Sri Lanka DSI Samson Group downgraded to BBB(lka)

ECONOMYNEXT - Sri Lanka's DSI Samson Group (Pvt) Ltd (DSG) has been downgraded by a notch to BBB(lka) due to its leverage, the rating agency said.

Fitch has re-calibrated the island's rating scale after a sovereign downgrade by notch to 'B'.

"The elevated leverage is due to the weakening domestic sales of pneumatic tyres to
original equipment manufacturers (OEMs) and significant competitive pressures in the footwear
retail segment," Fitch Ratings said.

"We expect operating cash flow from the company's solid tyre exports and value-added
footwear businesses to improve in the medium term, but this is unlikely to be sufficient
to reduce leverage below the level commensurate with a higher rating."

DSG's net leverage increased to 5.2x in the financial year ended March 2018 (FY18) from 4.4x a year earlier due to the weaker operating performance in several of its key domestic segments. Leverage has since fallen to 5.0x by 31 December 2018 due to an improvement in exports and domestic sales of value-added footwear.

"We expect net leverage to drop to 4.9x in FY19 and 4.6x through FY21, buoyed by the company's efforts to further improve cash flow contributions from exports and domestic sales of value-added footwear."

The full statement is reproduced below:

DSI SAMSON GROUP (PRIVATE) LIMITED

The rating downgrade reflects Fitch's expectations that DSG's net leverage - defined as lease adjusted
debt net of cash/operating EBITDAR - is likely to remain above 4.5x over the medium
term.

The elevated leverage is due to the weakening domestic sales of pneumatic tyres to
original equipment manufacturers (OEMs) and significant competitive pressures in the footwear
retail segment. We expect operating cash flow from the company's solid tyre exports and value-added
footwear businesses to improve in the medium term, but this is unlikely to be sufficient
to reduce leverage below the level commensurate with a higher rating.

DSG's rating continues to reflect its leading positions in domestically sold pneumatic tyres to the
replacement market and footwear, which are supported by its well-known brand and
widespread distribution network.

Higher Financial Risk: DSG's net leverage increased to 5.2x in the financial year ended March
2018 (FY18) from 4.4x a year earlier due to the weaker operating performance in several of its
key domestic segments. Leverage has since fallen to 5.0x by 31 December 2018 due to an
improvement in exports and domestic sales of value-added footwear.

We expect net leverage to drop to 4.9x in FY19 and 4.6x through FY21, buoyed by the company's efforts to further improve cash flow contributions from exports and domestic sales of value-added footwear.

Fitch believes the pressure on free cash flow from high interest costs and notable working capital
outflows as well as growth capex will keep net leverage above 4.5x in the medium term.

We expect DSG's FFO fixed-charge coverage to improve to 1.5x in the medium term, compared
with an estimated 1.4x at end-December 2018 and a low of 1.1x at FYE18, supported by a
recovery in profitability. However, coverage will likely remain below the three-year historical
average of 2.2x due to weaker domestic demand and continued pressure from high interest
costs.

Lower EBITDA Margins: Fitch expects DSG's EBITDA margins to recover to 8.5% in FY19, from
7.7% in FY18, after they were diluted by lower domestic footwear and tyre sales volumes,
higher crude oil and rubber prices as well as the company's efforts to liquidate some of its
footwear inventory at discounted prices. The recovery in margins will be supported by greater
contribution from high-margin solid tyre exports and higher-value-added footwear. However,
we expect rising cost pressures due to the depreciating Sri Lankan rupee and intense price
competition in the domestic market to keep EBITDA margins below the three-year historical
average of 9.0%.

Falling Domestic Sales: We expect domestic sales of tyres to remain under pressure due to the
weakening demand for bicycle tyres in Sri Lanka and the tightening of three-wheeler financing
regulations in 2017. The regulator lowered the upper band of loan-to-value ratios associated
with three-wheeler leases to 25% from 70% to curb vehicle imports, which continues to impede
volume growth mainly from the OEM market. However, DSG's significant exposure to the
replacement market mitigates this risk to some extent.

Domestic footwear volumes declined by around 4% in FY18 on rising competition from smallscale
producers in the lower-end of the market. DSG counterbalances this risk by selling valueadded
footwear as the competition is less intense. DSG also compensates for the lost sales to
some extent by supplying raw materials such as rubber sheets and soles to its competitors in the
footwear market.

Leading Market Position: DSG has leading market positions in the domestic footwear market and
the bicycle, motorcycle and three-wheeler tyre industries, supported by its established brand,
and a widespread distribution network.

Nevertheless, we expect the intensifying competition in the footwear industry from small-scale domestic producers and importers that are circumventing the current tariff structure on imports to be a key long-term risk. Domestic sales of motorcycle and three-wheeler tyres also face rising competition from other well-known brands and imported products.

Limited Structural Subordination Risk: DSG is a holding company that depends on dividends paid
by its subsidiaries to service its own obligations. However, the structural subordination of
holding-company creditors is mitigated by DSG's strong control over its operating subsidiaries
that accounted for over 80% of consolidated EBITDA in FY18. This supports a high degree of cash
fungibility within the group and enables the holding company to service its own obligations.

Sri Lanka’s January tea export shipments up 13-pct

ECONOMYNEXT – Sri Lanka’s tea exports in January 2019 rose almost 13 percent or by 2.7 million kilos to 23.6 million kilos from a year ago, brokers said.

Tea bags and packeted tea have shown a growth during the period under review, while bulk tea exports decreased, Forbes & Walker Tea Brokers said.

Total tea export revenue rose 17.5 percent or by three billion rupees to 20.1 billion rupees during the period.

The broker said the FOB or free on board value of exports were up four per cent or 33.41 rupees to 852.14 rupees a kilo in January 2019 from the year before.

Among the major importers of Sri Lankan tea in January 2019, Iraq emerged as the largest importer followed by Russia and Turkey.

Iran, Libya and Syria are some of the other noteworthy importers.

Sri Lanka's The Finance trading suspended over accounting issues

ECONOMYNEXT - Sri Lanka's The Finance Company Plc, a troubled non-bank lender which was slapped with a cease-and-desist order by the regulator last week, said it planned to resolve accounting problems highlighted by auditors by March 2019.

The Finance Company has made losses and is facing a 17 billion-rupee gap in the balance sheet.

Last week, the Central Bank ordered it not to take any new deposits or give loans.

Existing depositors will be paid interest at Treasury bill rates.

The firm said in a stock exchange filing that the Securities and Exchange Commission (SEC) had informed it on February 01 that it could not honour the firm's request in November for an extra nine months to resolve accounting issues highlighted by auditors.

Trading in The Finance shares had been suspended on February 17.

Sri Lanka's Seylan Bank December quarter profits slashed on write-downs

ECONOMYNEXT - Profits at Sri Lanka's Seylan Bank Plc in the December 2018 quarter was wiped out by a one-off provision for retirement benefits and loans loss provisions under tighter accounting rules, and economic conditions, interim accounts showed.

The firm said profits fell 96 percent to 50.3 million rupees in the quarter from 1.45 billion rupees a year earlier.
The group reported earnings of 13 cents per share for the quarter. For the year to December, the firm reported earnings of 8.57 rupees per share.

Seylan provided 1.134 billion rupees of additional gratuity during the quarter.

Loan loss provisions rose steeply to 1.5 billion rupees from 64 million rupees a year earlier amid weak economic conditions and tighter accounting rules.

"Construction, tourism, and manufacturing sectors were the major contributors to this deterioration and the bank has implemented a rigorous program of restructuring, rehabilitation, and recovery to address this issue," the firm told shareholders in a review.

In the quarter, group interest income grew 18.1 percent to 13.6 billion rupees and interest expenses grew at a faster 20.2 percent to 8.86 billion rupees and net interest income grew 14.3 percent to 4.47 billion rupees.

Fee income grew 6.8 percent to 1.1 billion rupees.

During the year the bank said loans grew by 46 billion rupees to 327 billion rupees.

Deposits grew 50 billion rupees to 307 billion rupees, with 71.2 percent coming from fixed deposits, which pay higher interest up from 68.8 percent from a year earlier.

The bank's Tier capital was at 10.20 percent and with Tier II, 13.3 percent which was above minimum regulatory requirements, though gross non-performing loan ratio climbed to 5.98 percent from 4.42 percent.

Group net assets grew 1.1 percent to 36.2 billion rupees and gross assets grew 15 percent to 432 billion rupees during the year.

Sri Lanka rupee ends higher as banks sell dollar; stocks at near 4-mth low

Reuters: ** The Sri Lankan rupee closed higher on Thursday, a day ahead of the central bank’s policy rates review, boosted by dollar sales by banks in lacklustre trade, market sources said. 

** The stock market fell for the fourth straight session to a near four-month low as foreign investors exited from the island nation’s risky assets. 

** The rupee ended at 179.45/65, compared with Wednesday’s close of 179.50/70. 

** Sri Lanka’s central bank is expected to leave its key interest rates steady on Friday, a Reuters poll showed, as the island’s economy slowly recovers from a political crisis that sparked credit downgrades by all three major global rating agencies. 

** The local currency had posted a weekly loss of 0.42 percent in the last week due to high dollar demand from importers and outflows from the stock market. 

** It has risen 1.8 percent so far this year as exporters converted dollars and foreign investors purchased government securities amid stabilising investor confidence in Sri Lanka after the country repaid a $1 billion sovereign bond in mid-January. 

** The bond market saw inflows of 3.3 billion rupees in the week ended Feb. 13, recording its fourth straight weekly inflow, the latest central bank data showed. 

** Worries over heavy debt repayment after a 51-day political crisis that resulted in a series of credit rating downgrades dented investor sentiment as the country is struggling to repay its foreign loans. 

** Sri Lanka has raised its borrowing limit for dollar-denominated bonds to $3 billion and chosen seven lead managers to tap the international market as soon as possible, three government sources said on Tuesday. 

** The rupee dropped 16 percent in 2018, and was one of the worst-performing currencies in Asia due to heavy foreign outflows. 

** The Colombo Stock Exchange index fell 0.7 percent to 5,839.04 on Thursday falling for the fourth straight session, its lowest close since Oct. 26. 

** The benchmark index had fallen 0.92 percent last week, after losing 0.3 percent in the previous week. It declined about 1 percent in January. 

** The turnover was 1 billion rupees, more than last year’s daily average of 834 million rupees. 

** Foreign investors were net sellers of 43.1 million rupees worth of shares on Thursday, extending the year to date net foreign outflow to 5.2 billion rupees worth of stocks, and 18.5 billion rupees since the political crisis began on Oct. 26, 2018. 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Rashmi Aich)

Shareholders nod Sri Lanka's NDB to sell Rs6.5bn bail-in bonds

ECONONOMYNEXT - Shareholders of Sri Lanka's National Development Bank has give the go-ahead of the lender to raise up to 6.5 billion rupees of bail-in bonds.

The firm will sell 5-year listed, rated, unsecured, subordinated redeemable debentures, which may be converted to equity if needed (Basel III-compliant).

The lender will sell 5 billion rupees of bonds with an option to increase by another 1.5 billion rupees.

Sri Lanka's Lee Hedges to build Rs1.1bn car park

ECONOMYNEXT - Sri Lanka's Lee Hedges Plc said its board has decided to build a 1.1 billion rupee car park in a property on a Colombo 03, Galle Road property.

The car park is the first phase of a larger commercial development.

It will take 12 months to complete and will have 186 parking slots in 6 floors, the firm said in a stock exchange filing.