'Stock Market gives better return on people's investments than banks'

Nalaka Godahewa

By Lynn Ockersz

'Do not confine yourselves entirely to the banking system. The Stock Market has always given you a better return on your investments and it would be advisable for you to invest some of your hard-earned money in the Stock Market, with a full knowledge of the money-earning opportunities it opens out regularly, rather than invest all your moneys in the banking system, which today offers investors very low interest on their investments.'

Thus said Securities and Exchange Commission of Sri Lanka chairman Dr. Nalaka Godahewa, when asked by The Island Financial Review during an interview recently, what advice he has to offer retired personnel who are usually prone to deposit their lifetime savings in mainly the banking system and depend on the interest these investments bring for their daily sustenance.

'From being around 20 percent at one time, bank interest is down to 10 percent or thereabouts. This is slightly above the inflation level and would hardly prove adequate in meeting current living costs. On the other hand, wise investments in the Stock Market would bring substantial returns which would enable a retiree to live comfortably, the SEC Head explained.

'However, it is important that a prospective investor in shares refrains from making rushed decisions. First, he or she must study market opportunities carefully. Moneys must be invested judiciously after some time spent studying the market openings that would yield the best returns. I would also urge potential investors to invest some of their savings, and not all of it, at first, in the Stock Market and assess the progress before making huge investments, the SEC chief added.

http://www.island.lk

Arpico Finance partners with Adl Capital to offer Islamic financing

Arpico Finance Company PLC, (AFC), one of Sri Lanka’s oldest finance company is the newest entrant into the growing domestic market of Islamic Financing with the launch of a dedicated Islamic Financing Unit – Al Jabal. 

The unit will operate under the overall ambit of AFC and will offer a range of Shariah compliant products and services to its entire clientele. The unit was officially launched on 8 April and operates from a dedicated premises located at Orchard Building Complex, Colombo 6. The company hopes to introduce Islamic finance products and services for other branches shortly.

AFC has been in the continuous search for new markets and geographical expansion, incorporating all major cities and townships into its network and thereby attracting a larger and vibrant customer base. The company’s entry into the domain of Islamic banking offers much promise for the growth of the company and beneficial for all stakeholders.

The setting up of AFC’s Al Jabal was facilitated within record time, which is a reflection of the dynamism displayed by Arpico, supported by the expert guidance and supervision of Adl Capital Ltd., a company that specialises in the field of Islamic Finance Advisory, having been actively involved in structuring turnkey Islamic financing solutions to the local IBF industry. These include establishing fully fledged Islamic banking units and product structuring for licensed banks/registered finance companies/leasing companies.

Adl Capital’s business advisory functions also includes structuring Shariah-compliant products for the capital and equity markets and offers Shariah-based financial advisory services to private businesses.
www.ft.lk

EPF ups Royal Ceramics stake to 10%

The Employees Provident Fund (EPF) has increased its stake in Royal Ceramics Plc to 10% by last week.

As at 31 December 2013, EPF held a 9.80% stake in Royal Ceramics Plc, up from 9.55% as at end September 2013.

Vallibel One Plc is the controlling shareholder of Royal Ceramics with a 51% stake.

In recent weeks EPF also announced its stakes in Central Finance and Piramal Glass reached 10% as part of disclosure to the CSE.
www.ft.lk

Vignarajah writes to SEC on related party transactions and public float

Investor and minority interest activist K.C. Viganarajah has written to the Securities and Exchange Commission on a host of issues concerning new rules on related party transactions and public float. Following are excerpts of the letter which he released to the media as well:

I am pleased to refer to our above meeting, at your invitation, at which we had a pleasant and constructive exchange of views on wide ranging matters arising from, inter alia:
a) The articles on ‘The Hurried Release of New Rules and Directives on Related Party Transactions and Public Float’ referred to herein below, and
b) The contribution I made exactly three months ago at the CSE Investor Forum held on 25 January 2014, at Taj Samudra.

The concerns and issues raised have not been adequately addressed though some progress in attitudes seems to have taken place. The loopholes and escape routes remain and are being brazenly exploited.

There is no inquiry process with the aggrieved shareholders who took up issues being present when the wrongdoers and errant Controlling Interest and Related Parties (CI&RP) are investigated.

Discretion and secrecy facilitates corruption with “files being closed”; no reports of the offences, findings, fines or deterrent punishment etc!

“The CSE has to be commended for organising an Investor Forum on ‘Potential Value of the Market’. They state that “it is an ideal opportunity to clarify matters relating to the capital market ….”

However, the agenda limits the Q&A session to only 15 minutes! We cannot expect a healthy dialogue or satisfactory answers to many vexed concerns expressed on the recent hurriedly announced rules and directives by the SEC. They were highlighted by all the major business media. There has been no credible response as yet.

In a spirit of maximum cooperation, to make this forum a success, in boosting investor confidence, I have noted a few points for the panel to clarify at the forum and give this note to the keynote speaker and the organisers.

* A 7,500 to 8,000 + ASPI and a 4,500 S&P 20,is possible (only if immediate positive action is taken).

This is a market of great opportunities and potential; it will reach the above targets. 

However, if SEC/CSE, Secretary to the Treasury, Governor of Central Bank, Auditors and CA Sri Lanka appease and mollycoddle the crooks, the market will crash, after a phony push up.

Meaningful and determined action on a continuing basis, as requested repeatedly by genuine Investor Minority Shareholder (IMS) must be taken now.

* From the articles written, and many numerous statements made by me and fellow genuine IMS, you will notice that we have much greater credibility of honest endeavour, when compared to those market manipulators, insider traders and corrupt Controlling Interests (CI) & Related Party (RP) who profess to push up the market. It is an incontrovertible fact which you can verify from patterns of trade and even publish them.

* The SEC/CSE must perform their duties perfectly, reining in and punishing the wrongdoers.

* Companies must exhibit fairness to current shareholders declaring by dividend payouts of at least 50% of NPAT. They should carry forward, the balance as retained earnings/reserves (which again are the property of all shareholders) , and may be given as scrip dividends, without affecting cash flow, but increase liquidity, shareholder choice, in a better, freer market.

* Myself and the genuine IMS applauded the youngest Chairman of CSE Krishan Balendra, when at the beginning of his term, he emphasised that independent directors should stay and fight the wrongdoers, rather than quit. He also supported preferential tax rates for PLCs with good public floats (“40% was good enough”, moderating IMS request of 45% public float to qualify).

* We believe that the new CEO will also understand that a vibrant, well-regulated “market” is where inter-alia, high liquidity, transparency, accountability prevails. We welcome him to act vigorously on the lines suggested in letters written by me and some of my colleagues from IMS to the chairmen, members of SEC/CSE and given very wide publicity by the eminent editors of all the business media together with their brief comments and emphasis.

* We have always been non-political. The concerted action of all men and women of goodwill is essential to save our country from going into a deep morass from which it will take many years and much effort to pull it out.

* The IMS has urged the CI&RP at AGMs & EGMs: “Do not steal from the small partners (IMS) to unfairly, unjustly, unlawfully, enrich yourselves directly or indirectly through subsidiary/associates companies and R.Ps to pass on such stolen ill-gotten riches to your ill-fated future generations!”

* We have advocated minimum dividend payouts of at least 50% of Net Profit after Tax (NPAT) as cash dividends and balance to retained earnings/reserves. Periodically capitalise and issue script dividends; also split the shares or issue bonus shares to create liquidity, equity, fairness, transparency and good return on investments. These are essential to make the stock market boom.

* Genuine Foreign Investors (FIs) will also storm into the CSE, if the above is implemented.

* The SEC Chairman has stated that a very modest 10% of directors of PLCs are corrupt. 

Will he also say they are under investigation and name them as we normally do in other areas of criminal and civil legal activities? Our guess is about 50% including those puppet directors who only stand or sit and stare (they also serve their masters!!). We must bring to the notice of IMS and investing public, re suspected wrongdoers, and the progress of investigations. It is a huge national task. Let the good honest elements of the SEC, CSE perform and act fast to save the good the good name of the institution.

Conflicts of Interest (CoI) have seriously eroded confidence in the market.

* Stockbrokers (SBs) know everything about the trades. They give advice; they buy, sell, hold, give or deny credit, force-sell etc.etc and should come out clean. They should, inter alia:
a) Declare their (and of any related party) transactions and shareholdings. They must post the info on the CSE web site, immediately.
b) The Brokers and RP must immediately disclose all purchases and sales to CSE and website. Obvious, serious CoI, where brokers sell/buy for their own or RP shares accounts must be avoided, if the integrity of the market is to be assured.
c) The Stockbrokers must immediately disclose the completed transaction of directors or Key Management Personnel (KMP) of PLCs shareholdings to the CSE. This should be a primary responsibility of the broker, and should augment the responsibility of the directors to disclose immediately (in some cases has taken almost a year to do so!).

The earlier requirement of immediate disclosure must be followed, instead of within a curiously extended T+5 period within which repeat transactions can take place to manipulate and benefit.

* “The truly Independent Director (ID) must have a keen interest in ensuring a well performing enterprise. He must have a balanced view and preferably have a sufficient stake, or even a significant, stake to be effective to stall errant CI and RP. The Independent Directors should by definition, be not dependent on the CI&RP for their appointment, and of course must not be connected to, related or controlled by the CI or RP. The shareholdings of the Independent Directors must be included in the public float, whereas the shareholding of other directors, KMP and RP should be excluded from the public float.”

We trust that the SEC and CSE will act to vigorously prosecute errant CI&RPs in order to restore confidence of independent investors. I had written on ‘Justice for investors of CIFL & Touchwood’, and here again all leading newspapers published it with the eminent business editor’s comments, and slightly modified headlines.

I heartily applaud the depositors’ court action and the SEC’s supportive action (though delayed) against the directors of Touchwood citing, inter alia, ‘criminal breach of trust’.

The growing knowledge of the criminality of stock market manipulators and frauds, as well as the realism by the law courts in transcending legal technicalities and forms, to go on to award natural justice considering that substance and core issues as most important, are most heart-warming.

It is a serious malady in some companies where CI&RP unjustly enrich themselves when they shun good corporate governance, and create “shareholder fatigue”, to depress prices, deprive IMS of fair and equitable, pro rata share of current profits, benefits, and of growth via a Dividend payout of at least 50% of current profits, scrip dividends, bonus shares, share splits of retained earnings, revenue reserves, and capital reserves, to enhance liquidity, marketability while affording equitable shareholder choice.

I have many a time, given long lists of eminent corporate leaders, and companies which have followed these eminent corporate policies. They enriched the companies and stakeholders to even greater growth and prosperity.

Deshamanya Chari P. de Silva who was honoured at the 175th anniversary of the Ceylon Chamber of Commerce (CCC), was one among this list of fame who had put into practice these ideals. This brave warrior also won in law courts to establish that “capital expenditure should not be at the expense of fair cash dividends,” and that good dividends and rapid growth are quite compatible. How many who bask in the glory of the CCC, follow its hallowed Code of Ethics?

Over to, not only the members of CCC, but more importantly to top office bearers past and present!

Will the CCC consider strong disciplinary action to regain its past glory?

K.C. Vignarajah
Acting in the interests of the IMS, the investing public and national interest.

www.ft.lk

Packer's casino plans knocked back by Sri Lanka

Sri Lanka has refused to allow casinos at three super-luxury resorts planned in the capital after opponents said they would lead to prostitution, an official says.

It was not immediately known whether the casino ban would endanger the development of the three mega-resorts in Colombo, which have attracted investment worth $US1.3 billion ($A1.40 billion) from tycoons including James Packer, who runs casinos in Melbourne, Perth, Macau and London.

Developers, including Mr Packer, wanted casinos to be part of all three luxury resorts, but the government rejected the plans, Economic Development Minister Basil Rajapakse said.

"We will not allow casinos. That we say very clearly," Mr Rajapakse told Parliament. "They [the promoters] asked, we did not allow, nor will we allow [in the future]."

He did not give a reason for the move, but opposition figures have raised fears that the casinos could lead to prostitution.

Although prostitution is illegal in Sri Lanka, foreign and local prostitutes frequent small-scale gambling operations in the country.

Buddhist monk Athuraliya Rathane, a legislator, said his party opposed the new hotels because of worries gambling would spur prostitution and harm Buddhist culture.

"We voted against these concessions as a warning to the government to correct its course," the monk told reporters in Colombo.

The main opposition United National Party (UNP) staged a demonstration in Colombo on Thursday, accusing the government of encouraging prostitution through gambling.

There was no immediate reaction from developers to the casino ban.

Mr Packer's proposed 450-room Crown Sri Lanka resort - which promises on its website to offer "world-class gaming facilities" - is one of those affected by the casino ban.

Crown had earlier said it was in "detailed discussions" with the government and potential joint venture partners and the deal was subject to "relevant approvals".

The other two resorts are a $US650-million development from local conglomerate John Keells Holdings and a $US300-million project by local businessman Dhammika Perera.

The government gave approval for all three projects to go ahead, minus the casinos, and also granted 10-year tax breaks - despite opposition. The UNP and even some of President Mahinda Rajapakse's own coalition partners broke ranks and voted against the tax concessions, but the government has a comfortable majority in the 225-member legislature and passed the legislation.

The palm-fringed island nation legalised casinos in December 2010, but the legislation has never been implemented. Sri Lankan officials have said they hoped high-end casinos could boost tourist arrivals to 2.5 million annually by 2016 from 1.27 million tourists last year.

Tourism suffered when government forces were locked in a decades-long combat with separatist Tamil Tiger rebels till 2009, but with the end of fighting, the hospitality trade has grown steadily.

AFP
Read more: http://www.smh.com.au/business/packers-casino-plans-knocked-back-by-sri-lanka-20140427-37bow.html#ixzz305B0t6O7

Touchwood is “forever” but without an office, says Kiwlegedara

By Sunimalee Dias

Touchwood would re-commence operations in early June this year although the location of its new office remains a mystery as its chief Lanka Kiwlegedara admitted on Friday that the publicly announced address was indeed a bogus one.

Mr. Kiwlegedara admitted during an interview with the Business Times that they do not have an office from which the Touchwood company is operating from at present. In this respect, he pointed out that the Nawala address was not correct and it was “verbally” informed to the Colombo Stock Exchange (CSE)” but was not aware as to why this was not made public.

However, he claims that while they do not have an office they had recruited at least 15 on the staff of the new Touchwood company with an altogether new management. The board comprises Mr. Kiwlegedara, Anuradha Bandaranayaka, Upul Peiris and the Maloneys (since it was not possible to leave them out due to the ongoing Securities and Exchange Commission inquirySEC) against the two), he explained. Mr. Kiwlegedara said they were awaiting the court decision (on a winding up application) due next month prior to re-commencing operations of the new company. He noted that they would be bringing in a foreign investor from one of his own ventures but all information on the whereabouts or name of the individual or company or country in which this overseas interest was coming from remained anonymous.

Commenting on the concerns of clients attempting to get in touch with him, it was stated that he could not be answering each and every call of even these clients that invested small sums of money. But calling out to all investors in Touchwood, he said, “don’t be frightened because Touchwood is forever.” The chief at Touchwood said that he would incurring personal expenses to the running of the company and had sought foreign investment since local banks were averse to lending due to the negative media reports. Mr. Kiwlegedara pointed out that while it would incur a cost of at least Rs.5 million for a new office, he said they were working on the re-structuring plans for Touchwood. Asking not to be attacked in the media, he lamented that he had undertaken a company which the Maloneys had “nethi naasthi karala thiyana company ekak (wasted).”
www.sundaytimes.lk

Move to transform EPF, ETF into pension funds

By Bandula Sirimanna

Amidst reports of ‘losses’ in investments made in the stock market by the Employees’ Provident Fund (EPF), the Government is planning to transform the EPF and Employees’ Trust Fund (ETF) into pension funds, official sources said. The Finance Ministry is drafting legislation to amend the EPF and ETF Acts for this purpose. The sources said the proposed pension fund would allow a retiring member to take part of the money as a ‘lump-sum’ payment and retain the balance to receive a monthly pension or withdraw his or her entire contribution on retirement.

“The proposals will be discussed with all stakeholders — companies, workers and unions — before any decisions are made and their views taken into consideration,” one official said. Free Trade Zones & General Services Employees’ Union (FTZ&GSEU) convener Anton Marcus said they would propose that the unclaimed EPF money running into billions of rupees be used to set up a private-sector pension fund.

Private sector employees should be given the option to join the pension scheme voluntarily, he said. Mr. Marcus said that the Central Bank should not manage the EPF but it could continue its role as the custodian of the fund. The Auditor General’s review of the EPF report for 2011 says the value of investments made in the stock market in 56 companies and totalling Rs. 54 billion made as of December 2011 had diminished by Rs 11.7 billion as of January 15, 2013, according to news reports this week.

This triggered concern from opposition parties and EPF contributors. Currently EPF contributions can be withdrawn on reaching 55 years while the ETF contribution could be withdrawn on leaving a company or the account transferred to a new company a member is joining. The Government has abandoned its previous attempt in May 2011 to set up a separate pension scheme for the private sector with part of the EPF funds after wide-ranging public protests.
Trade unions have also been demanding a private sector pension scheme in consultation with all stakeholders including employees and employers, the ministry official said.

The move to set up a private sector pension scheme comes as Sri Lanka is likely to face a major economic burden with an ageing workforce, he said adding that it was essential to bring improvements to the operating structure of both the EPF and ETF and find ways to bring into the structure the informal workforce not eligible for any kind of retirement funding.

In less than a decade, according to some estimates, the EPF may find it difficult to meet payments to retiring people, because outflows would rise faster than inflows and the Government is now looking at ways to get higher returns to the proposed pension funds, the official said. Taking past trends into account, he said it was estimated that Sri Lanka would have an elderly population of about 4 million, or one fifth of the population by 2021.

The official said the Finance Ministry was considering a modern fund management structure to secure higher returns for the fund once the amendments were approved by Parliament.
www.sundaytimes.lk

Consolidation impact on Banking sector - Jobs may shrink

Sri Lanka’s proposed consolidation of the financial sector is likely to result in a reduction in the number of employees in the banking sector with the consolidation process likely to cause distress to the existing banking sector employees, a recent report by a stock brokerage firm has highlighted. According to a Banking Sector Review of 2013 published by Asia Securities Research, the guidelines on staff retrenchments provided by the Central Bank of Sri Lanka in the process of the proposed consolidation poses a challenge given that the consent of the employees is required before proceeding with staff reductions.

“Under this backdrop the existing volume of banking sector jobs could shrink given that the process is an industry wide phenomenon and laid off staff could not be easily absorbed by other sectors of the economy. Hence, the consolidation process may cause distress to the existing banking sector employees,” the review by the investment firm released last week stated.

On the other hand, the report noted that since it is stipulated by the monetary authority that the terms of deposits are not liable to change in the case of a merger between a commercial bank and a non-banking financial institution this particular clause could constrain a merger between a bank and a Non Bank Financial Institution (NBFI) given that banking institutions will not be keen on paying higher interest rates offered by the NBFIs to depositors, hence, limiting the mergers within the sphere of operation of each firm.

However, pointing out the positive impact of consolidation, the report said the reduction in the number of banks through the consolidation process will reduce the volume of expenses spent by the banking sector specifically on advertising and inter firm competition in general.

“This, in turn, reduces the waste of loanable/investable funds and savings of depositors due to excessive competition among individual banks. Hence, the measure would reduce aggregate operating costs of the sector as a whole enabling the banks to lower their interest margin without deteriorating the Net Interest Income or other profitability ratios. The reduction in sales and promotion costs as a result of reduced degree of inter-firm competition would also proportionately increase the loanable funds of the financial system and hence may have a favorable impact on interest rates and economic growth,” the report elaborated.

It further added that a similar impact can be expected on the financial system in particular and on the economy in general by the possible reduction in overall operating costs including overhead costs accruing to premises, staff, equipment and other related cost categories of the banking sector following the consolidation process.

Following the consolidation process of the banking sector, the Central Bank expects that at least five Sri Lankan banks will have assets of Rs.1 trillion or more, with such banks also having a strong regional presence and the economy to have a large Development Bank that will provide a substantial impetus to development banking activities in the country.

http://www.nation.lk