Colombo Stock Exchange Market Review – 19th Dec 2016

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Colombo Stock Exchange Trade Summary 19-Dec-2016

Colombo bourse extended losses for the fifth straight session amid lackluster trading as investors became passive with the advent of the festive week. ASI closed 18.04 index points (-0.3%) lower at 6,250.57 while S&P SL 20 index shed 9.38 points (-0.3%) to close at 3,512.29.

Bearish sentiments prevailed across the board and out of the 170 scripts traded, only 29 shares gained while 72 saw decline in its share price. Among the losers were Ceylon Tobacco (LKR 850.00,-1.2%), Ceylon Cold Stores (LKR 765.60,-1.9%), Commercial Bank (LKR 143.60, -1.0%) and Overseas Realty (LKR 20.00,-5.2%).

The turnover slid to LKR 261mn. 28% of the turnover came from the only crossing today in Nestle Lanka (36,000 shares at LKR 2,050.00). Accordingly, Nestle (LKR 77mn) become the top contributor to the turnover along with Hemas Holdings (LKR 51mn), John Keells Holdings (LKR 30mn) and HNB- nonvoting (LKR 33mn).

John Keells Holdings (LKR 147.00, -0.1%) was by far the most traded stock today. Further, investor interest was seen in Chevron Lubricants (LKR 160.10, -0.5%), Asia Asset Finance (LKR 1.40) and Ceylon Grain Elevators (LKR 81.40, -2.1%).

After the controversial transaction on last Friday, Seylan Bank closed 5.5% higher at LKR 89.70. Though the media reported of a possible cancellation of the Friday’s transaction, the official announcement is yet to be made.

Peoples’ Leasing managed to close higher at LKR 17.90, +2.3% with the announcement of the anticipated interim dividend of LKR 0.75 per share.

During the session, Orient Finance announced an issue of preference shares to the existing shareholders on the basis of one for 37 at LKR 100.00 per share. However, there were no trades today.

Foreign investors were inactive today and accounted for mere 55% of the market activity. At the end of the trading, net foreign inflow was LKR 66mn. Top net inflows were seen in Hemas Holdings (LKR 51mn), HNB – nonvoting (LKR 22mn) and Nestle Lanka (LKR 3mn while top net outflow was mainly seen in John Keells Holdings (LKR 8mn).
Source: LSL

Sri Lanka govt to revoke BOC's Seylan sale

ECONOMYNEXT - Prime Minister Ranil Wickremesinghe has ordered the reversal of state-owned Bank of Ceylon's controversial sale of a stake in the private Seylan Bank.

The stock market regulator has already been informed of the government's intention to revoke Friday's sale to an unidentified foreign buyer, which some believe could be a front for a local business.

"The Prime Minister acted at lightning speed no sooner he was informed of this illegal sale," Finance Minister Ravi Karunanayake told reporters on the side-lines of a dinner hosted by Foreign Minister Mangala Samaraweera at his official residence in Colombo.

"We can and we are going to reverse the transaction because it is illegal," the minister said.

"The Bank of Ceylon managers did not have authority to sell this stake. The (BOC) board had discussed, but not decided to sell this stake. Heads will roll."

Senior administration officials say two additional general managers of Bank of Ceylon had allegedly authorised the sale without the approval of the board of directors of the bank. The transaction was carried out while BOC's chairman was out of the country.

It is not clear what the threshold of transactions the management or investment committee is allowed to conduct without getting approval from the board. The bank is also known to have liquidated other investments in recent days.

However, the administration feels that any sale of a "strategic stake" requires specific permission.

In terms of the size, a 1.3 billion rupee sale is just 0.08 percent of the 1,678 billion rupee balance sheet of the Bank of Ceylon as of September 2016.

In the annual report, the 1.3 million block of Seylan voting shares is listed in the 'available for sale' portfolio.

"Four months ago, the government had an offer of 140 rupees for a share of Seylan, but it was turned down," another top ministerial source said on Sunday.

Friday's sale of 13 million shares of Seylan was done at 100 rupees, above the market rate of 85 rupees.

However authorities believe the value of the 7.5 percent block could be considerably higher for a strategic investor.

Asked if the decision to reverse the share transaction would have a negative impact on the already lacklustre stock exchange, the minister said it should not discourage genuine investors.

"In fact, our decision should boost the market because it shows we won't allow any hanky-panky."

However, if the buyer was a genuine foreign investor, the effects are less clear, market analysts say.

Richard Pieris Group posts Rs.2.17 bn PBT for first half 2016/17

The Richard Pieris Group ended its first six months on a positive note reporting a Group Revenue of Rs.23.5 bn and a PBT of Rs.2.17 bn.

The reported Revenue and PBT signifies a growth of 12% and 29% respectively over and above the corresponding period of the previous year.

The reported profits represent business profits, and do not include any gains of a capital nature.

The Retail Sector of the group comprises of Arpico Supercentres and Superstores, Arpico Daily Supermarkets and a network of Arpico Showrooms scattered island wide.

The sector continued to focus on consumer promotions to drive footfall and expand basket value through the most anticipated “Top Tips” and “Daily Deals” price drop strategies.

The marketing strategies were further leveraged by securing strategic partnerships with banking and credit card partners offering greater value to customers.

The Arpico Supercenter Brand won the award for the “Excellence in Branding and Marketing” - Retail Sector at the CMO Asia Awards in Singapore during the period under review, becoming the first Sri Lankan modern trade chain to win this accolade among many other Asian competitors.

The Plastics and Distribution Sector comprises a range of products including mattress, water tank, PVC products, rigifoam, rubber products and water pumps. New production line commissioned during this financial year assisted water tanks operation to cater the increased demand.

Rigifoam operation also celebrated its 50 years existence in the market during the period under review. Continuous marketing campaigns and various promotional activities have assisted the sector to gather momentum in its sales volumes.

The Plantation Sector of the Group improved its performance during the first six months of the financial year 2016/17, mainly driven by the solid performance of palm oil.

Production of rubber improved but the prices have declined during the second quarter of the financial year 2016/17. Initiatives such as quality improvements and productivity enhancements were undertaken to improve the performance of the tea segment.

The Retreading business of the sector was affected by the declining demand for retreading tyres in the market. The sector continued to focus on marketing campaigns and effective use of resources.

The Rubber manufacturing sector comprises a range of products including natural latex foam mattresses, pillows, rubber mats, jar sealing rings and small moulded products.

The Latex foam business segment recorded high sales volumes during the period under review due to the aggressive sales and marketing activities.

The Financial Services sector of Richard Pieris Group consists of its own life insurance, stock broking, fund management and a finance company.

Arpico Insurance PLC opened its latest branch in Jaffna during the period under review.

The Group continues to focus on its core business sectors whilst considering many opportunities for further expansions both locally and internationally, a spokesman for the company said.

www.dailynews.lk

Fifteen finance companies in trouble: IMF

Analysts question fate of Central Bank’s compulsory listing requirement plan for registered finance firms

By Azhar Razak

Of the 46 licensed financial companies in Sri Lanka, 15 are presently facing liquidity issues, with six at a high level of distress with Non Performing Loans ranging from 50 to 90 percent, the International Monetary Fund (IMF) revealed in a recent report.

Releasing the much-awaited Staff Report prepared by a staff team of the IMF and completed on November 4, 2016, the IMF notes that in addition to the mismanagement and irregular practices, the rapid growth of the non-bank financial sector in Sri Lanka has often led to excessive risk taking which has led to the deterioration of the financial position of these companies.

However, the IMF said the cost of resolution is expected to be minimal as the total assets of the distressed companies are about 1 percent of GDP

"Neither the Central Bank nor the Finance Ministry has so far shed light on the names of these finance companies in trouble perhaps with the opinion that naming them might worsen the issue and lead to a run on these companies, a top financial sector analyst told The Sunday Island on the condition of anonymity.

However, the pertinent question to be asked right now is whether or not public be made more aware of the troubled licensed finance companies given the fact that 12 out of the 46 are still not listed and hence their financial statements are not readily available, he hoted.

Pointing out that while a mandated listing itself would not however guarantee credibility to the firms in question, the analyst noted that the silence of the authorities in pronouncing a clear policy direction with regard to the compulsory listing requirement for registered finance companies introduced by the previous administration, is a concern.

"The new Central Bank administration announced it had scrapped the consolidation plan adopted by the former administration. But it is not yet clear whether the plan for a compulsory listing requirement is in place or not," the analyst said.

According to the IMF report, the authorities are preparing a resolution plan of the15 distressed non-bank finance companies using a special purpose vehicle, and CBSL’s Monetary Board approved in mid-October a resolution mechanism for the repayment to depositors of 4 insolvent non-bank financial institutions. The authorities had earlier announced actions are being taken by the government and the CBSL to restructure them through establishment of a Financial Asset Management Company (FAMA).

The Central Bank in a press release issued in October said that the regulation and supervision by the Bank do not mean a guarantee for each and every deposit and investment made by the public in banks and financial institutions. It noted that the responsibility of the Central Bank is only to provide an external safeguard through regulation and supervision to the extent permitted in law while facilitating institutions to carry on their businesses essential for the economy and general public in a safe and sound manner in a stable financial system.

"Those who make such deposits and investments and those who undertake businesses based on these funds are primarily responsible for their business decisions regarding prudent management of their funds", it said.

In fact, almost all funds placed in the above distressed companies have been mobilized through unauthorized financial products. Even large depositors and investors have been negligent in not undertaking the normal due diligence on risks and return, despite being sufficiently knowledgeable and skillful to do so," the regulator said in a statement announcing the resolution of four insolvent financial institutions "to protect depositors and promote the financial system stability".

It has to be noted that the Central Bank has however mandated all Registered Finance Companies (and licensed commercial banks, both local and foreign) in Sri Lanka to publish their summarised financial statements each quarter in a national newspaper.

"This disclosure will however only be noted by the most alert of persons as only a very few would read/buy all relevant newspapers in any case and the average person would be unaware of the financials of unlisted financial companies and banks," another analyst who also did not wish to be quoted argued.

The analyst further pointed out that the Central Bank should arguably make arrangements to host financials of non-listed finance companies and banks on its own website.

The 12 finance companies not listed on the Colombo Stock Exchange but operating at present are City Finance Corporation Ltd, ETI Finance Ltd., HNB Grameen Finance Ltd., Ideal Finance Ltd., Kanrich Finance Ltd, Melsta Regal Finance Ltd, Richard Pieris Finance Ltd., Sarvodaya Development Finance Co. Ltd., Serandib Finance Ltd., (formerly Indra Finance), The Standard Credit Finance Ltd., TKS Finance Ltd., and U. B. Finance Co. Ltd.

It has to be, however, understood that the 15 finance companies which the IMF has indicated to be suffering from liquidity issues could be both a mix of listed and unlisted firms as a listing will only give the much-needed transparency for the public with regard to the health of individual finance companies.

"Being listed is in itself not a guarantee that a finance company is doing well. It only means that the particular firm is more transparent as it is bound by Stock Exchange rules and regulated by the Securities and Exchange Commission," the analysts explained.

Of the 12, the management of HNB Grameen has indicated intent to list in the near term, while Richard Pieris Finance is in the process of amalgamating with 90% owned and listed Chilaw Finance (CFL) where the surviving entity may get listed.

Sarvodaya Development Finance controls 76% of listed Summit Finance (GSF) while Serandib Finance was fully acquired by Commercial Bank (COMB). There have also been many reports in the past regarding plans to list U B Finance, analysts said.

www.island.lk

Constituent changes to S&P SL 20 Index

Ceylinco Insurance removed

The Colombo Stock Exchange (CSE) announced the following changes in the S&P Sri Lanka 20 index constituents made by S&P Dow Jones Indices at the 2016 annual index rebalance.

As announced by S&P Dow Jones Indices, effective from tomorrow, December 19, 2016 (after the market close of December 16), Ceylinco Insurance PLC has been removed from the S&P Sri Lanka 20 index as it no longer qualifies for index inclusion. The replacement is Teejay Lanka PLC. The index includes the largest 20 stocks, by total market capitalization, listed on the CSE that meet minimum size, liquidity and financial viability thresholds. The constituents are weighted by float-adjusted market capitalization, subject to a single stock cap of 15%, which is employed to reduce single stock concentration The S&P Sri Lanka 20 has been designed in accordance with international practices and standards. All stocks are classified according to the Global Industry Classification Standard (GICS), which was co-developed by S&P Dow Jones Indices and MCSI and is widely used by market participants throughout the world. To be eligible for inclusion, a stock must have a minimum float-adjusted market capitalization of Rs. 500 million, a six-month average daily value trade of Rs. 1 million, have been traded at least 10 days of each month for the three months before the rebalancing reference date, and have a positive net income over the 12 months before the rebalancing reference date.

Effective from tomorrow (December 19) the stocks in the S&P Sri Lanka 20 in alphabetical order are as follows:

1. Access Engineering PLC,

2. Aitken Spence PLC,

3. Asiri Hospital Holdings PLC,

4. Cargills (Ceylon) PLC,

5. Ceylon Cold Stores PLC,

6. Ceylon Tobacco Company PLC,

7. Chevron Lubricants Lanka PLC,

8. Commercial Bank of Ceylon PLC,

9. DFCC Bank PLC,

10. Dialog Axiata PLC,

11. Hatton National Bank PLC,

12. Hemas Holdings PLC,

13. John Keells Holdings PLC,

14.Lanka Orix Leasing Company PLC,

15. Melstacorp Ltd.,

16.National Development Bank PLC,

17. Nestle Lanka PLC,

18. People’s Leasing and Finance PLC,

19. Sampath Bank PLC,

20. Teejay Lanka PLC.
www.sundayobserver.lk

Sale of Seylan Bank shares by Sri Lanka state-run bank under scrutiny

ECONOMYNEXT - The sale of shares 13 million shares in Seylan Bank by state-run Bank of Ceylon is being probed by the government, a senior government source said.

The Seylan stock was 100 rupees, about 15 rupees higher than the market.

The government was looking into the matter to check whether proper board approval was obtained the source said.

The bank comes under state enterprises ministry.

Sri Lanka’s Sanasa Bank private placement to raise Rs3.3bn

ECONOMYNEXT – Sri Lanka’s Sanasa Development Bank (SDB) said it plans a private placement of ordinary shares at Rs140 a share and convertible loans from international lenders to raise Rs3.3 billion to strengthen its capital base and lending portfolio.

SDB has signed deals with FMO (the Netherlands Development Finance Company), the Dutch development bank and the SBI-FMO Emerging Asia Financial Sector Fund, a statement said.

It also intends to sign an agreement with International Finance Corporation (IFC), the private sector lending arm of the World Bank.

SDB will issue 10.4 million shares at Rs140 each resulting in the three lenders having a 21.79% stake of the bank after the private placement.

The private placement and borrowings are subject to regulatory approvals with the loans being considered as Tier II capital, SDB said.

SDB’s current stated capital is Rs4 billion and the new funds will further strengthen SDB’s capital adequacy ratios and help meet loan demand from small businesses, it said.

They will also “ensure the bank is well geared to pursue loan book growth while maintaining healthy capital adequacy levels, thereby improving the profitability of the bank,” the statement said.

FMO is known as Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. in Dutch.

SBI-FMO Emerging Asia Financial Sector Fund was launched by Japan’s SBI Holdings, Inc. and FMO to invest in financial sector opportunities in emerging Asia with a focus on India, Sri Lanka, Bangladesh, Indonesia, Philippines, Thailand, Cambodia and Vietnam.