CSE looking at a Champagne Year! Based on low interest, low inflation regime

By Ravi Ladduwahetty

Ceylon Finance Today: The Colombo Stock Exchange is expected to perform even better in 2015 than it did in 2014 based on the prevailing low inflation and low interest regime, a frontline stock broker said.

"The Colombo bourse performed well till the announcement of the 8 January Presidential elections where the All Share Price Index was up 29% based on the low interest and low inflation regime, which by itself was good," Chairman of the Colombo Stock Brokers' Association, Dihan Dedigama told Ceylon FT yesterday.

Dedigama, who is also CEO of Softlogic Stockbrokers (Pvt) Ltd, said that the market sought a correction with the announcement of the Presidential polls and declined to 21%, but remained one of the best performing markets in the region. "The Colombo Stock Exchange would be looking for direction after the Presidential polls ends," he said.

He also said that foreigners were accumulating stocks which was a positive sign and added that there would be continued growth in the market.

Meanwhile, Colombo Stock Exchange Manager Market Development, Niroshan Wijesundera told Ceylon FT yesterday that the overall performance of the market for 2014 was much better than for 2013.

The All Share Price Index had gained 23.4% in 2014 over the 4.8% in 2013 while the Standard and Poor Index had gained up to 25.3% over the 5.8 % in 2013.

The Market Capitalization had also increased to Rs. 3.1 Trillion from the Rs. 2.4 trillion a year ago. The Average daily turnover had also risen 70% to Rs. 1415 million from the Rs. 828.4 million, a year ago.

The Capital raised also increased to Rs. 2.6 billion through equity in 2014 from the Rs. 494 million in 2013 which was the highest ever since the Rs. 1.7 billion in 2012. The highest ever foreign inflow was also reported in 2014 which was Rs. 105 billion, he said.

He also said that the highlights for 2014 were that there were 5 Initial Public Offerings, one introduction and 19 Debt IPOs. He added that the Colombo Stock Exchange was the sixth best performing bourse in Asia after Shanghai, the National Stock Exchange (New Delhi), Bombay and Karachi and sixth in the overall World Equity Index as per Bloomberg.
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Lanka Rating Agency upgrades Amana Takaful’s rating to BBB/P3/Stable

Lanka Rating Agency (LRA) has upgraded Amana Takaful Plc’s (ATL) long- and short-term claims-paying ability rating from BBB- and P3 to BBB and P3, respectively. The outlook on the long-term rating is to be stable.

The upgrade is premised on ATL’s improving performance, above-average general insurance underwriting performance and average capitalisation levels. Meanwhile, the ratings are tempered by the group’s small market share, its above-average claims ratios for life insurance and limited investment avenues owing to adherence to Shari’ah-compliant investments.

ATL made its debut in 2002, and is engaged in both life and general insurance. Currently it is the only composite takaful or non-conventional insurer in Sri Lanka. Amana Takaful also operates a sub-subsidiary Amana Takaful Maldives Plc (ATM) which was established in 2003.

Despite providing Shari’ah-compliant insurance services, the group also competes against conventional insurers with established track records. In terms of gross written premiums, ATL was 9th in the life segment and 13th in the general segment as at end-FY 2013.

While the group accounted for 1.88% of total industry GWPs as at end-FY Dec 2013 (FY 

December 2012 :1.79%), it is somewhat insulated from competition within the traditional insurance sphere given its sole presence in the takaful business.

The group’s improving general insurance underwriting performance is evidenced by its ability to maintain a better-than-industry claims ratio. The claims ratio stood at 52.55% as at end-FY December 2013. Improving from 55.35% from fiscal 2012 (Industry: 58.65%). The better ratio can also be attributed to the company’s more conservative retention policy.

Lanka Ratings considers ATL’s long-term insurance underwriting standards to be weighed down, reflected by the division’s claims ratio and lower net underwriting margins relative to peers, mainly owing to high surrenders and part withdrawals.

However, with the introduction of unit-linked life insurance policies, the company’s life GWPs grew at a higher pace than the industry, although driven by a small initial base. The group’s life GWPs grew 48.86% in FY December 2013, after having increased 14.74% y-o-y in FY December 2012.

This was mainly due to the group’s life products having been redesigned with more customer focus and the targeted marketing of products in line with renewed strategies. 

Within the investment portfolio government securities accounted for 22.22% of the company’s investments as at FY December 2013, while mudarabha deposits made up 45.53%. The rest of the portfolio consisted of investments in property, equity, unit trusts and gold.

While Shari’ah-compliant investment opportunities continue to remain limited, an investment income of Rs. 152.9 million (2012: Rs. 104.2 million) was realised by the group despite a significant decline in value of gold bullion and a lacklustre equity market.

The management’s decision to move its investments to fixed income-based assets helped to reduce the adverse effect brought on by a global fall in the bullion market.

The group reported its highest profit after tax of Rs. 157.86 million in FY December 2013 (FY December 2012: Rs. 120.12 million).

ATL’s overall underwriting performance was average in fiscal 2013, supported by both its general and life insurance segments amid a reducing trend in its claims ratio. On the other hand, the group held its expense ratio at 46.38% in FY December 2013 (FY 2012: 47.32%). The management intends to continue its drive on rationalising the expense ratio by focusing on improving productivity.

The company’s non-life solvency margin stood at 1.85 times in FY December 2013 reducing marginally from 1.89 as at end-December FY 2012. As a result of increased investments in mudarabha deposits and government securities, the solvency margin has been maintained at adequate levels. ATL’s life solvency margin reduced from 3.71 times at end-December 2012 to 2.02 times as at end-December 2013.
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Sri Lankan recovers from early loss; sees 23.4 pct gain for year

Dec 31 (Reuters) - Sri Lankan stocks recovered from early losses on Wednesday and closed higher, led by financials, but the gains were limited by political uncertainty before a coming presidential election.

The bourse gained 23.4 percent for the year after rising 4.8 percent last year.

The main stock index closed 7.62 points higher, or 0.1 percent, at 7,298.95. It had fallen 3.5 percent after reaching its high for the year of 7,562.52 on Nov. 19, following President Mahinda Rajapaksa's decision to hold a snap presidential election on Jan. 9.

"This year was great until the election announcement came," one stockbroker said. "The next year will be challenging."

The index returned 23.1 percent for the year measured in dollar terms. Record low interest rates to boost private-sector borrowing and economic growth led investors to shift into riskier assets from fixed deposits.

Wednesday's turnover stood at 628.7 million rupees ($4.79 million), less than half of this year's daily average of 1.42 billion rupees, stock exchange data showed.

Net foreign inflows into stocks were 22.2 million rupees, extending net inflows to 22.07 billion rupees for the year, the data showed. That was a little less than last year's 22.88 billion inflow.

The index was boosted by a 4.55 percent gain for Commercial Leasing and Finance Plc and 10 percent jump in Finlays Colombo Plc. However, only 200 shares in Commercial Leasing and 10 shares in Finlays Colombo were traded, stock exchange data showed.

Analysts said turmoil in Sri Lankan politics have hurt sentiment. The latest came on Wednesday, when a deputy minister defected from Rajapaksa's ruling party to back an opposition candidate.

That made 24 lawmakers who have quit the party since Rajapaksa announced the coming election. They include former health minister Mithripala Sirisena, who is challenging Rajapaksa's bid for a third term. Two opposition legislators have joined the ruling party.

($1 = 131.1500 Sri Lankan rupees) 

(Reporting by Shihar Aneez)

Sri Lanka Treasury bill yields flat

Dec 23, 2014 (LBO) –Sri Lanka's Central Bank re-issued of 12,000 million rupees maturing Treasury bills was oversubscribed with bids amounting to 36,335 million rupees being received, data from the state debt office showed.

It was decided to accept 15,135 million rupees from the auction.

The 3-month yield was flat at 5.74 percent and 4,175 million rupees were accepted from the auction.

The 12-month yield increased at 6.01 percent from 6.00 percent at the previous auction, and 10,960 million rupees were accepted data from the state debt office showed.

Worries over rise in foreign debt

By Paneetha Ameresekere

Ceylon Finance Today: The Government of Sri Lanka (GoSL) may be exposing its vulnerability to external shocks in the backdrop of the rapid rise of its external debt profile, market sources told Ceylon FT.

As per the latest data released by Central Bank of Sri Lanka (CBSL) on Friday (26 December), it showed that external debt in the nine month period from last year end to end September of this year increased by Rs 222.5 billion (7.5%) to Rs 3182.9 billion, constituting 43.2% of GoSL's total debt profile.

Further, Sri Lanka's external debt servicing commitments, which in the 12 months ended November of this year (2014) was estimated to have had been US$ 5.7 billion according to CBSL, are however expected to increase by US$ 1.2 billion (21.1%) to US$ 6.9 billion by October of next year, causing pressure on both the exchange rate (ER) as well as on CBSL's external reserves.

These developments have to be looked at in the backdrop of two key issues that are expected to take place next year, an economist said.

Those are the possibility of sanctions being placed on the island in Geneva in March over human rights (HR) issues. This may affect export and tourism earnings as Sri Lanka's key markets for such is the West which is gunning for the island on those matters. And the other, the expected rise in international interest rates by summer, in tandem with a decision that the Federal Reserve System is expected to take, i.e. of raising its key policy rate, the reverse repo, because of the recovery of the US economy, which is making demand once more robust in the world's largest economy. That however would be to the detriment of Sri Lanka, which seeks to meet its external commitments by increased foreign borrowings because it runs a trade deficit, which in the first 10 months of the year (2014) grew by 4.3% year on year to US$ 6.79 billion.

This is also in the context that Sri Lanka is expected to raise another US$ 1.5 billion (Rs 198.5 billion) by the sale of a Sovereign Bond in international markets next month. The figure Rs 198.5 billion is arrived at, on the basis that the exchange rate (ER) had deteriorated to Rs 132.35 to the US dollar in 'spot next next' trading as at Monday (29 December), a deterioration of 36 cents in a day, thereby causing pressure on interest rates as well, in the backdrop of the market's and GoSL's growing appetite for US dollars.

These foreign debt figures however may be deflated numbers, because they don't take into account proxy international borrowings made by the state through certain financial institutions. For instance last year (2013) GoSL raised $ 1.35 billion this way. Envisaged repayment commitments may however be accurate.

Meanwhile, those proxy borrowings comprised $ 500 million raised by Bank of Ceylon at a 5.3% interest rate in April, $ 750 million by NSB at a higher 8.875% interest rate in September and $ 100 million by DFCC Bank at an even higher 9.6% interest rate in October. All these three issues were of a five year tenure, each.

According to CBSL, the annual average value of the ER was Rs 129.11 last year. On that basis, $ 1.35 billion is equivalent to Rs 174.3 billion worth of proxy borrowings by GoSL last year.

Additionally, GoSL directly raised five year money of $ one billion in value at a 6% interest rate in January 2014. Three months later in April, it raised a further $ 500 million of a similar tenure at a lower, 5.125% interest rate.
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Oil hits 5-1/2-year low below $ 57 on supply glut

LONDON (Reuters): Brent crude fell to a 5-1/2-year low of less than $ 57 a barrel on Tuesday as a global supply glut outweighed concerns of lost supply from Libya where battling militias have closed ports.

The oil benchmark recovered ground later but was on track for its second weakest month since the global financial crisis of 2008, and traders said the sell-off that has halved crude prices in six months showed no sign of coming to an end.

Brent fell $ 1.14 a barrel to $ 56.74, its lowest since May 2009, before recovering to trade around $ 57.70, down 18 cents, by 1440 GMT. US crude was up 10 cents at $ 53.71 after hitting $ 52.70 – also its lowest since May 2009.

Oil markets have been heavily oversupplied this year due to increasing output of high quality, light oil from US shale and lower-than-expected consumption as a result of faltering global economic growth and competition from alternative fuels.

Several members of the Organization of the Petroleum Exporting Countries have suffered supply disruptions in recent months, but this has had little impact on prices.

In Libya, clashes between rival factions have closed oil ports and terminals this month, reducing exports from the OPEC producer, which used to sell over 1 million barrels per day of crude to world markets, to almost nothing.

OPEC, which pumps a third of the world’s oil, had been expected to trim output to try to stabilise prices, but it decided in November to keep production unchanged and let the market find its own level.

Brown Investments, Palm Garden Hotel and Eden Hotel in JV to acquire Maldives resort

Brown Investments, Palm Garden Hotel and Eden Hotel have jointly invested $ 1.5 million to acquire a beach resort in Maldives for the purpose of developing a resort hotel in the island.

Brown Investments, Palm Garden Hotel and Eden Hotel have each invested US$ 500,000 to acquire 5,000 shares of Bodufaru Beach Resort Ltd., (BBR), Maldives amounting to 33.33% of the equity of the Company for the purpose of developing a resort hotel in the Maldives.

The three companies announced in a stock market disclosure that they are in a joint investment in BBR, each investing $ 500,000 (33.33% each).

Bodufaru Beach Resort is a limited liability company incorporated in the Republic of Maldives and holds a 50-year head lease for the island of Bodufarufinolhu in Maldives.

Subsequent to the investment by Eden Hotel Lanka PLC, Palm Garden Hotels PLC, and Brown Investments PLC, BBR will become an associate of Eden Hotel Lanka PLC and a subsidiary of Palm Garden Hotels PLC, and Brown Investments PLC.
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