2015 Budget passed

The third reading of the 2015 Budget was passed in Parliament with a majority of 95 votes. 152 members voted in favour while 57 voted against. The United National Party, Tamil National Alliance and Democratic National Alliance voted against the budget.

Six parliamentarians who crossed over to the opposition including MP Maithripala Sirisena and the MPs of Jathika Hela Urumaya were absent during the vote.
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Sri Lanka stocks near fifteen month intra day drop over political turmoil

Nov 24, 2014 (LBO) - Sri Lanka's stocks closed 2.25 percent lower recording the highest intra-day drop in nearly fifteen months while reflecting investor concerns over the current political situation prevailing in the island, brokers said.

The index plunged 170.14 points on August 28, 2013.

The Colombo benchmark All Share Price Index closed 166.37 points lower at 7,235.25, down 2.25 percent.

The S&P SL20 closed 82.32 points lower at 4,044.94, down 1.99 percent.

Turnover was 1.70 billion rupees, down from 2.14 billion rupees last Friday with 14 stocks closed positive against 222 negative.

Laugfs Gas closed 2.80 rupees lower at 40.10 rupees with an off market transaction of 378.00 million rupees changing hands at 43.00 rupees per share contributing 22 percent of the turnover.

The aggregate value of all off-the-floor deals represented 24 percent of the daily turnover.

Access Engineering closed 2.00 rupees lower at 37.30 rupees, attracting most number of trades during the day.

Foreign investors bought 164.45 million rupees worth shares while selling 64.26 million rupees worth shares.

John Keells Holdings closed 5.70 rupees lower at 247.50 rupees and Carson Cumberbatch closed 23.70 rupees lower at 426.20 rupees, contributing most to the index drop.

Commercial Bank of Ceylon closed 5.60 rupees lower at 169.40 rupees and Dialog Axiata closed 30 cents lower at 12.70 rupees.

Nestle Lanka closed 45.40 rupees lower at 2,111.00 rupees.

Bukit Darah closed 26.00 rupees higher at 736.30 rupees.

Monetary policy stance for 2015 unchanged – Cabraal

By Charumini de Silva

Ceylon Finance Today: Sri Lanka's banking watchdog, the Central Bank yesterday confirmed that the monetary policy stance for 2015 would not be materially different from that of 2014, and that they would continue to balance several variables to ensure that economic and price stability is maintained.

Speaking to Ceylon FT Central Bank Governor Ajith Nivard Cabraal said, that by the end of 2014, we would have enjoyed nearly six years of average single digit inflation, and therefore, we would certainly want to ensure that such track record is maintained.

Commenting on the low interest rate regime, he said that the current low interest rate regime. ...would last as long as they maintain inflation at the current low levels, and as of now, that outcome seems quite sustainable.

"We are confident that the inflation would remain stable in the foreseeable future. On that basis, we could also expect the low interest rate regime to continue over the longer term," he added.

Commenting on the growth projections for next year Cabraal said, "We expect growth for 2015 to be around eight per cent, and based on our current macro-fundamentals, it seems to be a realizable target.
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Cabinet identifies Tata Project as SDP 16-year tax break as goodwill gesture

By Mario Andree

Ceylon Finance Today: The Cabinet has identified the US$ 430 million mixed development project in Slave Island by India's Tata Housing, as a Strategic Development Project in a new gazette notification granting the company a 16 year tax break for the US$ 130 million foreign direct investment.

Tata housing obtained five acres of land free of charge from the Urban Development Authority, as a goodwill gesture for agreeing to build 562 housing units on three acres of land adjoining the location, to relocate the families who occupied the land previously.

In a new gazette notification the Ministry of Investment Promotion identified Tata's US$ 429.5 million re-development and mixed development project as a Strategic Development Project under the SDP Act.

The gazette highlighted that only US$ 130 million out of the US$ 429.5 million would come in the form of foreign direct investment.

The ministry also has decided to grant the company a 16-year tax break for the project which would be completed within eight years from the May 2014, the date agreements were signed with BOI.

Accordingly, the company will be fully exempted from income tax for the first 10 years, other than sale of apartments which is accepted for six years, followed by 50% exemption of corporate tax for six years.

In addition, no withholding tax would be charged on interest for foreign loans, fees to consultants, management and royalty fees below three per cent of gross revenue and 1.5% of marketing fees and further incentives for management fees below 10%.

The company has been exempted from VAT, PAL, Excise Duty, CESS and NBT during the project implementation period of eight years.

Further, the company has been exempted from the payment of Construction Industry Guarantee Fund Levy to the contractors and subcontractors of the project company.

The project will be carried out by locally incorporated One-Colombo Project (Private) Limited.

At the initial stage the company would construct 562 housing and 100 shopping units to relocate those displaced by the land clearance. The relocation is expected to be completed within two-and-a-half years of commencement, followed by the second phase where the company would develop a mixed development project consisting of a 150-room city hotel, 1.1 million sq. ft. of residential apartments, 530,000 sq. ft. of commercial space and 115,000 sq. ft. of retail space.
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Lanka Rating Agency upgrades Vallibel Finance ratings to BBB-/P3; outlook Stable

Lanka Rating Agency (LRA) has upgraded Vallibel Finance PLC’s long- and short-term financial institution ratings from BB+ and NP to BBB- and P3, respectively.

Concurrently, its issue rating of Rs. 500 million Unsecured Subordinated Redeemable Debentures (2014/2019) is upgraded to BB+ from BB. Meanwhile, both long-term rating outlooks are reaffirmed at Stable.

The upgrade is premised on the increase in market share of Vallibel in the LFC sector as well as its improved core performance indicators and improved franchise. Meanwhile, the ratings are supported by Vallibel’s above average asset quality and performance reflected in indicators that compare better than similar rated industry peers’.

Vallibel was incorporated in 1974 as a small family-owned finance company under the name of The Rupee Finance Company. In 2005, it was acquired by Vallibel Investments Ltd. and renamed Vallibel Finance Company. Following the change in ownership, the company has aggressively increased its credit assets, which made up around 1.84% of industry assets as at end-March 2014.

Vallibel, whose principal lending activities include leasing and hire-purchase facilities, 
operates with 20 branches as at end-June 2014.

Vallibel’s asset quality is viewed as above average supported by asset quality indicators that compare better to similar rated peers’. The company’s credit assets grew a healthy 30.22% y-o-y in fiscal 2014 and 23.56% (annualised) in 1H fiscal 2015, reflective of the expansion in its core lease and hire purchase portfolio supported by expansion in its branch network and improving franchise.

However, Vallibel’s absolute NPLs increased to Rs. 509.59 million as at end-FY March 2014 from Rs. 251.97 million as at end-FY Mar 2013, increasing further to Rs. 727.57 million as at end-1H FY Mar 2015 due to the influx of new NPLs.

The influx of NPLs stemmed from all asset classes as the loan book seasoned amidst a challenging external environment, this was a phenomenon observed across the LFC sector. 

Subsequently, the gross NPL ratio moderated to 5.66% as at end-1H FY Mar 2015 from 2.55% as at end-FY Mar 2013 (end- FY Mar 2012: 1.81%), albeit the ratio compares better than most similar rated peers.

While Lanka Rating Agency’s concerns hinge on the lack of seasoning in Vallibel’s loan book following robust credit asset growth and the increase in trend of NPLs, it expects this trend to reverse gradually going forward with the improving macroeconomic environment taking effect. Elsewhere, despite the influx in gross NPLs, the company’s NPL coverage ratio improved to 71.43% as at end-1H FY Mar 2015 (end-FY Mar 2013: 56.36%) comparing better than similar rated peers’, reflective of the increase in provisioning made during the same period.

Vallibel’s performance is deemed above average, supported by performance indicators that compare better than similar rated peers’.

The company’s net interest income grew 41.92% y-o-y to Rs. 1,111.34 million in FY-Mar 2014, recording a further growth of 27.76% (annualised) during 1H-FY Mar 2015, largely reflective of the expansion in credit assets. Meanwhile, as expected, Vallibel’s NIM improved to 11.06% in 1H FY Mar 2015 from 10.16% in FY Mar 2013 as funding costs eased amidst deposits re-pricing faster than loans in a receding interest rate environment.

Further Lanka Rating Agency notes that Vallibel’s NIM compares better to that of similar rated LFC sector peers’ engaged in similar lending segments. The company’s overhead costs increased 47.94% y-o-y in fiscal 2014 and a further 19.36% (annualised) in 1H fiscal 2015 in view of branch expansion expenses, higher advertising expenses and increase in personnel costs stemming from higher staff force.

Despite the increase in overhead costs, as expected, Vallibel’s cost-to-income ratio remained relatively stable clocking 46.18% in 1H fiscal 2015 (fiscal 2013: 44.76%) reflective of the increase in earnings levels in line with the broadening of NIM as well as new branches opened during 1H fiscal 2014 breaking even during the review period. 

Despite the slight increase in pre-tax profits, Vallibel’s Return on Assets (ROA) declined to 4.05% in fiscal 2014 from 5.37% in fiscal 2013, mainly due to the increase in overhead costs and higher impairment charges. Nevertheless, the ratio continues to be better than similar rated industry peers’.

Vallibel’s funding composition is dominated by public deposits, accounting for 76.51% of the funding mix as at end-FY Mar 2014 (end-FY Mar 2013: 70.30%). Customer deposits grew a robust 48.37% y-o-y in fiscal 2014 supported by Vallibel’s extended branch reach as well as its improving franchise.

Lanka Rating Agency opines that Vallibel’s capitalisation levels are Average. Its tier-1 and overall risk-weighted capital-adequacy ratios (RWCARs) clocked in at 10.11% and 15.16% as at end-March 2014 (end-March 2013: 10.28% & 14.25%) comparing in line with its industry peers’; the improvement in Vallibel’s overall-RWCAR in fiscal 2014 was supported by the issuance of Rs. 500 million subordinate debentures in February 2014.

Going forward the management expects to issue another Rs. 1.50 billion subordinate debentures in FY Mar 2015. This issuance is expected to strengthen Vallibel’s tier-2 capital supporting its growth plans.
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Nimal says continuity is crucial

With political battle lines drawn following the announcement of key candidates for the presidential poll, the stand the private sector will take is being closely watched.

Though not many will come out in public, drawing first blood however on Saturday was Royal Ceramics Plc Managing Director Nimal Perera, who is also a high net worth investor.

During his address at the well-patronsied annual dinner dance of the company, Nimal, who has risen to be a business leader in his usual unconventional style, said with the crucial presidential election around the corner, continuity was key. The basis for his position was that the post-war environment has been beneficial for businesses.

Citing an example, he said Royal Ceramics has made a strong turnaround in the current financial year. He said Royal Ceramics had posted a Group pre-tax profit of Rs. 1.26 billion in the first half of FY15 up by 210% from a year earlier. The figure in the second quarter had nearly doubled to Rs. 864 million from the corresponding period of FY14. 

Apart from the improved business environment, the consolidation of Lanka Ceramics Group has been a key contributor as well.

Net profit attributable to ordinary shareholders of RCL was up 1,726% to Rs. 596.7 million in the first half, whilst it more tripled in the second quarter to Rs. 435.6 million. Group turnover grew by 21% to Rs. 10.6 billion in the first half whilst for 2Q it improved to Rs. 5.7 billion from Rs. 5.4 billion a year earlier. At Company level, RCL saw top line rise by 23% to Rs. 1.2 billion from 0.97 billion in the first half and to Rs. 704 million from Rs. 598 million in 2Q of FY14.
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