Sri Lankan stocks fall from 1-wk closing high on Ceylon Tobacco

(Reuters) - Sri Lankan shares slipped on Monday from their week-high, with heavyweight Ceylon Tobacco Co Plc falling 5 percent, and trading volumes continued to suffer ahead of an impending U.N. resolution on the country's human rights record.

The main stock index closed down 0.26 percent, or 15.64 points, at 5,922.23.

The index had ended Friday at its highest close since March 11.

Monday's turnover was 197.9 million rupees ($1.52 million) - less than a quarter of this year's daily average of 869.5 million rupees.

Foreign investors were net buyers of shares worth 12.6 million rupees.

Sri Lanka's 2.47 trillion rupee ($18.94 billion) bourse has seen a net outflow of 4.1 billion rupees so far this year. It reported a 22.88 billion rupee inflow in 2013.

Ceylon Tobacco shares fell 5.5 percent to 1,031.90 rupees, with only 35 shares traded.

Analysts said investor sentiment has been dented on concerns of a resolution that could hurt the country's economy.

Several potential buyers of risky assets are awaiting a clear direction.

Sri Lanka questioned the independence of the United Nations human rights office after the United States asked it to investigate violations by the government related to the civil war. A vote on the resolution is scheduled for later this week. 

($1 = 130.6250 Sri Lanka Rupees) 

(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Joyjeet Das)

Sri Lanka stocks close down 0.2-pct

Mar 24, 2014 (LBO) - Sri Lanka's stocks close 0.26 percent lower with tobacco stocks losing ground amid thin foreign involvement, brokers said.

The Colombo benchmark All Share Price Index closed 15.64 points lower at 5,922.23 down 0.26 percent. The S&P SL20 closed 0.89 points higher at 3,246.91, up 0.03 percent.

Turnover was 197.93 million rupees, down from 251.35 million rupees last Friday with 68 stocks close positive against 111 negative.

Tokyo Cement closed 1.00 rupee higher at 36.00 rupees with market transactions of 22.88 million rupees contributing to 12 percent of the daily turnover.

Foreign investors bought 50.90 million rupees worth shares while selling 38.29 million rupees of shares.

Asiri Surgical Hospital closed 1.80 rupees lower at 12.20 rupees and Bimputh Finance closed 3.40 rupees lower at 50.50 rupees, attracting most number of trades during the day.

Ceylon Tobacco Company closed 60.20 rupees lower at 1,031.90 rupees contributing most to the index drop.

Central Finance Company closed 8.80 rupees lower at 180.20 rupees and Ceylinco Insurance closed 109.80 rupees higher at 1,499.80 rupees.

DFCC Bank closed 3.70 rupees higher at 144.90 rupees and NDB closed flat at 179.00 rupees.

Nestle Lanka closed 6.00 rupees lower at 1,989.00 rupees and Cargills Ceylon closed 3.40 rupees higher at 138.00 rupees.

Lion Brewery closed 9.50 rupees higher at 399.50 rupees and John Keells Holdings closed 60 cents higher at 219.50 rupees.

JKH’s W0022 warrants closed 80 cents lower at 62.70 rupees and its W0023 warrants closed 1.70 rupees lower at 65.50 rupees.

India Infoline completes sale of 76% stake in Sri Lankan unit

NEW DELHI: IIFL today said it has completed sale of its 76 per cent stake to its Sri Lankan subsidiary.

"IIFL Holdings informs further to its intimation...it has completed the divestment of its 76 per cent stake in its Sri Lankan subsidiary namely IIFL Securities Ceylon Ltd which is engaged in stock broking activities at Colobmo Stock Exchange to its Sri Lankan JV partner Priyani Ratnagopal," it said in a regulatory filing to the BSE.

Earlier in January this year, IIFL had announced to divest its 76 per cent stake in IIFL Securities Ceylon.

"India Infoline proposes to divest its 76 per cent stake in its Sri Lankan subsidiary IIFL Securities Ceylon (Private) Limited, which is engaged in stock broking activities at Colombo Stock Exchange, to its Sri Lankan partner who is presently holding 24 per cent stake," it had said in a BSE filing.

IIFL's decision to exit Sri Lankan operations was taken due to its plans to rationalise its relatively smaller international operations.

However, IIFL will continue its support to IIFL Securities Ceylon in research, sales, investor education and other matters as feasible in future.

Further, the company informed that it has also divested its holding 76 per cent in its other Sri Lankan subsidiary --IIFL Capital Ceylon to the JV partner Priyani Ratnagopal.

IIFL Capital Ceylon is engaged in corporate advisory services in Sri Lanka.

IIFL, owned by India Infoline group provides financial services covering products ranging from equities and derivatives, commodities, wealth management, asset management, insurance, fixed deposits, loans, and Investment Banking.

http://articles.economictimes.indiatimes.com/2014-03-21/news/48438393_1_cent-stake-india-infoline-colombo-stock-exchange

Nine audit firms appointed, reports by 25 March

By Mario Andree

Ceylon FT: After several reported concerns, the financial sector regulator, Central Bank of Sri Lanka has appointed nine audit firms to value banks and non-bank financial institutions. According to a senior official the reports would be finalized tomorrow, 25 March.

Assistant Governor of Central Bank C. J. P. Siriwardana told a forum organized by the Institute of Chartered Accountants that the regulator had appointed nine audit firms to submit valuation reports of banks and non-bank financial institutions.

The reports, according to him would be submitted to the Central Bank and the relevant financial institution by 25 March. Siriwardana without disclosing the actual cost borne by the Central Bank said it was a considerable sum which the regulator thought should not be a burden of financial institutions. "Further the Central Bank would bear the cost of consultant fee for necessary advice and guidance provided by other professionals on accounting, tax, valuation of business, HR issues," he said.

Many financial institutions were valued higher than their actual price, and according to Siriwardana values ranged from 1.5 times to 2.3 times higher.

Offers ranged from 1.1 times to 1.5 times higher for smaller entities than its value, while larger companies were valued 1.6 to 1.9 times of value, there are instances companies were valued at 2.3 times higher for acquisitions.

Most of the banks and non-bank financial institutions are currently negotiating with possible entities for mergers and acquisitions, but so far none has been finalized.

The Central Bank has requested merger or acquisition plans by end of this month, in its efforts to strengthen and reduce financial entities of the country to a manageable level.

NBFIs were expected to reduce to 20 including three specialized in micro finance, while, banks would be reduced as well, focusing five banks with more than Rs 1 trillion assets, a strong development bank, and few smaller banks to hold more than Rs 100 billion which would range their business in all aspects. Foreign banks were requested to have a wider presence in the country's economy.

At present there are 21 banks, with Cargills Bank being the last to obtain licence, and 58 non-bank financial institutions operating in the country.
www.ceylontoday.lk

Inland Revenue, Treasury to issue new Gazettes with tax exemptions

By Mario Andree

Ceylon FT: With the Central Bank pushing for financial sector consolidation, calling for proposals by 31 March, the Department of Inland Revenue and the Treasury would submit tax concessions through new Gazette Notifications.

Partner of Ernest and Young, Duminda Hulangamuwa told a forum organized by the Institute of Charted Accountants that there were several tax proposals the Inland Revenue Department and the Treasury would introduce in the coming few days.

However, despite the push by Central Bank and several negotiations with key personnel, the Inland Revenue Department and the Treasury were confused on how the process would take place.

President Mahinda Rajapaksa, last November, through Budget 2014 announced a series of tax incentives to banks and non-bank financial institutions which would merge or acquire other entities.

The financial sector regulator, Central Bank, intends to reduce the number of non-bank financial institutions to 20 including three which would specialize in micro finance and banks to fewer larger banks to support the economy.

According to Hulangamuwa the proposed tax revisions for consolidation included, no income tax from profits arising from transfer of assets, capital allowance is to be claimed by the merged entity on the original cost, expenses incurred for merger would be deductible, qualify payment relief on investment made on merged entity and tax credit, refunds of transfer entity to be available for merged entity.

A new Gazette also will be issued exempting stamp duties other than for immovable properties for the consolidation process.
www.ceylontoday.lk

'Investment Advisors must attach priority to customer needs'

Opening remarks by Securities and Exchange Commission (SEC) Chairman Dr Nalaka Godahewa at the Colombo Stock Brokers Association (CSBA) workshop for Investment Advisors on 22nd March 2013 at Excel World

Being the regulator, I get the opportunity to meet the CEOs of the stock brokering companies quite often. I speak to them at our regular industry consultative meetings and various other forums. But this is the first time I am addressinga large number ofinvestment advisors, the real front liners of our industry. I am glad that I got this opportunity thanks to CSBA who organized this workshop fulfilling an urgent training requirement of the investment advisor community.

You may agree with me that we are living in one of the most exiting periods of the history of our country. After 30 years of conflict, Sri Lanka has finally achieved lasting peace. We have a politically stable government which has declared economic development as its highest priority. Huge investments are being made in the infrastructure development projects such as ports, airports, irrigation systems, power plants and highways. The Government has set some ambitious growth targets for the economy. All economic indicators are currently showing steady progress.

I believe that as investment advisors, you are lucky to be in the right place at the right time. We all know that the capital market is a vital contributor to any fast developing economy. It is the main channel through which the savings and funds available with retail and institutional investors are mobilized for long-term capital formation. Even though our current market capitalization is only about 30% of the GDP, the capital market is destined to play a significant role shaping the future of our economy.Hence it is important for you also to understand the important role that you are expected to play in the overall economic development agenda of the country.

I don’t know how many of you remember that, just 5 years ago about this time in March 2009, we were still at war with the terrorists. Country was not yet a safe place for living.Suicide bomb attacks were possible anywhere anytime. LTTE planes were haunting the night skies keeping us awake. Economy was taking a beating due to heavy war expenditure.The stock market was stagnant. All Share Price Index was as low as 1400. 

Inflation was in double digits. Interest rates were so high that there was no justifiable reason for investors to consider the capital market as an investment alternative.

But 5 years later, the situation is vastly different today. We know that the war is over for good. The macro economic outlook of Sri Lanka is more promising than most of the other emerging markets. We are bombarded with foreign investors seeking business opportunities. Tourism is booming. Economy is expected to grow at about 7-8% rate for the next few years and reach USD 100bn by 2016. Inflation is now in mid single digit. Interest rates are all time low making the capital market an attractive investment alternative to traditional savings methods.

In most of the regional countries the market capitalization is as high as 70% of the GDP. It’s a known fact that in any country when the macro economy grows the Capital Market follows suit. Therefore using conservative estimates we also can expect the market value to reach at least USD 50 bn within about 4 years from now, if not earlier.

This is the environment within which you operate. As an investment advisor you need to ask yourself a key question. Has the market really lived up to its potential? If not why ? What are you doing about it as a key industry stakeholder?

Market capitalization 10 years ago was only 1/3 rd of today’s value. So market has grown. Average daily turnover has more or less doubled during this period. But do we see a tangible change in the market dynamics? Whilst turnover has grown the equation of average daily turnover to Market CAP is only 0.03. This value is inadequate when compared to most of our regional counterparts.

So what is the issue here? Is it internal or external?

When foreign investors look at CSE today what do they see? They see an opportunity in an undervalued market. Market Cap to GDP of 30 % means there is a lot of potential for this market to grow. The forward P/E is only 11.7 times. It is lower than most other global markets so it’s the right time to buy. Sri Lanka’s economy is on a growth path and the listed companies in most industries are likely to do well. CSE has a little correlation to other global markets so investing in Sri Lanka is an opportunity for fund managers to diversify their risks.

That probably is why foreign buyers contributed almost 40% of last year’s trading activities. This also means that our local investors are not exploiting the opportunity yet.

Let’s look at what regulator has done over the last few years. In 2012 the SEC in its dual capacity as Capital Market ‘Regulator and Developer’ in consultation with industry stakeholders launched a number of initiatives aimed at structurally and functionally upgrading the market. These include;

* Initiatives to develop the market infrastructure

* Initiatives increase investor education

* Initiatives to strengthen regulatory framework

* Initiatives to attract foreign funds through offshore promotions

* Initiatives to encourage more listings in the stock market

* Initiatives to promote the corporate debt market

* Initiatives enhance product portfolio

* Initiatives to increase market liquidity

* Initiatives to protect minority shareholder interests.

* Initiatives to take action against errant directors who seem to be misappropriating funds of listed companies

So one can safely say that the regulator has done more than our share of duty.

We also kept a constant dialog with the industry stakeholders consulting them regularly so that we were fully aware of the industry expectations. Basically almost everything that industry asked for we have given. I am sure that the senior industry representatives here would agree with me.

Now the question is have you done you part? Have you made an extra effort to reach out to the potential customers? Have you approached marketing in a structured manner? Have you identified different customer segments that you can target? Have you communicated with them the benefits of investing in the capital market? Have you explained to them that this probably is the best time to start investing in the capital market? Or are you just waiting till a potential customer calls you and business comes to you?

I once worked in the insurance industry for about 5 years. I was the Managing Director of Sri Lanka Insurance until 2010. I would like you to take a look at how insurance industry professionals promote their businesses. Take the case of a life insurance advisor. He or she is promoting a product where the customer has to die first to benefit from the product purchased. Other option for the customer is to wait till he or she gets really old so that the policy will mature. Yet, the life insurance advisors are promoting their products quite successfully. They try hard. They don’t quit easily. Have you heard that winners never quit and quitters never win? Are you making a similar effort to promote your products? Have you lived up to your true potential?

Of course as an investment advisor you must always be conscious of your professional, ethical and moral responsibilities. It is not about salesmanship but about true partnership. You are the wealth planner of your client. You must be honest with your client and provide him or her right advice. It’s not about making a commission from a trade or two. 

It’s about how both you and your client can win in the long run. Remember attracting customers is the easy part. Retaining them is the difficult part. To retain the customer you must understand the customer and serve his needs well. Why is he investing? May be he is trying to earn some money to buy a house. May be to finance his child’s education. May be he needs money for his daughters wedding in a few years time. May be he is funding his current investment using borrowed funds. So don’t let him down. He depends on you to give him the right advice; of course to the best of your ability.

Some people tell me market is still not active. I ask you whose job is it to get the market activated. I showed you that macro economic fundamentals are positive. The Regulators have done their part. Now it is time for you also to do your part.

Let me tell you a small story before I wind up. There was this slipper manufacturing company seeking overseas business opportunities. So they sent a salesman to evaluate market opportunities in a remote Island. The first salesman retuned and submitted a report saying "I see no potential there as no one in that country is wearing slippers". The company sent a second salesman to confirm the observation. But he retuned with a different report which said "There is a superb market potential in that country as no one is wearing slippers".

What is the moral of the story? Beauty is in the eyes of the beholder. One has to be of positive frame of mind to see the potential in a market. CSE is a classic example. Isn’t an undervalued market a better opportunity than a high valued one?

What you need today is determination. They say necessity is the mother of invention. Look after your existing customers. Reach out and look for new customers. Educate potential customers about the opportunities in an undervalued market in a low interest regime. Show them the long term benefits they can gain by investing now. Guide them wisely. When your customers do well you will also do well. When you do well market also will do well.

Success is a journey and not a destination. So take control of your destiny.
www.island.lk

Interest rates could dip further?

By Asia Wealth Management
Monetary authorities held policy rates at current levels in spite of the growing volume of savings, low inflation and improving external position of the economy against the background of stymied growth of credit to the private sector.

However, a further cut in rates remains a possibility during the second half of the year mainly on account of two important trends currently taking root in the economy.

The first phenomenon to note would be that the sharp fall in interest rates seen in recent times has not in turn caused rates on consumer credit to drop equally, possibly due to relatively high nonperforming loans being concentrated in the consumer sphere.

Further, given that consumer loans occupy circa 40% of the total loans to private sector by commercial banks, room for monetary authorities to cut rates further increases as balance of payments position will not be adversely affected due to the lower propensity for consumer lending rates to fall compared with the average rate of lending in the economy, in the face of a rate cut.

Loans growth in to investments in fact has a lower negative impact on balance of payments as it may not cause a leakage of funds from the economy to the level of consumer sector credit growth. Hence, under this backdrop, a window of opportunity remains for policy rates to fall further possibly during the second half of the year.

On the other hand, export receipts coupled with inflow of labour remittances continue to rise notably while the expansion of the domestic market compared to rising export receipts remains moderate. This is indicated by credit growth to private sector dropping to 5.2% YoY in January 2014 while export receipts growth jumped to 23.2% YoY during the corresponding period. This particular phenomenon causes the liquidity levels in the financial systems to rise causing an expansion of bank liabilities (savings) at a faster pace than loans and advances to private sector (a segment of assets). This particular phenomenon tends to raise the demand for government bonds by the domestic banks owing to the high liquidity levels prevailing in the domestic financial system. Under this backdrop, primary market yields have continued to drop moderately coupled with that of the average lending rate in the economy.

The domestic demand for treasury securities despite foreign divestments is causing the yields to behave in this pattern. On the back of these developments we expect the domestic treasury yields and market interest rates to fall further marginally, assisting the equity trade in the Colombo Bourse.

However, on the other hand, interest rates in the long run may increase on the back of winding down of Fed’s quantitative easing program and the scheduled increase in U.S. policy rates in mid 2015.
www.ft.lk

MBSL posts aggressive growth in 2013

The Merchant Bank of Sri Lanka PLC (MBSL) posted revenues of Rs. 608 million for the fourth quarter of the financial year as against Rs. 482 million during the corresponding quarter of last year.

The revenue of the company for the Year 2013 of over Rs. 2.3 billion reflects a 25.97% growth over the corresponding period in the previous year. MBSL Chairman M.R. Shah said that the growth was mainly due to our aggressive expansion drive launched in the year 2012, and the commitment and dedication of our staff members.

The interest income recorded a growth of 24.82% from Rs. 1.8 billion to Rs. 2.3 billion in the 12 months period mainly from lease and hire purchase, term loans, microfinance and personal loans. Interest expenses too increased to Rs. 1.37 billion compared to Rs. 1 billion for the same period. This increase mainly reflected by increase of money market interest on commercial papers and promissory notes and interest on debentures. Net fee and commission income of the MBSL increased to Rs. 48 million recording a growth of 12.72% during the year of 2013. The growth in fee income was seen mainly from corporate advisory services during the period.

The total assets of MBSL reached Rs. 13.3 billion as at 31st December 2013 compared to Rs. 11.9 billion as at 31 December 2012 reflecting a growth of 11.5%. The growth in the company’s asset base is mainly represented by lease and hire purchase receivables and loans and advances to customers.
www.ft.lk