Colombo Stock Exchange Market Review – 27th Dec 2016

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Colombo Stock Exchange Trade Summary 27-Dec-2016

Colombo Bourse slipped back to negative territory on Tuesday in another weak trading session. All Share Index fell back to eight-month low of 6,202.83 with a loss of 13.73 index points or 0.2%. S&P SL 20 index fell 5.19 index points (-0.2%) to 3,477.02.

Out of the 171 counters traded, 52 declined and 41 gained while 78 remained unchanged. Ceylon Tobacco (LKR 800.20, -1.8%), John Keells Holdings (LKR 143.30, -0.9%) and Ceylinco Insurance (LKR 1,249.20, -6.5%) led the losers while Seylan Bank (LKR 92.90, +8.3%), LOLC (LKR 73.00, +1.4%) and People’s Leasing (LKR 17.90, +1.7%) managed close positively.

Market turnover stumbled to one-month low of LKR 111mn. Seylan Bank (LKR 28mn), John Keells Holdings (LKR 19mn) and Hayleys Fabric (LKR 18mn) made the largest contributions to the turnover. No crossings were witnessed today.

John Keells Holdings dominated the trading activity. Further, Lanka IOC, Seylan Bank voting and nonvoting were among heavily traded stocks.

Foreign investors were net sellers today with a net foreign outflow of LKR 10mn. Top net outflows were seen in John Keells Holdings (LKR 11mn), Seylan Bank (LKR 3mn) and Hayleys (LKR 1mn) while top net inflow was seen in Commercial Bank (LKR 3mn). Foreign participation accounted for 19% of the market activity.
Source: LSL

Sri Lankan shares hit more than 8-mth closing low; turnover slumps

Reuters: Sri Lankan shares closed at their weakest in more than eight months in typical year-end holiday-thinned trading on Tuesday, with turnover slumping to a near 33-month low as investors stayed away.

The Colombo stock index ended 0.22 percent lower at 6,202.83, its lowest close since April 6. It has shed around 2.1 percent in the 10 sessions through Tuesday.

Turnover stood near its lowest since March 17, 2014, at 111.2 million rupees ($745,308), around a seventh of this year's daily average of 735.4 million rupees.

"Most of the investors and brokers are on holiday. We may see little price adjustments in shares, but the trading volume will be very low," said Hussain Gani, deputy CEO at Softlogic Stockbrokers.

Foreign investors sold a net 10.2 million rupees worth shares on Tuesday, but they have been net buyers of 611.3 million rupees worth equities as of Tuesday this year.

Top conglomerate John Keells Holdings fell 1 percent, while large cap Ceylon Tobacco Company closed 1.8 percent lower, dragging down the overall index. 

($1 = 149.2000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Biju Dwarakanath)

Basel Three compliance seen as having implications for local banks

By Hiran H.Senewiratne

"The maintaining of a capital adequacy ratio under the Basel Three international compliance requirement from next year would have some implications for the local banking sector, Sampath Bank Managing Director Nanda Fernando said.

" The Basel Three international compliance requirement of maintaining a minimum capital adequacy ratio will become mandatory for all banks in the country and it would have some issues for the sector since those banks have to increase their capital, Fernando told the media yesterday..

He said that Sampath Bank has the capability for this adaptation because of the Bank's financial stability and because of the confidence of the Bank's customers in it.

Fernando also said that next year would be a challenging year for the sector because of the anticipated increase of US Federal Reserve interest rates since the US economy and the dollar are growing strong.

" This would have some challenges for the national economy but could be managed if we take measures to stabilize the rupee with proper and prudent regulatory measures, Fernando said.

The Sampath Bank Managing Director also said the interest rates and the rupee will not depreciate next year, as in the case of this year, because the Central Bank and the Ministry of Finance will take proper measures to control the situation.

Sampath Bank, launched in 1987, is now a leading commercial bank in the country with more than 200 branches island-wide. It has 4000 employees and positions itself as a post innovative and modern bank in Sri Lanka.

www.island.lk

Tax uncertainty hovers over listed debentures

By Azhar Razak

A state of uncertainty and lack of clarity prevails over the tax-free concession presently applicable to incomes received from listed corporate debentures as the recently enacted Budget 2017 has plainly stated this concession is removed but not given details, industry officials said last week.

The Budget 2017 presented by Finance Minister Ravi Karunanayake said "the present exemption on certain dividends and interest or profits from investment on listed securities (corporate debt securities etc.) and other instruments will be removed". The Budget however did not specify the exact date this removal will be made effective or whether it will apply to both current and newly listed debentures.

"We still don’t know whether the Budget proposal will be applied immediately, or January 1 or April 1 .The next big question we have is whether this proposal will only apply to new debentures which are going to be listed in the future or will it take retrospective effect and include listed debentures offered in the past?" several stock market analysts who spoke to the Sunday Island on condition of anonymity, opined.

Since 2013, listed corporate debentures on the Colombo Stock Exchange has been a major attraction for investors mainly due to the totally tax free concession accorded to them. There is no Withholding Tax or Income Tax. For example, if a company pays Rs.100 as interest for a listed debenture, the debenture holder will get that entire Rs.100 and he does not need to declare the same as part of his taxable income.

On the other hand, if the debenture is not listed on the Colombo Stock Exchange, Withholding Tax (WHT) which is deducted at source will be applied. In addition, the interest income earned by a non-listed entity will be categorized as a taxable income and the corporate tax component applied.

Senior Vice President at Acquity Stockbrokers, Shehan Cooray, said they have made representations to the Treasury and are presently awaiting an outcome on that. However, elaborating on what the Budget statement had meant, he said listed debentures will no longer be tax free or rather WHT will in future be applicable on debentures.

"So, on the coupons or interest there will be a 14% tax and there is no notional tax which means in addition to the 14%, you can’t set off that against your final tax liability. So, on the remainder you will be paying at the individual tax rate applicable such as corporate tax," Cooray noted.

However, he said that the government might not apply the tax with retrospective effect but they may be applicable to the future coupons on the already listed debentures.

Chief Executive Officer of the NDB Investment Bank Limited, Darshan Perera , confirmed that they also made representations to the Finance Ministry on the issue.

"But apart from what was said in the Budget there is no clarity or change in the position from the government’s point of view on this so far," he said.

Last year 25 corporates raised as much as Rs.83.4 billion via listed debentures while the corresponding amount for 2014 was Rs. 54.2 billion and Rs. 68.3 billion in 2013. It has also been reported that during the last three months, eight issuers of whom five were banks raised as much as Rs.49 billion through listed debentures. The most recent was the Bank of Ceylon’s Rs.5 billion issue which was oversubscribed on opening day last week.

The main players in structuring issues in the listed debenture market are Acuity Stockbrokers Pvt Ltd., Capital Alliance and NDB Investment Bank. Agora Securities (Pvt) Ltd., Arevaand First Capital Holdings Plc also handled issues this year. Commercial Bank and People’s Bank are involved in related party issues.

The listed debentures are seldom traded on the Colombo bourse with investors preferring to hold them for tax free interest. Most such issues have been oversubscribed on opening day.

"They were an attractive parking place for spare cash particularly by companies," an analyst said. "Other fixed income instruments like fixed deposits attracted 28% tax. This is not so for individual investors."

www.island.lk

Pre-budget rush spikes vehicle registrations

Sri Lanka’s motor vehicle registrations in the majority of categories and specifically motobikes has recorded an acceleration during the month of November 2016 compared to a month earlier, an analysis by JB Securities released on Friday showed.

Accordingly, total cars registrations recorded 3,574 units in November up from 3,402 unit the previous month but down from a very high number of 10,084 a year months ago.

Brand new registrations recorded 2,098 units in the month, slightly down from 2,185 units in the previous month and significantly down from 6,732 units 12 months ago.

Pre-owned car registrations recorded 1,476 units in the month, up from 1,217 units the previous month. Toyota maintained its market share recording 708 units followed by Suzuki with 482 units and Honda with 233 units. Financing share was 65.6%.

The premium brand segment recorded 73 units in Nov., up from 61 units the previous month and slightly down from 74 units 12 months ago while the SUV segment recorded 476 units in November up from 451 units in October but down from 806 units 12 months ago.

Electric cars recorded 25 units in the month, slightly up from 23 units the previous month but massively down from 494 units 12 months ago. Hybrid registrations recorded 1,605 units in November up from 1,358 units the previous month but significantly down from 3,247 units 12 months ago.

Meanwhile, van registrations in Nov. recorded 100 units, down from 119 units the previous month and significantly down from 802 units 12 months ago.

Three-wheeler registrations recorded 6,098 units in Nov., significantly up from 4,495 units the previous month but significantly down from 13,668 units 12 months ago while two-wheeler registrations recorded 32,084 units in November up from 30,373 units the previous month and slightly up from 31,262 units 12 months ago.

Pickup trucks accounted for 529 units in Nov., up from 470 units the previous month and also up from 462 units 12 months ago. Tata was the market leader claiming a share of 65.2%. Financing share was 78.1%.

Buses recorded 217 units in Nov., down from 281 units the previous month and 244 units 12 months ago.

Maruti reclaims market leadership

India’s popular car brand, Maruti retained its market leadership in Sri Lanka during the month of November recording 751 units (Alto – 506, Celerio – 229) outdoing new entrant Renault Kwid, recent analysis showed. Renault Kwid, which became the market leader in October 2016 notching up 854 units claimed the second position with 582 units being registered.

The duo were followed by Nissan – 170 units (Go – 165), Perodua - 122 and Micro - 118 units.

"Small cars dominated the car registrations recording 1,930 units (92% share) while the financing share is a high 69.1%, in comparison for mid sized cars it is 57.8% and 33.9% for large cars," JB Securities said in a report. (AR)

www.island.lk

High Motor Vehicle Lenders Facing Challenges

Budget 2017 has created a challenging environment for NBFIs with high exposure to motor vehicle lending due to lowering of Loan-to-Value (LTV)(25% for Three Wheelers, 50% of Motor Cars and Vans) and increase of import duties, LOLC Securities said in an equity research report on Central Finance.

Further removal of income tax exemption on debentures’ interest income creates more level playing field with instruments such as Fixed Deposits, creating more opportunities for NBFI’s like CFIN to enhance its deposit base.

However with ongoing interest rate rise we see slow down of private sector credit creating a downward trend of leasing and loan volumes of NBFI sector while increased vehicle taxes and currency depreciation further intensifying the negativity. But CFIN historically has been maintaining a LTV ratio of 70-80% in its vehicles advances with a balanced vehicle leasing portfolio.

Thus we believe that impact of LTV rule will be limited for CFIN. CFIN on the other hand will benefit on increasing LTV of commercial vehicles to 90% and upcoming construction sector projects.

www.thesundayleader.lk

Japanese buyer in BOC-Seylan deal shell-shocked

By Duruthu Edirimuni Chandrasekera

The Japanese buyer in the deal that went sour involving Seylan Bank’s 7.5 per cent stake in Bank of Ceylon (BOC) this week is shell-shocked.

Murtaza Jafferjee, CEO JB Securities which did the transaction, told the Business Times that his client, the Japanese investor is in Colombo now and is not a happy man. “The Japanese investor is totally shell shocked as to what has transpired. One is not sure in future when transacting with state controlled institutions as to where lies the ultimate authority,” he said. Largely dealing with foreign and local institutions and high net worth investors, Mr. Jafferjee said that what occurred is a blow to the capital market.

Meanwhile, the BOC directors except its chairman, who’s still in London, have made statements to the Criminal Investigations Department (CID) on this deal.

The BOC’s chairman left for London on Friday, Dec. 16. The board comprises Ronald C. Perera (chairman), S.R. Attygalle, Ranel T. Wijesinha, Charitha Nissanka Wijewardane, Asela Sanjaya Padmaperuma and Ajith Gunawardana.

None of the board members was available for comment but a source close to the BOC board told the Business Times that the directors had told the CID that this sale was to augment the capital augmentation plans of BOC. “These plans are discussed at board meetings. The Seylan holding is a potential divestment as was stated in BOC’s annual report. It was a unanimous decision by BOC’s Investment Committee which was given the autonomy to dispose stakes in their portfolio,” the source explained at length.

He added that the capital augmentation strategies of the BOC at each board meeting are duly communicated to the Ministry of Public Enterprises on a separate document by the BOC. “So the Ministry was aware of it – more or less,” he said. However when queried about the Ministry of Public Enterprises circular that’s in question prohibiting acquisition or disposal of business assets or significant transactions in state entities without ministry permission, he said this 7.5 per cent in Seylan isn’t ‘significant’.

He refuted all claims that this was an ‘under-the-table’ transaction saying that the miscommunication is on the government’s part for not being clear about disposing state assets.

Analysts say that this transaction shrouded in controversy is raising issues about state policy, unclear direction and bad signals to the capital market.

www.sundaytimes.lk