Capital Alliance Finance PLC has changed its name to Colombo Trust Finance PLC with all necessary regulatory approvals obtained, the company announced in a stock exchange filing last week.
www.island.lk
Sunday, 27 December 2015
New oil price formula soon; revision every three months
Minister says petrol price will not be reduced
Despite tumbling world oil prices and a tax of Rs. 65 a litre on petrol, the Government has decided not to reduce the local selling price of petrol. Instead, plans are afoot to bring in a new fuel pricing formula where prices will adjust in line with world market trends.
The new pricing mechanism is expected to be presented to Cabinet on January 6 by Petroleum Minister Chandima Weerakkody. The minister did not elaborate on the details of how the new pricing mechanism is to work.
World oil prices this week fell to a record low of US$ 37 per barrel from $85 in October 2014. Local prices have been unchanged since January this year, though India has lowered fuel prices.
In the President’s election manifesto he had promised a “suitable pricing formula” where the people “will get the benefit when world oil and coal prices fall”. Asked why local prices have not been reduced to reflect crumbling world prices, the minister told the Sunday Times by phone while on an overseas visit, that there was no reason to do so as fuel prices were reduced sharply on January 21, this year.
Other officials say that even though the CPC is making profits on the sale of petrol and diesel (nearly Rs. 30 per litre), its accumulated losses have risen to Rs. 244 billion now from Rs. 238 billion at the end of 2014, compelling the state fuel importer to retain current prices.
They said the CPC is also not getting the full benefit of reduced crude oil prices as only refined fuel is being imported since the Sapugaskanda refinery is not operating due to a long breakdown. “Yes there is a benefit from reduced refined oil imports but not as much as raw crude imports,” one official said.
According to Treasury data, the CPC sells a litre of petrol at Rs. 117 while it costs the corporation Rs. 113.39 inclusive of a tax of Rs. 64.40 a litre. Diesel costs the corporation Rs. 79.88 a litre (inclusive of a tax of Rs. 28.02 a litre) while the selling price is Rs. 95 a litre. In both cases, there is a small profit in addition to the tax revenue to the Government.Officials conceded that the Government instead of reducing prices and passing on the benefits to consumers, sees this as an opportunity to collect more tax revenue from fuel sales and recoup past losses.
Crude prices have been mixed in the past year. It was $85 per barrel in October 2014, $75 (November 2014), $59 (December), then further slumped to $44 (January 2015) but rose to $54 (February), $62 (May) and then began easing to $45 (October).
The minister said the new formula has been devised following extensive discussions with the CPC, Lanka Indian Oil Company (LIOC) and other stakeholders, including the Finance Ministry.
“The transparent fuel pricing formula will be a regulated state-run type of system that would benefit both the consumer and the utility. It would change prices every three months based on global prices,” Mr. Weerakkody disclosed.
He noted that the outstanding debt from state institutions and power plants to the CPC was running up to billions of rupees and it has affected the profitability of the corporation.
“By the end of May this year, the public sector owed CPC Rs. 30.4 billion,” he said adding that the corporation was being maintained at breakeven due to cost cutting. With the formula, consumers would be privy to a breakdown of various cost components such as the cost of product in the international market, freight and insurance costs, government taxes and marketing margin, he pointed out.
Welcoming the Government’s move, LIOC Managing Director Shyam Bohra noted that “the formula should be such that it provides reasonable margins to the oil companies to invest in energy-related infrastructure, including storage and efficient distribution of petroleum products.”
He said that even though fuel prices had dropped sharply, the LIOC is losing Rs. 15 to Rs.16 a litre of petrol by selling it at the current fixed price of the Government, since it was selling stocks that were purchased at higher-than-current-prices.
“It would help everyone if the Government could evolve a long-term pricing formula which will provide for adjustment of duties and levies and revision in prices from time to time based on the world market prices, with provisions to protect consumers wherever required,” he said.
Each year, Sri Lanka imports nearly 30 million barrels of oil at a cost of some $2.2 billion.
Despite tumbling world oil prices and a tax of Rs. 65 a litre on petrol, the Government has decided not to reduce the local selling price of petrol. Instead, plans are afoot to bring in a new fuel pricing formula where prices will adjust in line with world market trends.
The new pricing mechanism is expected to be presented to Cabinet on January 6 by Petroleum Minister Chandima Weerakkody. The minister did not elaborate on the details of how the new pricing mechanism is to work.
World oil prices this week fell to a record low of US$ 37 per barrel from $85 in October 2014. Local prices have been unchanged since January this year, though India has lowered fuel prices.
In the President’s election manifesto he had promised a “suitable pricing formula” where the people “will get the benefit when world oil and coal prices fall”. Asked why local prices have not been reduced to reflect crumbling world prices, the minister told the Sunday Times by phone while on an overseas visit, that there was no reason to do so as fuel prices were reduced sharply on January 21, this year.
Other officials say that even though the CPC is making profits on the sale of petrol and diesel (nearly Rs. 30 per litre), its accumulated losses have risen to Rs. 244 billion now from Rs. 238 billion at the end of 2014, compelling the state fuel importer to retain current prices.
They said the CPC is also not getting the full benefit of reduced crude oil prices as only refined fuel is being imported since the Sapugaskanda refinery is not operating due to a long breakdown. “Yes there is a benefit from reduced refined oil imports but not as much as raw crude imports,” one official said.
According to Treasury data, the CPC sells a litre of petrol at Rs. 117 while it costs the corporation Rs. 113.39 inclusive of a tax of Rs. 64.40 a litre. Diesel costs the corporation Rs. 79.88 a litre (inclusive of a tax of Rs. 28.02 a litre) while the selling price is Rs. 95 a litre. In both cases, there is a small profit in addition to the tax revenue to the Government.Officials conceded that the Government instead of reducing prices and passing on the benefits to consumers, sees this as an opportunity to collect more tax revenue from fuel sales and recoup past losses.
Crude prices have been mixed in the past year. It was $85 per barrel in October 2014, $75 (November 2014), $59 (December), then further slumped to $44 (January 2015) but rose to $54 (February), $62 (May) and then began easing to $45 (October).
The minister said the new formula has been devised following extensive discussions with the CPC, Lanka Indian Oil Company (LIOC) and other stakeholders, including the Finance Ministry.
“The transparent fuel pricing formula will be a regulated state-run type of system that would benefit both the consumer and the utility. It would change prices every three months based on global prices,” Mr. Weerakkody disclosed.
He noted that the outstanding debt from state institutions and power plants to the CPC was running up to billions of rupees and it has affected the profitability of the corporation.
“By the end of May this year, the public sector owed CPC Rs. 30.4 billion,” he said adding that the corporation was being maintained at breakeven due to cost cutting. With the formula, consumers would be privy to a breakdown of various cost components such as the cost of product in the international market, freight and insurance costs, government taxes and marketing margin, he pointed out.
Welcoming the Government’s move, LIOC Managing Director Shyam Bohra noted that “the formula should be such that it provides reasonable margins to the oil companies to invest in energy-related infrastructure, including storage and efficient distribution of petroleum products.”
He said that even though fuel prices had dropped sharply, the LIOC is losing Rs. 15 to Rs.16 a litre of petrol by selling it at the current fixed price of the Government, since it was selling stocks that were purchased at higher-than-current-prices.
“It would help everyone if the Government could evolve a long-term pricing formula which will provide for adjustment of duties and levies and revision in prices from time to time based on the world market prices, with provisions to protect consumers wherever required,” he said.
Each year, Sri Lanka imports nearly 30 million barrels of oil at a cost of some $2.2 billion.
www.sundaytimes.lk
Import duty cut doesn’t affect RCL – report
Royal Ceramics Lanka PLC (RCL) posted a 37.5 per cent year on year (YoY) growth in Q2 FY 16 bottom line, resulting in a recurring Earnings Per Share (EPS) of Rs. 6, a Bartleet Religare report said. “The growth in tiles, sanitary ware and aluminum sector volumes, coupled with the group’s cost saving initiatives, aided in a 2 per cent increase in earnings before interest, taxes, depreciation, and amortization (EBIT) margin to 19 per cent and 6 per ent increase in Gross Profit Margin to 37.6 per cent. Its topline grew 8.2 per cent YoY to Rs. 5.91 billion.”
According to the report, RCL’s Market Price of the Share (MPS) has dropped 9 per cent post-budget on panic selling as concerns over a reduction in import duty and removal of tile and sanitary ware from the BOI negative list was signaled. “The total import duty has risen by 5 per cent and the removal from the negative list would barely affect RCL volumes. The reduction in corporate tax from 28 per cent to 15 per cent would boost RCL’s net earnings from FY 2017E onwards.”
The company is also geared to supply to the mid to long term demand in the local construction industry, with several capacity expansions taking place. The company has already signed up for several construction projects (Hotels and condominiums) in the pipeline. RCL entered into a joint venture this month with Pakistan’s leading premium brands retailer SFnZ & Co. Ltd to expand into Pakistan “This move would also create a market for RCL’s excess stock, during times of a slowdown in domestic demand,” the report said.
“The proposed reduction in corporate tax from 28 per cent to 15 per cent would bode well for RCL and we estimate a saving of Rs. 4000 million to FY 2017E bottom line.” The industry continued to be protected by the government with total import duty increasing further by 5 per cent to 85 per cent. The import cess remained at 35 per cent while general duty, NBT and PAL in-creased further by 2 per cent each and 2.5 per cent respectively, the report said. According to industry sources, the local tile market has seen a commendable growth of 10 per cent so far this year, so Lanka Floor tiles PLC, also under the some group may shed some market share due to competition, it added.
According to the report, RCL’s Market Price of the Share (MPS) has dropped 9 per cent post-budget on panic selling as concerns over a reduction in import duty and removal of tile and sanitary ware from the BOI negative list was signaled. “The total import duty has risen by 5 per cent and the removal from the negative list would barely affect RCL volumes. The reduction in corporate tax from 28 per cent to 15 per cent would boost RCL’s net earnings from FY 2017E onwards.”
The company is also geared to supply to the mid to long term demand in the local construction industry, with several capacity expansions taking place. The company has already signed up for several construction projects (Hotels and condominiums) in the pipeline. RCL entered into a joint venture this month with Pakistan’s leading premium brands retailer SFnZ & Co. Ltd to expand into Pakistan “This move would also create a market for RCL’s excess stock, during times of a slowdown in domestic demand,” the report said.
“The proposed reduction in corporate tax from 28 per cent to 15 per cent would bode well for RCL and we estimate a saving of Rs. 4000 million to FY 2017E bottom line.” The industry continued to be protected by the government with total import duty increasing further by 5 per cent to 85 per cent. The import cess remained at 35 per cent while general duty, NBT and PAL in-creased further by 2 per cent each and 2.5 per cent respectively, the report said. According to industry sources, the local tile market has seen a commendable growth of 10 per cent so far this year, so Lanka Floor tiles PLC, also under the some group may shed some market share due to competition, it added.
www.sundaytimes.lk
SEC’s recent actions praised by good governance activist
Good governance activist and stockmarket investor K.C.Vignarajah has praised the Securities and Exchange Commission (SEC) for taking steps to create investor interest and confidence, once again, in Colombo’s stock market.In a letter to SEC Chairman Tilak Karunaratne, he said the criticism that the wrongdoers and the mafia had got around the powers that be, to use unethical and unlawful, escape routes from adhering to public policy for public good, created by the earlier corrupt regime is now muted.
“Appreciation of the SEC has begun on a broad scale,” he said, praising Mr. Karunaratne and other officials.Mr. Vignarajah, who has been a strong campaigner for accountability and transparency in the market and considered a ‘pain’ by many conglomerates where he has sizable shares and persistently raises issues at AGM’s and board-level meetings, said it was clear that inspite of many obstacles and insufficient supporting staff, (with the necessary motivation and capacity), the SEC has succeeded in taking firm action in many areas of stock market reform.
“The collection of evidence and channeling them to the relevant authorities to investigate and apprehend those who caused much loss to shareholders and harm to the country’s image is most commendable. The Financial Crimes Investigation Division (FCID) taking action against former SEC top officials has restored faith, that funds of investors and the public are being carefully monitored,” the letter said.He said investors were also pleased that steps have been taken to strengthen the rules and regulations to prevent wrongdoing to, and oppression of, Independent Minority shareholders(IMS); to expedite the process of compensation of victims while recovering the loot from the errant Controlling Interest and Related Parties (CI&RP) and punishing the wrongdoers administratively/civil action/criminal prosecution process.
“These actions are most commendable considering political compulsions as a detraction. However, we believe the leadership of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe will support you fully as they have the will to lead a good team to usher in justice, fairplay, prosperity peace and harmony for all in our country,” he told Mr. Karunaratne in the letter.”This determination will certainly help you in your brave efforts to bring in protection for ‘witnesses and whistleblowers’ who do their duty to safeguard the interests of honest investors and the economy of our country.”Referring to the de-listing regulations, he said strong representations have been made against de-listing. He said independent shareholders should have rights to nominate independent directors, auditors and to good governance, transparency and accountability.
“Appreciation of the SEC has begun on a broad scale,” he said, praising Mr. Karunaratne and other officials.Mr. Vignarajah, who has been a strong campaigner for accountability and transparency in the market and considered a ‘pain’ by many conglomerates where he has sizable shares and persistently raises issues at AGM’s and board-level meetings, said it was clear that inspite of many obstacles and insufficient supporting staff, (with the necessary motivation and capacity), the SEC has succeeded in taking firm action in many areas of stock market reform.
“The collection of evidence and channeling them to the relevant authorities to investigate and apprehend those who caused much loss to shareholders and harm to the country’s image is most commendable. The Financial Crimes Investigation Division (FCID) taking action against former SEC top officials has restored faith, that funds of investors and the public are being carefully monitored,” the letter said.He said investors were also pleased that steps have been taken to strengthen the rules and regulations to prevent wrongdoing to, and oppression of, Independent Minority shareholders(IMS); to expedite the process of compensation of victims while recovering the loot from the errant Controlling Interest and Related Parties (CI&RP) and punishing the wrongdoers administratively/civil action/criminal prosecution process.
“These actions are most commendable considering political compulsions as a detraction. However, we believe the leadership of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe will support you fully as they have the will to lead a good team to usher in justice, fairplay, prosperity peace and harmony for all in our country,” he told Mr. Karunaratne in the letter.”This determination will certainly help you in your brave efforts to bring in protection for ‘witnesses and whistleblowers’ who do their duty to safeguard the interests of honest investors and the economy of our country.”Referring to the de-listing regulations, he said strong representations have been made against de-listing. He said independent shareholders should have rights to nominate independent directors, auditors and to good governance, transparency and accountability.
www.sundaytimes.lk
November cautious month for trader
The month of November saw the UNP-led coalition government announcing its maiden budget for the year 2016 with market activities remaining low during the first half of the month as investors were seen adopting a cautious approach prior to the budget, anaysts said, analysing events in the market in the past month. Despite the budget having some sound proposals to enhance investor confidence, the capital market did not react as expected, according to a Bartleet Religare report. “This resulted in the Colombo bourse closing at a near seven and a half month low by the end of November. The benchmark ASPI lost a staggering 132.91 points month on month (MoM) to close at 6,909.15 points while S&P SL20 followed suit to depreciate 145.31 points MoM to close at 3,657.69 points.” Banking sector stocks were the most hit during the month. Investors were seen moving away from banking sector counter following the unpleasant treatment received from the 2016 budget proposal, the report added.
In the healthcare sector counter, Lanka Hospitals (which is controlled by state-owned Sri Lanka Insurance) saw reduced interest during the month due to a government decision to divest from non-strategic investments in the CSE.”Activity was limited during the month with total volumes contracting by 24 per cent MoM to 491 million. Retail and institutional participation remained relatively low throughout the month.” The market posted a turnover of Rs. 13 billion, 35 per cent lower MoM with the highest contribution coming from JKH with a contribution of 25 per cent. The stock closed Rs. 5.30 higher MoM at Rs. 179.90.The report added that foreign investors aligned on to the selling side for the second consecutive month amid an expectation of a Federal Reserve rate hike in December. The cumulative net foreign outflow for the month was recorded at Rs. 71 million.
In the healthcare sector counter, Lanka Hospitals (which is controlled by state-owned Sri Lanka Insurance) saw reduced interest during the month due to a government decision to divest from non-strategic investments in the CSE.”Activity was limited during the month with total volumes contracting by 24 per cent MoM to 491 million. Retail and institutional participation remained relatively low throughout the month.” The market posted a turnover of Rs. 13 billion, 35 per cent lower MoM with the highest contribution coming from JKH with a contribution of 25 per cent. The stock closed Rs. 5.30 higher MoM at Rs. 179.90.The report added that foreign investors aligned on to the selling side for the second consecutive month amid an expectation of a Federal Reserve rate hike in December. The cumulative net foreign outflow for the month was recorded at Rs. 71 million.
www.sundaytimes.lk
Sri Lanka’s motor tax policies seriously questioned
The vehicle registration momentum continued into November due to the pre-November 20 budget surge and relaxation of loan-to-value (LTV) rule, a JB Stockbrokers research report said. “Total motor cars registrations recorded 10,054 units in November slightly down from 10,349 units in October, but significantly higher than 2,419 units recorded 12 months ago,” it said, adding that brand new car registrations recorded 6,682 units in November which is the second highest number on record slightly higher than 6,225 units recorded in October, but lower than the all-time record set in September of 9,427 units.
Running up to the budget, the Customs changed the basis of valuation on which duties would be charged, for example for a Nissan Leaf it is now around Rs. 4.35 million whilst previously the declared value was around Rs. 3.2 million which was due to a combination of under invoicing and lower values since they are pre-owned vehicles, it said. “How would you optimally tax vehicles? For the last 50 years no government has figured out how to optimally tax imported vehicles. The policy has yo-yoed depending on whether the country was facing a balance of payment crisis or the Treasury has a revenue shortfall or reacting to excess traffic on the road. Due to policy unpredictability the market places has seen idiosyncratic and discretionary behaviour,” it said, adding that when duties are reduced there is a surge of demand since consumers believe it will be short-lived; thus they don’t want to miss out.
“This invariably creates a spike in government revenues but places a strain on the balance of payments,” the report said, noting that periodically the permits with restrictions are issued to various interest groups – these in turn are flipped in the market defeating the rationale of issuing permits. Since permits come with restrictions, the supply side clamours to procure models that come within the defined threshold – the winners are invariably the ones who can genuinely match a suitable model to fall within the stated criteria or more likely the players who game the system by mastering the art of under invoicing, it pointed out.
Rationale
The report said that the “rate of duty is set depending on the size of the engine – one does not understand the rationale why it should be the criteria”. If the thought process is that larger engines equate to large size vehicles that doesn’t always hold for a BMW 520 and Mercedes Benz E200 as both engines are below 2L and attract the same duty level as a Toyota Corolla that has an engine size of 1.5, the report said. “Further, why should the rate of duty be different between a car with an engine size of 2L and 2.2L? Perhaps a progressive methodology should be used. There is a wide range of duties – one is not sure on what basis they have been decided.”
Personal vehicles serve a functional need to allow people to be economically active – go to work, trade, generate income by running a taxi service, etc, the report said, adding that the best evidence of its utility value is that people are willing to lease vehicles even though they are paying an interest rate of 24-28 per cent for two wheelers, 18-22 per cent for three wheelers, 14-16 per cent for used cars, etc. If vehicles become unaffordable economic activity will be affected. For the burgeoning middle class owning a personal vehicle has high aspirational value – it’s nice to have a Maruti Alto at home that is infrequently used, it also signals to the neighbours that the household is prosperous, the report said.
At the premium end of the market there is a snobbish value to owning a prestige brand. Thus there is a level of inelasticity for cars – the challenge is to set the taxes at a level that maintains demand – if set too high demand will slump due to unaffordability or customers buying an alternative with an equal utility – e.g. option for a duty free speed boat or yacht instead of a Mercedes Benz, it said.The research report said that congestion on the road should (not) be addressed via higher taxes on vehicles. Congestion is primarily an urban phenomenon and more pronounced at specific times of the day – thus congestion pricing has to be implemented in the cities to dissuade users from using their cars especially during peak times. “Penalising a car owner in Hambantota a town that has eight lane roads due to congestion in Colombo does not seem to be fair. We could be a pioneer by implementing dynamic congestion pricing using the mobile phone ecosystem – triangulate a vehicle’s location and price accordingly,” it emphasised.
It added that the level of duty should be based on value of the vehicle (not) on engine size or fuel type and it must be applied in progressive slab. “Offering permits to public servants as a remedy for below market wages is not tenable. Thus the recent budget announcement to pay a cash bonus in lieu of the permit was the right policy.”The report said that the cost of ownership of a vehicle has gone up considerably (rupee has depreciated by 7 per cent over the last three months, interest rates on leases are edging up) and the rate of duty has gone up by 10 per cent for the most popular hybrid vehicles and the customs valuations have been significantly revised upwards. “Its most likely that demand will drop dramatically due to lower affordability emanating from the depreciation of the currency, higher interest rates, lower LTVs and higher duties – tax revenues would also drop significantly requiring the Treasury to rethink its strategy,” the report added.
Running up to the budget, the Customs changed the basis of valuation on which duties would be charged, for example for a Nissan Leaf it is now around Rs. 4.35 million whilst previously the declared value was around Rs. 3.2 million which was due to a combination of under invoicing and lower values since they are pre-owned vehicles, it said. “How would you optimally tax vehicles? For the last 50 years no government has figured out how to optimally tax imported vehicles. The policy has yo-yoed depending on whether the country was facing a balance of payment crisis or the Treasury has a revenue shortfall or reacting to excess traffic on the road. Due to policy unpredictability the market places has seen idiosyncratic and discretionary behaviour,” it said, adding that when duties are reduced there is a surge of demand since consumers believe it will be short-lived; thus they don’t want to miss out.
“This invariably creates a spike in government revenues but places a strain on the balance of payments,” the report said, noting that periodically the permits with restrictions are issued to various interest groups – these in turn are flipped in the market defeating the rationale of issuing permits. Since permits come with restrictions, the supply side clamours to procure models that come within the defined threshold – the winners are invariably the ones who can genuinely match a suitable model to fall within the stated criteria or more likely the players who game the system by mastering the art of under invoicing, it pointed out.
Rationale
The report said that the “rate of duty is set depending on the size of the engine – one does not understand the rationale why it should be the criteria”. If the thought process is that larger engines equate to large size vehicles that doesn’t always hold for a BMW 520 and Mercedes Benz E200 as both engines are below 2L and attract the same duty level as a Toyota Corolla that has an engine size of 1.5, the report said. “Further, why should the rate of duty be different between a car with an engine size of 2L and 2.2L? Perhaps a progressive methodology should be used. There is a wide range of duties – one is not sure on what basis they have been decided.”
Personal vehicles serve a functional need to allow people to be economically active – go to work, trade, generate income by running a taxi service, etc, the report said, adding that the best evidence of its utility value is that people are willing to lease vehicles even though they are paying an interest rate of 24-28 per cent for two wheelers, 18-22 per cent for three wheelers, 14-16 per cent for used cars, etc. If vehicles become unaffordable economic activity will be affected. For the burgeoning middle class owning a personal vehicle has high aspirational value – it’s nice to have a Maruti Alto at home that is infrequently used, it also signals to the neighbours that the household is prosperous, the report said.
At the premium end of the market there is a snobbish value to owning a prestige brand. Thus there is a level of inelasticity for cars – the challenge is to set the taxes at a level that maintains demand – if set too high demand will slump due to unaffordability or customers buying an alternative with an equal utility – e.g. option for a duty free speed boat or yacht instead of a Mercedes Benz, it said.The research report said that congestion on the road should (not) be addressed via higher taxes on vehicles. Congestion is primarily an urban phenomenon and more pronounced at specific times of the day – thus congestion pricing has to be implemented in the cities to dissuade users from using their cars especially during peak times. “Penalising a car owner in Hambantota a town that has eight lane roads due to congestion in Colombo does not seem to be fair. We could be a pioneer by implementing dynamic congestion pricing using the mobile phone ecosystem – triangulate a vehicle’s location and price accordingly,” it emphasised.
It added that the level of duty should be based on value of the vehicle (not) on engine size or fuel type and it must be applied in progressive slab. “Offering permits to public servants as a remedy for below market wages is not tenable. Thus the recent budget announcement to pay a cash bonus in lieu of the permit was the right policy.”The report said that the cost of ownership of a vehicle has gone up considerably (rupee has depreciated by 7 per cent over the last three months, interest rates on leases are edging up) and the rate of duty has gone up by 10 per cent for the most popular hybrid vehicles and the customs valuations have been significantly revised upwards. “Its most likely that demand will drop dramatically due to lower affordability emanating from the depreciation of the currency, higher interest rates, lower LTVs and higher duties – tax revenues would also drop significantly requiring the Treasury to rethink its strategy,” the report added.
www.sundaytimes.lk
Listing SOEs will be a game changer next year
By Duruthu Edirimuni Chandrasekera
CSE signals confusing 2016
The signals for Sri Lanka’s stock market for the next quarter in 2016 range from confusing to hopeful, according to industry analysts.
They say that while the famous capital market investor George Soros, slated to be in Sri Lanka in early January, and the setting up of the Megapolis in two months will augur well for the capital market, the possible currency devaluation along with foreign / High Net Worth Individuals (HNWI) boycotting the Colombo Stock Exchange (CSE) will spell negativity.
The exchange rate is under pressure due to a strong dollar and capital outflows and the Central Bank (CB) is likely to prop the rates up, which will see outflows from the CSE, according to stockbrokers. However, according to some, the ‘real game changer’ will be listing the State Owned Enterprises (SOEs) as promised in the recent budget. It was announced that the government is keen to streamline its portfolio of investments and will therefore exit partially or fully from those non-strategic investments in Lanka Hospitals, Hotel Developers PLC (Colombo Hilton), Hyatt Residencies, Waters Edge, Grand Oriental Hotel, Ceylinco Hospital and Mobitel by listing such investments in the CSE during 2016.
There will be a paradigm shift if the SOEs are listed,” an analyst said, noting that it will be like what Dialog did to the Colombo Stock Exchange (CSE), 10 years ago. The Colombo bourse’s largest initial public offering (IPO) at the time, Dialog Telekom was pursued by over 40 leading investment banks and fund managers from around the world.The analyst added that SOEs will do a similar thing to the CSE. “The volumes will be low without foreign participation but if the sentiment is right, I think the market can really move up from domestic activity alone with SOEs coming in.
He said that early next year the CSE will slump before it goes up, which is to be expected with the current trend. If SOEs are listed, it will certainly be a boost to the market.Another analyst pointed out that the HNWI like the EPF have stopped buying and the latter has in fact sold over the past two months, which has dropped the indices. “Over the past two months the EPF has sold some 5 million John Keells Holdings (JKH) shares. For a long term (outlook) pension fund this isn’t so good.”He said that if this is stopped or at least curtailed, traders will start eyeing the CSE more positively.
CSE signals confusing 2016
The signals for Sri Lanka’s stock market for the next quarter in 2016 range from confusing to hopeful, according to industry analysts.
They say that while the famous capital market investor George Soros, slated to be in Sri Lanka in early January, and the setting up of the Megapolis in two months will augur well for the capital market, the possible currency devaluation along with foreign / High Net Worth Individuals (HNWI) boycotting the Colombo Stock Exchange (CSE) will spell negativity.
The exchange rate is under pressure due to a strong dollar and capital outflows and the Central Bank (CB) is likely to prop the rates up, which will see outflows from the CSE, according to stockbrokers. However, according to some, the ‘real game changer’ will be listing the State Owned Enterprises (SOEs) as promised in the recent budget. It was announced that the government is keen to streamline its portfolio of investments and will therefore exit partially or fully from those non-strategic investments in Lanka Hospitals, Hotel Developers PLC (Colombo Hilton), Hyatt Residencies, Waters Edge, Grand Oriental Hotel, Ceylinco Hospital and Mobitel by listing such investments in the CSE during 2016.
There will be a paradigm shift if the SOEs are listed,” an analyst said, noting that it will be like what Dialog did to the Colombo Stock Exchange (CSE), 10 years ago. The Colombo bourse’s largest initial public offering (IPO) at the time, Dialog Telekom was pursued by over 40 leading investment banks and fund managers from around the world.The analyst added that SOEs will do a similar thing to the CSE. “The volumes will be low without foreign participation but if the sentiment is right, I think the market can really move up from domestic activity alone with SOEs coming in.
He said that early next year the CSE will slump before it goes up, which is to be expected with the current trend. If SOEs are listed, it will certainly be a boost to the market.Another analyst pointed out that the HNWI like the EPF have stopped buying and the latter has in fact sold over the past two months, which has dropped the indices. “Over the past two months the EPF has sold some 5 million John Keells Holdings (JKH) shares. For a long term (outlook) pension fund this isn’t so good.”He said that if this is stopped or at least curtailed, traders will start eyeing the CSE more positively.
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