Sri Lankan stocks rise to 3-wk top on rising banks

Oct 31 (Reuters) - Sri Lankan stocks rose for a seventh straight session Friday to hit a three-week high, led by banks and foreign investors as corporate earnings and lower rates helped lift sentiment.

Sri Lanka's main stock index ended up 0.44 percent, or 32.40 points, at 7,326.81, its highest close since Oct. 9.

"There was a lot of buying interest. Investors are expecting good earnings and heavy trading was seen mostly in blue-chips," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd.

"A lot of foreign interest was seen in banking shares, expecting credit growth to pick up in a low interest rate regime."

Net foreign inflows on Friday touched 1.68 billion rupees ($12.85 million), its highest since May 9. The bourse has seen net foreign inflows of 14.77 billion rupees so far this year, exchange data showed.

The day's turnover was 3.81 billion rupees, its highest since Oct. 3 and well above this year's daily average of 1.36 billion rupees.

Top-listed lender Commercial Bank of Ceylon Plc led the day's gains with a rise of 2.35 percent to 165.8 rupees and DFCC Bank Plc added 3.34 percent to 228.70 rupees.

Analysts expect trading to be choppy in the near-term due to the revised presidential poll schedule in January and a possible bottoming out of interest rates.

Sri Lanka's central bank on Sept. 20 kept key policy rates steady for a ninth straight month, saying private sector credit growth was picking up and long-term lending rates were adjusting downwards.

President Mahinda Rajapaksa will seek an early re-election in January, seeking to pre-empt any decline in support after nearly nine years in power.

($1 = 130.7500 Sri Lankan rupee) 

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

Fitch Downgrades Abans Plc to 'BBB+(lka)'; Outlook Negative

(The following statement was released by the rating agency)

COLOMBO/SYDNEY, October 31 (Fitch) Fitch Ratings has downgraded Sri Lanka-based retailer Abans Plc's National Long-Term Rating to 'BBB+(lka)' from 'A-(lka)'. Fitch has also downgraded the National Long-Term Rating on Abans' unsecured redeemable debentures to 'BBB+(lka)' from 'A-(lka)'. Fitch has affirmed Abans' outstanding commercial paper at National Short-term Rating of 'F2(lka)'. The one-notch downgrade reflects Fitch's view that Abans' medium-term net leverage is likely to remain above 4.5x, the level at which Fitch would consider negative rating action. 

The Negative Outlook reflects continued pressure on profitability stemming from a shift towards products with lower margins and risks associated with investments outside the company's core business. Abans changed its name from Abans Limited in January 2014. 

KEY RATING DRIVERS 

Weakening Credit Metrics: Abans' net leverage, as measured by adjusted net debt/EBITDAR (excluding finance subsidiary Abans Finance Plc), increased to 8.05x in the financial year ended 31 March 2014 (FY14) from 5.25x in FY13. Abans' fixed-charge coverage (EBITDAR/gross interest + rent, excluding finance subsidiary Abans Finance Plc) deteriorated to 0.82x in FY14 from 1.34x in FY13. 

The deterioration was mainly due to EBITDAR margin (excluding Abans Finance Plc) contracting to 6.5% in FY14 from 9.2% in FY13 because of subdued demand, intense competition and a shift towards lower margin products. Although the company has plans to reduce its debt, Fitch expects Abans' leverage to remain above 4.5x in the medium term due to a weak recovery in EBITDAR margins. 

Leading Consumer Durable Retailer: Abans is one of the leading retailers of consumer durables in Sri Lanka, and it has a strong brand portfolio and extensive distribution network. Abans' revenues are supported by its in-house hire-purchase operations, which contributed to 40% of the revenues in FY14. Abans's hire-purchase book is prudently managed with higher down payment requirements and an efficiently and closely monitored recovery system, which has helped the company maintain a low delinquency rate. 

Cyclicality of the Industry: Demand for Abans' products tends to be volatile across business cycles due to the non-essential and relatively high prices of consumer durables. However, the recent reduction in domestic electricity tariffs and substantial decline in lending rates bodes well for the industry's revenue. Retailers are also affected by foreign-currency risk on inventory because most products are imported. Abans has managed to lower this risk by selling locally produced items, which accounted for 20% of products in FY14. 

Real Estate Project Risk: Abans's investment in a mixed-use development called Colombo City Centre will be capped at LKR1.9bn, most of which was incurred in FY14. Even though the equity contribution is capped, any delay in debt funding or pre-sales of the project could result in further capital calls for Abans. 

Furthermore, any delays to construction, which is due to run from FY15-FY17 could increase the business risk for Abans. Abans is undertaking the project, which has retail, hotel, and apartment components, with Singapore-based Silver Needle Hospitality. 

Evolving Corporate Governance: Abans continues to engage in significant related party transactions with entities outside of the group. However, Abans has taken measures to improve corporate governance, establishing audit and remuneration committees and divesting several non-core entities to help streamline the financial reporting process. 

RATING SENSITIVITIES 

Negative: Future developments that may, individually or collectively, lead to a negative rating action include: - A sustained increase in Abans' adjusted net debt/EBITDAR excluding Abans Finance Plc to over 5.5x - Fixed-charge coverage reducing below 1.25x on a sustained basis - A material delay in progress on the Colombo City Centre project or additional capital calls for the project - Any delay in the scheduled repayments from related parties. 

Positive: No positive rating action is expected given that the rating is on Negative Outlook. However, future developments that may individually or collectively lead to the Outlook being revised to Stable include: - Smooth progress of the Colombo City Centre project, which will limit Abans' financial liability to the initial investment value. - Improvement in the retail environment as reflected in sustained improvement in EBITDAR margins above 7% 

Contact: Primary Analyst Nadika Ranasinghe, CFA Vice President +94 11 254 1900 Fitch Ratings Lanka Limited Level 15-04 East Tower World Trade Center Colombo 01 Secondary Analyst Shyamila Serasinghe Analyst +94 11 254 1900 Committee Chairperson Vicky Melbourne Senior Director +612 8256 0325 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, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 28 May 2014, and 'National Scale Ratings Criteria', dated 30 October 2013, are available at www.fitchratings.com. 

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage 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.

Sri Lanka October inflation slows to 5-yr low of 1.6 pct y/y

Oct 31 (Reuters) - Sri Lanka's annual inflation fell to its lowest in five years in October, as the rate slowed to 1.6 percent from 3.5 percent in September, the Department of Census and Statistics said on Friday.

The annual average inflation for the latest 12 months fell to a 55-month low of 3.8 percent in October from 4.2 percent a month earlier. It hit a record high of 8.8 percent in May 2013. 

(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Simon Cameron-Moore)

Sri Lanka stocks close up 0.4-pct

Oct 31, 2014 (LBO) - Sri Lanka's stocks closed 0.44 percent higher with Commercial Bank and John Keells Holdings gaining amid strong foreign buying, brokers said.

The Colombo benchmark All Share Price Index closed 32.40 points higher at 7,326.81, up 0.44 percent. The S&P SL20 closed 35.96 points higher at 4,087.38, up 0.89 percent.

Turnover was 3.81 billion rupees, up 2.20 billion rupees a day earlier with 111 stocks closed positive against 96 negative.

Nations Trust Bank closed 3.90 rupees higher at 93.90 rupees with off market transactions of 2.17 billion rupees changing hands at 95.00 rupees per share contributing 57 percent of the turnover.

The aggregate value of all off-the-floor deals represented 66 percent of the daily turnover.

People’s Leasing and Finance closed 60 cents higher at 22.30 rupees and Serendib Engineering Group closed 9.80 rupees higher at 114.60 rupees, attracting most number of trades during the day.

Foreign investors bought 1.90 billion rupees worth shares while selling 217.75 million rupees worth shares.

Commercial Bank of Ceylon closed 3.80 rupees higher at 165.80 rupees and John Keells Holdings closed 2.20 rupees higher at 257.20 rupees, contributing most to the index gain.

DFCC Bank closed 7.40 rupees higher at 228.70 rupees.

Chevron 3Q net profit up 23%

Chevron Lubricants Lanka PLC, a unit of US-based multinational said its net profit for the quarter ended September 30, 2014 (3Q14) rose 23 percent year-on-year (yoy) to Rs.750 million.The revenue for the quarter rose 11 percent yoy to Rs.3 billion while cost of sales increased at a lower pace of 3 percent yoy to Rs.1.8 billion, resulting in a gross profit of Rs.1.26 billion, up 23 percent.The distribution costs fell 8 percent yoy to Rs.120.2 million while the administrative expenses increased 18 percent yoy to Rs.153 million. The operating profit for the quarter stood at Rs.990.6million, up 30 percent.

The finance income showed a significant 63 percent yoy reduction to Rs.25 million. For the first nine months 2014, the finance income declined 58 percent yoy to Rs.98.3 million.The construction of Chevron Lanka’s US $ 15 million blending plant in Sapuguaskanda is scheduled for completion by October this year.

The earnings per share for the quarter improved to Rs.6.25 from Rs.5.08.Meanwhile, the net profit for the first nine months rose 13 percent yoy to Rs.2.18 billion. The revenue rose 5 percent yoy to Rs.8.7 billion while costs of sales fell 2 percent yoy to Rs.5.1 billion. The gross profit improved 17 percent yoy to Rs.3.6 billion.The earnings per share stood at Rs.18.24, up from Rs.16.18A third interim dividend of Rs.5.50 per share to be paid on November 18, 2014 has also been announced.
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Banks, Finance Companies need credit policy - Governor

H.D.H Senewiratne hsenewiratne@gmail.com

Sri Lanka needs to have sustainable credit management practices in order to manage the total Rs 18 trillion lending within the country, Central Bank Governor Ajith Nivard Cabraal said.

“Every country needs to have a good credit management system when credit is given and recovering credit from various organisations. Therefore, people should be trained on credit management systems,Governor Cabraal told the graduation and awards ceremony of the Institute of Credit Management of Sri Lanka held recently .

He said a total of Rs 18 trillion worth of credit has been granted by banks and various lending institutes. “Therefore in the next few years not only collateral lending credit but also other financial lending methods will be adopted with the expansion of the economy,” he said.

The banks should have a credit policy which has been approved by the Board.

Credit policy is the foundation on which credit risk management of both portfolio and processes are built for the new era, he said.

A credit policy serves as the basis for consistent credit risk management throughout the bank through product, segment, geographic and organizational divisions and should apply to all employees at all levels dealing in credit risk.

The Governor also said credit policies which define appropriate behaviour in lending business should support bank’s business strategies, which lay down the requirements for employees dealing with credit risk, compliance guidelines on risk exposures, policies on collateral and areas to be avoided.

“Sri Lanka is now going through enormous transformation where the credit management sector is concerned but we have to address the gaps where education and training are concerned”, he said.

Securities lending is an investment overlay strategy that involves the temporary transfer of a security by its owner (the lender) to another investor or financial intermediary (the borrower) in a transaction that is collateralized with cash or securities. Securities lending is intended to compliment investment strategies and allow investors the ability to monetize the intrinsic lending value of idle securities.

The process of lending out these securities affords an investor the opportunity to produce alpha by generating income which can be used to increase portfolio returns or offset portfolio expenses with a manageable level of risk.

Securities lending provides critically needed liquidity in the financial markets, supports a variety of trading strategies, facilitates trade settlements and supports general financing techniques.
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