Noteworthy asset quality deterioration in Sri Lankan finance companies

LBO – ICRA Lanka, a group company of Moody’s Investors Service is cognisant of the asset quality deterioration in licensed finance companies in Sri Lanka, during the financial year ended March 31, 2018.

“As per our analysis about 100bps increase (5.82% in March 2018 vis-s-vis 4.89% in March 2017) in gross NPA (non-performing loans) levels during the period is attributable to a number of factors,” ICRA Lanka said in a statement.

The statement outlines overall slow-down in economic growth, particularly affecting lower tiers of the economy and adverse weather conditions that prevailed from the last quarter of 2016 to latter part of the year 2017 as those factors.

Particularly high NPAs in SME related lending: In the last couple of years, NBFIs were extensively growing their SME related lending portfolios, due to relatively better yields in SME lending and due challenging market dynamics in the traditional vehicle leasing segment. SME related loans are granted in the form of factoring, post-dated cheque discounting and short-term loans. However, we observe increasing slippages in these product segments of the SME portfolios as the macro conditions were challenging.

ICRA Lanka also observes a significant moderation in portfolio growth, in NBFIs that are involved in SME lending, as the focus has shifted towards recovery efforts of the same facilities.

Further, according to new capital adequacy requirements (June 2018), risk weighting for unsecured lending has increased to 125 percent, which is expected to limit NBFIs’ exposure to the asset class, in view of maintaining healthy capitalization.

Asset quality in Micro-lending is also affected: As per ICRA Lanka’s observations, microlending (Grameen model group lending and other micro related lending) of the NBFI sector has grown by about 28% CAGR between the period FY2015 to FY2017. As per their estimates, aggregate microlending by licensed finance companies stood at about LKR 90-100Bn as in March 2017.

“Number of factors including the recent weather conditions affecting rural areas, as well as multiple lending is done by unregulated microfinance lenders has affected the credit quality dynamics of the segment, However, as per our observation, the NPAs of this segment (NBFI microlending) remains better than that of the SME segment of NBFIs,”







“Going forward, ICRA Lanka will continue to monitor the NPA movement of the rated NBFIs and specific rating actions will be announced accordingly.”

Anilana (ALHP) investor to make mandatory offer at 18% premium

LBO – The Securities and Exchange Commission of Sri Lanka (SEC) has approved investment into Anilana Hotels and Properties (ALHP) by Singapore based SOMAP International.

The investment by way of private placement will result in an infusion of Rs667mn (US$4.2mn) into the company at Rs1.3/share. After the private placement SOMAP will own 51% of CSE listed ALHP.

After execution of the private placement SOMAP will be required to make a mandatory offer to all other shareholders of ALHP at Rs1.3/share. This price is currently 18% above where the stock is currently trading at Rs.1.1.

It is yet to be disclosed if ALHP major shareholder Asanga Seneviratne and related parties intend to sell into the mandatory offer. The CSE disclosure today states that further announcement will follow on July 2nd, after allotment of the private placement shares is complete.

The company went public in a 2013 Colombo Stock Exchange IPO at an offering price of Rs12/share. Original investors are therefore sitting on losses close to 90%.

Vallibel Finance crosses Rs.1Bn mark for net profits

LBO – Vallibel Finance PLC crossed the one billion rupee net profit mark with the company announcing its income statement for the financial year ended on 31 March, 2018, recording growth across key indicators including income and profitability.

Gross income for the financial year grew 35 percent over the previous year to reach 6.9 billion rupees with the previous year’s income at 5.1 billion rupees.

Net interest income accounted for a 38 percent increase over the previous year’s figure, reaching 2.7 billion rupees from 1.9 billion rupees.

Operating profits for the year under review grew exponentially by 43 percent to 1.9 billion rupees from the previous 1.3 billion rupees.

Net profit amassed to one billion rupees, growing by 40.3 percent on the back of outstanding performance built on prudent financial stewardship. Net profits for the previous year stood at 726 million rupees thus leading the company pass the billion rupee milestone in profits.

Deposits grew by 24 percent to 22.2 billion rupees over the previous year’s 17.8 billion rupees.

“We have been able to record impeccable performance, both qualitative and quantitative during a very challenging and daunting period of time”, Jayantha Rangamuwa, managing director of Vallibel Finance said.

Meanwhile, assets climbed to.38.4 billion rupees from the previous 30.6 billion rupees, accounting to a growth of 25.2 percent.

Sri Lanka development bond issue oversubscribed, 4 year bids rejected

LBO – The issue of Sri Lanka development bonds amounting to 700 million US dollars have been oversubscribed with 937 million dollars of bids received from investors.

The central bank received 829.60 million bids for the 2 years 10 months bond and accepted 693.89 million dollars worth bids at a weighted average fixed rate of 5.25 percent.

The central bank accepted only 6.11 million from the 44.11 million worth bids received for the 3 years 10 months bond at a weighted average fixed rate of 5.52 percent.

The bank rejected 63.21 million dollars of bids received for the 4 years 10 months bond offered.

The central bank has the authority to accept any amount not exceeding the total amount offered at auction depending on the market conditions.

The offer or the Treasury bonds denominated in US dollars was opened from 19 to 25 June for bidding with the settlement on 02 July 2018.

Tokyo Cement (TKYO) reports a loss as Sri Lankan construction industry slows in Q1

LBO – The Central Bank of Sri Lanka recently released its first quarter GDP report. Growth was a tepid 3.2% for the quarter ended March 31, 2018.

Digging deeper, one saw a rebound in agriculture with a growth of 4.4%, and services meandering along with the same 4.4% year over year growth rate.

The weakness in the GDP report was industrial activities with a growth rate of just 1%.

Within industrial activities is construction, which showed a notable negative growth of 4.9%. The construction industry has contracted year over year for the first time in years.

Analysts cite the slowdown in construction as one possible reason for the weak results from listed Tokyo Cement (TKYO) in the March 2018 quarter. For the quarter TKYO reported a loss of Rs303mn versus a prior year profit of Rs910mn.

Although revenue was down just 2%, cost of goods was up 12% causing significant gross margin compression.

The stock last traded at Rs35, close to its net asset value of Rs38.

Sri Lanka sells US$700mn dollar in 3 and 4-year bonds

ECONOMYNEXT - Sri Lanka has sold 700 million US dollars dollar denominated bonds 693.89 million dollars in 2-year 10-month bonds, data from the state debt office showed.

Sri Lanka sold 693.89 million US dollars of 2-year, 10-month bonds at a weighted average fixed rate of 5.25 percent and 6.11 million US dollars of 3-year 10-month bonds at a rate of 5.52 percent.

The debt office called offers for 700 million dollars of bonds in three tenors. None of the 63.21 million dollars in bids were accepted for 4-year 10-month bonds.

There were 829.60 million dollars of bids for 2-year 10-month bonds and 44.11 million dollars for 3-year 10-months.

Sri Lanka sells 12-month bills, rejects bids for shorter tenors

ECONOMYNEXT - Sri Lanka's has rejected bids for 3 and 6 month bills and sold 10.1 billion rupees of Treasury bills at Wednesday's auction, data from the state debt office showed.

The 12-month yield went up marginally by 02 basis points to 9.39 percent.

Sri Lanka's central bank has a habit of rejecting bills and printing money to worsen currency pressure.

Analysts have also warned the central bank not to buy dollars from the Treasury and create new money, which is another trick used in the past to worsen currency pressure and stop a float from taking hold.

Sri Lankan shares extend fall to near 15-month closing low

Reuters: Sri Lankan shares declined for a fourth straight session on Thursday and posted their lowest close in nearly 15 months, as foreign investors continued to offload the island nation’s risky assets, while month-end settlements also weighed on the bourse.

The Colombo stock index ended 0.11 percent weaker at 6,181.48, its lowest close since April 4, 2017.

“Foreign selling has not stopped yet which is pushing the market down,” said Dimantha Mathew, head of research, First Capital Holdings.

“Today we saw some foreign buying and that absorbed the selling pressure to some extent. Margin calls are also there.”

Foreign investors net sold equities worth 196.1 million rupees ($1.24 million), extending the year-to-date foreign outflows to 1.2 billion rupees this year.

Turnover was 1.3 billion rupees, more than this year’s daily average of 934.9 million rupees.

Shares of Cargills (Ceylon) Plc fell 4.4 percent, conglomerate John Keells Holdings Plc ended 0.7 percent weaker, Bukit Darah Plc declined 3.7 percent and Commercial Bank of Ceylon Plc, the country’s biggest listed lender, slipped 0.7 percent.

Finance Minister Mangala Samaraweera said last week the economy was likely to grow about 4.5 percent this year, below a central bank estimate of 5 percent.

The International Monetary Fund (IMF) said on June 20 Sri Lanka’s economy remained vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Ratings agency Moody’s said on Wednesday a strengthening U.S. dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation.

Moody’s said a strong dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey, and Zambia.

Sri Lankan markets were closed on Wednesday for a public holiday. 

($1 = 158.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)