Govt. funds boost bourse

By Paneetha Ameresekere

Ceylon Finance Today: Market activity on Friday was boosted due to mix of government funds, controversial high networth individuals and retailers trading, boosting the benchmark ASPI index at Friday's (28 November) trading, though the more sensitive S&P SL 20 Index declined due to continued political uncertainty, market sources told Ceylon FT.

The ASPI gained by 0.53% to 7,153.90 points, while the S&P marginally decreased by 0.15% to 3,971.02 points on a Rs 2.08 billion turnover.

"However, the market will go through the roof if it feels that former UPFA Minister and SLFP General Secretary Maithripala Sirisena will win the 8 January poll," sources told Ceylon FT.

Meanwhile, the number of shares traded declined by 19.9% to 58,521,701 shares on Friday.

ASPI's gains would have been muted and the S&P's decline sharper, if not for spurious increases by the bourse's 2nd largest capitalized stock CTC and Cargills (28th), where their share prices (SPs) increased by 0.09% and 3.13% to Rs 1,091 and Rs 154 on share volumes (SVs) of 522 and 102 and on turnovers of Rs 568,112.88 and Rs 15,789.80 respectively.

Similar spurious trades have been the hallmark of the bourse in recent times.

Due to the political uncertainty caused after Sirisena announced his candidature on 21 November, the ASPI has declined by 5% and the S&P by 5.3% by Friday.And the other was the 18th largest capitalized stock Access with Rs 390 million on a 10.7 million SV. Access closed up 3.36% to Rs 36.90 a share.

The bourse saw 153 gainers as opposed to 44 losers. The bourse saw a Rs 323.8 million net foreign inflow (NFI), taking NFIs in year-to-date to Rs 20.7 billion. NFIs were led by Access (Rs 285.7 million).

Meanwhile, a dissection of money market statistics showed that only a mere Rs 278.58 million more were parked in CBSL's standing deposit facility (SDF) and repo windows on a net basis, compared to the excess liquidity facility at the beginning of the day on Friday and by the end of that day, discounting excess liquidity generated by CBSL's purchase of Treasury bills.

This net excess may be due to inflows. With inflows to the bourse settled after two market days of trading from the date of transaction, part of that amount would have had been due to the bourse enjoying a Rs 400.7 million NFI on Wednesday, while the balance may have had been dissipated due to CBSL's defence of the rupee and banks having to square CBSL's six per cent statutory reserves' ratio (SRR) equivalent to their deposit holdings by Friday.

This SRR has to be met by a combination of cash and banks' vault deposits (amounting to a minimum of two per cent of SRR and a maximum of four per cent which however don't earn interest to banks, unlike when excess liquidity is parked on CBSL's SDF and repo facilities.
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People's Leasing among top 25

People's Leasing and Finance PLC (PLC), the flagship subsidiary of the People's Bank, remained among the 'Top 25' listed companies for the second consecutive year while moving up four notches, from 18 last year to 14 this year at the 'Business Today Top 25 - 2013-14 Awards' held at the Hilton recently.

The award was received by PLC Director N. Vasantha Kumar and DGM, Finance and Administration, K.S. Bandaranayake. The selection criteria was based on financial performance during the financial year 2013-14 and published information of companies listed on the Colombo Stock Exchange.

Financial criteria included share turnover, revenue, profit after tax, return on equity, earnings per share, market capitalisation, value of shares transacted and value addition.

PLC was incorporated in August 1995 and became a listed company in November 2011. People's Leasing Group consists of five subsidiaries which are engaged in general insurance, micro-finance, fleet management and property development.
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Transparency, a weak area in corporate governance

The Chairman of the Securities and Exchange Commission of Sri Lanka (SEC), Dr Nalaka Godahewa last week said the principle of transparency within the corporate governance framework is a ‘weak area’ amongst listed companies. Speaking at the seminar on ‘Corporate Governance’ at the Directors Symposium for the NBFI sector, Dr Godahewa said that the principle of transparency within the corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation including the financial situation, performance, ownership and governance of the company.

“This is another weak area amongst some of our listed companies. Even though we can be proud of high disclosure standards maintained by most of our public listed companies still there are some companies who do not have much regard for disclosure requirements. If a listed company fails to submit a Quarterly or Annual Report within the stipulated time, enforcement actions are initiated by transferring these companies to a Default Board until the requirement is fulfilled. But disclosure requirements go beyond financial information. We expect the companies to keep shareholders informed of any material development in the company,” the SEC chairman said.

Noting that the SEC keeps receiving complaints from minority shareholders of certain companies about decisions which are made favoring the controlling shareholders, the Chairman further noted that the SEC, being the regulator alone cannot prevent such things happening within existing provisions of the Act and exiting regulations.

“But regulations are improving. Shareholders have to know their rights under the Companies Act to challenge these,” he pointed out.

He further added that there are questions raised about some past IPOs where the funds raised are not yet used for the original purpose.

“If there are valid reasons for such delays it’s the duty of the Board Members of such companies to make sure shareholders are kept informed. Failure to do so affects the overall investor confidence of the market,” the Chairman highlighted.

He added, “We all know that foreign participation of CSE is currently around 30%. The Net Foreign Inflow to the Colombo capital market over the last three years is around Rs.90 billion. But our concern is that most of these foreign activities are limited to a few companies. What is the reason for this? Why hasn’t more than 2/3rd of the 293 listed companies in our market not yet benefited from this surge of foreign investments? The conclusion we can arrive is that it has a lot to do with the level of confidence that investors have about governance structures of these companies.”

The SEC Chairman also mentioned that a market survey conducted recently by SEC, both the local and foreign investors rated ‘company reputation’ and ‘trust in management’ as more important factors in making an investment decision than just looking at the history of returns.

“So obviously investors are more confident of the future of companies which are better governed. The findings of this local survey is, in fact, similar to a global survey conducted by the McKenzie group a few years ago where it was found that institutional investors would be willing to pay a premium of 22% for investments in well-governed companies, as opposed to other companies with comparable market potential but poor in Corporate Governance. It is important for us to remember that no market has a divine right to investors’ capital. If a country does not have a reputation for strong Corporate Governance practice, capital will flow elsewhere. If investors are not confident with the level of disclosure also, capital will flow elsewhere,” Dr. Godahewa said.

Speaking on the way forward, Dr. Godahewa noted that in 2015, SEC is planning to take another major step and establish a system to give due recognition to public listed companies who excel in Corporate Governance.

“We have already started discussions to introduce a national award for excellence in Corporate Governance. We are hoping to rate all public listed companies on the effectives of governance. The Institute of Chartered Accountants who partnered us in formulating the Code of Best Practices on Corporate Governance, will partner organizing this event. You will hear more about this when we launch the competition most probably during the first quarter of 2015,” he concluded.
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No relief for private banks over 12% interest issue to seniors

By Duruthu Edirimuni Chandrasekera

Commercial banks have been informed by the Treasury that the Rs. 30 billion bridging bond to three state banks to enable these institutions to offer 12 per cent annual interest rate for deposits of pensioners and elders will not be extended to private banks, officials said.

The Central Bank along with Treasury officials had a meeting with the private banks this week in a bid to discuss a game plan in order to avoid a flight of deposits to state banks from the private sector banks, but had decided this proposal in the budget won’t impact the latter ‘much’.

This was after it was revealed that some 750,000 senior citizens hold accounts in 33 banks worth Rs. 750 billion, as per Sri Lanka Banks’ Association (SLBA) data.

“There will be a cap (upper limit) on the amount that this 12 per cent annual interest rate will be offered (by state banks),” Upali de Silva, Secretary-General, SLBA told the Business Times. He said that the maximum deposit amount will be below Rs. 1 million and only one such account per person will be permitted.

He added that SLBA members were concerned about this budget proposal ‘on principle’. Currently the interest rate for senior citizens is at 6 to 6.5 per cent.
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Defence Ministry takes over Lanka Cement property in Jaffna

Sri Lanka’s Defence Ministry has acquired a 104-acre block of land and buildings owned by state-run Lanka Cement Plc at Kankesanthurai in the northern Jaffna peninsula, the company announced on Tuesday.

In a statement to the Colombo Stock Exchange (CSE), Lanka Cement, which is a listed stock in the CSE, said it has requested compensation for the acquisition of the land and buildings. All staff, it said, would be retired under the state’s Voluntary Retirement Scheme.

No reason was given for the acquisition.
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Investors of some banks ‘coerced’ to open margin trading accounts, top governance activist says

Concern has been raised over some banks being influenced and coerced to request independent minority investors (IMS) in Sri Lanka to convert normal overdraft/loan facilities granted for investments to margin trading accounts, a top investor and governance activist has said.K.C. Vignarajah, a well-known fighter of the rights of small investors, said in a letter to the Chairmen of the Securities and Exchange Commission (SEC) and the Colombo Stock Exchange (CSE) that customers have been told that these valuable assets could be transferred to margin trading accounts if part of it is used to invest in listed company shares.

“The best banks with management and staff dedicated to the best tradition of banking, will certainly not heed such advice or request. The culture of such banks will not permit any of them to forsake the customers’ interests,” he said in the letter.

He said undesirables brought in through the back door to the boards of companies by outside powerful forces have occasionally been, and must in future be, thwarted by powerful employees’ unions, alert customers and concerned shareholders. “I hope they will continue to ensure this position in all banks. A bank’s primary responsibility is to nurture the faith, confidence and ease of doing business,” Mr. Vignarajah said.

He said a cabal of crooked persons belonging to so-called reputed professions/ institutions influences codes of best practice/ethics and their implementation are behind these moves by some banks.

Some of the honest officials of the SEC have for many years been trying to implement their prime role of protecting the investors in the stock market, but appear to be hampered in doing so by powerful forces inimical to this fundamental process, he added
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Extra EPF would cost Rs.466.6 mln more to reeling SL plantations

The additional 2 per cent EPF payment to workers as decided in the 2015 budget will cost Sri Lanka’s already-reeling plantation companies a staggering Rs. 466.6 million annually, the Employers Federation of Ceylon (EFC) has said.

In a November 25 letter to Gamini Lokuge, Minister of Labour and Labour Relations and copied to the media, EFC Director General Ravi Peiris has said that this sudden impact on employers is bound to have serious implications. The issue was also raised at the National Labour Advisory Council meeting held on November 13.

“As you know, the Regional Plantation Companies are currently operating under severe constraints and an enhancement of this nature will only result in aggravating the difficulties,” he has said.

Mr. Peiris has noted that in general private sector employers are one of the leading contributors in relation to superannuation schemes and even unemployment benefits compensation comparable with other countries in the region.

“Currently an employer contributes 12 per cent of an employee’s earnings in respect of EPF, an additional 3 per cent in respect of ETF and over and above these contributions a gratuity payment is made to all employees who have completed five years continuous employment with an employer, on cessation of employment. Above all, Sri Lanka also has one of the highest compensation formulae in relation to retrenchment compensation under the formula gazetted by the Commissioner of Labour in terms of the Termination of Employment of Workmen (Special Provisions) Act No.45 of 1971 (as amended),” the letter said.

Mr. Peiris said that at a time when the country is looking for more investment and employment generation, changes such as these are bound to be counter-productive. “In the circumstances, we wish to place on record our serious reservations in bringing about any changes to the existing legislation right now to implement these proposals,” he has said.

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Share market on a roller-coaster

The Colombo Stock Market will be on a roller- coaster ride next month, spilling over to the first week of next year, owing to the multitude of political uncertainties impacting traders’ buying patterns, analysts say.

“With each evolving development the share market will ebb and flow,” Murtaza Jafferjee, CEO JB Stockbrokers said. However, he also noted that the environment for equities will remain favourable in this low interest rate regime. “But with the (political) uncertainties investors are holding on to (shares),” he said. Analysts say that the lower interest rates will dampen investor appetite for long dated debentures, and they will always look to equities. Savers who enjoyed fixed deposit rates of 11-13 per cent one year back are now getting 7-9 per cent and those seeking higher returns are being attracted to equities, according to them.

Analysts say it’s a wait and see game all around in equity, currency and bonds. Mr. Jafferjee added that all these markets are slated to ebb and flow with the news. “The slightest (news of a) crossover will affect indices in the Colombo Stock Exchange (CSE),” an analyst said, adding that rumours of crossovers by government MPs to the main opposition coalition led by ‘dissident’ former Health Minister, Maithreepala Sirisena in the coming month will change the CSE movements.

“The traders are awaiting a change and selling is on top of their minds,” a CEO of a large retail base broking firm said. He said this is the hot topic of conversation, but investors are frustrated as there’s no clarity in the political climate.

Interestingly, this is only a local phenomenon as foreigners haven’t reacted to the local news on the current political brouhaha. “What we saw has been an ‘entirely’ local sell out. The foreign interest is continuing,” Deshan Pushparajah, Head of Investment Banking, Capital Alliance told the Business Times.

The All Share Index has fallen by 5 per cent since Thursday, November 20, the day before Mr. Sirisena crossed over.
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