Public comments invited over draft micro finance bill

Public comments have been invited to a draft Micro Finance Regulation and Supervision Bill prepared by the Sri Lanka Micro Finance Practitioners’ Association (LMFPA) which has been submitted to the Government.

The Prime Minister’s office said the LMFPA’s draft can be accessed through www.pmm.gov.lk for public scrutiny and comments sent to the Ministry of Policy Planning and Economic Affairs.
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Unit Trusts – safe way to stash your cash

Now that consumers are at a dilemma whether to park their money in savings accounts or to stash their cash in fixed deposits (FD) with the current unpredictability in interest rates, the Guardian Acuity Asset Management, (GAAM) has come up with a somewhat satisfactory solution – launching their third fund named GAAM Money Market Gilt Fund, featuring all the benefits of both savings and FD.

This fund would invest in short-term government securities where the risk level was low, according to GAAM Director/CEO, Ruvini Fernando. The company which is a joint venture between Acuity Partners (Pvt) Ltd and Ceylon Guardian Investment Trust PLC has designed this fund to strategically invest in a diversified portfolio of short-term government securities in order to maximize the fund yield for a lower level of risk.

On the sidelines of a media conference to launch this fund, Director Niloo Jayathilaka told the Business Times that with retirement annuities, life policies and fixed deposits, investors must meet specific requirements before they can turn their investment to cash, but with unit trusts they have direct access to the money invested. “Also the best thing about unit trusts is that the investor needs no expert knowledge. The individual doesn’t require experience in buying or selling or any knowledge of shares. Teams of professional economic and market analysts will invest on the investor’s behalf to ensure the maximum capital and income growth,” she said.

Ms. Fernando said that the launch period would extend for a three week period but added, “we have already been assured of a Rs. 500 million investment from top corporate”. She said the vision of the new fund is to enable investors to access capital markets through professionally managed investment funds.

“This fund provides investors access to a diversified portfolio spread across a range of financial instruments and institutions and returns from unit trust are tax free — attractive value proposition for corporate investors.”

The fund’s features include a minimum subscription of Rs 1000, where switching will be allowed where the fund structure will be open ended and where the dividend will be annual.

GAAM General Manager, Mohandas Thangarajah said that this fund is ideal for busy professionals, professionals such as doctors and lawyers, individuals and companies that are barred from actively participating in the stock and bond trading and individuals and companies that seek asset diversification.

The categories which could make use of the fund would be individuals who have retirement savings, saving for specific goals and children’s savings and organizations which have dividend payment funds, debenture redemption fund, building and infrastructure funds, corporate guarantees and liquidity management and private retirement funds.
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Small shareholders complain to SEC over malpractices by their brokers

By Duruthu Edirimuni Chandrasekera

CSE, SEC officials misled investors earlier

A 5-member team representing the Small Investors’ Association (SIA) of Kurunegala has complained to the Securities and Exchange Commission (SEC) on the injustices and malpractices by their stockbrokers and some regulators.

The host of complaints range from opening margin accounts without their consent, trading on these accounts without their consent, misleading them on the type of shares they should trade on, trading on their on-line accounts arbitrarily and enticing them to open accounts on behalf of their close relatives and trading on these third party accounts.

Pradeep Somaratne, President SIA, along with Sanath de Silva, Palitha Samarakoon, Harshana Tennakoon and Harshani Wijenaike submitted their complaints to the SEC earlier this week saying they had lost all hope that they will recover ‘any’ of their total Rs. 12 million investment over the past three years.

“We complained last year and we were treated indifferently by officials of both the SEC and the Colombo Stock Exchange (CSE). We lost all hope. Then we went directly to new SEC Chairman Thilak Karunaratne who promised redress and said that he’ll appoint a 3-member team to probe this,” Mr. Somaratne told the Business Times. He said they formed the SIA two years ago, mainly because of what happened to them during 2011 to 2012.

The 50-member strong SIA has investors from different strata of society, he added, noting, “There are doctors, lawyers, accountants, other professionals, civil servants – all and sundry irrespective of their standing in society are members at SIA”.

He alleged that the so-called big-time investors connived with their stockbrokers to bring the small investors down. “Some big-timers took up SEC positions and then complaining to the regulator at the time was inconceivable, because we knew from the way SEC and CSE officials treated us that they were in connivance with the stockbrokers.” Ms. Wijenaike added that she ‘never’ wanted a margin account. “When my broker opened an account, they didn’t adhere to the 50 per cent rule in granting margins to the clients. They well and truly misled us,” she said.

Mr. Silva added that a particular powerful stockbroker was granting margin accounts through a firm which didn’t have a margin trading licence. “This was simply due to this particular firm being a ‘buddy’ of the stockbroking company’s CEO,” he alleged. Ms. Wijenaike conceded that at 21 years of age she had become a debtor of Rs 2.6 million without her consent.

She was also cheated. “My broker got me to send a copy of my mother’s identity card by e-mail to him citing some long-drawn reason. Then I found that he had opened a Central Depository System (CDS) account on her behalf, ‘without her signature’. Some Rs. 280,000 was traded on this account last year. When I went to the CSE, the CSE officials found fault with me for sending the ID copy and didn’t reprimand the offender for opening the CDS account. I have also lodged a complaint with the Special Crimes’ Investigation Division – Kandy on this matter,” she explained.

Mr. Somaratne added that when he called the SEC on his complaint, the relevant top official was off-hand is and told him that they have better things to do and to send his complaint to CSE, because that’s what SEC would do too. “The official had said that when a complaint is made, we direct it to CSE and then it comes to us . I was really disappointed at the way he treated us,” he said.

Meanwhile SEC chief Mr. Karunaratne making a presentation at this year’s National Law Conference titled “Legal Summit 2015 on Governance, Regulation and Investment – Way Forward” said that the investor protection contemplated by SEC is to incentivise whistleblowers (payments scheme), strengthen corporate governance (auditors to report issues of PLCs to SEC), not using the compounding mechanism for serious market misconduct and disallowing market offenders to serve on boards of PLCs.

“Promoting capital formation and maintaining fair and efficient capital markets must be at the core of any effort to protect investors,” he said, noting that promoting capital formation leads to broader and deeper markets that provide more opportunities to more investors, while ensuring that those markets are fair and efficient allows investors the confidence to enter and remain in those markets.

He reiterated that stagnant, unfair, or inefficient capital markets would drive away investors.

He said stocks were pumped and dumped on unsuspecting investors during a stock market bubble which peaked around 2011, adding that those who lost money during the period are still calling and making complaints against some brokers and margin providers to the SEC.

“I am trying to do justice to those who got really played out,” he said, adding that the amendments to the SEC Act may take up to 18 months to be passed in parliament. The new law will no longer allow serious frauds to be “compounded” or to settle with a fine without agreeing to guilt and there will be provisions to encourage whistle blowing and to give bounties.

Further explaining the salient features of the proposed draft law, he said introducing the reduction of systemic risk as an objective of the SEC, providing for the regulation of a Demutualized Exchange which includes a Stock or Derivative Exchange with robust ovrsight powers given to the SEC over the Demutualized Exchange are important. Also providing for the regulation of private placements, oversight of listed companies and powers over prospectus’ of companies, are top of the list.

“To provide for the establishment and the effective regulation of a Central Counterparty and Central Depository System – i.e provisions to establish infrastructure to mitigate systemic risk, and to introduce new civil and administrative sanctions – i.e introduction of penalties, issuing reprimands and disgorgement of ill-gotten gains and payment for compensation to investors is also important.”

Mr. Karunaratne noted that the perception of the SEC by the public is that it doesn’t prosecute anyone for serious market misconduct (e.g. insider dealings market manipulation), there’s inconsistency in policies (e.g. Credit Rule), there are delayed actions (e.g. Price Band/Market Infrastructure), there’s lack of confidence in the regulator/the system and that there’s lack of long term vision.
He added that the draft amendments, policy papers and the comparative table will be submitted to the Ministry of Policy Planning and Economic Affairs and they’ll obtain cabinet approval for the policy.

“The Legal Draftsman is to prepare the draft provisions, AG to review constitutionality of the draft provisions, the Legal Draftsman to incorporate changes recommended by the AG and submission to the Ministry are to be tabled in Parliament,” he said.
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Sri Lanka's February tourist arrivals up 16.7 pct yr/yr

According to SLTDA figures, Sri Lanka's tourist arrivals rose 16.7 percent in February compared to the same period in 2014 with the arrival of 165,541 tourists compared to the 141,878 arrived in February 2014.

Most of the tourist arrivals were from East Asia. For the month of February 68,105 tourists arrived in the island, 33.8% more than in February 2014.

Tourist arrivals from Eastern Europe declined in February by 20.9 percent.

Sri Lanka's Guardian Acuity Asset Management launches low risk gilt fund

Mar 04, 2015 (LBO) – Sri Lanka’s guardian Acuity Asset Management, a fund management firm launched a mutual fund invested in risk free government securities which will provide investors to enter and exit easily as a bank deposit, officials said.

"It is purely invested in government securities and is therefore meant for investors who have the lowest risk profile," Ruvini Fernando, Chief Executive of Guardian Fund Management said.

“Investors can come into this fund and exit any time they want. There won’t be ant entry or exit fees.”

The newly launched “Money Market Gilt Fund” will be invested in government securities with maturities below 12 months and gilt-edged reverse repurchase deals. Fund Manager Sumith Perera said the fund which will be valued daily, targeted to attract senior citizens, professionals and corporates.

The Guardian Acuity Asset Management says the fund size would be 500 million rupees and its expense ratio stands at 0.49 percent including trustee and management fees.

Official says the fund will pay higher returns than savings deposits, which closely tracks Treasury bills. Due to the short term nature of the investments it can also follow market interest rates.

“We do not think bank deposits are way to go forward but a unit trust (a pool of funds) will give more avenues to for people to invest,” Fernando said.

Investors could downloand forms online from GuardianAcuity.com and also used Hatton National Bank branches to enter and exit the fund, officials said.

The returns from the mutual funds are also tax free.

The Guardian Acuity Asset Management, is a joint venture with Guardian Fund Management which is part of the Sri Lanka's Carsons Cumberbatch group and Acuity Partners, an investment banking owned DFCC and Hatton National Bank.

Sri Lanka Softlogic Capital's stated capital reduced

Mar 06, 2015 (LBO) - Sri Lanka's Softlogic Capital on Friday obtained the shareholder approval to reduce its stated capital, a statement said.

The decision has been made at an extraordinary general meeting which eventually intends to reduce the accumulated losses of the company.

According to a previous statement issued by the company, the amount of reduction of the stated capital is 618.46 million rupees and the new stated capital is 2.88 billion rupees.

"The number of ordinary shares in issue would remain unchanged." the company said in a stock exchange filing released in January.

Govt. justifies Treasury bond issuance

* Reveals Rs. 15 b additional funding required on an urgent basis to fund the recommencement of highways and road construction projects

* Previous regime hadn’t settled Rs. 44 b outstanding for land acquisition

* Says change in policy and procedures relating to setting of interest rates was in good faith and will result in several benefits to Govt. and economy

* Statement silent on allegations of a primary dealer unfairly profiteering

The Ministry of Policy Planning and Economic Affairs yesterday issued a statement on the Government’s Treasury bond issue in March which spiked rates in debt market causing widespread concern as well as led to allegations of a primary dealer unfairly profiteering.

The statement however was silent on the allegations but explained the background why interest rates rose.The Government also pointed a finger at the President Mahinda Rajapaksa regime for several irregularities of the past.

Here is the full text of the statement:
At a meeting held on 26 February 2015 to ascertain the Government expenditure projections attended by the Minister of Finance, Minister of Highways, Investment Promotion and Higher Education, Secretary to the Treasury and the Governor of the Central Bank of Sri Lanka, it was decided that the Government needs additional funding of approx. Rs. 15 billion on an urgent basis to fund the recommencement of highways and road construction projects.

The previous regime had not settled money owing to contractors and had not paid for lands acquired for road projects. The outstanding amount to be paid for land acquisition alone is Rs. 44 billion.

To complete the balance road construction work the Government needed Rs. 12 billion as counterpart funds. Most of the loan agreements for these projects have already been signed. Although the Government will be renegotiating prices, it will continue with these projects. The Government’s immediate needs for cash to make payments for the bills in hand and to complete incomplete projects were to be met through the Treasury bond issues in March 2015.

The latest bond issue was opened on 27February 2015. The amount offered was Rs. 1 billion. Thirty-six offers were received amounting to Rs. 20 billion in bids. This enabled the Governor of the Central Bank of Sri Lanka to accept Rs. 10 billion in accordance with the above decision.

Around September 2014, when it became clear that the previous Government would hold presidential elections in early 2015, the then management of the Central Bank of Sri Lanka decided to reduce interest rates and yields on Sri Lanka Government bonds.

As a consequence, the yield on the 10-year Sri Lanka Government bond declined from 9.23% in July 2014 to 7.88% in January 2015.Similarly, the yield on the Sri Lanka Government 30-year bond fell from 11.75% in May 2014 to 11.73% in February, 2015.

The foreign exchange reserves of Sri Lanka have been falling sequentially since interest rates were lowered in September 2014.From a level of $ 9.2 billion from June 2014 they have come down to $ 7 billion in February, 2015.As a result, the exchange rate of the Sri Lanka Rupee which has been under pressure depreciated by 1.2% in January 2015.

The acceptance of Rs. 10 billion worth of bonds has also resulted in raising the interest rate on the 30-year bond to 11.5% which is where it stood in June 2014 before interest rates were reduced. Furthermore, the Central Bank of Sri Lanka has also scrapped the three-day rule restriction that allowed banks to park their funds in the Central Bank at the 6.5% base rate on three days a month and get 5% in all other days, a practice implemented in September 2014.

The Government also decided that as far as possible all bonds should be through public auction. Private placement at pre-agreed rates only helped favoured investors.

It’s a well-known fact that during the last decade the intersection of finance and business was controlled by a few people with nexus to the Rajapaksa regime. They had access to vital information on transactions, which they used to earn undue profits. There were prearranged transactions with state owned institutions instead of public auctions open to stock brokers and large investors.

Many stakeholders were adversely affected due to manipulations in the stock market. Two chairpersons of the SEC lost their jobs trying to enforce the existing regulations. The Government is inquiring into these prior malpractices and will also investigate the alleged malpractices which are taking place at the Public Debt Department during bond auctions and private placements.

Finally, the above change in policy and procedures relating to setting of interest rates was done in good faith and will result in several benefits to the Government and economy of Sri Lanka such as;

(a) the maintenance of a stable currency

(b) the maintenance of a clear and stable monetary policy conforming to international standards

(c) creating a liquid yield curve to enable the market to price risk.

(d) the transparent conduct in the sale of Government securities to the markets without pandering to vested interests

(e) the adoption of an appropriate monetary policy stance keeping with the current state of the finances of the Government of Sri Lanka; and

(f) ensuring sufficient funding for the Government in the next six months which will ensure no interruption to the implementation of policies announced in the Budget and the 100-day program.
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