Foreign exits from T bill, bond markets restart

By Paneetha Ameresekere

Ceylon Finance Today: Foreign exodus from the government securities market (GSM) which was marginally reversed in the last two weeks ended 26 November, once more resumed in the following week (week ended Wednesday), with the market (Treasury (T) Bills and T Bonds) experiencing an exit of Rs 1,550 million (0.34% or US$ 11.76 million) worth of foreign funds, bringing foreign investments in the GSM down to Rs 458,271 million in the review week, available data showed.

Latest statistics showed that since end August to Wednesday (14 weeks), foreigners exited
Rs 43,147.74 million (US$ 327.25 million) worth of investments from the GSM, thereby causing depreciating pressure on the rupee.

Banks, currently operating under Central Bank of Sri Lanka's (CBSL's) moral suasion (MS) umbrella, saw the exchange rate (ER) close unchanged at Rs 131.85 to the US dollar in spot next next trades on Friday, while Treasuries also remained unchanged, they said.

However, a year ago, on 5 December, 2013, with inflows getting the better of outflows, complemented by the absence of MS then, the ER in 'spot' trades closed...
at Rs 130.85 to the dollar, a 0.8% depreciation since, records maintained by Ceylon FT showed.

Sources told Ceylon FT that part of these recent foreign exits, has been reinvested in the bourse. Data showed that since end August to Friday, the bourse has experienced a Rs 13.3 billion (US$100.9 million) net foreign inflow (NFI), still leaving a US$ 226.3 million net outflow, from local markets.

They further said that with possible polls bloodshed expected in the days to come, they therefore envisaged this foreign exodus to further increase.

Sri Lanka has allowed foreigners to invest up to 12.5% in GS outstanding, but, as at Wednesday, only 11.24% of this has been taken up, leaving a further 1.26 percentage points (Rs 51,203.75 million) worth GS outstanding, with no takers.

Total GS outstanding as at Wednesday was Rs 4,075,798 million. Records also showed that since end August to Friday, the ER had sharply depreciated by between Rs 1.65 to Rs 1.62 (1.27%-1.24%) to Rs 131.85 to the dollar in interbank trading, caused by the dual effect of foreign funds departing from the GSM and import pressure. As at end August, the ER in spot trading was being transacted at Rs 130.20/23 to the dollar in two way quotes, in contrast, despite CBSL's MS lectures, it closed, down at Rs 131.85 to the dollar in interbank spot next next trading by the weekend.

"The exit from the GSM had its genesis, due to the recovery of the US economy (and an expected increase in rates), coupled with the low interest regime prevailing here," sources said.

According to invest.com, a web site, Indian T Bonds of a five year maturity was commanding a yield of 7.991% as at Friday, in contrast, Sri Lanka's five year Treasuries were fetching a yield of 6.70%, 291 basis points less than Indian Treasuries of a similar tenure.

Recovery of the US economy meant that foreigners prefer to invest in US assets, than, say in Sri Lankan assets, sources said. This has resulted in them exiting from the GSM. 

Nevertheless, foreign exit from the GSM was temporarily halted in the two weeks ended 26 November, with the market experiencing a Rs 914.67 million (US$ 6.94 million) NFI during that fortnight, only to see this trend being reversed the following week, that is, the week closing Wednesday (3 December), latest data showed.

All dollar conversions have been made, based on 'spot next next' prices as at Friday obtained from the market.
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SEC, CSE ready to list BOI companies

By Ravi Ladduwahetty

Ceylon Finance Today: The Securities and Exchange Commission (SEC) and the Colombo Stock Exchange ( CSE) are now ready to list Board of Investment approved companies on the floor of the Colombo Stock Exchange.

"The Board of Investment wanted such mechanism to make Sri Lanka more attractive to foreign investors. The SEC and the CSE agreed and responded positively by drafting regulations, but the ball is now in the BOI Court to make use of it. Until the BOI is ready, the CSE will not launch the listings, Securities and Exchange Commission Chairman Dr. Nalaka Godahewa told Ceylon FT late Friday night.

He said that the SEC had insisted that the proper safeguards would be installed where the minimum investment had to be US $ 10 million, Another safeguard is that the principal promoter has to have a minimum of 50% of the shares and be within the company's holding for a minimum of two years.

Colombo Stock Exchange Director General/ CEO Rajeewa Bandaranaike also told Ceylon FT late Friday night that the CSE would be facilitating a Special Board which would be different from the Main Board and the investors who will qualify will only be the institutional investors. He also said that the SEC and the CSE were both ready to list investors, provided that there were at least five such companies who were willing to invest and list.

Meanwhile, Board of Investment Chairman Dr. Lakshman Jayaweera also told Ceylon FT that the request was first made by the BOI to the SEC and the CSE to enable listing facilities to investors and that the progress was already successful with seven investors already lined up for listing, adding that they had already signed up Memoranda of Understanding with the BOI.

This is the way forward for the country and this would be a strong campaign for these companies to list, which would make it more attractive for Foreign Direct Invesments,
Dr. Jayaweera added.
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SL’s top two state banks take a hit on credit losses

Sri Lanka’s two main state banks, the Bank of Ceylon (BoC) and the Peoples Bank (PB) are to proceed with tough measures to recover thousands of loans taken by businessmen, companies and persons with high political connections since 2011 in which the debtors have not made scheduled payments (for at least 90 days) and was either in default or close to default, official sources disclosed.

Any property mortgaged to the banks as security for any loan in respect of which default has been made will be sold by public auction in order to recover the whole of the unpaid portion of such loan, together with the money and costs recoverable.

Some 33,720 persons comprising both political and non-political loans) have defaulted the BoC in a sum of Rs. 396.78 billion with most not paying a single installment since 2011, a senior official said adding that this was also highlighted in the COPE report released recently.

Four companies and two Non-Governmental Organisations had to re-pay Rs.950 million to the BoC in loans taken this year, he added.

The PB has non-performing loans, with interest, amounting to Rs. 25.865 billion, due from 52 debtors defaulting on their loans, he disclosed. Legal action has been taken against 25 of the defaulters and the others were given an opportunity to pay back the loan under a loan restructuring scheme. They would also be given a grace period to repay the loans, he added. The two state banks will have to write off some these loans if there was no way to recover it from debtors, he said adding that some of these debtors are no more (dead) and several others were absconding.

A senior official of the Central Bank said that because of the non-performing loans ratio going up as a result of default of gold-backed loans and higher interest rates, loan expansion had been affected.
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SL plantations industry profitability to be boosted – Report

Tea, rubber and palm oil, supplemented by coconut, cinnamon and other spices are the main crop interests of Sri Lanka’s listed Regional Plantation (RPCs). The industry continues to be at the mercy of unpredictable weather patterns and labour issues that have collectively dented profitability in the industry.

According to a Bartleet Relegare Research report, the current financial year has been spared of wage negotiations and expectations are for industry profitability to be boosted by a buoyant tea sector. This was indeed the case during the first half of 2014. “However, persistent rainfall has resulted in a drop in output and profitability during the latest quarter.

The rubber industry continues its decline due to bleak global market conditions and unfavourable weather locally.”

The report said that in this backdrop, it is imperative that plantations’counters considered for investment be diversified both in terms of crop mix and also in terms of elevation when it comes to exposure to tea.

Low grown tea accounts for a bulk of the country’s tea production and is known to be distinctly stronger in both flavour and colour. Demand for low grown tea stems from Russia and other CIS countries. High grown on the other hand are known for superior quality, unique taste and aroma and favored by European customers. Mid growns tend to be browner and sweeter than high growns and preferred in Australia, Japan, North America and the UK.

The report said that tea production in 2013 grew by 3.6 per cent to reach an all time high of 340.3 million kg. “Medium grown tea recorded the highest year on year (YoY) growth of 6.8 per cent 54 million kg, while low grown tea production increased by 3.1 per cent to 207.9 million kg and high grown production increased 2.6 per cent YoY to 74.6 million kg.

During the period January – September 2014 Sri Lanka’s cumulative tea production increased by 7.2 million (mn) kg to 255.7 mn kg. High grown and low grown tea recorded YoY growths of 9.1 per cent to 59.8 mn kg and 4.4 per cent to 157.9 mn kg respectively. Mid grown tea recorded a drop of 10.4 per cent YoY to 35.5 mn kg.

The report said that tea prices across all elevations fell from their peaks of last year due to an increase in supply at the auctions and instability in major export destinations such as Syria, Iraq, and Russia. “However, prices have shown a glimpse of recovery during October.”

Sri Lanka recorded its highest ever export revenue from tea last year, the report added, saying that exports were worth Rs. 199.4 billion while volumes dropped marginally by 0.8 per cent to 319.6 million kg.

During the 9-month period January – September 2014, Sri Lanka’s tea exports grew 2.9 per cent to 241.3 million kg. Bulk tea exports have shown a decline while tea in bags and tea in packets have shown a growth. In value terms tea to-date exports have grown 12 per cent to Rs. 158.7 billion.
Russia remains Sri Lanka’s largest buyer, followed by Turkey and Iran.

The most labour intensive of all plantation crops, the tea industry has been plagued with issues ranging from powerful unionised labour to rainfall (either abundance or a complete lack of it). This has rendered the industry extremely volatile and unpredictable in terms of earnings, according to the report according to the report.

“Ceylon Tea is considered to be among the highest quality teas in the world and has managed to consistently command a premium price compared to its global competitors. At US$3.60 per kg Sri Lankan Tea fetches almost twice that of its competitors in India and Kenya.”
However this phenomenon is negated by the fact that Sri Lanka has the highest unit cost of production among all major producers, the report said.

Daily wages of a Sri Lankan pluckier stands at US$5.30, considerably higher than that of Kenya $2.60 and India $2.10 Sri Lanka’s unit labour cost alone is higher than the total unit production cost of most of its competitors.

Sri Lanka’s daily output per plucker is 18 kg day which is significantly lower than the Kenyan output of 48 kg/day and the Indian output of 27 kg/day. “Productivity among male pluckers in Sri Lanka is especially low compared to global peers and also compres to only around 60 per cent – 70 per cent of female pluckers. This is in contrast to the situation in Kenya where male pluckers daily output is significantly higher than female pluckers.”

According to the Planters Association of Sri Lanka, an increase in the daily plucking average by a mere 2 kg/day would bring down the country’s cost of production by 6.5 per cent. This improvement, if achieved, would go a long way in easing the unsustainable costs incurred by RPC’s at present.

Plantation workers wages are revised upwards (usually by 20 per cent) bi annually. As the last revision occurred last year “we expect the current year’s earnings to receive a boost through stability in costs”, the report said.

The local rubber industry has continued to decline in line with the current global stagnation of the global market for the commodity the report said, highlighting that the weak demand conditions in China and the E.U coupled with excess supply.

“Adverse weather conditions have hampered tapping during most of the year, bringing down output as many small holders have resorted to discontinue tapping further. The slight price recovery witnessed recently has been a result of this reduction in supply.”
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Troubled Colombo bourse may see state intervention

Share prices at the Colombo bourse which have slumped in the past two weeks due to political uncertainty may prompt government intervention in the market next week, brokers and analysts said.

The All Share Index (ASI) and the S&P SL20 has been on a roller coaster ride since former Health Minister Maithripala Sirisena announced his shock entry as the main opposition candidate pitted against President Mahinda Rajapaksa.

On Friday, the ASI closed at 7,238 points, marginally down 0.22 per cent from Thursday’s close and from 7,150 on November 21 when Mr. Sirisena made the announcement. The S&P SL20 gained by 0.12 per cent to 4,061 on Friday while turnover for the day was over Rs. 2 billion.

Analysts said in a bid to give confidence to the market, investors and also boost the ruling party camp, speculation was rife of EPF and ETF this week to turnaround the negative trend.

Since both political camps began taunting each with accusations and counter-accusations, uncertainty has flowed across the Colombo bourse.
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Eden Resort unveils new logo; adjust name

Eden Resort & Spa unveiled its new logo recently also revealing an adjustment to its name, now making it ‘The Eden Resort & Spa’.

All properties under the Browns Hotels and Resorts chain will now have a common denominator, ‘THE’, which will be added to their titles.

The five-star luxury hotel, part of the Browns Hotels & Resorts chain is located along the golden mile in Beruwela. Newly refurbished, the 158-room hotel’s structural footprint is unique and takes on the shape of a horseshoe.

Apart from plush, well-furnished rooms, The Eden also offers a variety of dining options and bars, adding to its wide array of services.

Browns Hotels and Resorts is owned by Browns Investments, which is a subsidiary of Brown & Company PLC. Its ultimate parent company is Lanka ORIX Leasing Company (LOLC). Browns Hotels and Resorts’ properties currently in operation include: The Eden Resort & Spa, Dickwella Resort & Spa and The Paradise Resort & Spa. The Company also has exciting new plans on the horizon, with new properties planned for in Beruwela, Passikuda and the Maldives.



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ACAP eyes leisure, but passive to stock broking

By Azhar Razak

The Chairman of Asia Capital Plc (ACAP), J H P Ratnayeke says that given the docile stock market environment, it is likely that the group would remain only passive participants in the stock broking sector, until such time a conducive environment develops to compel aggressive involvement in developing ist prospects in that space. Presenting his message to the stakeholders in the Annual Report 2013/14 released last week, Ratnayeke said that with the campaign to deepen their exposure in the leisure sector being the main thrust of their medium term plans, the group has additionally mapped out suitable strategies that justify the development of its other business interests as well.

“On the investment banking side, we are committed to play an active role in exploring the diversity of the segment, in particular the corporate finance space, as we strive to re-engineer ourselves as a multi-functional investment banking unit ideally positioned to complement the progressive development of the national economy,” the Chairman said.

Commenting on the stock broking sector, Asia Capital Plc Group Director/CEO Stefan A Abeyesinghe said that following a relatively sluggish start to the year, the performance of the ACAP Stock Broking arm showed promising results in the latter half of the financial year.

“The country’s stock markets rebounded well in December 2013 in the lead up to a buoyant market conditions seen in the first quarter of 2014. Stock Broking arm was thus able to secure a notable reduction in the sector losses from Rs.134 million in the previous year to Rs.84 million as at 31st March 2014,” he said.

With regard to the Stock Broking arm, Abeysinghe said the group expects to maintain its established presence while investigating the possibility of diversifying interests into related business segments, where strategic equity partnerships or business tie-ups with stakeholders who have a vested interest in Sri Lanka’s securities industry would be sought.

“While complementing the group expansion goals, equity based tie–ups of this nature are deemed to limit ACAP’s capital outlay while supporting the long-term debt management strategies of the group,” he explained.

During the year ended 31st March 2014, the ACAP group recorded a 14% reduction in the group loss from Rs.727 million in the previous year to Rs.622 million as at 31st March 2014 helped by a 7% growth in its topline.

Abeysinghe further noted that the heightened focus on developing the leisure arm would tantamount to both short-term and medium-term commitments by ACAP to enhance the current room inventory.

“With the expansion drive well underway and much of the financial commitment already made for a number of pipeline projects, the leisure management arm is on course to accomplish the set deliverables in terms of room capacity by 2017. Moreover, it is likely that in seeking to better manage properties under the leisure sector, a possible re-branding exercise would be initiated to consolidate all properties under a single umbrella. Such measures would undoubtedly be associated with further capital raising
strategies that would yet again reconstitute the composition of the group’s equity holdings in the years ahead,” the Director/CEO emphasized.
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