Sri Lanka SEC watchful of stock bubble amid low interest rates

* SEC says no bubble yet despite surge in trading

* Regulator warns investors not to play casino with stock investments

* Forty-five companies in pipeline for listing in 3 years

* Exchange demutualisation by end 2015; listing in 2016

By Shihar Aneez

COLOMBO, May 27 (Reuters) - Sri Lanka's stock market regulator is monitoring the risk of a potential bubble forming with a surge in trading activities and amid low interest rates, the head of the island nation's Securities and Exchange Commission said on Tuesday.

Average daily turnover has risen to $7.8 million this year compared with $6.4 million last year, with stockbrokers saying lower interest rates have compelled local investors to shift funds to riskier stocks from lower yielding fixed-income assets.

"The bubble is when you go and start chasing penny stocks. That situation we don't see yet...we are watching. We keep cautioning people not to play casino and invest intelligently," Nalaka Godahewa, the head of the exchange, told Reuters.

"At the moment we do not see it as a bubble because the P/E levels are below 15 and more active stocks are fundamentally strong ones," Godahewa said.

The central bank has slashed the repurchase rate and reverse repurchase rate by 125 basis points (bps) and 175 bps to the their multi-year lows of 6.50 percent and 8.00 percent, respectively, between December 2012 to January this year.

The yields in government securities have fallen between 387-543 bps to 6.57 percent and 7.02 percent since the central bank's dovish policy stance from December 2012, leaving investors with little choice for risk-free investments.

Confidence in Sri Lanka's exchange, with a market capitalisation of $20.21 billion, plummeted in 2011 after hitting a record high of 7,863.74 points amid suspected market manipulation and insider dealings. On Tuesday, the index ended 0.4 percent lower at 6,267.44.

Godahewa said legal action has been taken out against the suspected cases of market manipulation to instill confidence. But analysts say many local investors who actively traded are still keeping away.

Godahewa said some investors are still stuck with negative margins as they invested with borrowed money in 2011 and 2012.

LISTING A CHALLENGE

The SEC's efforts to get more companies listed on the exchange have yet to bear fruit. Only a few companies have been listed since 2009 despite a surge in the stock market after the conclusion of the country's 26-year war in May 2009.

Optimism over post-war growth produced gains of 125 percent in 2009 and 96 percent in 2010, but the trend reversed with losses of 8.5 percent in 2011 and 7.1 percent in 2012. The market is still on a recovery path after edging up 4.8 percent last year and is up 6.1 percent so far this year.

The country has witnessed a sustained average economic growth of more than 7.4 in the last four years through 2013 mainly due to state-led massive infrastructure projects financed by foreign commercial loans.

However, sluggish consumer spending due to high taxes and low disposable income has compelled a lot of private companies to postpone their investments and expansion, economists say.

"Companies need to raise capital only when they grow. If the country can sustain its economic development activities and the enthusiasm among the companies, they want to grow. They will need money and they will need options of raising money through equity and debt," Godahewa said.

However, he was optimistic about overcoming the challenge of getting companies listed. Forty-five firms are in the pipeline to list within the next three years, but he did not elaborate.

Godahewa also said the SEC was in the process of valuing the bourse for demutualisation.

"Our target is end-2015 to finish demutualisation. If we can finish the demutualisation by 2015, within the next one year, it should be listed."

($1 = 130.4000 Sri Lanka rupees) (Editing by Jacqueline Wong)

Sri Lanka stocks fall to 3-week low; blue-chips tumble

May 27 (Reuters) - Sri Lanka stocks fell to a three-week low on Tuesday led by select blue-chips like Sri Lanka Telecom PLC and conglomerate John Keells Holdings PLC, while trading in shares of some financial firms boosted turnover.

The main stock index ended 0.41 percent, or 25.58 points, lower at 6,267.44, its lowest close since May 7.

The day's turnover stood at 1.38 billion rupees ($10.58 million), more than this year's daily average of 1.02 billion, helped by Multi Finance PLC, Entrust Securities PLC , and Asia Asset Finance Ltd.

The bourse saw a net foreign inflow of 35.6 million rupees on Tuesday, extending the year-to-date net foreign inflow to 1.87 billion rupees.

Stockbrokers expect the market to gain in the near future due to lower interest rates after the central bank kept key rates at multi-year lows on Tuesday for the fourth straight month, as expected.

Shares of Sri Lanka Telecom PLC fell 5.74 percent to 46.00 rupees, while John Keells Holdings PLC fell 0.38 percent to 233.10 rupees. Both stocks dragged the overall index.

After the market closed, Keells said its March-quarter net profit fell 9 percent to 4.68 billion rupees.

Multi Finance PLC ended 0.6 percent up at 16.70 rupees, while Entrust Securities PLC rose 1.46 percent to 20.80 rupees. Asia Asset Finance PLC ended flat at 1.80 rupees a share.

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.

However, analysts have raised concerns over sluggish economic growth due to lower credit growth and consumer spending.

Despite a multi-year low interest rate regime, data showed private sector credit grew 4.3 percent in March from a year earlier, the slowest expansion since May 2010.

The latest trade data, released on Monday, showed imports have gained 8.2 percent in March, while exports hit a record high of $1.07 billion helping to narrow the March trade deficit by 15.5 percent compared to a year ago.

Central bank Governor Ajith Nivard Cabraal on May 19 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 = 130.4000 Sri Lanka Rupees) 

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

John Keells Holdings March quarter profits down 9-pct

May 27, 2014 (LBO) - Profits at Sri Lanka's John Keells Holdings, fell 9 percent from a year earlier to 4.6 billion rupees the March 2014 quarter, with last year's profits boosted by fair value gains.

The group reported earnings of 4.63 rupees per share. In the year to March it reported earnings of 12.33 rupees per share.

Group revenues rose 5 percent to 24.2 billion rupees and cost of sales rose 4 percent to 17.3 billion rupees. The group grew gross profit 7 percent to 6.9 billion rupees.

Other operating income rose sharply to 1.54 billion rupees, from 513 billion rupees a year earlier. Fair value gains from investment property fell to 470 million rupees from 2.0 billion rupees a year earlier.

Profits from shipping and bunkering fell to 602 million rupees from 742 million rupees, and leisure was flat at 1.9 billion rupees.

Profits from property fell to 840 million rupees 1.25 billion rupees and consumer and retail fell to 479 million rupees and 1.43 billion rupees.

Sri Lanka stocks close down 0.4-pct

May 27, 2014 (LBO) - Sri Lanka's stocks closed down 0.41 percent with telco stocks losing ground despite continued low foreign participation, brokers said.

The Colombo benchmark All Share Price Index closed 25.58 points lower at 6,267.44 down 0.41 percent. The S&P SL20 closed 15.72 points lower at 3,447.17, down 0.45 percent.

Turnover was 1.39 billion rupees, up from 291.32 million rupees a day earlier with 90 stocks closed positive against 95 negative.

Entrust Securities closed 30 cents higher at 20.80 rupees with an off market transaction of 587.40 million rupees changing hands at 20.50 rupees per share contributing 42 percent of the daily turnover.

Multi Finance closed 10 cents higher at 16.70 rupees with an off market transaction of 316.02 million rupees changing hands at 16.60 rupees per share contributing 23 percent of the turnover.

The Finance Company non-voting shares closed 40 cents higher at 7.40 rupees and Laugfs Gas non-voting shares closed 90 cents lower at 30.50 rupees, attracting most number of trades during the day.

Foreign investors bought 52.83 million rupees worth shares while selling 17.24 million rupees worth shares.

Sri Lanka Telecom closed 2.80 rupees lower at 46.00 rupees, contributing most to the index drop by reversing its gains in the previous days.

Bukit Darah closed 14.00 rupees lower at 636.00 rupees and Lion Brewery Ceylon closed 17.80 rupees lower at 432.10 rupees.

Asian Hotels and Properties closed 1.90 rupees lower at 70.20 rupees and Aitken Spence Hotel Holdings closed 20 cents higher at 77.40 rupees.

Ceylon Tobacco Company closed 8.00 rupees higher at 1,070.00 rupees and John Keells Holdings closed 90 cents lower at 233.10 rupees.

JKH’s W0022 warrants closed 1.00 rupee lower at 62.00 rupees and its W0023 warrants also closed 1.00 rupee lower at 67.90 rupees.

NDB Capital Holdings closed 29.00 rupees higher at 499.00 rupees.

Sri Lanka's The Finance Company given liquidity facility, new board

May 27, 2014 (LBO) - Sri Lanka's Central Bank, said it had given a liquidity facility to The Finance Company, and has also appointed changed the board under a new restructuring plan.

The central bank has given "a long term facility from the Sri Lanka Deposit Insurance and Liquidity Support Scheme with immediate effect," and had issued "directions for the future conduct of the business under a new restructuring plan," the regulator said in a statement.

S H A M Abeyratne, PhD, has been named Chairman and S Rajapaksha, FCA, Deputy Chairman.

A P Lekamge, MBA (Managing Director, T Senthilverl, (Non-Executive Director), R Ahukorala, MBA, Non-Executive Director, T B Ekanayake, Attorney at Law & Notary Public,Executive Director and R D Abeywickrama, ACA, Executive Director.

Chairman M P Jayawardena and C Rosa had said they were not available re-appointment, the statement said.

The Finance was a member of Sri Lanka's Ceylinco group that the regulator is re-structuring. It is one of several finance firms that that faced liquidity trouble in 2009. The Central Bank is also trying to reduce the total number of finance companies in the system.

Aitken Spence profits up 11.7%

Ceylon FT: Conglomerate Aitken Spence PLC reported a profit attributable to shareholders of Rs 3.7 billion for the year ended 31 March 2014, up 11.7% over the previous year’s profit of Rs 3.3 billion.

Profit before tax was Rs 5.4 billion and profit after tax was Rs 4.5, recording growth of 7.6% and 5.5% respectively. The diversified group’s annual revenue declined marginally to Rs 36.6 billion whilst earnings per share improved by 11.7% to Rs 9.04 for the financial year.

“The Group’s bottom line was driven primarily by the tourism sector. Sri Lanka welcomed over 1.27 million tourists during the year 2013, with a target of 1.5 million set for 2014.The boom in the tourism industry was reflected in the group’s performance with the revenue of the Tourism sector for the financial year growing by 9.4 % to

Rs 16.9 billion and profit before tax surging by 26.3 % to Rs 4.4 billion. During the period, Aitken Spence Hotel Holdings PLC, the group’s hotel owning strategic business unit, entered into a shareholders’ agreement with RIU Hotels of Spain to build a 500-room luxury resort in Ahungalla, costing approximately USD 100 million. The construction of the hotel is expected to commence during the second half of the financial year 2014/15,” the company said in a statement.

Annual revenue for the Maritime Cargo Logistics sector increased 15.3% to Rs 7.3 billion whilst profits before tax for the sector increased by 26% to Rs 709 million. Entry into a strategic partnership in Fiji for port management services through the acquisition of a 51% shareholding in Ports Terminal Ltd – the first- ever public – private partnership overseas by a Sri Lankan company recorded to date, was a highlight for the year.

Services sector reported a revenue of Rs 819.6 million for the financial year under consideration which was a growth of 11.5 %, and a profit before tax of Rs 180.5 million, a growth of 10.2% compared to the previous year. Strategic Investments sector reported a year-on-year decrease of 16.1% in revenue to Rs 15.3 billion, while the profit before tax dropped by 81.1% to Rs 159.8 million for the financial year primarily due to the Aitken Spence power plants in Matara and Horana not being operational during the reporting period consequent to the cessation of the Power Purchase Agreements. Further, a provision for impairment of approximately Rs 400 million was made in respect of the remaining assets of these two companies, which dragged down the profits of the sector.

The company disposed of the Horana power plant during the financial year, while the 100 MW power plant at Embilipitiya remained operational, albeit with lower generation due to excessive rainfall during the first nine months of the financial year. During the period under review the Group inaugurated a land mark project by investing in a luxury retirement homes complex that will comprise of 140 villas and associated high-end facilities located at a 30 acre site in Negombo. The project aims to attract Sri Lankans living overseas who wish to return to their homeland as well as foreign nationals who wish to retire and live in Sri Lanka.

“The Company has been able to deliver consistent results through a combination of strategic foresight and the capacity to transform challenges into opportunities. These qualities have been underpinned by a well-diversified business model that supports the Company’s growth trajectory” said the Chairman, Harry Jayawardena. “Our strategies for the long term and exploration of potential new areas of business factor in the Company’s responses to some of the key future trends” he added.

The Group announced a dividend of Rs 2 per share which is a 33% increase over the previous year subject to approval by the shareholders at the Annual General Meeting. Aitken Spence PLC has operations in South Asia, the Middle East, Africa and South Pacific, in diverse industries including hotels, travel, maritime services, logistics, power generation and printing, with a significant presence in plantations, financial services, insurance, information technology and apparel.

www.ceylontoday.lk

Four-year bond yield hits 32 month low ahead of Treasury bond auctions

By Wealth Trust Securities
The secondary market for Treasury bonds continued its bullish trend yesterday as yields were seen dipping further mainly driven by the liquid two 2018 maturities (i.e. 1 April 2018 and 15 August 2018) to a 32-month low of 8.40% and 8.50% respectively and the 1 July 2019 maturity to a three-month low of 8.91% against its previous day’s closing levels of 8.45/48, 8.55/60 and 8.94/96.
This was ahead of today’s Treasury bond auction, the first in nearly two months for a total amount of Rs. 5 billion consisting of Rs. 1 billion on the 1 July 2019 maturity and Rs. 2.0 billion each on the 1 January 2019 and 1 June 2044 maturities which pay semi-annual coupons of 10.60%, 13.00% and 13.50% respectively.

Furthermore, durations of 2015, 2016 and 2017 maturities continued to derive heavy demand changing hands within the range of 7.15% to 7.22%, 7.35% to 7.56% and 7.98% to 8.05% respectively.

Meanwhile in money markets, overnight call money and repo rates averaged 6.94% and 6.51% respectively as surplus liquidity in money market stood at Rs. 20.31 b yesterday.
The Open Market Operations (OMO) department of Central Bank was seen mopping up an amount of Rs. 14.50 b on a four day basis at a WAvg of 6.61% while a further amount of Rs. 5.81 b was deposited at its Standing Deposit Rate (SDR) of 6.50%.

Rupee gains marginally
The rupee was seen gaining marginally yesterday to close the day at Rs. 130.37/42 subsequent to gaining to a daily high of Rs. 130.35 on the back of the strong external sector performance announced yesterday. The total USD/LKR traded volume for the previous day (23 May 2014) stood at $ 82.17 million.

Some of the forward dollar rates that prevailed in the market were: one month – 130.87; three months -131.85; and six months – 133.27.

www.ft.lk

Ceybank Equity Funds to pay highest-ever dividend of Rs. 417 m in 2013/14

• Distributes Rs. 383 m from Ceybank Unit Trust and Rs. 33 m from Ceybank Century Growth as tax free dividends for investors

Ceybank Asset Management Ltd., the managers for Ceybank Funds, made the highest-ever dividend distribution of Rs. 417 m for investors in their equity funds, Ceybank Unit Trust and Ceybank Century Growth Fund recently. Accordingly the distribution would translate in to a dividend of Rs. 2.00 per unit of the respective Funds.

Established in 1992 Ceybank Unit Trust is the biggest balanced fund in the country with a net asset value of Rs. 5.8 b while the Ceybank Century Growth Fund is the country’s first and the biggest equity fund with a net asset value of Rs. 1 b established in 1997.

Commenting on the occasion, Ceybank Asset Management Chairman K.L. Hewage said: “It is a historical milestone for Ceybank Funds as it is the highest-ever dividend payment made by the Ceybank Unit Trust Fund since inception.”

Challenging conditions
He further stated that the higher dividend payment during the year was made amidst challenging stock market conditions.

“Our funds have outperformed the broader market, benefited by asset allocation decisions made by the fund management team. Despite the moderate market growth of 4% during the FY 2013/14 the accumulated gains realised by trading of shares over the years enabled us to declare a higher dividend payout this year. Accordingly the current year dividend represents a growth exceeding 300% over the previous year which is significantly higher than the market growth during the period.”

“It is a historical milestone for Ceybank Funds as it is the highest-ever dividend payment made by the Ceybank Unit Trust Fund since inception. The higher dividend payment during the year was made amidst challenging stock market conditions – Ceybank Asset Management Chairman K.L. Hewage”

Expressing his views, Ceybank Asset Management Ltd. CEO Chitra Sathkumara stated that the current dividend of Rs. 2 per unit for both Ceybank Unit Trust and Ceybank Century Growth Fund would translate to a dividend yield of 7.6% and 3.4% respectively to its unit holders in addition to the capital appreciation of 7.9% and 9.3% respectively during the period based on unit offer prices as at 1 April 2013.”

Commendable returns
Sathkumara further stated that the both Ceybank Unit Trust and Ceybank Century Growth Fund have achieved commendable returns for its investors over the years. “For example the total return of an investor who had invested in Ceybank Unit Trust 10 years ago as at today would be 256% (CAGR of 13.6%) while it is 351% (16.3% CAGR) if one had invested on Ceybank Century Growth Fund.”

He further stated the significant gains realised by the funds over the years have enabled the funds to maintain its regular dividend policy even during the periods of poor market
 performance. 


“The Ceybank Unit Trust has realised Rs. 2,730 m while Ceybank Century Growth Fund realised Rs. 373 m during the last five years as capital gains from the share trading”.

He further noted: “With the current dividend, Ceybank Unit Trust has paid Rs. 19.90 per unit while the Ceybank Century Growth Fund which has paid Rs. 15 per unit cumulatively, more than the investment made by the original investor. Accordingly the Ceybank Unit Trust has in total distributed Rs. 2.8 b as dividends since inception.

“Had an investor reinvested the dividends back in the Ceybank Unit Trust since inception in 1992, his investment would have grown at CAGR of 12.0% as against All Share Index growth of 9.8%, while if he had done the same with Ceybank Century Growth Fund since inception in 1997 his investment would have grown at CAGR of 15.4% as against 14.3% growth in the All Share Index.”

Stock market outlook
Commenting on the outlook of the stock market, Ceybank Asset Management Fund Manager Indika Rajakaruna stated that 2014 would be a turning year for the stock market.








“We think the low interest rates would benefit the stock market growth with better corporate earnings and attractive valuations that would encourage higher investor participation. At present we are bullish on the equities and are looking ahead for a higher total return for our unit holders in the coming years as well.”

“Both Ceybank Unit Trust and Ceybank Century Growth Fund have achieved commendable returns for its investors over the years. For example the total return of an investor who had invested in Ceybank Unit Trust 10 years ago as at today would be 256% (CAGR of 13.6%) while it is 351% (16.3% CAGR) if one had invested on Ceybank Century Growth Fund – Ceybank Asset Management Ltd. CEO Chitra Sathkumara”

Ceybank Asset Management, one of pioneer asset management companies in Sri Lanka and founded in 1991, is backed by the shareholdings of Sri Lanka’s leading State-owned Bank of Ceylon and Sri Lanka Insurance, Carsons Cumberbatch PLC and India’s pioneer unit trust fund manager, Unit Trust of India.

In addition to equity unit trust funds, the company also offers products for investors in fixed income through the Gilt Edged and Money Market Fund series. The National Savings Bank is the Trustee while the Bank of Ceylon is the Custodian for all unit trust funds managed by the company.

www.ft.lk

HNB Assurance records excellent growth in Q1, 2014: highest-ever GWP in Q1

HNB Assurance PLC lived up to its  reputation as the fastest growing insurer in Sri Lanka by recording a growth of 24% in its turnover measured by Gross Written Premium in the quarter ended 31 March 2014.

Its Life Insurance GWP grew by 34% outpacing the Life Insurance market which grew by only about 10% in the first quarter of 2014. The Company’s achievement in the General Insurance sector was equally impressive as it recorded a growth of 16% while the General Insurance market recorded a decline by about 1%.

The combined GWP of Rs. 1.14 billion achieved in the quarter turned out to be the highest ever recorded by the Company in a single quarter. The combined GWP achievement of Rs. 538.3 million in the month of March also established a new record as the highest-ever GWP recorded in a month.

HNB Assurance Managing Director Manjula de Silva said: “This outstanding achievement is attributed to the renewed focus and energy with which the two recently segregated Life and General distribution teams commenced their operations.”

He is hopeful that the momentum built during the first quarter will be carried through during the entire year enabling the Company to end its last year as a composite Company on a high note.

The Company was also able to deliver an 8% growth in its Profit After Tax. The profit declared for the period of Rs. 53.9 million is derived entirely from the General Insurance business as the Company recognises a profit from Life Insurance only after the year – end actuarial valuation is completed.

HNB Assurance PLC is one of the fastest growing insurance companies in Sri Lanka with a network of 51 branches. HNBA is a composite Insurance company with a rating of A (lka) by Fitch Rating Lanka for “National Insurer Financial Strength Rating” and “National Long- term Rating”.

HNBA is also rated within the Top 100 Brands and Top 100 companies in Sri Lanka by LMD and HNB Assurance recently won International awards for Brand Excellence and HR Excellence and also won many awards for its Annual Reports at the Award ceremonies organised by the Institute of Chartered Accountants of Sri Lanka, ACCA Sri Lanka (Association of the Chartered Certified Accountants) and SAFA (South Asian Federation of Accountants)

www.ft.lk