Sri Lanka to reduce ‘Non Banking Financial Institutions’ to just 20 from current 58

Sri Lanka is planning to reduce the 58 Non Banking Financial Institutions (NBFI) operating in the Island to just 20 to enhance the sector's resilience to face internal and external shocks, announced Central Bank Governor Ajith Nivard Cabraal.

Accordingly, Central Bank is asking larger NBFI’s to acquire or merge with smaller financial institutions and small NBFIs are being encouraged to merge with one another to create large firms.

Authorities are also encouraging Licensed Banks to acquire NBFIs.

“A corporate group will be allowed to operate only one NBFI after end June 2014″, said Nivard Cabraal.

Central Bank is also asking new investors, banks or large NBFIs to acquire negative net worth NBFIs or selected lowly capitalized financial institutes with the new equity investments made directly into the negative net worth NBFIs or selected lowly capitalized NBFIs in order to supplement the capital of such NBFIs.

“When a new investor makes an equity investment of that nature, a matching long term advance will be made through the Sri Lanka Deposit Insurance and Liquidity Support Scheme on concessionary terms”, announced Cabraal.

Central Bank says when the consolidation process is completed by the year 2018 as planned, each Non Banking Financial Institute will have an asset base of Rs. 20 billion.
www.news360.lk

Sri Lanka stocks at 11-week high on lending rate cut, positive outlook

COLOMBO, Jan 2 (Reuters) - 

The Sri Lankan bourse rose for a fifth straight session to an 11-week high on Thursday as investors bought banking shares after the central bank cut its standing lending facility rate by 50 basis point to a multi-year low. 

Before the market opened for trading, the central bank slashed the standing lending facility rate or reverse repurchase rate by 50 basis points to 8.00 percent, in a move to reduce commercial banks' interest rate spreads. 

The main stock index gained 0.93 percent, or 55.26 points, to 5,968.04, its highest close since Oct. 17. Revealing the 2014 financial and monetary policies, Central Bank Governor Ajith Nivard Cabraal said Sri Lanka's economy is expected to grow 7.8 percent this year, with an inflation target of between 4-6 percent in a lower interest rate regime. 

"Rate cut and the positive outlook on the road map helped the market," said a stockbroker on condition of anonymity. The index is now in an overbought region as its 14-day relative strength index hit 76.053, above the upper neutral level of 70, and higher than Tuesday's close of 69.332, Thomson Reuters data showed. The stock market was closed for a special holiday on Wednesday. 

The index gained 4.8 percent in 2013, snapping losses in the previous two years, giving a return of 2.18 percent in dollar terms. 

Many investors locked their funds in risk-free debentures instead of risky assets due to a sluggish bourse amid falling interest rates. 

Foreign investors were net sellers for the first time in seven sessions. They sold 350 million rupees ($2.68 million) worth shares on Thursday after buying a net 22.88 billion rupees worth of stocks last year, compared to a record 38.68 billion rupee net foreign inflow in 2011. 

The day's turnover was 944.1 million rupees, well above last year's daily average of around 828.4 million rupees. 

($1 = 130.8000 Sri Lanka rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

Source: http://in.reuters.com

SEC mulls ‘independent opinion’ on offer price for future IPOs

The Securities and Exchange Commission (SEC) has carried out a study to assess the possibility of mandating the justification of the ‘fairness of the Initial Public Offering (IPO) offer price’ by an independent and competent party, an year-end review by the SEC noted.

Overpricing was identified as one of the key reasons for some of the post-war IPOs to fail by a section of the country’s analyst community.

Meanwhile, the SEC and the Colombo Stock Exchange (CSE) is currently engaged in discussions with information technology (IT) and business process outsourcing (BPO) companies in the country to identify the possibility of getting them listed.

“IT/BPO industry initial discussions were held in November 2013 to identify the possibility of listing to raise capital. A follow-up awareness session with representatives of the Sri Lanka Association of Software and Service Companies (SLASSCOM) is scheduled for January 2014,” the review noted.

Both the SEC and CSE have been trying to get more privately held companies to go public to develop the country’s capital market. A separate initiative is currently underway to see the possibility of getting the state-owned enterprises.

With the intention of attracting further foreign direct investment into the country, a concept paper has been finalized to list the Board of Investment (BoI) companies.

“The inputs from the CSE and BoI were also considered during the process. A presentation in this regard was made to BoI representatives,” the SEC said.

http://www.dailymirror.lk/mirror-stock-watch-live/41056-sec-mulls-independent-opinion-on-offer-price-for-future-ipos-.html

Capital raised via Bourse booms to record Rs. 119.4 b

• Amount raised in 2013 was up 300% over 2012 and surpasses even the 2010-09 bull run years and active 2011; corporate debt figure high with a record Rs. 68.3 b raised.
• Colombo Bourse 6th best performing Asian market with 4.8% return in 2013, ending two years of negative returns.
• Over 50 companies deliver total return of 15%+ y-o-y; 26 firms top with over 30% return.
• Net foreign inflow a robust Rs. 34.1 b on top of record Rs. 40.3 b in 2012.

The Colombo stock market last year played perfect host for raising of fresh capital, with an all-time high figure of Rs. 119.4 billion recorded.

This was a significant achievement for the Colombo Bourse in 2013, which also ended the two-year negative run by posting a modest but welcome gain of 4.8%. The latter placed the Colombo Stock Exchange (CSE) as the sixth best performing within Asia. In terms of the blue chip S&P SL 20 Index, the growth was higher at 5.79%.

Most analysts viewed these two achievements, along with record raising of debt worth Rs. 68.3 billion and net foreign inflow of Rs. 34.1 billion, as testimony of a major turnaround for the CSE after having been bruised by various allegations in 2011 and 2012. In those two years, the market was down by 7% and 8.5% after two record-setting returns of 96% and 125% in 2010 and 2009 respectively.

Of the capital raised, corporate debt made a record contribution of Rs. 68.3 billion, which was a direct result of incentives offered by the Government via the 2013 Budget. Rights Issues raised over Rs. 24 billion by end November, according to data supplied separately by the Securities and Exchange Commission. It said total capital raised during the year ending November 2013 was a massive 159% increase to Rs. 65.6 billion.
In 2012, the total capital raised was Rs. 29.58 billion, whilst in 2011 it was Rs. 60.3 billion and Rs. 44.5 billion in 2010.

The market also witnessed certain selected stocks performing exceptionally, providing high yields to investors who diversified their investments over a range of equities. A total of 57 companies have given a total return in excess of 15% year-on-year for 2013 (with 26 companies giving a return above 30% and 31 companies giving a return between 15 to 30%).

This reiterated that CSE in 2013 was safe and sound to provide attractive returns.

Most investors shunned the market over lack of confidence, despite 2013 experiencin
g a downward trend in interest rates.

Bank interest rates decreased during the course of the year, following a directive by the Central Bank of Sri Lanka to tighten monetary policy; interest rates (Average Weighted Fixed Deposit Rate) have dropped from 13.21% on 31 December 2012 to 11.96% as at 29 November 2013.

Likely continuity in the downward path of interest rates as well as sound returns by select stocks last year have prompted most analysts to rate the CSE to be more attractive in 2014, apart from predicting higher growth.

The CSE also continued to attract foreign investors with a net foreign inflow of Rs. 34.1 billion (excluding the net flow for corporate debt), building on the net foreign inflow of 2012 at Rs. 40.3 billion. This was supported by Sri Lanka’s higher positioning in regional capital markets, being one of the top performers within the region ahead of the Singapore Stock Exchange, the Bombay Stock Exchange and the Hong Kong Stock Exchange.

The turnaround in the capital market was also encouraged by greater unity and cooperation among all stakeholders, who rallied around the 10-point key initiatives championed by the SEC and supported by the CSE as well as the Colombo Stock Brokers Association.

http://www.ft.lk

Sri Lanka narrows policy rate corridor

Jan 02, 2013 (LBO) - Sri Lanka's central bank has narrowed a policy rate corridor cutting its policy rate window for injecting cash into the banking system by 50 basis points to 8.00 percent but left its rate to withdraw cash unchanged at 6.50 percent.

With credit growth weak and excess liquidity in money markets generated from dollar purchases, the active policy is the 6.5 percent repurchase window, with overnight risk free money markets rates hovering now around 7.35 percent.

Sri Lanka has a soft-pegged exchange rate and money (bank rupee reserves) is created both though monetizing debt and dollar purchases.

With the floor rate being currently active, the cut in the ceiling rate to 8.00 percent may have little real effect on the market other than narrowing the policy rate corridor from 200 to 150 basis points, analysts say.

The last open market auction on December 26 was also conducted at 6.98 percent.

A wider policy rate corridor has the advantage of allowing market rates to move up immediately in response to higher credit higher demand without a policy rate hike, allowing the exchange rate to be strong, inflation low and the economy stable.

Sri Lanka's inflation was 4.7 percent in the 12 months to December 2013.

Sri Lanka's market gilt rates have fallen around 200 basis points over the past two months as borrowings by the state and state energy enterprises reduced.

The central bank said it would no longer give securities for cash withdrawn through the window from market participants, ending the process of repurchasing securities from market participants overnight.

With uncollateralized deposits at the monetary authority, the window will now be re-named the standing deposit facility.

The reverse repo window through which money is injected to banks will also be re-named standing lending facility, but the deals will continue to be collateralized.

Open market operations carried out within the standing facility rate corridor will also be collateralized.
Update II
www.lbo.lk

2013 key themes and what is likely in 2014

By First Capital Equities

Disappointing ASPI performance
The bourse is up only 1.4%YTD (dollarised) in 2013, having underperformed against major developed and emerging markets this year. Despite this, bluechip stocks in the food and beverages, healthcare and banking sectors have reported double digit gains supported by foreign buying.

3Q2013 GDP growth accelerates to 7.8% with 2013 full year growth targeted at 7.0%
Outperforming nearly all other world markets, Sri Lanka’s 3Q2013 GDP grew by 7.8%, significantly above the 6.8% and 6.0% growth rates achieved during 1Q2013 and 2Q2013. 

Growth was spearheaded by 8.1% and 7.9% rise in the industry and services sectors while the agricultural sector recorded a growth of 7.0%.In terms of 3Q2013 sectoral composition, the services sector accounted for 59.0% of GDP while agriculture and industry represented 11% and 30% respectively.

With momentum expected to continue into 4Q2013, we expect the Government to achieve a 2013 full year GDP growth rate of 7.0%, amongst the highest economic growth rates in the world for 2013. Growth will be driven mainly by domestic factors while foreign capital flows should provide further support.

Net foreign buying down but not out
Notwithstanding eurozone debt tensions, most global equity markets rose during the year with foreign funds flowing into both developed and emerging market equities. Foreigners continued their buying spree with net inflows of Rs. 21.0 billion ($ 159.0 million) recorded so far in 2013, indicating their confidence in Sri Lankan equities despite a disappointing ASPI performance. Notwithstanding generally subdued domestic investor sentiment, bluechip stocks have attracted foreign investment.

Interest rates decline
Interest rates declined during the year with the weighted average deposit rate, prime lending rate and 12month T-Bill rate falling by 60 bps, 450 bps and 340 bps to 9.5%, 9.9% and 8.3% in November 2013.

Debentures mop up liquidity
Significant amount of debentures offered so far this year has reduced the appeal for domestic equities. Notwithstanding our expectation of a further softening in interest rates, companies have raised cash via debenture issuances which has had a direct impact on stock market turnover levels. Total funds raised via debentures in 2013 so far by corporates have crossed the Rs. 71.6 billion ($ 542 million) mark and with more and more institutions opting to generate funds via the debenture route, the likelihood of more debenture issues to be announced during 1Q2014 appears generally likely.

Uneventful 2014 Budget
The Sri Lankan Government unveiled a relatively uneventful 2014 Budget aiming to achieve a 2014 economic growth of 8.0% while targeting a budget deficit of 5.2% in 2014 (compared to 5.8% in 2013), falling further to 4.5% in 2015 and 3.8% in 2016. The Government has forecast 2014 total revenues of Rs. 1.47 trillion, while 2014 total expenditures have been forecast at Rs. 1.99 trillion (compared to 2013 total revenues of Rs. 1.20 trillion and 2014 total expenditures of Rs. 1.71 trillion respectively).

2014 themes
GDP growth will continue unabated at7.0%+ for 2014. However not all sectors and sub-sectors would benefit equally. Companies operating in F&B, construction, hotels and banking (select) are likely to record the most significant growth.
• EPS growth to recover in 2014 as a result of improved margins resulting from a decline in inflationary pressures. We advise investors to seek cash rich companies with strong free cashflows.
• Valuation multiples such as PE will continue to remain attractive vis-à-vis other emerging/frontier markets which could lead to increased foreign buying in the Sri Lanka bourse in 2014.
• Likelihood of reduced competition from alternative asset classes such as money market instruments and real estate investments which may result in a flow of funds back to equities.
• Bourse could rise in modest double digit terms with fundamentals overpowering momentum trading led by rise in bluechips.
• Investors advised to break away from the herd, maintain a healthy investment horizon and focus on investing in companies that will deliver quality earnings in 2014.

Source: www.ft.lk

Colombo stock market remains an attractive avenue for investment

The Colombo Stock Exchange (CSE) during 2013 provided an attractive prospect for investment with a 4.78% increase in the All Share Price Index (ASPI) and a 5.79% yield on the S&P SL20 Index (S&P 20).

The ASPI indicated the most notable increase in comparison to previous years, where 2012 and 2011 exhibited negative percentage changes of -7.1% and -8.5% respectively.

Bank interest rates decreased during the course of the year, following a directive by the Central Bank of Sri Lanka to tighten monetary policy; interest rates (Average Weighted Fixed Deposit Rate) have dropped from 13.21% on 31 December 2012 to 11.96% as at 29 November 2013. 

The market witnessed certain selected stocks performing exceptionally, providing high yields to investors who diversified their investments over a range of equities. A total of 57 companies have given a total return in excess of 15% year on year for 2013 (with 26 companies giving a return above 30% and 31 companies giving a return between 15 to 30%).

The year also saw a total of Rs. 119.4 billion capital being raised through the stock market, with corporate debt amounting to Rs. 68.3 billion. The total capital raised during the year surpassed that of the previous year, which closed at Rs. 29.58 billion.

The CSE continued to attract foreign investors with a net foreign inflow of Rs. 34.1 billion (excluding the net flow for corporate debt), building on the net foreign inflow of 2012 at Rs. 40.3 billion.

This was supported by Sri Lanka’s higher positioning in regional capital markets, being one of the top performers within the region ahead of the Singapore Stock Exchange, the Bombay Stock Exchange and the Hong Kong Stock Exchange.

Capitalising on the attractiveness of the market, the CSE in association with the Securities and Exchange Commission (SEC) will host a Foreign Investor Forum in Singapore on 20 and 21 January 2014 to attract foreign institutional investors. A series of local and foreign investor forums are planned for the coming months, to reach out to international intuitional and high net worth investors, as well as local investors.

In a bid to encourage local investors and better educate existing investors the CSE has conducted a number of investor education programs throughout the island and will continue to educate the public on the various opportunities for investment available in the Sri Lankan capital market.

The Colombo Stock Exchange (CSE) operates the only share market in Sri Lanka and is responsible for providing a transparent and regulated environment where companies and investors can come together.

The CSE is a company that is limited by guarantee established under the Laws of Sri Lanka.

The CSE is licensed by the Securities and Exchange Commission of Sri Lanka (SEC) and is a mutual exchange consisting of 15 Members and 14 Trading Members. 

All Member and Trading Members are licensed by the SEC to operate as Stockbrokers.

Source: www.ft.lk