Sri Lankan rupee closes near record low; stocks steady

Reuters: ** The Sri Lankan rupee closed on Thursday near a record low hit earlier this week as banks and importers purchased the dollar, while stocks closed flat with higher turnover.

** The rupee ended at 172.80/90 per dollar on Thursday, compared with its previous close of 172.60/70.

** The rupee dropped to an all-time low of 173.00 per dollar on Tuesday, surpassing its previous low of 172.50 hit on Monday.

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 2.1 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.45 percent so far this year.

** The Colombo stock index ended 0.03 percent weaker at 5,768.54. It shed 3.6 percent last month, and lost 9.4 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 1.26 billion rupees ($7.30 million) on Thursday, more than this year’s daily average of 764.6 million rupees.

** Foreign investors were net sellers of shares worth 277.5 million rupees on Thursday, extending the year-to-date net foreign outflow to 9.4 billion rupees worth of equities.

($1 = 172.5000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lankan rupee hits record low; stocks edge higher

Reuters: ** The Sri Lankan rupee hit an all-time low for a third straight session on Tuesday as banks and importers purchased the U.S. dollar despite the central bank’s intervention to prevent the fall, while stocks edged higher.

** The rupee dropped to an all-time low of 173.00 per dollar, surpassing its previous low of 172.50 hit on Monday, mainly due to importer demand for the greenback, market sources said.

** The rupee ended at 172.60/70 per dollar, compared with its previous close of 172.40/60. The central bank intervened to prevent further fall after it hit 173.00, market sources said. Central bank officials were not immediately available for comment. 

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 2 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.4 percent so far this year.

** The Colombo stock index ended 0.08 percent firmer at 5,770.52, further moving away from its lowest close since Nov. 28, 2013 hit on Friday. It shed 3.6 percent last month, and lost 9.4 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 201 million rupees ($1.17 million) on Tuesday, nearly a quarter of this year’s daily average of 761.1 million rupees.

** Foreign investors were net sellers of shares worth 59.3 million rupees on Tuesday, extending the year-to-date net foreign outflow to 9.1 billion rupees worth of equities.

($1 = 172.4000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez, Editing by Sherry Jacob-Phillips)

Sri Lankan rupee at record low; stocks up from near 5-yr closing trough

Reuters: ** The Sri Lankan rupee hit a record low on Monday as banks and importers purchased the U.S. dollar, while stocks edge up from their nearly five-year closing low hit in the previous session.

** The rupee dropped 0.4 percent to an all-time low of 172.50 per dollar, surpassing its previous low of 171.80 hit on Friday, mainly due to importer demand for the greenback, market sources said.

** The rupee ended at 172.40/60 per dollar, compared with its previous close of 171.60/80.

** Sri Lanka has selected China Development Bank for an eight-year $1 billion syndicated loan, the South Asian country’s central bank said.

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 2 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.4 percent so far this year.

** The Colombo stock index ended 0.09 percent firmer at 5,766.00, edging up from its lowest close since Nov. 28, 2013 hit on Friday. It shed 3.6 percent last month, and lost 9.6 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 214.1 million rupees ($1.24 million) on Monday, less than a third of this year’s daily average of 765 million rupees.

** Foreign investors were net sellers of 59.3 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 9.1 billion rupees worth of equities.

($1 = 172.4000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez, Editing by Sherry Jacob-Phillips)

Sri Lanka's Lion Brewery regrets leaving Indian market

ECONOMYNEXT - Sri Lanka's Lion Brewery regrets leaving the Indian beer market to focus on its home market, a senior company official said, noting that many local firms are reluctant to risk venturing overseas and fear foreign competition.

Suresh Shah, Executive Director of the Lion Brewery (Ceylon) Ltd., said they understood the risks and complexities of the Indian market when they entered, but withdrew to give priority to investments to grow the home market, recovering after the ethnic war.

The Carson Cumberbatch controlled Lion Brewery withdrew from the Indian beer market in May 2011 having ventured into it in partnership with Carlsberg South Asia Pte Limited. It sold its stake to Carlsberg for 2.1 billion rupees.

“We know it is tough to do business in our region,” Shah told a World Bank forum to launch its new report on regional trade in South Asia which highlights the lack of intra-regional trade and investment.

“We understood the complexity of doing business in India. If we wanted the rewards of a very large market we had to face it. You go in knowing the risks and challenges,” Shah said.

Shah said they went into India knowing the alcohol business in India was extremely complex, more than elsewhere, and would take lot of money to succeed.

“Unfortunately, entering the Indian market involved a lot of cash upfront. We needed to expand capacity in Sri Lanka. So we took the call that we had to first protect the home market. That’s why we got out of it. We will regret it.”

Venturing into overseas markets required taking risks and staying power which many Sri Lankan firms appeared reluctant to do, Shah said.

He noted how global multinationals went into the big Chinese market although the Chinese governing system was very different to their own and markets also complex.

“Everyone who wanted to be big on a global scale are all in China,” Shah said. “A lot of them made losses and are still making losses.

“Nevertheless, they take that risk wanting to be known as global players. A lot of it is also in the mindset.”

Asked if it was apathy on the part of Sri Lanka’s private sector that so few had ventured overseas, Shah replied: “Of course it is. When you can make 100 rupees in Sri Lanka versus making 25 rupees somewhere else, 100 rupees is easy for the making here.

”If you want to take your business overseas you’ve got to be competitive and productive. Many Sri Lankan businesses are unfortunately neither productive nor competitive because we don’t face competition. Sri Lankan businesses need to be competitive for which we need to open our markets. We need to liberalise.”

Sri Lanka’s Nations Trust Bank gets US$50mn from Dutch lender

ECONOMYNEXT – Sri Lanka’s Nations Trust Bank (NTB) has for a syndicated loan of 50 million US dollars from FMO, a Dutch development agency, to support its business banking activities, mainly loans to small and medium enterprises.

A statement said FMO was able to blend tranches from commercial lenders and themselves to offer an overall facility with a five-year tenor that resulted in a maturity profile aligned well with the NTB’s needs.

“This syndicated transaction is FMO’s first repeat deal for Nations Trust Bank, following a subordinated loan which was provided eight years earlier to further the bank’s ambitious growth strategy,” it said.

Renuka Fernando, NTB Chief Executive Officer, said loan not only provided stable longer term funding to the bank but also opened doors to broad base funding options by establishing relationships with other commercial lenders some of whom are new to the Sri Lankan market.

The statement said the syndicated loan also enabled NTB to reach out to financiers such as Standard Chartered Bank, Abu Dhabi Commercial Bank, First Commercial Bank (Taiwan) and Atlantic Forfaitierungs, most of whom are lending to it for the first time.

FMO is known as Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. in Dutch or the Netherlands Development Finance Company.

Hayleys buys balance 9.47-stake in Singer Sri Lanka

ECONOMYNEXT - Hayleys Plc, has bought a remaining 9.47 percent stake in consumer durables retailer Singer Sri Lanka Plc, for 1,671 million rupees.

In September 2017, Hayleys bought control from Singer Sri Lanka for 10.8 billion rupees, in what was the largest trade in the Colombo Stock Exchange.

Hayleys, and its units Carbotels and Volanka bought a 61.73 percent stake at the time also for 47 rupees a share.

Retail Holdings NV, the previous parent had the option of selling remaining shares within the next 12 to 15 months.

Sri Lanka's rupee, which has an unstable soft-peg to the US dollar has fallen since then.

EPF needs governance overhaul, proxy advisor, to invest in Sri Lanka stock market

By a Member of the EPF

ECONOMYNEXT - Sri Lanka's Employees Provident Fund, a retirement fund of private sector workers managed by the state is about to re-enter the stock market, ending several years of inactivity after it came under fire for being a dumping ground for both stocks and bonds.

The EPF bought stocks at the height of a stock market bubble which peaked around 2011, earning the doubtful accolade of being the buyer of last resort in the stock market.

In 2015 and 2016 EPF dealers were involved in a bond fraud where they stayed away from direct auctions and bought bonds at higher prices from a company connected the then-Central Bank Governor's son-in-law.

Unlike 2011, stock valuations have hit rock bottom in 2018. This is without doubt a good time to enter the stock market.

But does the fund have the necessary skills and most importantly a robust governance structure to protect the interest of the EPF members? The answer is no, particularly on governance!

Mired in Conflicts

The EPF’s fund management is undertaken by the Central Bank under its Monetary Board, which is chaired by a Governor and several members including from the Treasury and private sector.

The members of the Monetary Board itself are riddled with multiple conflicts of interest. The Monetary Board is headed by the Governor, who amongst other things is responsible to raise money for the government by issuing Treasury bills and bonds.

In this role his objective is to raise money at the lowest possible interest cost to the government. EPF is one of, if not the largest, investor in government securities. The Treasury secretary itself is a member of the Monetary Board.

The EPF members' objective is to maximize the return on their funds.

How is this conflict managed by the Governor of the Central Bank? We can expect some ethical behavior from the incumbent Governor, but what will happen after he goes?

Other members are drawn from the private sector. The expansion of the Monetary Board from an earlier three members was supposed to reduce the concentration of power, bring in a private sector perspective and also bring balance by moderating the role of the Treasury.

But has this happened? There are concerns that non-ex-officio member have come with their own baggage adding further conflicts of interest to an already murky pot.

The current poor level of transparency of EPF’s activities is completely unacceptable. The EPF does not publish quarterly accounts in a timely manner, which can be accessed by members in the same way detailed annual reports are prepared by the large banks and financial institutions.

Only the 2016 annual report has been published in the EPF web site as of today.

The EPF does not hold annual meetings, where members could question the management and the Board (in this case the Monetary Board).

Way forward - A member’s suggestion on EPF reform

The way forward would be to re-organise the EPF in a way similar to pension funds in developed countries. It is understood that the Ministry of Labor has sought the assistance of the Asian Development Bank, to reform the EPF and a White Paper has been prepared.

However, this is not been shared with the EPF members despite requests made under the RTI Act to the Ministry of Labour & Trade Union Relations.

Why is the secrecy?

The secrecy could raise suspicions that interested persons are again trying to mis-use the EPF with elections close at hand. Already the Perpetual scam, where even government ministers have got housing benefits has created a negative perception among members and trade unions.

Competition - with transparency

A small portion of the EPF funds should be carved out and given to professional fund management firms to be managed under a transparent process under a proper investment mandate and a fund management agreement.

The fund managers should report their performance every month to ensure competition and transparency, similar to the current practice in the Unit Trust industry, where the performance is reported on a daily basis.

The performance of the professional fund managers can be used as a benchmark and bring in competition and professionalism into the current fund management process at the EPF.

Member Communications

The EPF should publish quarterly financial statements like any other listed company in Sri Lanka and have annual meeting for members.

Most global investment funds publish their holdings every month. A large international which bought rupee bonds for example use to publish their holdings every month. It is ironic that the EPF does not.

EPF should also publish their holdings of stocks every month, so that members can monitor changes. Unlisted stocks should be published separately.

This can be done for bonds.

Governance

The governance needs to be overhauled.

A separate Board should be established for the EPF, consisting of a majority of independent Directors representing the members rather than the interests of the Government of Sri Lanka.

The Directors should not have multiple conflicts of interest similar to the current situation.

Given recent developments, seeing person who are seen as friends of politicians being appointed as members of the monetary board does not inspire confidence.

Quite apart from being the Board responsible for EPF, it is not best practice for the central bank either.

A Presidential Commission of inquiry has already suggested that the Governor be appointed by the Constitutional Council.

The EPF Governing Board could also go through a similar process.

Proxy Advisors and EPF’s voting rights

In the past, the voting rights on the shares held by EPF have been used to appoint family and friends of the political leaders' as director of investee companies.

There has been not much difference under the current regime which came promising good governance.

The global best practice is for Pension Funds to use their voting rights based on the independent professional advice from proxy advisors.

Unfortunately, there are no such companies in Sri Lanka. But there are such companies in India already.

Institutional Investor Advisory Services India Limited (IIAS) is a proxy advisory firm, which provides Indian market with independent opinions, research and data on corporate governance issues as well as voting recommendations on shareholder resolutions.

Its shareholders include Axis Bank, Fitch Group Inc, HDFC, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Tata Investment Corporation, UTI Asset Management Company Limited and Yes Bank. It is a registered research entity at the Securities and Exchange Board of India.

It provides voting recommendations for over 600 companies where there are large institutional holdings.

The EPF can get the services of a proxy advisor from India or some other country. Assistance could be sought from outside the country to set up a unit in Sri Lanka, the same way Fitch (then CBR) was set up in Sri Lanka to start ratging.

Such firms may help other institutional funds as well.

Conclusion

Fundamentally, EPF should invest in the equity market provide growth for its members, in fact it should have a larger proportion of the assets invested in the market, similar to the portfolio mix of pensions funds in other markets.

In some developed markets public pension funds also invest heavily in real estate. A study by Willis Towers Watson, actuaries found that equity forms more than 30 percent of assets of pension funds in major markets.

Graph

The EPF should be one of the largest shareholders in the country so that workers can have a share in the companies that drive growth

However, first has to put the policies, procedures, people and get the governance right. By improving transparency and publication of investments, an automatic check will be made against fraud and bad decisions.

In the current context, where the EPF membership does not have confidence in the management of the fund, the EPF needs to get its house in order, particularly governance, before embarking on yet another potentially disastrous adventure of investing in the stock market and bond trading.

Failure to do so will end up with the consequences being borne by the EPF members, who will see their retirement savings evaporate overnight.

As always the decision makers will escape scot-free without being held accountable, and will share in the spoils.