Sri Lanka's The Finance Losses up 24-pct, balance sheet gap Rs16bn

ECONOMYNEXT - Losses at Sri Lanka's troubled The Finance Company expanded 24 percent to 598.2 million rupees in the December 2017 quarter, and a hole in the balance sheet expanded by 1.6 billion rupees to 16 billion in the past 9 months.

Losses in the quarter were 3.73 rupees a share. In the nine months to end December 2017, losses were 10.50 rupees a share, on a total loss of 1.7 billion rupees, up 41 percent from a year earlier.

The Finance shares gained 10 cents on Friday closing at 5 rupees on Friday.

Interest income in the quarter grew 6 percent to 866.9 million rupees, interest expenses increases 20 percent to 1.1 billion rupees, ballooning net interest losses by 122 percent to 248.8 million rupees.

The company has 30 billion rupees of deposits and 5.0 billion borrowings but only 22.4 billion rupees of assets of which over 4 billion rupees are not interest bearing.

Fees and commission income grew 29 percent 19.3 million rupees and other income fell 49 percent to 12.1 million rupees.

Bad loan provisioning increased 34 percent to 117.7 million rupees.

Operating expenses including personnel increased 16 percent to 263.9 million rupees.

The Finance Company's book value, or shareholder funds, was a negative 16 billion rupees as at end December 2017, up 12 percent from March.

The Finance Company's loan book expanded 28 percent in this period to 4.9 billion rupees, its hire purchase portfolio shrank 10 percent to 4.6 billion rupees, leasing fell 28 percent to 729 million rupees.

Financial investments fell 2.2 percent to 6.2 billion rupees. Real estate investments fell 18 percent to 805.8 million rupees.

Ceylinco Crisis

The Finance's problems began with the collapse of Golden Key, over 10 years ago, when interest rates rose after a period of high inflation fired by deficit spending and loose monetary policy.

The Finance was incorporated in 1940 and later became part of the now defunct Ceylinco Group, controlled by Justin Kotelawala.

Ceylinco Group was founded in the late 1930s by Hugh Weerasekere and Cyril E. S. Perera, who relinquished control over to Kotelawala in the 60s.

The Ceylinco crisis began under Kotelawala’s son Lalith, when the Golden Key Credit Card Company, an unregulated credit card issuer, collapsed, unable to settle 26 billion rupees in unauthorised customer deposits.

The Finance faced a run on deposits, and worse, borrowers stopped servicing loans.

The central bank took control through a management agent, but the firm continues to bleed money.

For one, the company had invested heavily in property, which couldn’t be liquidated fast enough.

The Finance also had loans to Ceylinco group companies, which were not paid back.

In 2010, the Central Bank converted 10 percent of The Finance’s deposits worth 2 billion rupees into non-voting shares and raised another 1.6 billion rupees via a public offer.

The Employees Provident Fund managed by the Central Bank was forced to invest in 5.1 million shares. The Finance shares were trading on the stock exchange at 37 rupees at end-March 2011. Today, a share is worth 5 rupees, losing 86.5 percent in value since.

The company’s 19 billion rupee pre-crisis loan book deteriorated rapidly to 7 billion rupees in the three years to 2012. Its deposit base fell by a quarter to 21 billion rupees. The Finance reported a 9 percent negative interest margin that year.

In the two years to 2014, the loan book grew 14 percent to 8 billion rupees, but deposits rose to 24 billion rupees. Its annual report that year hailed high growth in deposits as a sign of growing public confidence, but this only pushed negative interest margins further into the red at 14 percent.

To help reduce negative interest expenses, in December 2014, the Central Bank granted a 6 billion rupee low-cost loan to The Finance, mostly invested in government securities.

That year, The Finance’s board finalised a five-year business plan (2014/15 to 2019/20) approved by the Central Bank detailing a strategy to revive the company with low-cost deposit mobilisation, converting non-yielding real estate into yielding assets or selling them to finance long -term business loans, and improving the collection of 3.8 billion rupees worth of Ceylinco Group loans.

The company also has some real estate. The firm had land and real estate assets worth 1.7 billion rupees at end-March 2017 in its books, down 73 percent from 6.5 billion rupees in 2011 after provisioning for losses.

Despite appreciating land prices, there is a growing gap in the balance sheet.

Sri Lankan stocks edge up on foreign buying

Reuters: Sri Lankan shares hit a one-week closing high on Friday as foreign investor purchases helped overcome negative market sentiment due to political uncertainty, dealers said.

The Colombo stock index ended 0.16 percent firmer at 6,563.69, its highest close since Feb. 9.

Financials led the gains, with Sampath Bank rising 3 percent and Aviva NDB Insurance Plc jumping 15.2 percent.

The index fell 0.13 percent on week, after gaining for three straight weeks.

The index rose on Thursday on hopes President Maithripala Sirisena’s expected announcement on the future of the coalition government would ease political uncertainty.

Sirisena, however, did not address the nation as expected.

“There was not much activity. The market was waiting for the president’s direction,” said Prashan Fernando, CEO at Acuity Stockbrokers.

Prime Minister Ranil Wickremesinghe, however, addressed the media saying that the government will continue, albeit with a reshuffle of the cabinet.

“The market might react on Monday to the Prime Minister’s speech,” said Fernando.

The ruling coalition government of Sirisena’s centre-left Sri Lanka Freedom Party and Prime Minister Wickremesinghe’s centre-right United National Party suffered defeats in a local election over the weekend.

Since the results, both parties have locked horns on how best to continue in the government. Sirisena’s party wants to form its own government, his party ministers have said.

Investors are waiting for some stability and to see where coalition partners are headed, analysts said.

Turnover stood at 735.5 million rupees ($4.74 million), below last year’s daily average of 868.4 million rupees.

Foreign investors bought a net 109.5 million rupees worth of shares on Friday, extending the net foreign buying to 5.5 billion rupees worth of equities so far this year. 

($1 = 155.1000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lankan stocks end higher on retail buying

Reuters: Sri Lankan shares recovered on Thursday, following two straight sessions of losses, on retail buying after the central bank held key policy rates steady amid signs political uncertainty was easing, dealers said.

The central bank’s decision was widely expected, with policymakers emphasising the need to support an economy that has been beset by production disruptions due to massive intermittent floods and prolonged drought last year.

The Colombo stock index ended 0.32 percent firmer at 6,553.21, hovering near its highest close since Nov. 8 hit on Friday.

The index gained 0.8 percent last week, its third straight weekly rise.

Shares in Melstacorp Ltd rose 2.8 percent, while Ceylinco Insurance Plc ended 6.7 percent higher and Aviva NDB Insurance Plc gained 25 percent.

“Today, there was retail and high net-worth interest on insurance sector and it was mainly retail driven,” said Dimantha Mathew, head of research at First Capital Holdings.

“Foreign investors were worried with the continued political uncertainty and delaying to see some settlement will create more uncertainty in the market,” he said, referring to a decision that could end the political instability.

Analysts, however, said they see some positive signs as both the ruling coalition parties are in talks to end the political impasse, with President Maithripala Sirisena expected to make a statement possibly on Friday.

The ruling coalition government of Sirisena’s centre-left Sri Lanka Freedom Party and Prime Minister Ranil Wickremesinghe’s centre-right United National Party suffered defeats in a local election over the weekend.

Since the results, both parties have locked horns on how best to continue in the government.

Investors are waiting for some stability and to see where coalition partners are headed, analysts said.

Turnover stood at 878.1 million rupees ($5.67 million), well below last year’s daily average of 915.3 million rupees.

Foreign investors sold a net 2.3 million rupees worth of shares on Thursday, but have been net buyers of 5.4 billion rupees worth of equities so far this year. 

($1 = 154.8500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lanka's Agalawatte Plantations returns to profit

ECONOMYNEXT – Sri Lanka’s Agalawatte Plantations, which is carrying heavy losses with the former management accused of mismanagement, returned to profit in the September 2017 quarter.

The firm made a net profit of Rs42 million in the September 2017, the latest for which accounts are available, compared with a loss of Rs128 million the year before, according to interim results filed with the stock exchange.

Sales rose 52% to Rs523 million over the period. Quarterly earnings per share were Rs1.66. Agalawatte’s share was trading at Rs19.70 Wednesday.

In the nine months to 30 September 2017, Agalawatte made a loss per share of 89 cents while Sales rose 43% to Rs1.5 billion.

The accounts showed Agalawatte’s tea and rubber businesses continued to make losses while profits came mainly from oil palm.

Agalawatte Plantations owns part of AEN Palm Oil Processing (Private) Limited, a joint venture processing and selling palm oil.

Last year, D R Investment (Pvt) Ltd., the new owners of Agalawatte Plantations said re-audited accounts of the firm had revealed over Rs4.5 billion accumulated losses and liabilities and promised legal action against those responsible for mismanagement.

In March 2017, Browns Group sold a 61% stake in Agalawatte Plantations to D. R. Investment (Pvt) Ltd.

Browns’ controversial acquisition of the loss-making Agalawatte from Mackwoods group has been challenged in court.

Sri Lanka Treasuries yields spike across maturities

ECONOMYNEXT - Sri Lanka's Treasuries yields rose across maturities at Wednesday's auction with the 12-month bill yield up 34 basis points to 9.28 percent, the state debt office said.

The 6-month bill yield rose 30 basis points to 8.29 percent while the 3-month bill yield rose 27 basis points to 8.02 percent from the last auction, a statement said.

The debt office accepted Rs28.5 billion worth of bids, the same amount offered, after getting total bids worth Rs51.7 billion

It sold Rs10 billion rupees of 3-month bills, having offered Rs4 billion and getting bids worth Rs13 billion while accepting lower amounts than offered in the other tenors.

Sri Lanka's BAT unit net up 125-pct in Dec, cigarette volumes down

ECONOMYNEXT - Profits of Ceylon Tobacco Company Plc, a unit of British American Tobacco, more than doubled to 4.5 billion rupees in the December 2017 quarter, from a year earlier despite shrinking cigarette sales, interim accounts showed.

The company said cigarette volumes fell 18 percent during 2017 after price hikes. But turnover tax revenues rose to 107.3 billion rupees from 89.77 billion rupees a year earlier up 19.5 percent. Sri Lanka charges excise, and other levies including a 15 percent value added tax.

The company and its customers coughed up a total of 117.3 billion rupees in taxes to the state, which includes income tax in 2017.

CTC reported earnings of 24.01 rupees a share for the quarter. In the 12 months to December, earnings were 77.87 rupees a share on total profits of 14.6 billion rupees, increasing 15 percent from a year earlier, interim accounts showed.

Sales volumes fell 18 percent during the year on lower disposable incomes and taxes on cigarettes, the company said.

Ceylon Tobacco shares closed Wednesday at 1,049.50 rupees.

Revenue with taxes in the quarter increased 60 percent to 35.6 billion rupees.

The total tax collection on cigarettes amounted to 27.5 billion rupees in the quarter, up 86 percent from a year earlier.

Operating expenses tumbled 65 percent in the quarter to 1.2 billion rupees.

Raw materials cost was down to 246 million rupees from 349 million amid lower volumes, salaries and wages were down to 449 million from 549 million, and other operating expenses were down to 1.2 billion rupees from 3.4 billion.

The company said high domestic prices maintained with taxes were promoting cigarette smuggling.

"The smuggled cigarette market is estimated to be over 450 sticks," the company claimed. It did not say how the estimate had been arrived at.

Over 2,500 raids by authorities had detected 50 million cigarettes in 2017, it said.

Sri Lanka’s RIL Property goes for Rs.1.6Bn Rights Issue

LBO - RIL Property Plc said they will be raising 1.6 billion rupees through one for three Rights Issues to settle part of the long-term loan facilities obtained by the company.

Issuing a statement the company said that the it will issue 200 million shares in the proportion of one new ordinary voting share for every three ordinary shares held at 8 rupees per share.

The current stated capital of the company is 5.76 billion rupees.

The Rights Issue is subject to the Colombo Stock Exchange approving in principle the issue and listing of shares and obtaining shareholder approval at a General Meeting.