Sri Lanka's Union Bank says in talks with TGP Asia

Mar 05, 2014 (LBO) - Sri Lanka's Union Bank is talks with a foreign investor, TGP Asia VI L.P, for a possible sale of shares, the firm said in a stock exchange filing.

The bank said it had received a "non-binding indicative term sheet governing further negotiations" over a share sale from TGP Asia.

Any final agreement depends on conditions including, a satisfactory due diligence and gaining approvals, the bank said.

Sri Lankan stocks end steady in thin trade

(Reuters) - Sri Lankan shares ended steady on Wednesday as gains in large-caps such as Ceylon Tobacco Company Plc offset losses in banks, but trading was thin as cautious investors stayed on the sidelines.

The main stock index ended flat at 5,936.43 points.

Ceylon Tobacco Company rose 1.28 percent to 1,120 rupees, while top lender Commercial Bank of Ceylon fell 0.87 percent to 114 rupees.

The day's turnover was 281.1 million rupees ($2.15 million), well below this year's daily average of about 1.03 billion rupees.

Analysts said investors were cautious and waiting for direction as a tough resolution on Sri Lanka comes up for voting at the United Nation's Human Rights Council later this month.

Foreign investors bought a net 19.8 million rupees worth of shares on Wednesday, but they have been net sellers of 5.41 billion rupees for the last 18 sessions as some offshore funds exited the market.

The index has seen a net 4.02 billion rupees of foreign outflows so far in 2014, after net inflows of 22.88 billion rupees last year.

($1 = 130.6500 Sri Lanka rupees)

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

Sri Lanka stocks close flat

Mar 05, 2014 (LBO) - Sri Lanka's stocks close flat Wednesday with index heavy stocks ending on thinner gains, brokers said.

The Colombo benchmark All Share Price Index closed 0.19 points lower at 5,936.43. The S&P SL20 closed 4.45 points lower at 3,216.97, down 0.14 percent.

Turnover was 281.18 million rupees, down from 371.32 million rupees a day earlier with 81 stocks closed up against 75 going down.

Foreign investors bought 83.68 million rupees worth shares while selling 63.85 million rupees of shares.

Touchwood Investments closed 30 cents lower at 2.40 rupees attracting most number of trades during the day.

Dialog Axiata closed 20 cents lower at 9.00 rupees and Commercial Leasing and Finance closed 20 cents lower at 4.00 rupees.

Ceylinco Insurance closed 46.90 rupees lower at 1,301.10 rupees and Commercial Bank ended 1.00 rupee lower at 114.00 rupees.

Ceylon Tobacco Company closed 14.20 rupees higher at 1,120.00 rupees and SLT closed 50 cents higher at 44.80 rupees.

A I A Insurance Lanka closed 2.00 rupees higher at 270.00 rupees and JKH closed 10 cents lower at 220.00 rupees.

JKH’s W0022 warrants closed 10 cents lower at 63.20 rupees and its W0023 warrants closed 10 cents higher at 66.00 rupees.

Nestle Lanka ended flat at 2,000.00 rupees and Distilleries also closed flat at 205.00 rupees.

Sri Lanka Treasuries yields steady

Mar 05, 2014 (LBO) - Sri Lanka's short term Treasuries yields eased slightly while the 12-month yield was unchanged at 7.07 percent at Wednesday's auction, data from the state debt office showed.

The three month yield fell 01 basis point to 6.71 percent and the 6-month yield also fell 01 basis point to 6.88 percent.

The debt office sold 01 billion rupees of 3-month bills, 7.7 billion rupees of 6-month bills and 18.2 billion rupees in 12-month bills totaling 27 billion rupees, after offering only 18.0 billion rupees.

Related News:

http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20140305e.pdf

Sri Lanka insurance sector needs consolidation push: Presidential advisor

Mar 05, 2013 (LBO) - Sri Lanka's insurance sector may need a regulatory push for mergers as another regulatory driven move splits general and insurance business, an influential head of an insurance firm has said.

Ranee Jayamaha, chairperson of HNB Assurance, a newer but fast growing insurance firm who is also an advisor to Sri Lanka's President said the splitting of general and life business is expected to weed out potentially non-viable firms.

"However, if the post segregation structure ends up with over 30 small sized companies instead of the 22 we had so far, the industry as a whole will be faced with sustainability Issues," she told shareholders in the annual report.

"Therefore, there is a clear need for a consolidation of the insurance industry similar to that of banking and other financial services.

"This may require an incentive based comprehensive plan to promote mergers and acquisitions and consolidation."

Sri Lanka's banks and finance companies are now being merged with some finance companies in particular running into difficulties.

The merged entities are expected to be larger and better capitalized. Fewer numbers in the future is expected to make it easier to regulate.

Jayamaha said the budget for 2014 had set out process to transfer of tax losses in life insurance to the newly split companies without an additional tax burden.

"While appreciating this effort, I am hopeful that the remaining issues on tax credits and stamp duty on property transfers will also be resolved in a similar manner," she said.

She said last year life insurance sector grew at 10 percent, higher than the 5 percent seen in 2012 but general insurance growth slowed to 9 percent from 15 percent.

HNB Assurance had grown its life revenues 34 percent and non-life 9 percent. The firm is part of Sri Lanka's Hatton National Bank group.

Sri Lanka' AIA Insurance unit discloses values ahead of split

Mar 05, 2014 (LBO) - Sri Lanka's AIA Insurance Lanka Plc said it had valued its general insurance business ahead of a split of life and non-life divisions under a regulatory requirement in the third quarter of 2014.

The firm said at December 31, 2013 its general insurance business had a net asset value of 1.89 billion rupees.

It was forecasting the value "not to exceed" 2.4 billion rupees, the firm said in a stock exchange filing.

AIA Insurance Lanka said it was using its "best and reasonable endeavors to brief shareholders of a possible value" at which a transfer may be made.

Sri Lanka HDFC Bank 'BBB(lka)' rating confirmed: Fitch

Mar 05, 2014 (LBO) - Fitch Ratings said it had confirmed a 'BBB(lka)' rating of Sri Lanka's HDFC Bank, a mortgage lenders, with stable outlook.

Fitch said the rating reflected a 51 percent ownership of the state which is expected to bring support.

The ratings could be affected if it is merged or acquired by another entity under a consolidation master plan, Fitch said.

The full statement is reproduced below:-

Fitch Affirms Sri Lanka's HDFC at 'BBB(lka)'; Outlook Stable

Fitch Ratings-Colombo-04 March 2014: Fitch Ratings Lanka has affirmed Housing Development Finance Corporation Bank of Sri Lanka's (HDFC) National Long-Term Rating at 'BBB(lka)'. The Outlook is Stable. Fitch has simultaneously withdrawn the ratings on HDFC's LKR195m senior unsecured redeemable debentures as they have been repaid.

KEY RATING DRIVERS
HDFC's rating reflects Fitch's expectation that the bank would receive extraordinary support from the state, if needed, given the state effectively holds 51% of the bank.

It also reflects Fitch's view of the bank's quasi-policy role in supporting the state's initiatives to develop more housing for low and middle-income families. However, the potential for state support is lower than for larger state-owned banks in Sri Lanka due to HDFC's lower systemic importance.

The state holds its stake in HDFC through the National Housing Development Authority (49.7%), a state-owned corporation that is tasked with formulating and implementing the national housing policy, the Condominium Management Authority (0.46%) and the Urban Development Authority (0.46%). HDFC's board is appointed by the Ministry of Finance, with the majority of board members representing state institutions.

The bank has the authority to grant to members of the Employees Provident Fund (EPF) housing loans that are secured against the borrowers' EPF balances. The Central Bank of Sri Lanka annually reimburses HDFC the instalments of EPF-backed loans that are in arrears for over three months.

These loans support HDFC's capital adequacy because they carry a zero risk weighting as a result of their collateral. EPF-backed housing loans accounted for 36.8% of total loans at end September 2013.

RATING SENSITIVITIES
A change in Fitch's expectation of state support to HDFC through a weakening of the linkages with the state, including a dilution of state's majority ownership of the bank or a revision of Fitch's view of HDFC's policy role, could result in a downgrade of the ratings.

The ratings will also be sensitive to changes in HDFC's profile if it merges with or is acquired by another bank as part of industry consolidation that the Central Bank of Sri Lanka has set out in its master plan for the financial sector.

HDFC was established as a building society in 1984. It was converted into a government corporation in 2000 and then into a regulated licensed specialised bank in 2003.

First Capital's Rs 500 million debenture issue oversubscribed

The Rs 500 million debenture issue of First Capital Holdings PLC (FCH) was oversubscribed on the opening day, 4th March 2014 and was closed the same day, the company said in an announcement to the Colombo Stock Exchange.
The company offered 5 million, rated, senior, unsecured, redeemable debentures at an issue price of Rs 100 each. The funds raised are to be utilised to retire existing short term borrowings thereby minimising liquidity and interest rate risk.

"We are greatly encouraged by the investor confidence implicit in the extremely positive response to our debenture issue," said Dilshan Wirasekara, Deputy CEO of First Capital Holdings. "The success of this issue will provide a good platform for the company to build on its strong performance in the current financial year, in 2014-15."

The debenture issue is attractively priced with three options available to prospective investors, with tenures of three, four and five years carrying annualised interest rates of 13.5 per cent, 13.75 per cent and 14 per cent respectively.

The Colombo Stock Exchange (CSE) has approved in principle the application for listing the debt securities of First Capital Holdings PLC on the CSE. Both the issuer and the issue are rated BBB+ by RAM Ratings Lanka Limited with a stable outlook. The rating agency opined that the Company ratings are supported by good capitalisation at its subsidiary First Capital Treasuries.
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Brokers give thumbs up to Alumex IPO as Hayleys lists 10th subsidiary, first in 22 years

Several brokers have recommended “buy” to the Alumex IPO officially opening today as Hayleys PLC completes a perfect 10 in listing its subsidiaries and its first in over two decades on the Colombo Bourse.

A leader in the aluminium extrusions industry, Alumex is in the market to raise Rs. 838 million, of which Rs. 250 million goes for the company’s expansion and Rs. 588 million to existing major shareholders (via offer for sale of vendor shares). The latter will continue to own 76% post-IPO.

The IPO in total is 59.8 million shares at Rs. 14 each consisting of 17.85 million shares (6% stake post-IPO) and 42 million shares (14% post-IPO).

Hayleys is listing Alumex, control of which it acquired in 2010 for Rs. 3 billion, to benefit from Budget-announced tax concessions of 50% tax saving for three consecutive years maintaining a 20% public float, as well as finance the setting up a powder coating plant thereby doubling capacity to 3600MT per annum and acquire die manufacturing equipment.

The previous Hayleys subsidiary to list via an IPO was Hayleys Exports in 1992.
Noting volume driven growth, Softlogic Stockbrokers has recommended “subscribe” to Alumex IPO.

“Following the takeover by Hayleys in 2010, Alumex Group’s growth has been on an upward trend backed by higher gross margins denoting 28% in FY13 cf. 17% in FY10. We expect earnings growth to be backed by robust volume growth with the commissioning of its powder coating plant adding 1,800 MT to be materialised during FY15E,” Softlogic said.

It said powder coating volumes grew at a CAGR of 24% over FY10-FY13 and FY14E-FY15E volume growth is projected to be driven by doubling capacity to 3,600 MT in its powder coating plant supported by the growth in infrastructure development and construction activities. Gross margins are expected to be sustained at current levels via shifting towards value added products with powder coated and wooden coated segments now taking up a higher proportion of total volume amidst stable aluminium prices expected as per a World Bank forecast.

“We expect Alumex to record earnings of Rs. 377 million during FY14E and Rs. 509 million during FY15E translating into PER of 11.1x and 8.2x respectively at its issue price of Rs. 14.0 cf. manufacturing sector trailing PER of 9.3x,” Softlogic Stockbrokers said.

Asia Securities said “We believe that the share is attractively priced at an issue price of Rs. 14 for a one year holding period.”

“The share is priced at a FY2015E P/E of 7.9X, which is a discount to the current sector, market and peer P/Es. Further, at a price of Rs. 14, we arrive at a FY2015E P/B of 2.5X, which is at a premium to the sector and market P/Bs. However, we believe that the share should trade at a further premium P/B due to the substantially higher than peer/market ROEs generated by the group,” Asia added.

Meanwhile, using DCF valuation (Ke – 15.3%, g – 5%), with relatively conservative assumptions, Asia arrives at an intrinsic value of Rs. 16.30 (16.4% upside potential). “We expect the company to go ahead with is relatively high dividend pay-out in the short to medium, as the low overall capacity utilisation would not necessitate large CAPEX investments in the short to medium term,” Asia said.

“Volatility in exchange rate/raw material price, competition from local players and cheap imports and inability to win large scale projects remain key risks to our estimates, recommendation and intrinsic value computation,” Asia added.

NDB Stockbrokers said as opposed to the manufacturing sector PER of 8.84X (based on the universe of stocks covered by us whereas according to CSE the sector PER is 12.9X), ALUM is priced (IPO price of Rs. 14.00) at a PER of 9.46X.

“We feel the manufacturing sector is currently undervalued compared to the broader market as the sector is trading below the market PER of 13.8X (based on the universe of stocks covered by us, according to the CSE the market PER is 15.6X). Therefore, we expect ALUM to be an attractive investment option for investors looking at diversifying investments into the manufacturing sector. As we anticipate the broader market to pick up as well, the counter could offer notable upside potential,” NDBS said.
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