Sri Lankan shares slip from over 3-wk high on foreign selling

Reuters: Sri Lankan shares ended slightly weaker on Wednesday, snapping a five-session winning streak, on foreign selling.

However, the day’s turnover was 365.5 million rupees ($2.25 million), much lower than this year’s daily average of 804.1 million rupees.

The Colombo stock index ended 0.13 percent weaker at 6,120.29, slipping from its highest close since Aug.13.

“Foreign selling in Keells brought the index down. But we see some positive signs of local buying,” said Hussain Gani, deputy CEO at Softlogic Stockbrokers.

Foreign investors sold a net 46.9 million rupees of shares on Wednesday, extending the net outflow so far this year to 4.3 billion rupees worth of shares.

John Keells Holdings fell 0.4 percent, while large cap Ceylon Tobacco Co ended 1.8 percent weaker. 

($1 = 162.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lankan shares hit over 3-week closing high in lean trade

Reuters: Sri Lankan shares rose for a fifth straight session on Tuesday and marked their highest close in more than three weeks, led by gains in banking and beverage stocks.

However, trading volume was low as investors stayed on the sidelines for want of fresh triggers. The day’s turnover stood at 181.9 million Sri Lankan rupees ($1.12 million), the lowest since August 3 and less than a fifth of this year’s daily average.

The Colombo stock index ended 0.6 percent higher at 6,128, its highest close since Aug.13. It had gained 0.4 percent last week, its second straight weekly gain.

The index, however, was down 1.1 percent in August, having hit its lowest close since March 2017 on last Tuesday. The bourse is down 3.8 percent so far this year.

“Most investors are awaiting proper direction on economy and taxes,” said Dimantha Mathew, head of research at broker First Capital Holdings.

“The main concern is that foreign selling is still continuing and we don’t think this uptrend can continue for long.”

Foreign investors sold a net 31.3 million rupees of shares on Tuesday, extending their net outflow so far this year to 4.2 billion rupees worth of shares.

AIA Insurance Lanka Plc jumped 82 percent, with around 1,700 shares changing hand, due to a share buyback, dealers said.

Ceylon Tobacco Company Plc shares closed 2.5 percent firmer while Dialog Axiata Plc gained 0.8 percent and Hemas Holdings Plc ended 0.5 percent higher.

Sri Lankan companies posted an average 4 percent earnings growth in the June quarter from a year earlier, helped by financials, beverages, telecommunications and power and energy sectors, CT CLSA Securities (PVT) Ltd said in a research note.

($1 = 161.8500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)

Melstacorp records Rs 6.25 bn PAT for 2017/18

Melstacorp Plc has recorded profit after tax of Rs. 6.25 billion for the financial year 2017/18. Group turnover reached Rs. 110 billion.

Company’s Chairman and Managing Director D. H. S. Jayawardena said the Group contributed Rs. 69 billion in taxes during the financial year for 2017/18.

“The beverage sector is the highest contributor to both the top line and the bottom line of the Group. Our main subsidiary DCSL PLC’s profitability dropped in the first three quarters managed to recover and record a net profit after tax of Rs. 4.35 billion,” Jayawardena told the shareholders in the company’s annual report for 2017/18.

Periceyl (Private) Limited, the second liquor company of the Group saw its profitability shrinking when compared with last year. The reduction of beer prices and a simultaneous increase in the hard alcoholic beverage prices have resulted in more consumers shifting to beer and other cheaper beverages, according to the annual report.

“The chairman said, the beverage sector of the group was subject to a severe challenge through higher increases in taxation in the last two years. A few years ago the Value Added Tax (VAT) on liquor was removed by adding a corresponding sum to excise duty,” he said.

“In the pursuing year VAT was re-introduced for liquor without a corresponding adjustment in the excise duty. Reintroduction of VAT together with a huge increase in duty on imports of main ingredient, ethanol and higher excise duty on hard alcoholic beverages resulted in a substantial increase in consumer prices.”

“As a result there was a notable decline in volumes. For the year under review the beverage sector revenue reached Rs. 97 billion and the net profit for the year was Rs. 4.7 billion,” he said.

Commenting on plantation sector performance he said that year 2017 was a better year for the tea industry with an increase in production and auction averages reached all-time high levels. However, despite the ascent witnessed in 2017, the Industry continued to be plagued with geo-political tension in the tea importing countries, policy decisions which affected the production of tea and temperature variability due to climatic changes.

The ban of glyphosate (which was recently eased) that is used for weed control, and curtail of tea imports by Russia, the largest importer from Sri Lanka too, caused much uncertainty towards Industry growth.

The negative impact of a drought and floods in the first and second quarters of the year coupled with high cost of fertilizer were drawbacks in reaching the production levels of the preceding years.

The reluctance to undertake the required level of annual replanting by most of the smallholder farmers and the plantation companies due to the non-affordability of the required inputs, and uncertainty in recovering investments is also a major contributory factor for the declining trend in the production volumes.

“In analyzing the global supply scenario, a deficit in production was evident from a few key producer countries mainly of CTC teas and this global shortage in production was a key factor for the prices to sustain at these levels coupled with strengthening of oil prices which favoured some key importing countries of Sri Lankan Teas.”

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Lankem (LCEY) continues to bleed, loses over Rs400mn for the June quarter

LBO – Lankem Ceylon (LCEY) reported another rough quarter, continuing its multiyear losses. For the quarter ended June 2018, the company reported a loss of Rs417mn. The loss is troublesome for a company whose equity is down to Rs1.137bn,

This large quarterly loss comes after losses for the year ended March 31, 2018 of over Rs500mn, and losses for the year ended March 31, 2017 of close to Rs800mn.

Revenue was flat year over year in the just reported quarter.

LCEY went on a debt fuelled acquisition spree several years ago making investments that have yet to realise material value. Analysts say continuation of losses at the company could put the firm in significant financial distress.

The stock is trading at Rs29 per share leaving the company with a market cap of close to Rs1bn. The share is trading at just a fraction of its all time high of Rs590.

Sri Lanka's Melstacorp to enter healthcare, manage hospitals

ECONOMYNEXT - Sri Lanka's listed conglomerate Melstacorp Plc, the parent company of listed liquor producer Distilleries Company, said it was entering the healthcare industry, initially setting up diagnostic infrastructure and managing select hospitals.

"The company will be entering the healthcare industry shortly through subsidiaries incorporated to undertake such activities," the goup said in a stock exchange filing Tuesday.

The group has incorporated Melsta Health Private Limited for the purpose.

"This would involve management of hospitals, operating diagnostic centres and involvement in related healthcare institutions as and when the opportunity arises," it said.

The investment was not disclosed as Melstacorp said the investment did not amount to a major transaction.

Melstacorp was trading at 50 rupees a share Tuesday.

Melstacorp is the parent company of Distilleries Company of Sri Lanka and other businesses ranging from insurance, plantations, financial services and telecommunications.

According to latest financial results, profits fell 30.8 percent from a year earlier to 789.3 million rupees in the June 2018 quarter on rising finance costs from a surge in borrowings and losses in telecommunications and lower profits from financial services, with earnings amounting to 68 cents a share.

Revenue grew 102 percent to 20.8 billion rupees, cost of sales increased 75 percent to 13.3 billion rupees leading to a 178 percent increase in gross profits of 7.5 billion rupees.

Net finance cost surged 941 percent to 413 million rupees as borrowings increased to 26.7 billion rupees at end June 2018, from 3.6 billion rupees a year earlier.

The group's beverages segment which includes listed Distilleries saw revenue decline 10 percent from a year earlier to 20.8 billion rupees in the June 2018 quarter, but profits grew 31 percent to 1.7 billion rupees.

Sri Lanka finances to improve; political uncertainty weighs: Fitch

ECONOMYNEXT – Sri Lanka recent fiscal reforms and automatic pricing of fuel will improve state finances and debt, but political uncertainty has heightened following recent regional polls, Fitch, a rating agency said.

"Sri Lanka’s rating balances an improving policy framework, which supports macroeconomic stability and rising government revenues, against a challenging external debt servicing outlook and high government debt," Fitch Ratings said Monday in its Asia Pacific Sovereign Credit Overview for the third quarter of 2018.

Fitch forecasts Sri Lanka will grow 3.8 percent in 2018 and 4.5 percent in 2019. Government debt at 77.6 percent of GDP is expected to fall to 75.9 percent in 2019.

"Progress has been made on critical fiscal reforms, including approval of an automatic fuel price mechanism effective May 2018.

"The authorities have also taken steps to introduce an automatic electricity pricing mechanism and establish a committee to develop a detailed restructuring plan for Sri Lankan Airlines," Fitch said.

Deteriorating policy coherence and credibility could lead to a loss of investor confidence, or a derailment of the IMF-supported programme that leads to external funding stress, the ratings agency has warned.

"Political uncertainty increased following the ruling coalition's heavy losses during the local elections in February, followed by a vote of no-confidence against the prime minister in April and temporary suspension of parliament in May," Fitch said.

"The risk of political uncertainty disrupting policy continuity, however, is mitigated by the election schedule, in which presidential elections are not due until end-2019, with parliamentary elections to follow."

Fitch Ratings statement on Sri Lanka is as follows:

High Refinancing Risks; Improving Framework: Sri Lanka’s rating balances an improving policy framework, which supports macroeconomic stability and rising government revenues, against a challenging external debt servicing outlook and high government debt. The rating is supported by higher per-capita income levels and stronger governance standards than the ‘B’ category median.

-Key Developments-

IMF Programme Progress; High Debt: The IMF completed its fourth review under a three-year extended fund facility in place since June 2016. Progress has been made on critical fiscal reforms, including approval of an automatic fuel price mechanism effective May 2018. The authorities have also taken steps to introduce an automatic electricity pricing mechanism and establish a committee to develop a detailed restructuring plan for Sri Lankan Airlines.

Nevertheless, Sri Lanka’s government debt remains high at around 77% of GDP, far above the ‘B’ median of 66.6%.

High Near-Term External Refinancing Risks: The sovereign’s projected debt service payments are significant, at USD15 billion in 2019-2022, from a bunching of sovereign bond redemptions, while its foreign-exchange reserves stood at only USD9.3 billion at end-June. The scale of external refinancing over the next few years creates a potential vulnerability for the sovereign particularly as US interest rates are on the rise.

Political uncertainty has increased: Political uncertainty increased following the ruling coalition's heavy losses during the local elections in February, followed by a vote of no-confidence against the prime minister in April and temporary suspension of parliament in May. The risk of political uncertainty disrupting policy continuity, however, is mitigated by the election schedule, in which presidential elections are not due until end-2019, with parliamentary elections to follow.

-Positive Sensitivities-

Further improvement in external finances supported by higher non-debt-creating inflows or a reduction in external sovereign refinancing risks from improved liability management.
Continued improvement in public finances underpinned by a credible medium-term fiscal strategy.

-Negative Sensitivities-

Reversal of fiscal improvements that leads to a failure to stabilise government debt ratios.

Deterioration in policy coherence and credibility, leading to loss of investor confidence, or a derailment of the IMF-supported programme that leads to external funding stress.

HPL Properties buys Tangalle Bay Hotel in Sri Lanka

ECONOMYNEXT - Singapore-based HPL Properties Limited said it had bought 94.7 percent stake in Tangalle Bay Hotels (Pvt) Ltd of Sri Lanka for 385 million rupees.

The purchase was made through West Asia Investment (Pvt) Ltd, which is owned by HPL Properties (West Asia) Pte Ltd, the firm said.

Tangalle Bay Hotel was controlled by Sri Lanka based investor Nimal Perera.

Sri Lanka's East West group, has said HPL Group is also in talks to buy full control of Weligama Bay Hotel.