Sri Lankan stocks up ahead of 2015 budget; block deals push turnover

(Reuters) - Sri Lankan stocks gained on Thursday, recovering from a six-week low in the previous session as investors bought into blue-chips and banks a day ahead of the 2015 budget announcement, while block deals helped boost the day's turnover, dealers said.

Analysts said investors were waiting for cues from the budget scheduled for Friday and a raft of quarterly earnings expected next week.

Sri Lanka's main stock index rose 0.4 percent, or 28.35 points, to 7,189.51, edging up from its lowest since Sept. 9 hit on Tuesday. Markets were closed on Wednesday for a holiday.

"It was a dull day, but block deals pushed the turnover. Many investors who have cash and shares are awaiting to see the outcome of the budget," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd.

"We don't expect much to happen tomorrow also."

Sri Lankan President Mahinda Rajapaksa is expected to present on Friday a populist election budget for 2015 that manages to contain borrowing thanks to an expected pick-up in the pace of economic growth.

The day's turnover was 2.29 billion rupees ($17.5 million), the highest since Oct. 10 and well above this year's daily average of 1.36 billion rupees.

Stockbrokers said block deals in National Development Bank , which rose 1.04 percent to 242.50 rupees, accounted for 54.2 percent of the day's turnover.

Foreign investors bought a net 260.7 million rupees worth of shares on Thursday, extending the year-to-date net foreign inflows to 10.56 billion rupees, exchange data showed.

The country's top conglomerate John Keells Holdings Plc , which led the overall gain of the index, rose 1.34 percent to 249.80 rupees.

Hatton National Bank Plc rose 1.6 percent to 190 rupees.

Stockbrokers said trading in local shares may be volatile due to the revised poll schedule and a possible bottoming out of interest rates. 

($1 = 130.7500 Sri Lankan rupee) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Prateek Chatterjee)

LRA reaffirms Trade Finance & Investments at BB+/NP

Lanka Rating Agency (LRA) has reaffirmed Trade Finance & Investments PLC’s (TFI) long-and short-term financial institution ratings at BB+ and NP.Concurrently, the ratings have been placed on a Rating Watch Positive. Meanwhile, the ratings are upheld by TFI’s above average asset quality, strong capitalisation and healthy performance.

The Positive Rating Watch is premised on the expected merger between TFI and Commercial Credit & Finance PLC (CCF) (rated BBB-/P3/Positive by LRA).In line with the Central Bank of Sri Lanka (CBSL) sector consolidation road map, CCF acquired 96.89 percent ownership of TFI in August 2014 from the previous owners. Subsequent to the acquisition, in accordance with the CBSL road map, TFI’s assets and liabilities are expected to be merged with CCF, where CCF will be the surviving entity. Following the amalgamation of assets and liabilities of TFI with CCF, the credit profile of the liabilities of TFI would be enhanced to the higher rated parent’s credit profile.

TFI’s asset quality is viewed to be above average, owing to asset quality indicators that compares better than licensed finance company (LFC) sector peers’. TFI’s asset base expanded at a robust 40.25 percent year-on-year (YoY) in the FY March 2014 spurred by credit growth.The company’s credit assets are largely dominated by motorcycle and three-wheeler financing, both of which account for around 85 percent of total credit assets as at end-June 2014.

Meanwhile, TFI’s absolute gross non-performing loans (NPLs) increased 67.37 percent YoY in fiscal 2014, growing a further 56.73 percent in 1Q fiscal 2015 to Rs.50.53 million as at end-June 2014.Subsequently, TFI’s gross NPL ratio moderated to 4.20 percent as at end-June 2014 (end-March 2013: 2.72 percent). Despite the deterioration, TFI’s gross NPL ratio continues to compare better than that of its LFC industry peers.TFI’s performance is viewed to be healthy, upheld by performance indicators that compare better than LFC industry peers’. Mirroring robust credit expansion, net interest income expanded at a rapid 49.20 percent YoY in FY March 2014 to Rs.293.16 million (FY March 2013: Rs.196.49 million).In line with TFI’s focus on high-yielding segments such as three-wheeler and motorcycle financing, the company yields have consistently compared betterthan similar rated peers. As such, supported by its high-yielding loan portfolio coupled with its relatively lower cost of funding owing to a funding structure dominated by shareholders funds, TFI’s NIM have consistently compared better than similar rated peers’.

Reflective of the expansion in top-line, TFI’s pre-tax expanded at a robust 30.73 percent YoY in FY March 2014 to Rs.191.78 million (FY March 2013: Rs.146.70 million).Supported by its focus on high-yielding segments and its low-cost operating model, the company’s ROA has also consistently compared better than similar rated peers over the years. As such, the company’s ROA stood at 13.41 percent in FY March 2014 comparing well above its LFC industry peers’.

TFI’s liquidity position is deemed adequate. Its liquid asset ratio improved to 23.80 percent as at end-June 2014 (end-March 2013:20.06percent).Nevertheless, the company’s liquidity position is viewed with caution, given the significant liquidity risk faced by TFI in view of high depositconcentration, especially due to high amount customer deposits from related parties of the previous owners of TFI. However, if a liquidity need arises, support for TFI is expected to be forthcoming from its parent company CCF (BBB-/P3/Positive).TFI’s capital adequacy levels are viewed as strong. Its Tier I and Overall RWCAR stood at a good 56.73 percent as at end-June 2014, comparing well above other LFC industry peers’.
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Sri Lanka stocks close up 0.4-pct

Oct 23, 2014 (LBO) - Sri Lanka's stocks higher with index heavy John Keells Holdings gaining amid net foreign buying ahead of the 2015 budget, brokers said.

The Colombo benchmark All Share Price Index closed 28.35 points higher at 7,189.51, up 0.40 percent. The S&P SL20 closed 12.94 points higher at 3,991.59, up 0.33 percent.

Turnover was 2.29 billion rupees, up from 898.24 million rupees a day earlier with 131 stocks closed positive against 59 negative.

National Development Bank closed 2.50 rupees higher at 242.50 rupees with four off market transactions of 1.22 billion rupees changing hands at 240.00 rupees per share contributing 53 percent of the turnover.

Asia Capital closed 1.30 rupees higher at 12.50 rupees, attracting most number of trades during the day.

Foreign investors bought 487.39 million rupees worth shares while selling 226.67 million rupees worth shares.

John Keells Holdings closed 3.30 rupees higher at 249.80 rupees, contributing most to the index gain.

JKH’s W0022 warrants closed flat at 72.00 rupees and its W0023 warrants closed 1.50 rupees higher at 77.10 rupees.

Merchant Bank of Sri Lanka debenture issue

Merchant Bank of Sri Lanka (MBSL) has obtained approval to list its debt securities at the Colombo Stock Exchange.

Twenty million unsecured redeemable debentures are to be issued at Rs. 100 each and subscription lists will be opened on 5 November 2014.

Managers and registrars to the issue are Merchant Bank of Sri Lanka PLC, Corporate Advisory and Capital Markets Division.

Prospectus would be delivered to member firms/trading members on 27 October 2014.
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Islamic finance a key factor in developing the financial sector: Nivard Provides new methods of financing

By Charumini de Silva

Ceylon Finance Today: Sri Lanka's banking watchdog – the Central Bank said that it will accommodate Islamic banking and finance within the existing legal and regulatory framework.

Central Bank Governor Ajith Nivard Cabraal said as the regulator we welcome the diversification of instruments and systems of finance in banking, financial and insurance sector, and we will provide space to expand within the Monetary Law and Banking Act.

"In Sri Lanka, banking is regulated under the Monetary Law Act and the Banking Act laws provide a flexible environment for the different types of banking and financing to take place in our country. These laws also provide for a consistent type of regulatory action and the standardized approach so that a level playing field is created," he said. Cabraal made these remarks delivering the keynote address at the IFN Sri Lanka Forum 2014 held for the third year in a row, at the Cinnamon Grand, Colombo recently. He said Islamic finance was a key factor in developing the financial sector as it provided new methods of financing; but it was more important to understand the finesse of the Islamic instruments and thereby allocate the benefits to the grassroots level to the corporate business level, he noted.

The world also uses new terminology based on who is doing what and which part of the world you are in. In that context, certain initiatives based on sound principles, are becoming increasingly popular and relevant. So, in Sri Lanka one of the reasons for the stable economic conditions was a result of 'Sri Lanka oriented' policies which we adopted. 

However, many did not hail these steps and condemned those acts; but I must say that the 'proof of the pudding is in the eating', he said.

'Islamic finance is a topic that has engaged the attention of the world in recent times. It has enabled a vast segment of the global population to seamlessly integrate with the Islamic world in a sensible manner, which is not inconsistent with religious beliefs."

"We have to search for new markets, institutions and entrepreneurs to open out channels to bring in investments towards the country. Having open channels for investments and instruments are crucial to support the five thrust sectors of our economy. The expansion in the banking, finance and insurance sector will not only assist to build the economy, but also to build the nation collectively," Cabraal noted.
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Demutualization definitely delayed

By Ravi Ladduwahetty

Ceylon Finance Today: The demutualization process of the Colombo Stock Exchange will be further delayed by at least another three to six months with the 15 member broking community demanding time to study core structural issues.

This was unanimously decided at a meeting last Friday where the 15 stock brokers were present at an Extra Ordinary General Meeting with the Colombo Stock Exchange where Chairman Vajira Kulatilleke and Director General Rajeewa Bandaranayake were both in attendance.

"This is definitely a complicated issue where we need to study the structural issues which revolve round the issues in relating to ownership, governance and operations and the process is still at a very preliminary stage", the managing director of a top stockbroking company told Ceylon FT on Tuesday night.

He also said that the process which commenced in 1999 has taken well over 15 years and another three to six months would not hurt at all!

It was also a case of, which operating model to use from a series of models that are in the offing and these cannot be decided overnight without studying the implications, he said. 

The meeting lasted only 40 minutes with some getting late to arrive at the EGM and it was decided that another would be held when the brokers reach unanimity on the new model that would be proposed and to be implemented, he said.

Another managing director of one of the 15 broking companies, who was also at the meeting, said that the issues to be sorted out were more on the structure of the ownership where the brokers were to own 75% stake in the joint company with the remaining 25% to be owned by the government, either the Treasury or the Securities and Exchange Commission.

Meanwhile, Colombo Stock Exchange Chairman Vajira Kulatilleke admitted briefly that there were issues to be sorted out and that it would take time, in a brief telephone interview with the Ceylon FT from Bangladesh, where he would be for the next three days. CSE Director-General Rajeewa Bandaranayake also told the Ceylon FT that there was a delay in the implementation of the Demutualization process as the process was yet to be completed. All 15 members of the Colombo Exchange have agreed in principle that the Exchange has to be demutualized and they have also reached a broad consensus on the model to be followed. The Exchange has appointed Ernst and Young, Chartered 

Accountants as the Consultants to develop a suitable model, he said.

The process will have to go through the regulatory approvals to the Securities and Exchange Commission and subsequently to the Finance Ministry for the appropriate legislation to be drafted, he said.
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Dumith-led consortium upbeat over Asia Securities buy

The former Credit Suisse Asia Pacific Managing Director and Chief Operating Officer Dumith Fernando-led consortium is upbeat over the opportunity to lead Asia Securities Ltd. to the next level and finds exciting times ahead in Sri Lanka as a frontier market.

Dumith, who will own 75% stake in Asia Securities along with three others, last week signed the Sales and Purchase Agreement (SPA) with Asia Capital to acquire control of one of the top stock-broking firms in the country. York Street Partners will hold an 11% stake and two others are individual investors. The deal is now awaiting formal regulatory approval and will be formally announced thereafter.

“We looked at several broking firms and found Asia Securities by far the best,” Dumith told the Daily FT in an interview after concluding the SPA.

Set up in the early 1990s, Asia has five branches with 63 staff. It had gone through several phases of ownership, but is renowned to have produced a sizeable community of stock brokers since inception, with some of its founders later becoming top-notch fund managers and entrepreneurs. With a good base of domestic retail and high net worth individual investors, Asia is among the top five in terms of turnover. The achievement is significant since of late Asia Securities has had minimal foreign turnover as opposed to it being one of the preferred brokers for foreign investors.

Given their experience and expertise, what Dulith and his consortium will bring to Asia is top research and with it foreign clients.

“We will build on Asia’s strengths and bring in new synergies as well as introduce good research and advanced products with professional service,” said Dulith, who will be the Executive Chairman in the new structure. “My mantra is ‘delivery is everything’ and we will take Asia Securities to a new level, bringing back some of the lost glory,” he added.

Industry veteran and current CEO Sabry Marikar will be appointed to the Board as well, along with Nirosh Wijekoon. Additionally a nominee from York Street Partners and another investor will also join the Board.
Dulith counts two decades in the fund management industry, mainly in Asia, including at Credit Suisse and JPMorgan.

In his role as Credit Suisse (the world’s fourth-largest wealth manager with $ 1.4 trillion funds under management), Asia Pacific Managing Director and Chief Operating Officer Dumith had brought several investor delegations from Asia in 2010 and 2011, whilst several top Lankan firms were regularly featured in Credit Suisse Annual Asian Investment Conference.

“Post-war there is lot of interest in Sri Lanka given the good macro story. The investor appetite driven by fundamentals is high,” Dulith told the Daily FT during the interview along with Sabry.

“I will be using my as well our partners’ networks and connections to draw more investments into listed equity and debt. We will provide credible insights as well as innovative investment or product ideas to tide over the liquidity issues at the Colombo stock market. We will be speaking to foreign clients and funds direct,” revealed Dulith, who noted that there was considerable interest to set up country dedicated funds among prospective investors as well.

With the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission (SEC) rolling out Central Counter Party (CCP) and Delivery Versus Payment (DVP) systems shortly, Dulith is of the view that this will unfold new opportunities to develop risk management products – a term he uses for derivatives. “In the future, the Sri Lanka capital market can attract a new breed of investors and we will tap that segment,” he added.

Having served global and Asian markets for decades, Dulith, who has an MBA from Harvard Business School and was elected a ‘Young Global Leader’ by the Davos, Switzerland-based World Economic Forum, said returning to Sri Lanka’s financial services market excites him.

“I see the opportunity for me in Sri Lanka as very exciting, especially given the post-war development and potential. Going forward the country offers an unprecedented opportunity in the investment banking and financing arena,” he said. His other interests include property development and agribusiness.

Dulith rules out that his entry is late. “In a post-war setting, five years is very early when you know the potential of the country and the market is more in the long-term say 30 or 40 years from now. The market is going to get bigger as well,” he said, drawing a parallel to the famous phrase “a rising tide lifts all boats”.

The entry of Dulith and takeover of Asia Securities by the consortium has been welcomed by the capital market as well as the investor community, which he said was good as the industry needs co-opetition rather than competition.

Recognising “people are the firm’s biggest asset,” Dulith said that the competent and disciplined staff at Asia Securities would be the differentiator and their skills would be further enhanced whilst delivery via multiple technology platforms would be stepped up. “We will give our clients more accessibility and real-time solutions, which is important,” he added.

Asia Securities has to its credit been the first to launch internet-based stock trading facility with its Colombo Direct Automated Exchange (CDAX). It also partnered Mubasher – Direct FN, a leader in ICT solutions in the Middle Eastern region’s financial markets. Asia Securities was also involved in the launch of the first country-specific investment fund – the Regent Sri Lanka Fund – way back in 1993 in collaboration with the Regent Pacific Fund Management Group of Hong Kong together with W.I. Carr Ltd.

Under the new ownership, Asia Securities also plans to move out of the World Trade Centre and relocate elsewhere in a strategic and convenient location.

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