Singer Sri Lanka debt downgraded to 'A-(lka)'

May 19, 2014 (LBO) - Senior debt of Singer Sri Lanka Plc, a consumer durables maker has been downgraded one level to 'A-(lka)' by Fitch Ratings on falling profits and margins.

Fitch said following value added tax hikes amid stressed economic conditions margins were declining.

Singer however was managing its consumer loans portfolio well, and revenue was expected to pick up, but margins would remain under pressure due to higher selling expenses, the rating agency said.

The full statement is reproduced below:-

Fitch Downgrades Rating on Singer Sri Lanka's Debt to 'A-(lka)'

Fitch Ratings-Colombo/Sydney-19 May 2014: Fitch Ratings has downgraded the rating on Singer (Sri Lanka) Plc's (Singer) outstanding senior unsecured debentures to 'A-(lka) from 'A(lka)'.

It has also published the company's National Long Term Rating of 'A-(lka)'. The Outlook is Stable.

The rating on Singer's outstanding commercial paper has been revised to 'F2(lka)' from F1(lka). A full list of rating actions is at the end of this rating action commentary.

The downgrade of the debenture rating reflects Fitch's view that Singer's medium-term net leverage as measured by adjusted net debt/EBITDAR (excluding Singer Finance PLC's figures) is likely to remain over 4.5x due to continued pressure on profitability.

KEY RATING DRIVERS

Margin Pressure: In 2013, demand for consumer durables in Sri Lanka declined and cost of sales rose following VAT revisions that the company found difficult to pass on to consumers, who faced stressed macroeconomic conditions.

As at end-2013, Singer's leverage increased to 4.7x from 3.4x at end-2012. The ratio further rose to 5.3x on an annualised basis at end-1Q14. While revenue is expected to recover, Fitch expects margin pressure to continue as the company increases selling expenses to drive sales.

Leading Consumer Durables Retailer: Singer has more than 1,000 retail points across Sri Lanka that sell a diverse range of brands and products, including in-house brands. The company was able to secure new brands, including Beko, Grundig, Sharp and Lenovo, which were added in 2013. Singer's well-known in-house Singer and Sisil brands, which are competitively priced and cater to the mass-market, provide the company with price-point diversity.

Well-Managed Consumer Loans: In-house financing plays a key role in Singer's business as it does in the operations of other retailers of consumer durables. In 2013, in-house hire purchase facilities financed approximately 45% of Singer's sales (2012: 44%). In-house financing makes products more affordable to the masses, which dovetails with mass market positioning of Singer's in-house brands.

Singer continues to manage its hire purchase portfolio well, aided by average durations of less than a year and strong staff incentives for debt recovery. At end 2013, Singer managed to contain overdue accounts at 3.7% of the portfolio (2012: 2.3%), while write-offs were negligible.

Cyclical Demand and Currency Risk: Singer has managed to mitigate its foreign-currency risk stemming from imports by producing locally. It manufactures and locally procures close to 35% of products thorough related companies and local suppliers. Singer also faces volatility in the demand for non-essential consumer durables through economic cycles.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively lead to a negative rating action include:

- A sustained increase in Singer's leverage (measured as adjusted net debt/EBITDAR excluding Singer Finance) to over 5.5x (end-2013: 4.7x)

- EBITDA margins sustained below 7% (end-2013: 8%)

- A material weakening in Singer's (company-level) liquidity profile

- A material weakening of the credit profile of Singer's 80% subsidiary, Singer Finance (BBB+(lka)/Stable), given the strong linkages between the entities

Positive: Future developments that may individually or collectively lead to a positive rating action include:

- Singer's leverage falling below 4.5x on a sustained basis

- EBITDA margins sustained above 10%

The full list of rating actions follows:

Singer National Long-Term Rating published at 'A-(lka)'; Outlook Stable

National Long-Term Rating on Singer's outstanding senior unsecured redeemable debentures downgraded to 'A-(lka)' from 'A(lka)

National Short-Term Rating on Singer's outstanding commercial paper downgraded to 'F2(lka)' from 'F1(lka)

Sri Lanka stocks steady at over 11-month high ahead of rate decision

(Reuters) - Sri Lanka stocks edged up on Monday to their highest close in more than 11 months ahead of the central bank's monetary policy announcement, led by telecoms and financials, while foreign buying boosted sentiment.

The main stock index edged up 0.06 percent, or 4.05 points, to 6,319.24, its highest close since June 10 last year.

The central bank will release its monetary policy rates at 0200 GMT on Tuesday. The market broadly expects rates to be left steady at their current multi-year lows.

The exchange witnessed net foreign inflows of 178.3 million rupees ($1.4 million) on Monday, extending year-to-date net foreign inflows to 859.8 million.

Shares of top mobile phone operator Dialog Axiata ended up 2.1 percent to 9.70 rupees, while Ceylinco Insurance Plc and NDB Capital Holdings Plc gained 6.2 percent each.

The market has been on a rising trend since mid-March as many investors were compelled to return to the stock market because low interest rates have made fixed-income assets less attractive, stockbrokers said.

The index has risen 1.5 percent in the last seven sessions.

But analysts have raised concerns over sluggish economic growth because of lower credit growth and consumer spending.

Despite a multi-year low interest rate regime, data showed private sector credit grew 4.4 percent in February from a year earlier, the slowest expansion since May 2010, while imports in February fell 6.2 percent on the year.

On Monday, central bank Governor Ajith Nivard Cabraal said Sri Lanka's private sector credit growth would pick up to around 15 percent by the end of this year and continue to improve through 2016.

($1 = 130.3500 Sri Lanka Rupees) 

(Reporting by Shihar Aneez; Editing by Prateek Chatterjee)

Sri Lanka stocks close higher

May 19, 2014 (LBO) - Sri Lanka's stocks closed 0.06 percent higher Monday with banking and telco stocks gaining amid net foreign buying, brokers said.

The Colombo benchmark All Share Price Index closed 4.05 points higher at 6,319.24 up 0.06 percent. The S&P SL20 closed 6.38 points lower at 3,472.79, down 0.18 percent.

Turnover was 589.93 million rupees, down from 1.61 billion rupees last Friday with 93 stocks closed positive against 101 negative.

Commercial Bank closed 60 cents lower at 129.00 rupees with market transactions of 67.11 million rupees contributing 12 percent of the turnover while an off market trade of 50.50 million rupees contributing 9 percent of the daily turnover.

JKH’s W0022 warrants closed 1.00 rupee higher at 64.00 rupees and Vallibel One closed 50 cents higher at 20.40 rupees, attracting most number of trades during the day.

Foreign investors bought 255.98 million rupees worth shares while selling 77.65 million rupees worth shares.

Dialog Axiata closed 20 cents higher at 9.70 rupees and Ceylinco Insurance closed 79.10 rupees higher at 1,359.60 rupees, contributing most to the index gain.

NDB Capital Holdings closed 29.20 rupees higher at 499.80 rupees and NDB closed 5.60 rupees higher at 198.60 rupees.

Distilleries closed 2.90 rupees higher at 208.00 rupees and Ceylon Tobacco Company closed 1.50 rupees lower at 1,088.00 rupees.

Lion Brewery Ceylon closed 13.60 rupees lower at 436.40 rupees and Bukit Darah closed 9.90 rupees lower at 660.00 rupees.

Nestle Lanka closed 18.10 rupees lower at 1,970.70 rupees and Cargills Ceylon closed 4.00 rupees lower at 140.00 rupees.

John Keells Holdings closed 1.00 rupee lower at 234.00 rupees and its W0023 warrants closed 40 cents higher at 70.20 rupees.

Commercial High Court judgment on Touchwood due on Wednesday

The Commercial High Court’s ruling on the Touchwood Investments Plc (TWOD) winding up case is expected on Wednesday, a development which analysts describe as being a likely turning-point to ensure good corporate governance and prudent financial management.

All investors of TWOD are eagerly waiting with the hope of recovering their dues through the liquidation of the company, according to a spokesman for parties supporting winding up. The upcoming ruling is anticipated amidst moves by a group of customers separately planning to file complaints with the Criminal Investigation Department (CID) this week.

The Petition to wind-up locally incorporated TWOD was filed in the latter part of July 2013 in the Commercial High Court of Colombo by an aggrieved investor through his lawyers, Messrs FJ & G de Saram, triggered many other investors to intervene and support the winding-up of the company.Many aggrieved investors appeared in Court and recorded their position supporting the winding-up while many others chose to take the backseat and watch the case due to financial constraints. Those, whose entire life savings were guzzled by TWOD had no financial means to resort to litigation.

The magnitude of the fraud surfaced only after the winding-up Petition was filed in Court. Its share trading was suspended by the SEC and a directive was issued restricting the managements of its assets, all of which took place only after the winding-up Petition was filed in Court.

The Spokesman said if not for the bold decision taken by one of the investors, the magnitude of the fraud committed by the company owned by Roscoe Maloney and its management would not have surfaced and the company would have continued its mismanagement and malpractice, misleading not only the public but also the monitoring bodies such as SEC.

“The company is now completely defunct. There is no registered office. The new management of the company has provided a new address in Nawala as its new registered address, where there is no office. The employees of the company whose salaries have not been paid over one year have now dispersed,” the spokesman claimed.

TWOD has last released interim accounts only up to June 2013, which showed a retained loss of Rs. 500 million.

Investors have lost hope in the new TWOD Chief Executive Officer L.W. Kiwlegedara’s promises in reviving the company. TWOD also made history in the legal system of Sri Lanka, by misleading and disrespecting Court by issuing personal cheques from Kiwlegedera’s bank account with the hope of settling the creditors of the company, which were dishonoured.

“If the company is wound-up, all assets will be liquidated and the investors will be paid off. Even though their full investment may not be recovered, the investors are of the view that ‘getting something is better than getting nothing’. If however the company is not wound-up, the management will be given one last golden opportunity to sell the assets of the company to their benefit, with the brand name ‘Touchwood’ entering the list of major financial scandals,” the spokesman alleged.

Those in support of the new management of TWOD however expect the company to be given an opportunity to make good with revival plans as some measures of ensuring stability had been made in the interim period.
www.ft.lk

CSE lets primary dealers trade listed corporate debt

The Stock Exchange has invited primary dealers and debt market specialists to register as trading members of the Colombo Stock Exchange (CSE) for debt securities. Three primary dealers have already obtained trading membership and the fourth primary dealer has submitted an application to the CSE. 

These members are in addition to the existing debt trading members, Chief Operating Officer of the CSE Renuke Wijayawardhane disclosed.

The CSE has taken a series of aggressive measures to promote a vibrant corporate debt market and provide companies an opportunity to raise debt capital, while providing investors with an opportunity for diversification by investing in fixed income instruments.

The measures taken by the CSE seek to serve the needs of all stakeholders and include the admission of primary dealers as trading members, simplifying the requirements to issuer companies when issuing corporate debt securities, and providing the required training for stock brokers on debt instruments.

Pursuant to a decision taken in 2013, the admission of primary dealers as trading members, it is expected that experienced debt dealers would facilitate a more liquid secondary market for the corporate debt securities on the CSE, while utilising their experience in dealing in government debt securities.

The introduction of primary dealers as new debt trading members is pursuant to the policy initiatives taken by the joint SEC and CSE Committee on ‘Development of the Corporate Bond Market’ and is one of the tenants within the SEC’s 10 point plan for developing the capital market, CEO of the CSE Rajeeva Bandaranaike explained .

The creation of a more liquid secondary market for corporate debt securities would help investors, particularly retail investors, to benefit from investing and trading in a new asset class through the CSE.

To make the secondary market for corporate debt securities more vibrant, the CSE plans to introduce a REPO mechanism in the automated trading system. The CSE is currently having discussions with primary dealers and other market participants with the concurrence of the Central Bank in this regard.

As a means of encouraging companies to list corporate debt securities on the CSE, the Listing Rules have been eased, by minimising the paperwork required, especially for existing listed companies, when issuing new debt securities.

The CSE is also reviewing the Member Rules of the CSE to include provisions applicable to the debt dealers who will be transacting in debt securities.

CSE Head of Market Development Niroshan Wijesundere commenting on the training aspect said that investment advisors of broker firms were given training on operating in the new automated trading system version 7.14, upgraded during 2013. The training program consisted of a theoretical session and a practical session. During the latter session investment advisors were given a familiarisation on debt trading in the automated trading system and the CSE will repeat this program regularly.

The CSE is also reviewing the transaction costs relating to corporate debt securities, which would result in ensuring a more competitive pricing for secondary trading of corporate debt.

The CSE in 2013 saw 28 corporate debt IPOs raising over Rs. 68.2 billion, with a corporate debt market capitalisation of Rs. 165.7 billion. The new initiatives are expected to build on this momentum.
www.ft.lk