Fitch Downgrades Asian Alliance Insurance's National IFS Rating to 'BBB(lka)'

(The following statement was released by the rating agency) 

COLOMBO/HONG KONG, October 27 (Fitch) Fitch Ratings Lanka has downgraded Sri Lanka-based Asian Alliance Insurance PLC's (AAIP) National Insurer Financial Strength Rating and National Long-Term Rating to 'BBB(lka)' from 'BBB+(lka)'. The agency also affirmed AAIP's Insurer Financial Strength (IFS) Rating at 'B'. All ratings have been placed on Rating Watch Negative (RWN). 

KEY RATING DRIVERS 

The one-notch downgrade of AAIP's national ratings follows the significant deterioration of its ultimate parent Softlogic Holdings Plc's (SHL; BBB-(lka)/RWN) credit profile which is reflected by SHL's two-notch downgrade on 2 October 2014. SHL's weaker credit profile reduces its ability to provide AAIP with additional capital to support growth if required, and may also diminish the synergistic benefits the company derives from being a part of the group. 

AAIP is regulated by the Insurance Board of Sri Lanka and is subject to rules and regulations, including the maintenance of a minimum regulatory solvency of at least 1x for both life and non-life business. 

The minority shareholders of AAIP, including Deutsche Investitions- und Entwicklungsgesellschaft (DEG) and Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO, AAA/Stable/F1+) who hold 19% each of the company, are likely to act as a deterrent to excessive dividend payments. 

As such, AAIP's downgrade was limited to a single notch. The RWN reflects the potential drag of SHL's weakened liquidity profile on AAIP's credit profile, for example through high dividend payments to support SHL's capital and liquidity needs. 

SHL's ratings have been placed on Rating Watch Negative (RWN) to reflect concerns on its liquidity, capital structure and financial flexibility. AAIP's ratings also reflect its modest but growing market share and the pressure on its capitalisation from rapid top line growth. In additional, the ratings are supported by the synergistic benefits gained from being part of the Softlogic group based on SHL's controlling ownership in AAIP. The profile of AAIP has been boosted by DEG and FMO ownership of 19% each in the company. 

Established in 1999, AAIP is a composite (life and non-life) insurer accounting for less than 3% of industry assets at end-2013. AAIP has operational synergies with the group due to its presence in healthcare and financial services. The company also has access to the group's branches and retail outlets across the country. The company has over 50 branches. AAIP's combined (life and non-life) gross written premium for 1H14 was LKR2.27Bn, a 14% growth from 1H13. 

RATING SENSITIVITIES 

Rating Watch Negative will be resolved upon demonstration by AAIP of its ability to sustain its credit metrics without any drag from SHL's weakened liquidity position, and upon resolution of SHL's RWN without any further downgrade should the company sufficiently address its near-term refinancing requirements. The ratings may be downgraded if there is sustained weakening in AAIP's regulatory solvency ratios to below 1.5X for life or non-life, or if there is significant weakening in the credit profile of the controlling shareholders of AAIP. 

Contacts: 

Primary Analyst (International Ratings) Jeffrey Liew Senior Director +852 2263 9939 Fitch(Hong Kong) Limited 2801, Tower Two, Lippo Centre, 89 Queensway Hong Kong Secondary Analyst (International Ratings) Nayantara Bandaranayake Analyst +94 112541900 Primary Analyst (National Ratings) Nayantara Bandaranayake Analyst +94 112541900 Fitch Ratings Lanka Limited Level15-04, East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst (National Ratings) Jeffrey Liew Senior Director +852 2263 9939 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. 

Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. 

Additional information is available at www.fitchratings.com Applicable criteria, 'Insurance Rating Methodology ', dated 4 September 2014, and 'National Scale Ratings Criteria', dated 19 January 2011, are available at www.fitchratings.com. 

Applicable Criteria and Related Research: Insurance Rating Methodology here 

National Scale Ratings Criteria here

Additional Disclosure Solicitation Status here 

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

http://www.reuters.com/

Sri Lankan stocks gain for third session; look for cues from budget

Oct 27 (Reuters) - Sri Lankan stocks rose for the third straight session on Monday to a more than one-week high, erasing losses earlier in the day on buying in diversified and banking stocks as investors waited for clarity from last Friday's 2015 budget announcement and cues from company earnings.

President Mahinda Rajapaksa, also the country's finance minister, unveiled a budget that sought to trim value-added tax and cut the deficit while providing a range of handouts, mainly for rural communities.

Sri Lanka's main stock index edged up 0.11 percent, or 7.60 points, to 7,221.08, its highest since Oct.17.

"No big changes as local retail investors are on the watch. They are looking for the proper direction from the budget," said a stockbroker asking not to be named.

The day's turnover was 986.4 million Sri Lankan rupees ($7.55 million), less than this year's daily average of 1.36 billion rupees.

Foreign investors sold a net 2.5 million rupees worth of shares on Monday. They have bought a net 10.81 billion rupees worth shares so far in the year, exchange data showed.

The gains were led by conglomerate John Keells Holdings Plc which rose 0.81 percent to 249.90 rupees, while Dialog Axiata Plc rose 1.67 percent to 12.20 rupees.

Shares in Commercial Bank of Ceylon Plc rose 0.69 percent to 159.80 rupees.

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

($1 = 130.7000 Sri Lankan rupee) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lanka stocks close up 0.1-pct

Oct 27, 2014 (LBO) - Sri Lanka's stocks closed 0.11 percent higher with index heavy John Keells Holdings contributing most to the index gain, brokers said.

The Colombo benchmark All Share Price Index closed 7.60 points higher at 7,221.08, up 0.11 percent. The S&P SL20 closed 10.43 points higher at 4,014.22, up 0.26 percent.

Turnover was 986.45 million rupees, up from 870.70 million rupees last Friday with 90 stocks closed positive against 108 negative.

Nestle Lanka closed 1.00 rupee higher at 2,100.00 rupees with off market transaction of 210.00 million rupees changing hands at 2,100.00 rupees per share contributing 21 percent of the turnover.

Vallibel Power Erathna closed 40 cents higher at 7.00 rupees, attracting most number of trades during the day.

Foreign investors bought 374.85 million rupees worth shares while selling 377.37 million rupees worth shares.

Dialog Axiata closed 20 cents higher at 12.20 rupees and John Keells Holdings closed 1.90 rupees higher at 249.90 rupees, contributing most to the index gain.

JKH’s W0022 warrants closed flat at 73.00 rupees and its W0023 warrants closed 70 cents lower at 76.30 rupees.

Ceylon Cold Stores closed 12.10 rupees higher at 249.40 rupees and Carson Cumberbatch closed 4.20 rupees higher at 448.10 rupees.

DFCC Bank closed 2.90 rupees higher at 218.50 rupees.

Sri Lanka Chamber welcomes budget 2015

Oct 27, 2014 (LBO) –Sri Lanka’s Ceylon Chamber of Commerce welcomes the ‘National Budget of 2015’ which is presented to the parliament last week, the chamber said in a media release.

The Media Release by Ceylon Chamber of Commerce

The Ceylon Chamber of Commerce welcomes the commitment to continued fiscal consolidation in the Budget 2015, particularly the projected lowering of the deficit to 4.6%, which is supportive of macroeconomic stability.

Whilst there is a proposed 15% increase in government expenditure, given the slack in demand in the market recently, a degree of fiscal stimulus can be accommodated without substantial over-heating of the economy.

However, the Chamber encourages the authorities to act quickly and decisively if there are signs of significant deviation from the government’s commendable targets for inflation and the current account of the balance of payments.

Given the proposed changes in VAT, NBT and PAYE taxes and the fact that nearly two-thirds of the proposed new revenue for 2015 has been estimated to come from the refinance facility for collection of tax arrears, meeting the proposed revenue targets may remain a challenge.

It is encouraging to note the gradual shift in the nature of tax incentives away from blanket, long-term tax holidays towards alternatives that are more targeted, such as accelerated depreciation, tax holidays with defined time horizons, and tax concessions that are directly linked to the amount and type of new investments undertaken.

The Chamber welcomes the new initiatives to better link revenue and other state agencies and stronger integration of ICT in revenue collection.

It also supports the proposal to have a one-stop-shop service center at Sri Lanka Customs, which will contribute to improved trade facilitation. These measures will improve the ease of doing business in Sri Lanka, which is often more important than granting tax concessions.

The Chamber acknowledges the positive measures which have already been undertaken to promote exports, including entering into Free Trade Agreements (FTAs).

However, realizing the full potential of these would not be possible without a concerted effort at improving Sri Lanka’s export competitiveness. In this connection, we cannot overstate the importance of encouraging export-oriented foreign direct investment (FDI) into Sri Lanka.

The reduction of electricity tariffs is welcome given that high energy prices are a key factor affecting competitiveness of Sri Lankan enterprises. Moving forward, the Chamber recommends the implementation of a transparent and market-reflective energy pricing mechanism, rather than ad-hoc adjustments.

We also recommend that attention is placed on addressing the quality of electricity supply, particularly issues of power brown-outs and fluctuations, and efficiently meeting the emerging needs of industries.

The Chamber is encouraged by the increased attention to education contained in the Budget 2015, and its emphasis on strengthening Sri Lanka’s potential as a knowledge economy.

The Chamber particularly welcomes the proposals to invest a further Rs. 15 billion in school laboratories; to introduce a scheme of school-based teacher recruitment; to expand skill development and vocational training; and to establish new faculties and degree programmes in science, technology, management and multi-disciplinary studies across several universities in the country.

The Chamber observes that while many of the spending proposals on education are focussed on enhancing access and affordability, a stronger focus on improving the quality and relevance of education at all levels is a critical pre-requisite to increase productivity and competitiveness in order to achieve the ‘Vision 2020’. In this regard, we emphasize the importance of taking a pragmatic approach of public, mixed and private provision of education, training and skills development.

Measures for further public investment in irrigation and reservoir development contained in the budget are welcome, particularly in light of difficulties faced by communities across Sri Lanka during the recent drought.

Additionally, the proposal to improve the availability of water in areas affected by the kidney disease ‘CKDu’ will contribute to the longer-term health and well-being of these communities, which in turn strengthens their economic potential.

Given the changing demography of Sri Lanka’s population and the associated challenges in expanding social safety nets, the Chamber recognises the need for introducing pension schemes as envisaged in recent budgets including Budget 2015.

However, the Chamber cautions against pension systems that are non-contributory and that are occupation-specific, as they could lead to fragmented schemes that experience difficulty in making steady payments, and are expensive and unwieldy to administer. A pension scheme that is professionally managed and sufficiently robust to meet the financial obligations of an ageing population is desired. While recognizing the hardships faced by senior citizens in a low interest environment, we urge the authorities to exercise caution in implementing the proposal for offering a 12% interest on deposits in state banks, to avoid creating distortions that could have a negative impact on the financial sector. Moving forward, the financial needs of senior citizens should be addressed through the development of pension products.

While substantial new financial allocations have been made for various government institutions and development programmes, the Chamber emphasizes the need to accompany them with reform of the operating structures of the institutions utilizing these funds so that the envisaged outcomes can be better realized.

Overall, while acknowledging that any budget must be seen in a policy continuum, and is one in a series of ongoing measures to reach national economic goals, the Chamber observes that the proposals contained in the Budget 2015 must be complemented with measures that help achieve the economic transformation envisaged by the government in its ‘Vision 2020’ and ‘Five Hubs’ strategies.

To achieve this transformation it is also important to avoid the current over-emphasis on subsidies and welfare transfers that have the unintended consequence of keeping people in low productivity and low income-generating economic activities.

Finally, the Chamber encourages the initiation of work towards an accrual-based accounting system for government finances, with a view to full implementation by the year 2020, in line with best practices adopted by other middle-income countries.

Sri Lanka’s vehicle importers’ head explains reduction in vehicle prices

There will be a marked decrease in the prices of motorcars and vans under the below 1000 cc engine capacity due to the new simple tax system introduced through the 2015 Budget proposals, chairman of the Vehicle Importers’ Association of Sri Lanka, Sampath Merinchige told adaderanabiz.lk.

He added that though there could be a slight downward trend in the prices of hybrid and Japanese car, it would not be that significant.

However, they are looking to provide the maximum concessions on these vehicles, said Merinchige.

“There was a great demand for vans. We were unable to import and cater to the demand. The government has taken this into consideration and reduced the duty by about one-thirds. Hence, there are greater opportunities to import vans in the future,” he said.

He added that the vehicle importers had urged the government to implement a simpler taxation on vehicle imports to Sri Lanka and that this request has been implemented through this budget.

According to Sampath Merinchige, this simplified taxation on vehicle imports would reduce the tax evasions and thus increase the government coffers.

The Deputy Secretary to the Finance Ministry told adaderanabiz.lk yesterday that the customs duty on motorcars would decrease by around 20 to 25 per cent and on vans by around 25 to 65 percent due to the new tax amendments imposed through the 2015 Budget proposals.

Deputy Secretary S.R. Attygalle told adaderanabiz.lk that these Budget proposals would be effective from midnight on 24 October and that the prices of motorcars and vans would definitely decrease.

“A special tax has been introduced through this Budget which includes all the duties in the import of motorcars and vans. Hence, the prices of these vehicles would definitely decrease,” said Attygalle.

According to this new tax amendment, the 202 per cent duty on the import of motorcars below 1000 cc engine capacity has been reduced to 173 per cent.

Accordingly, the import duty on small motorcars would decrees by around 29 per cent.

Where vans are concerned, the 175 per cent duty on cargo vans and the 126 per cent duty on 13 to 20 seater vans have been slashed by 100 per cent. 

www.adaderana.lk

Sri Lanka Seylan Bank to issue Rs. 6bn debenture issue

Oct 27, 2014 (LBO) – Sri Lanka, Seylan Bank to issue debenture to raise six billion rupees which will be listed on the Colombo Stock Exchange and a formal application is to be submitted shortly, the bank said in a stock exchange announcement.

The bank plans to offer about 30 million rated senior unsecured redeemable debentures at 100 rupees each.

The bank says it plans to issue another 30 million of said debenture in the event of an over subscription.

The interest rate options and the tenors are to be decided by the board of the bank and will announce prior to the opening of the issue.

The bank issued a listed five debenture issue in early last year and raised two billion rupees.

It offered a fixed rate of 15.5 percent payable annually, a 15 percent fixed rate payable semiannually and a fixed rate 14.5 percent payable monthly.