Sri Lankan stocks hit over 1-wk closing high after rates held steady

(Reuters) - Sri Lankan shares hit their highest close in more than one week after the central bank left its key policy rates unchanged at multi-year lows, but trading volume slumped as investors were in a wait-and-see mode ahead of an impending U.N. resolution on the country's human rights record.

Before the market opened, the central bank kept its policy rates steady at multi-year lows, as expected, as it hopes that slowing private sector credit expansion will rebound and push up the country's growth pace.

The main stock index ended up 0.39 percent, or 23.31 points, at 5,937.87, its highest close since March 11.

The day's turnover was 251.3 million rupees ($1.92 million), well below a third of this year's daily average of 882.4 million rupees.

Foreign investors were net sellers of 3.2 million rupees worth of shares on Friday, extending the net outflow so far this year to 4.11 billion rupees, and clocked 22.88 billion rupees in 2013.

Shares of Nestle Lanka PLC gained 2.15 percent to 1995.00 rupees.

Analysts said investor sentiment has been dented on concerns over the U.N. resolution, which could have an impact on the country's economy. Many potential buyers in risky assets are staying on the sidelines awaiting clear direction.

Earlier this month, Sri Lanka questioned the independence of the human rights office of the United Nations after the United States asked it to investigate violations by the Sri Lanka government related to the civil war.

A vote on the resolution is scheduled for the next week. 

($1 = 130.6000 Sri Lanka Rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Sri Lanka stocks close up 0.4-pct

Mar 21, 2014 (LBO) - Sri Lanka's stocks close 0.39 percent higher partly reversing previous losses with diversified and beverage stocks gaining amid thin foreign participation, brokers said.

The Colombo benchmark All Share Price Index closed 23.31 points higher at 5,937.87 up 0.39 percent. The S&P SL20 closed 14.11 points higher at 3,246.02, up 0.44 percent.

Turnover was 251.35 million rupees, down from 263.33 million rupees a day earlier with 120 stocks close positive against 62 negative.

Tokyo Cement closed 50 cents higher at 35.00 rupees with market transactions of 22.03 million rupees contributing to 9 percent of the daily turnover.

Foreign investors bought 27.63 million rupees worth shares while selling 30.84 million rupees of shares.

Union Bank of Colombo closed 60 cents higher at 18.90 rupees and The Finance Company non-voting closed 10 cents higher at 5.80 rupees, attracting most number of trades during the day.

Nestle Lanka closed 41.90 rupees higher at 1,995.00 rupees and Finlays Colombo closed 53.40 rupees higher at 306.00 rupees, contributing most to the index gain.

Commercial Bank closed 2.20 rupees higher at 119.90 rupees and Hatton National Bank closed 1.30 rupees higher at 157.50 rupees.

Dialog Axiata closed 10 cents higher at 9.10 rupees and SLT closed 20 cents higher at 44.20 rupees.

Ceylon Tobacco Company closed 7.80 rupees lower at 1,092.10 rupees and John Keells Holdings closed 80 cents higher at 218.90 rupees.

JKH’s W0022 warrants closed 80 cents higher at 63.50 rupees and its W0023 warrants closed 10 cents higher at 67.20 rupees.

LOLC closed 1.00 rupee lower at 75.00 rupees and George Steuart closed 31.50 rupees lower at 109.50 rupees.

Indo Malay closed 150.00 rupees lower at 1,500.00 rupees and Bukit Darah closed 3.00 rupees higher at 563.00 rupees.

Sri Lanka's LOLC group leisure assets under Browns unit

Mar 21, 2014 (LBO) - Sri Lanka's Lanka Orix Leasing Company Plc said it had sold a 70 percent stake in LOLC Leisure, a hotel company, to Browns Investments Plc, a related company, for 2.8 billion rupees.

Browns Investments Plc, in a separate stock exchange filing said the deal will make it one of the largest hotel operators in the country managing over a 1,000 rooms. Browns Investments Plc already owned a 30 percent stake in the leisure firm.

LOLC Leisure is the controlling shareholder of 5 hotels including three adjacent hotels which were bought in 2010.

The firm is building 400-room resort in Beruwala in the South West coast of Sri Lanka through after demolishing existing old buildings. The new resort is to start operations in 2016.

Browns Investments already had direct control over several other hotels: Green Paradise Resorts (Pvt) Ltd, Samudra Beach Resorts (Pvt) Ltd, and Sun and Fun Resorts (Pvt) Ltd.

Browns Investments also had other leisure sector assets Browns Tours and BG Air Services.

Browns Investments and LOLC have common directors and LOLC is also an ultimate shareholder through a stake in its parent.

In a separate transaction dated prior to the exit, LOLC Leisure was buying back shares from both LOLC and Browns Investments. LOLC will get 1,015 million from the buyback and Browns Investments will get 435 million rupees.

Related News:

http://www.cse.lk/cmt/upload_cse_announcements/1671395378157_.pdf

Sri Lanka policy rates steady; inflation, credit growth benign

Mar 21,2014 (LBO) - Sri Lanka is holding a policy rate corridor at 6.5 to 8.0 percent, the Central Bank said amid benign credit growth and inflation. Credit to government had expanded by 68.3 billion rupees in January 2014 but the proceeds of a sovereign bond sold in January is expected to have reduced credit to the state in February.

Credit to private sector has grown 5.2 percent in the year to January 2014, from 7.5 percent in December 2013 mostly due to falling gold-backed loans and repayments of short-term advances by companies.

Credit to state owned enterprises have also contracted in January the Central Bank said. SOE credit surged in December. There had been concerns that higher thermal power generation amid a drought could worsen the finances of SOEs, which improved over the last year.

Lower credit growth reduces inflationary pressures and imports and the trade deficit contracts as deposits outpace loans in the banking system.

It also allows the Central Bank to rebuild foreign reserves lost during a balance of payments crisis triggered by credit bubbles.

The Central Bank said gross official foreign reserves rose to 8.0 billion US dollars in January 2013, which was equal to 5.3 months worth of imports.

Exports grew 23.2 percent in January 2013 from a year earlier while imports grew 7.9 percent allowing the trade deficit to contract to 756 million US dollars in the month, the Central Bank said.

Any increase in exports will increase imports by the same amount shortly after either through direct spending by the recipients of export proceeds (such as apparel factory workers) or when their savings in banks are loaned to others, except when credit is weak.

Trade deficits are caused by spending of proceeds of foreign exchange inflows outside merchandise exports such as worker remittances (exports of labour) and net government borrowings (exports of government debt).

Consumer prices were up 4.2 percent during the 12-months to February 2014, compared to 4.4 percent in January.

"Looking ahead, inflation is expected to remain at mid single digits throughout 2014," the Central Bank said in its March monetary policy review.

"Although the outlook for inflation remains encouraging from a demand perspective, the Central Bank will continue to closely monitor possible supply disruptions resulting from the drought conditions experienced in certain parts of the country."

Analysts say any so-called 'supply shock' from drought will only trigger a temporary rise in prices and not inflation, which is a monetary phenomenon, unless such supply shocks are accommodated by the Central Bank, through credit from the banking system.


In 2011 a drought which reduced hydro power generated was accommodated by the banking credit which eventually saw the rupee falling to 130 from 100 to the US dollar and a surge in inflation.

The rate setting 'monetary board' expected credit to private sector to "rebound from the second quarter of the year, supported by declining market lending rates, sufficient liquidity levels and increased demand for exports from the advanced economies."

The state statistics office said Sri Lanka's economy has grown 8.2 percent in the last quarter of 2013. 

Related News:
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20140321e.pdf

CB to play marriage broker for banks and NBFIs

By Mario Andree

Ceylon FT: A senior official said, that the country's financial sector regulator, the Central Bank had decided to play the role of marriage broker for banks and non-bank financial institutions which fail to identify their partner for merger or acquisition.

Assistant Governor of Central Bank C. J. P Siriwardana said that adequate time was given for banks and non-bank financial institutions to identify partners for mergers and acquisitions, and if any institution fails to submit proposals by the deadline, the Central Bank would identify marriage proposals for them.

Addressing queries at a forum organized by the Institute of Chartered Accountants on Wednesday (19), Siriwardena said that the regulator...decided to reduce the number of banks and non-bank financial institutions through mergers.

According to him, banks and non-bank financial institutes have shown keen interest in consolidation efforts giving rise to several issues arising in the process.

The regulator, decided to reduce the number of banks and non-bank financial institutions after several recorded failures. According to the Central Bank master plan, the number of non-bank financial institutions would be reduced to 20 out of which three will specialize in micro finance, while five major banks would be created to hold more than Rs 1 trillion assets, with one bank as a major development bank and smaller banks which would hold more than Rs 100 billion in assets.

Central Bank categorized the 58 non-banking financial institutions (NBFIs) into three categories A, B and C in preparation for the consolidation; and 19 NBFIs fitted into category 'A' which was compliant with regulations, with a capital of more than Rs 1 billion and assets worth more than Rs 8 billion. The Central Bank Governor outlining the Master Plan on Consolidation of the Financial Sector said that 38 NBFIs were categorized as 'B' because they fell short of the requirements for category A, and one firm that was under court restraint, fell into category 'C'.
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CBSL envisages strong financial sector by consolidation – Suresh Perera

By RISHAR SALEEM
Ceylon FT

Central Bank of Sri Lanka (CBSL) recently decreed the consolidation of financial institutions in Sri Lanka. CBSL has given a time frame to all the financial institutions to comply with their decree. This has created a stir among the financial institutions which are in operation in Sri Lanka and this has become a 'talking point' among the business circles. It shows some of these companies are keen and prepared for the consolidation but some are not. To get a clear independent view on this Ceylon FT spoke to an expert in finance and Taxation. A tax attorney at KPMG Suresh Perera gives his view on this particularly on the amalgamation process.An excerpt of the interview is given below.
 
Q: Can you give an overview of the Scheme by the Central Bank of Sri Lanka (CBSL) for the amalgamation of the finance companies?
A: CBSL wants to have a strong and dynamic financial sector and because of that it is proposing a scheme where finance companies combine together and make giant companies. Currently there are 58 finance companies operating in Sri Lanka and at the end of the scheme CBSL envisages the number to reduce up to 20 finance companies.

The proposed scheme identifies three categories of finance institutions. The Category A finance companies meets three criteria. Companies which have more than Rs 8 billion of assets, more than Rs1billion of core capital and who have higher degree of compliance with the directives of CBSL are categorized as Category A finance companies. Those companies which could not meet one or more of these criteria fall into Category B finance companies. The non-bank finance companies where business is at a standstill fall into the category C and there is only one such company in this category. There are 19 of Category A NBFIs and 38 of Category B NBFIs.
 
The proposition of this scheme is to increase the core capital of the Category B non banking financial institutions (NBFI) to Rs 1 billion. CBSL provides a deadline for these companies to abide by. They should fulfil this requirement by 1 of January 2016. This amount of core capital should be further increased to Rs 1.8 bn by 1 of January 2018.

There are further deadlines of compliance that has been laid down by the CBSL. Prior to carrying out all these required actions, the NBFIs should furnish CBSL with reports containing their Action Plans.

When increasing their core capital the NBFIs can either merge within their own groups or can merge or amalgamate with another Category B bank or a Category A NBFI. If it opts to merge within the group it should be completed by 30 June 2014 and the Action Plan should be submitted by 31 of March 2014. If it opts for the second option of merging with an external party, the majority of the NBFIs will be expected to be merged or absorbed by December 2014 and the remaining to be completed by the first half of 2015. The Action Plan to be carried out by such NBFIs should be submitted by 31 May 2014.
 
As you can see CBSL has laid down strict deadlines for this scheme and the NBFIs should act fast and comply with these requirements.

On the other hand, due diligence processes has already been commenced in these NBFIs. Major audit firms in Sri Lanka are helping out in carrying these due diligence reports which should be then submitted to CBSL.
 
Q: How will this merging will take place?
A: There are two methods to amalgamate companies. One is by a simple merger. This is a clear cut version of an 'amalgamation' where two separate entities combine into one single entity. The second method is where one entity acquires ownership of another company and then later on amalgamates into a new company. Such an amalgamation need not be within the same group.

One might think that when carrying out the second option in the present context, simply an acquisition would be sufficient. This would be less costly and time consuming than carrying out a subsequent amalgamation of the two entities. But, with that it creates a wholly-owned subsidiary of the company. The aim of CBSL is not to create subsidiaries but to have individual firms acting with financial stability.
 
Q: What is the legal procedure of amalgamating two companies?
A: The Companies Act of 2007 identifies two forms of amalgamation – the long form and the short form. The long form is where two unrelated companies combine to form a separate new entity. The short form is where a fully-owned subsidiary is amalgamating with its parent company to create a new entity.

In the earlier company law, such amalgamation needed the Court's approval. However, the current Act has taken away this provision. So the procedure has been more simplified. Those companies which opt for the long form amalgamation need to create an amalgamation proposal which terms out the particulars of the intended amalgamation. This amalgamation proposal needs to be approved by a Board resolution and then should be noticed to the public.

For short form amalgamation to take place a mere Board resolution would suffice. This is another difference between the short form and long form amalgamation processes.
 
Q: Most finance companies are listed. How would the process of amalgamation be on these companies?
A: This is an example of the short form amalgamation that the Companies Act provides for. Firstly one company acquires the shares of the other. This may be carried out under a shareholder agreement. With this, a fully-owned subsidiary is created. And then following the separate procedure for the short form amalgamation, such merger can be carried out. CBSL favours this method of amalgamation.
 
Q: What is the effect of the amalgamation on the companies?
A: Amalgamation is not a scheme of transferring business from one company to another. It is a continuation of business. The Companies Act says that once two companies are combined, the amalgamated company succeeds to all the property, rights, powers, and privileges of each of the amalgamating companies.

This means that the rights of one company vests in the new amalgamated company and also its liabilities. Say if there is a debt recovery action in one of the amalgamating companies that action will continue to the newly amalgamated company irrespective of the transition. This shows that the law provides for the continuation of the rights, liabilities and privileges of the existing companies.
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