Softlogic Finance in Rs.1.4 bln debenture issue for SME funding

By Sunimalee Dias

Softlogic Finance PLC announced a debenture issue of Rs.1.4 billion, a stock exchange filing stated on Wednesday.

The company stated that it would be issuing 14 million debentures at Rs.100 each with the public issue opening on August 21.

Speaking with the Business Times, Softlogic Finance Managing Director Ifthikar Ahamed said the debenture issue would ensure that the company would be able to access funding from banks, insurance companies and other fund managers.

He noted that Softlogic Finance was involved in raising funds through customer deposits and borrowing and in latter regard they would be cashing in through loans and debenture issues.

The Rs.1.4 billion debenture issue announced is a five year instrument rated AAA by RAM Ratings with Guarantco, a Development Finance Institution (DFI) that has as its ultimate shareholder the UK government, acting as guarantors for the instrument, Mr. Ahamed said.

Softlogic Finance is focused on the SME sector and the company has an annual plan to raise US$10 million as part of a funding plan for the company, the managing director pointed out.

He noted that the company in raising such funds would do so through customer deposits and borrowing that would assist the company to raise funds for further SME lending activities, for which they have a presence in most parts of the country except the East.

This is the company’s second DFI transaction, the first of which was carried out last year through a foreign currency loan obtained through FMO, a Netherlands based company which has interests by the Dutch government.

The first loan has a five year repayment period and the first payment has already been made, Mr. Ahamed said for the $10 million loan obtained.

He said that such funding was carried out in a bid to ensure the company would be able to generate a growth of 20-25 per cent.

Softlogic Finance is already looking at two DFIs interested in granting loans to the company as a foreign currency loans for the next couple of years. However, Mr. Ahamed did not identify the companies at this stage.
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Kiwlegedera overseas; promises to return for Touchwood case

By Sunimalee Dias

Former Touchwood Investments PLC Chairman/CEO Lanka Kiwlegedera, seemingly avoiding court appearances relating to the dodgy Touchwood investments, on Thursday agreed through his counsel to be present in court on the next date, August 7.
When the case came up, the Commercial High Court on Thursday ordered Mr. Kiwlegedera, currently abroad, to submit the Statement of Affairs on the next day of hearing.

High Court Judge Amendra Seneviratne ordered Mr. Kiwlegedera to submit all documents pertaining to the assets of the company to Liquidator Sudath Kumar before August 7 or in court at the next hearing.

Kumar’s Counsel Hafeel Farisz pointed out in court that Mr. Kiwlegedera was not cooperating by providing the details through a Statement of Affairs. However Kiwlegedera’s counsel, Sanath Wijewardena informed court that his client was currently out of the country and would be back on August 4 and agreed to submit all documents. Earlier notice was issued on Mr. Kiwlegedera to appear before courts on July 31 as he had failed to submit the assets of the company.

Meanwhile, investors of Touchwood Investments that is currently under liquidation would be granted an extension on the time period to submit their claims.

Touchwood liquidator Sudath Kumar told the Business Times that they would be extending the time period for depositors to submit their claims due to requests by these persons. He noted that up to date they have received nearly 900 claims and hoped to receive at least about 1000.

The time period would be extended by a minimum of two months, Mr. Kumar said adding that this was mainly due to individuals, resident overseas who had contacted him requesting for an extension.

Some depositors had contacted him from South Africa, Australia, the United States and Dubai, he said.

Mr. Kumar submitted to court the progress report on the liquidation process currently underway.
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State control expands at Commercial Bank

The vacant position on the board of directors of the Commercial Bank after Dinesh Weerakkody stepped down in line with the maximum 9-year rule is likely to be filled by a Treasury nominee, informed sources said.

If that happens, the Government would take effective control of the privately-held bank with five directors representing its interests through government stakes and in other ways. Directors that represent state interests (Treasury and Central Bank) are Dharma Dheerasinghe (Chairman), Prithi Jayawardena (Deputy Chairman), W. Swarnajothi – former Auditor General and Lakshman Hulugalle, Deputy Sri Lankan High Commissioner in Australia. The other directors are Prof. Uditha Liyanage and the bank’s managing director and his deputy. Earlier this month, John Wilson from the IFC was appointed a non-executive director of the bank.

The sources said that while Mr. Weerakkody was a nominee of the Harry Jayawardene-led DFCC Bank, the Government has a 35 per cent stake in that bank and the Treasury is believed to be using this clout to push its nominee on the Commercial Bank board.All directors including Mr. Hulugalle, who flew in from Australia, were present at Monday’s board where Mr. Weerakkody exited and Mr. Dheerasinghe took over.

While conflicts of interest have re-surfaced over the new chairman and his deputy, what is also interesting is the continued presence on the board of Mr. Hulugalle who has a criminal past which automatically should disqualify him under the ‘fit and proper’ rules of the Central Bank.

Mr. Hulugalle was convicted in the early 1990s over a timber offence and was sentenced to two years imprisonment suspended for 10 years by the Colombo High Court after he pleaded guilty.

The other bank where the government informally exercises control is Hatton National Bank with at least five directors known to represent state interests.

One minority shareholders said that he hoped ‘and prayed’ that the Commercial Bank, despite growing state influence, would be run as a professional organisation without external interference.

Banking analysts also wondered whether the next target would be the proposed combined NDB-DFCC Bank for more government representation.
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SL’s richest investment fund shifts from over-valued to under-valued stock

Seizes opportunity to grow portfolio



Ceylon Guardian investment Trust PLC, which calls itself "an experienced innovative investment company with high quality diversified portfolio of equity stakes in some of Sri Lanka’s most successful companies," has posted a 10% revenue growth to Rs.1.8 billion in the year ended March 31, 2014 but seen its attributable profit down 9% to Rs.1.7 billion.

Guardian is the wealthiest investment trust quoted on the CSE with assets running at Rs.17.93 billion against liabilities of just Rs.222.9 million.

The company’s Chairman, Mr. Israel Paulraj, has told shareholders in its annual report that the year under review has been a quiet one with the Colombo Stock Market recording marginal positive growth during the period under review."

"However on the domestic front we saw an ideal environment being mapped for a buoyant equity market with interest rates steadily coming down and the Central Bank setting the direction with policy rates," he said.

But he noted that investor had remained cautious with local participation in the CSE "low."

Domestic investors had preferred a wait-and-see approach opting for fixed income instruments such as debentures that offered attractive, lower risk returns.

"However foreign funds were net buyers during the period of review and were seen collecting fundamentally strong stocks at low valuations," he said.

They at Guardian, being long-term investors, had embraced the opportunity to grow the portfolio by shifting from fully valued to undervalued enterprises.

"Market volatility during the year under review increased thus presenting opportunities for both buying and selling of securities," he noted.

Paulraj indicated that Guardian, despite volatility of both local and overseas macro factors, remained confident of the long-term potential of Lankan equities and the sustainability of the economic development plans set in place.

"We believe that the long term development potential of Sri Lank will flow through to its equity market and indicators such as market capitalization to GDP (currently 29%) will improve over time," he said.

"For this to happen, we need greater depth of companies to invest in, growth in good quality corporate earnings and strong foreign inflows."

Paulraj also commented favourably on the rapid developments in capital market saying they were encouraged by the influx of listed debenture issues which will help open up an active debt market as well as the concept of investing in unit trusts gaining popularity and momentum.

"Furthermore, the entry of new institutional private equity investors to the unlisted market is an encouraging sign that this space too would improve in discipline and professionalism over time," he said.

The after-tax profit of Rs.2.12 billion posted by Guardian in the face of volatile conditions was up 4.6% from a year earlier – "a marginal upside" in the words of its chairman.

However the company’s portfolio value was down to Rs.24.2 billion from Rs.26.03 billion a year earlier.

The company had followed a strategy of booking profits on selected over-valued stocks, capturing market anomaly and booking substantial gains despite subdued market conditions.

Guardian’s Fund Managers, Guardian Fund Management Limited, reported that much of the market activity during the year under review had been on the foreign side with a net foreign outflow of approximately Rs.6.8 billion against a net inflow of Rs.22.7 billion recorded the previous year.

"Foreign interest or activity was evident on counters such as Commercial Bank, John Keells Holdings, Hatton National Bank, Aitken Spence, Ceylon Tobacco and Chevron Lubricants," the managers said.

"However mixed sentiment was evident on the counters with both selling and buying from foreign fund mangers."

They explained that the outflow during the current calendar year has been due to capital flight from emerging markets with funds selling out due to redemptions and transforming to developed markets and also due to foreign investors in such funds shifting from equities to fixed income assets putting pressure on over-valued or fairly valued markets.

However, frontier markets had been spared and a positive factor in Colombo was that domestic participation was increasing with both institutional and retail activity evident.

The managers said that the total shareholder return for 2013/14 of Ceylon Guardian was 13.6% taking into account both share appreciation and cash dividends received for the year.

"Taking a more longer term horizon, the shareholders of Ceylon Guardian got a return of 55%," the managers noted.

Ceylon Guardian Investments has a stated capital of Rs.953.4 million, capital reserves of Rs.769.7 million and revenue reserves of Rs.12.9 billion in its books. Net assets per share at market value were down to Rs.228.70 from Rs.247.48 the previous year while at book value it was down to Rs.166.93 from Rs.167.25.

Carson Cumberbatch PLC with 67.15% is the controlling shareholder followed by Thurston Investments (6.43%) and the EPF (2.65%). The EPF is a new entrant to the top shareholder list of the company.

The directors of the company are: Messrs. I. Paulraj (Chairman), D.C.R. Gunawardena, A. de. Z. Gunasekera, V.M. Fernando, Mrs. M.A.R.C. Cooray, K. Selvanathan and C.W. Knight.

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Non-cash factors depress Carson’s bottom line in 2013/14

Value of biological assets & translation of Indonesian currency blur picture

Carson Cumberbatch PLC, founded in 1857 and today one of the country’s strongest diversified conglomerates, has marginally increased group revenue in the year ended March 31, 2014, but seen the attributable profit decline sharply on account of reduced earnings in the group’s extensive oil palm interests in Indonesia and Malaysia.

Carson’s Chairman Tilak de Zoysa, has said in the company’s annual report that although the numbers at first glance suggest diminishing operational profitability, "the real reasons are attributable to material changes in non-cash elements of accounting and translations."

Group revenue was up to Rs. 76.5 billion from Rs. 76.2 billion the previous year while the attributable profit was down 19% to Rs. 3.7 billion from Rs. 4.6 billion a year earlier.

De Zoysa explained that the group’s biological assets (palm oil plantation assets) on profitability had dropped 35% year-on-year which is equivalent to Rs.1.7 billion.

"Biological valuation is a non-cash adjustment to profitability mandated by accounting standards and is determined based on age of plants, yield of palm, location of plantation, price of crude palm oil etc.," he explained.

"The second significant YoY disparity arises from the translation of non-current US Dollar borrowings of the plantation sector into Indonesian currency. This again is a non-cash item necessitated by cross-border accounting where the adverse impact on the current financial year’s results compared to last year is Rs.2.1 billion."

Carson’s oil palm plantations extend through 77,575 ha in Indonesia and Malaysia. A major player in this industry, the company is also into oils and fats refining from its crude palm oil in factories in India and Malaysia.

This segment of the business has returned to operating profitability posting a profit of Rs.271.9 million against a loss of Rs.985.7 million the previous year. The overall net loss in oils and fats had been Rs.128.2 million during the year under review against a net loss of Rs.1.53 billion the previous year.

Outside palm oil, the group is also into beverages controlling the Lion Brewery, the biggest and most profitable in the country.

Carson is further expanding its brewery interests with the forthcoming acquisition of Millers Brewery, makers of Three Coins beer.

Through its control of the Ceylon Guardian Investment Trust, Ceylon Investments and subsidiaries, Carson is one of the biggest players in the portfolio and asset management businesses in the country.

It is also into real estate through two quoted companies, Equity One PLC and Equity Two PLC and the unquoted Equity Three (Pvt) Limited, leisure through the Pegasus Hotels group and management services.

The Carson’s report indicates that the group had during the year under review exited from its airlines operation business where it was General Sales Agent for Air France and KLM Royal Dutch Airlines. The decision to exit had been strategic with the view to increase emphasis on the group’s core operations.

In discussing the leisure segment, Carson’s said that the emergence of lower grade accommodation had posed challenges on occupancy to the Star Class hotels.

Carsons runs both the Pegasus Reef Hotel in Hendala and Giritale Hotel.

Carson’s has a stated capital of Rs.1.1 billion, a capital reserve of Rs.5.3 billion and revenue reserves of Rs.27.8 billion in its books. Total assets ran at Rs.159.4 billion and total liabilities at Rs.91.5 billion.

Bukit Darah PLC with 45.68%, Tower Investments (10.66%), Fulcrum (9.79%) and Lake View Investments (8.79%) are the largest shareholders of Carson’s. The EPF which is among the 20 top shareholders has increased its holding to 2.68% from 1.78% the previous year.

The Selvanathan family is the major beneficial shareholder of Carsons through various holding companies.

The Carson’s share traded at a high of Rs.459 and a low of Rs.340 during the year under review closing at Rs.365. This compared to a trading range of Rs.495 to Rs.410 closing at Rs.440 the previous year.

A dividend of Rs.2 per share, the same as in the previous year, has been proposed by the directors.

The directors of the company are: Messrs. Tilak de Zoysa (Chairman), H. Selvanathan (Deputy Chairman), M. Selvanathan, I. Paulraj, D.C.R. Gunawardena, S. Shah, P.C.P. Tissera, V.P. Malalasekera, M. Moonesinghe (Resigned 31.03.2014), F. Mohideen and R. Theagarajah.
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'Mafia' investigations over

By Mario Andree

Ceylon FT: Capital market watchdog Securities and Exchange Commission (SEC) Chairman Dr. Nalaka Godahewa told Ceylon FT this week that all investigations into stock market irregularities during the 'mafia' period have been concluded, but did not elaborate on the outcomes.

The Colombo Stock Exchange boomed after the decades-long conflict ended in 2009 fuelled by rampant price manipulations, pumping and dumping, insider trading and front running and two former SEC chiefs Indrani Sugathadasa and Dr. Thilak Karunaratne resigned after trying to stamp out such malpractices.

Sugathadasa, resigning in November 2011, said she did so as a matter of principle, as did Dr. Karunaratne, who resigned in August 2012. He also said 17 investigations into market malpractices were pending when he resigned. He claimed that those being investigated had successfully lobbied the top echelons of government to put an end to such investigations.

The market was divided with a majority of brokers and investors claiming that both Sugathadasa and Dr. Karunaratne were dampening sentiments with their investigations, but four stockbroker firms defended the regulator.

Parliamentary Committee on Public Enterprise Chairman D. E. W. Gunasekara after a hearing on the SEC just before Dr. Karunaratne resigned said the stock exchange was run by several mafias and the government should give the regulator more teeth. Days before resigning, Dr Karunaratne had started work on amending the SEC Act in order to give the regulator more powers to deal with market malpractices.

This week Dr. Godahewa said all investigations started by former Securities and Exchange Commission Chairman Thilak Karunarathne have concluded and that to-date, there were no investigations pending, other than those less than six months old. "The mere fact that the Securities and Exchange Commission starts investigations does not mean that those who are involved are guilty," Dr. Godahewa said.

Good governance and minority shareholders rights activist K. C. Vignarajah, has repeatedly said that the SEC was not doing enough to instil a culture of good governance in the capital market.

Earlier this year he alleged that the SEC, Colombo Stock Exchange (CSE), Secretary to the Treasury, Governor of the Central Bank, Auditors and CA Sri Lanka continued to appease and mollycoddle the crooks.

The country's capital market is in crisis and would only realize its true potential if the regulator brought back credibility by investigating wrongdoing, he said as reported in Ceylon FT.

Vignarajah said regulatory loopholes and 'escape routes' remained, and that they were 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 are investigated. Discretion and secrecy facilitates corruption with files being closed, no reports on the offences, no findings made and fines or deterrent punishments imposed."
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