for Capital Gains tax “in about a month” as it looks to speed up the process, which is part of broad tax reforms needed to boost public revenue. Tax reforms is also a crucial part of the International Monetary Fund program with Sri Lanka.

“Capital Gains tax can be introduced in about a month and it will likely be imposed on land and all other assets,” the Minister said in response to questions on whether the tax would exempt stock market earnings. However, the minister opined that the tax would not be implemented retrospectively.

“Personally my view is that the tax should apply to future transactions,” he added. Hashim also emphasised Capital Gains tax as an attempt by the Government to reduce inequality in Sri Lanka by redistributing the tax burden to the rich.

“Every country has to levy taxes. But in Sri Lanka we still have heavy reliance on indirect tax, which puts a heavier burden on the poor. For the first time in years we are trying to formulate a fair tax policy that redistributes the tax burden equally among the public. In this way we can also eventually reduce the pressure placed by the recent VAT increase though we do not see it as prohibitively high.”

Cabinet last week approved the a proposal submitted by Prime Minister Ranil Wickremesinghe to draft a new Capital Gains tax regime with technical assistance from the International Monetary Fund (IMF).

As reported by the Daily FT the Cabinet paper noted that since the announcement by the Government of its intention to reintroduce a Capital Gains tax regime in March 2016, work has been undertaken to develop a system that “makes it consistent with current international good practice, with particular regard to similar regimes in the region.” However, it is not yet clear whether the Government will make provisions to exempt stock market returns.

“During the last few decades there has been a massive increase in the private capital in the country. The increase in prices of land attributable to large infrastructure developments carried out through Government funds have enabled the land owners to make significant Capital Gains free of taxation. This resulted in the increase in the inequality of income distribution,” the Cabinet paper presented by Wickremesinghe said.

This issue has been discussed extensively at the Cabinet Committee on Economic Management and the committee agrees with the reintroduction of the Capital Gains tax to rectify the situation. Capital Gains tax operated in Sri Lanka until 2002. Under that regime Capital Gains were made liable to income tax by the Inland Revenue Act No. 13 of 1959. The maximum rate of tax for Capital Gains was set at 45% until it was subsequently reduced to 25% in 1978, before it was abolished in 2002.

Minister Hashim was also confident that fresh reforms aimed at increasing Government revenue and investment would motivate rating agencies to reverse their prognosis on Sri Lanka to positive “within three months.”
www.ft.lk

Sri Lanka's May inflation up by 5.3%

The Department of Census and Statistics said that year-on-year inflation based on NCPI for the month of May 2016 was calculated as 5.3%. 

The latest Consumer Price Index (CPI) released by the DCS is the National Consumer Price Index (NCPI). DCS commenced releasing NCPI (Base 2013=100) from October 2015 with a time lag of 21 days.

The Department of Census and Statistics has released the National Consumer Price Index (NCPI) for the month of May.

NCPI has been calculated as 113.7 for May. This shows an increase of 2.1 index points or a percentage of 1.9 compared to the previous month’s (April) index of 111.6.

This monthly change is due to the expenditure value of food items increased by 0.91% and expenditure value of non-food items increased by 0.97%.

In a communiqué issued by the Department of Census and Statistics, Director General Dr. Amara said the expenditure value of food commodity group has increased by 0.91% in May 2016 compared to April 2016.

This was mainly due to the price increases in vegetables, rice, limes, potatoes, dhal (masoor), red onions, green chilies, chicken, sugar, garlic and dried fish compared to the previous month (April).However, decreases in prices were recorded for eggs, papaw, banana, mangoes and coconut compared to the previous month (April).

The expenditure value of non-food commodity group has increased by 0.97% in May compared to April. This was mainly due to the expenditure value increases in non-food commodity groups of ‘Health’, ‹Communication’, ‹Miscellaneous Goods and Services›, ‹Housing, Water, Electricity, Gas and Other Fuels’, ‘Clothing and Footwear’, ‹Furnishing, Household Equipment & Routine Household Maintenance› and ‘Recreation & Culture’ compared to April.

Further, very slight increase in expenditure value was also reported for group of ‘Restaurant and Hotels› compared to the previous month (April). However, decrease in expenditure value was reported for non-food commodity group of ‘Alcoholic Beverages, Tobacco & Narcotics’compared to the previous month (April). The expenditure values of ‹Transport› and ‘Education’ groups remained unchanged during the month.
www.ft.lk

PLC produces first annual report with ‘augmented reality’

People’s Leasing & Finance PLC (PLC) has presented its Annual Report for FY 2015/16 with augmented reality experience for the first time in Sri Lankan history.

Third integrated annual report of PLC themed“Invictus”is embedded with the newest technology “Augmented Reality” which could bring more live experience to the reader.

Users can download PLC Application named PLC AR from Google or iTunes and view digital information by simply holding the phone on to the “scan me” icon in the report.

Augmented reality is a modern technology which integrates the digital information with live video or user’s environment in real time. Therefore, this will bring in more liveliness to the readers of the annual report compared to traditional annual reports.

Integrated Annual Report prepared in line with the Integrated Reporting Framework issued by the International Integrated Reporting Council (IIRC) shares PLC’s inimitable value creation story with all its stakeholders. Theme of this year’s report “Invictus” is a Latin word which explains the Company’s unconquerable spirit that has never backed down in the face of adversity and challenge. Report also contains Company’s initiatives on good governance and accountability whilst giving all financial information adhering to the Sri Lanka Accounting Standards.

Commenting on this year Annual Report CEO, D. P. Kumarage said, “PLC annual report has been continuously awarded for maintaining quality and transparency. This year reaching to a new milestone in reporting we introduced newest technology of augmented reality to our annual report in collaboration with the designing company Optima Designs (Pvt) Ltd. We hope that this will give a more live experience to all our stakeholders”.

PLC, the largest and the highest rated non-bank financial institution in the country completed most successful financial year up to date by recording an impressive profit after tax of Rs. 4.35 billion.

www.dailynews.lk

Fitch assigns Seylan Bank’s debenture at ‘BBB+(lka)’

Fitch Ratings has assigned Seylan Bank’s Basel II compliant subordinated debenture issue of up to LKR5bn a final National LongTerm Rating of ‘BBB+(lka)’.

The final rating is the same as the expected rating assigned on May 6, 2016 as detailed in the press release, Fitch Rates Seylan Bank’s Subordinated Debt ‘BBB+(lka)(EXP)’ and follows the receipt of documents conforming to information already received.

The debentures will have tenors of five and seven years and carry fixed and floating coupons. The debentures are to be listed on the Colombo Stock Exchange.

The issue is rated one notch below Seylan Bank’s National LongTerm Rating to reflect the subordination to senior unsecured creditors.
www.dailynews.lk

Adam Investments proposes sub division

Adam Investments PLC at a meeting of Board Directors of the company have resolved to recommend to shareholders that ordinary shares of the company in issue be increased by way of a subdivision whereby one ordinary share will be subdivided into two ordinary shares.

On this basis the Four Hundred Forty Nine Million Two Hundred Seventy Six Thousand Two Hundred (449,276,200) Ordinary shares in issue as at date will be increased to Eight Hundred Ninety Eight Million Five Hundred Fifty Two Thousand Four Hundred (898,552,400) Ordinary shares.As a result of the recommended subdivision there will be no change in the stated capital of the company.

The proposed subdivision, will be subject to shareholder approval at a shareholder meeting at the next Annual General Meeting and the dates will be informed later.
www.dailynews.lk

First Capital Fund outperforms all unit trusts for five years

First Capital Asset Management Limited, Managers of the First Capital Wealth Fund,announced a dividend of Rs. 100 per unit.

The First Capital Wealth Fund was Sri Lanka’s best performing Fixed Income Unit Trust for calendar years 2013 and 2014.

The Fund is also the best performing Unit Trust Fund for the five years ended 31 March 2016 with a compounded annual growth rate of 11.77% over the period (as reported by the Unit Trust Association of Sri Lanka).

“The Fund operated under difficult capital market conditions in the current financial year. Excess liquidity in the banking system decreased significantly, foreign investors divested from their holdings of government securities, and the external reserves of the country was further pressured by debt service commitments on the country’s foreign debt. These factors combined to significantly increase interest rates during the year. Despite these challenges, the Fund continues to pay an attractive dividend for the year,” First Capital Holdings Chief Executive Officer Dilshan Wirasekara said.

“As a fully-fledged Investment Bank specializing in debt market services and prominent non-bank primary dealer in Sri Lanka, we will continue to work closely with our stakeholders to maintain a conducive investment environment and provide competitive returns for our investors. With specialized knowledge and industry expertise garnered through our position and experience in the market, we are confident that the unit trusts managed by First Capital Asset Management Limited will continue to reap the rewards of timely, well-informed investments,” Wirasekara said.

www.dailynews.lk