Sri Lanka SEC sets directive on IPO price

Dec 23, 2014 (LBO) – Sri Lanka Security Exchange Commission (SEC) issued a directive to be included in the Colombo Stock Exchange listing rules, which will further strengthen the SEC’s mandate for protecting investors, SEC said in a statement.

Media Statement Reproduced

Prior to this, entities were not required to disclose the basis of the ‘IPO Price’, and as a result in some limited instances entities were criticised due to overpricing without a justifiable basis at the expense of the investors.

The new directive has simplified and standardised the presentation of useful information in the prospectus in a more investor friendly manner, whilst facilitating a means for entities and investment banks/IPO managers to maintain credibility by engaging competent experts throughout the process. This is achieved by mandating to incorporate an opinion of an independent, competent party on the fairness of the IPO price whilst substantiating the claim.

An analysis of IPO prices in recent years has indicated that some IPOs traded below the issue price since the first day of trading, highlighting the need for the SEC to strengthen the disclosures relating to IPO pricing. An overvalued IPO price negatively impacts investor appetite and confidence in IPOs, as well as on interest for listing on the CSE by new entities due to poor market performance and negative public sentiment of the entity.

Furthermore, this has a negative impact on the future development and growth of the Sri Lankan capital market.

The SEC considered above circumstances, even though the occurrences were limited and initiated evaluating measures for minimising above effects. Subsequent to much deliberations and public consultation, the SEC has issued a directive mandating that the ‘IPO price’ be supported by a valuation opinion/research report prepared by an independent, competent third party.

The SEC noted that there were no requirements to disclose the basis of the offer price for entities listing via IPO mechanism where entities seek to raise funds from the General Public, although the same was a prerequisite for the ‘introduction’ method of listing. Lack of a provision in the CSE Listing Rules which requires disclosing the basis upon which the IPO price is determined, has led some entities to decide the offer price in an arbitrary manner, which may have resulted in an ‘overvalued IPO Price’.

Consequent to observing the impact of having a valuation opinion for the ‘Introduction reference price’, and the positive response received from investors and stakeholders, the SEC, upon public consultation, extended the concept of ‘validating the IPO Price’ for equity listings with effect from 1st January 2015.

The requirement for a competent Valuer or Investment Bank/IPO Manager to provide a rationale for the IPO Price, is expected to enhance the transparency of the IPO pricing process and strengthen the IPO market. Experts who value shares when the entity is preparing to list, may adopt various valuation methodologies to arrive at the IPO price, such as Price Multiples, Net Assets Value, Capitalisation of Future Earnings, etc. Hence among others, knowledge of the methodology used to arrive at the IPO Price, is of paramount importance to an investor to make an informed decision about a potential new investment in an entity.

Main Features of the New Rule

Option 01:

1. The entity to obtain a competent, independent valuation justifying the IPO Price/Price Band, and to disclose a meaningful summary of the valuation report in the Prospectus, together with the certain minimum disclosures with respect to the independent valuer’s credentials;

OR

Option 02:

2. The entity to publish the Research Report prepared by the investment bank/IPO manager for justifying the IPO Price together with the Prospectus. The said Report should contain at minimum, a section that covers the basis and methodologies used to determine the IPO Price/Price Band, whilst requiring to host the same on the CSE website and the entity’s own website.

And together with either option 1 or 2 above, simplified disclosure requirements to enhance clarity, the entity must also mandatorily disclose in the Prospectus in a consistent format, at minimum, the basis of IPO Price/Price Band as per the format given in Schedule 1 to the SEC Directive.

UN investigation will not derail Sri Lanka's economy - Business report

Dec 23, Colombo: The successful passage of the United Nations Human Rights Council's (UNHRC) third resolution will neither hurt the political stability in Sri Lanka nor derail its economy, a recently released business report says.

The market report, "Sri Lanka Business Forecast Report Q1 2015" from Business Monitor International has therefore maintained the short-term political risk rating for the country at 77.1 out of 100.

The agency has upgraded their 2014 real GDP forecast of 7.1%, from their previous estimate of 6.8%, as they expect the country's manufacturing and services sectors to maintain their strong performances in 2014.

It maintains that the Central Bank of Sri Lanka (CBSL) will keep its standing lending facility rate and standing deposit facility rate unchanged at 8.00% and 6.50% respectively over the course of 2014, as inflation will remain relatively subdued and the strong economic growth momentum seen in 2013 will likely continue this year.

The ranking agency continues to expect the Sri Lankan rupee to remain fairly stable against the US dollar over the course of 2014, as the improvement seen in the external accounts for 2013 will likely continue this year, while the central bank continues to build up reserves.

"We are forecasting the currency to trade within LKR130.00-131.50/US$, and the current account deficit to narrow to 3.5% of GDP in 2014."

"We believe that the pace of fiscal consolidation in Sri Lanka will remain slow, as we expect the impact of ongoing tax reforms to remain marginal, and see a substantial reduction in government expenditures as unlikely," the agency says.

The Sri Lanka Business Forecast Report by Business Monitor International (BMI) includes three major sections: Economic Outlook, Political Outlook and Business Environment.

The 43-page report can be purchased from Business Monitor International, a Fitch group company.

http://www.colombopage.com/

Sri Lanka stocks down; political uncertainty grows after fresh defections

Dec 23 (Reuters) - Sri Lankan stocks traded weaker on Tuesday as fresh defections from the ruling party hit sentiment, raising political uncertainty ahead of the presidential polls early next year.

The main stock index was down 0.3 percent or 21.57 points at 7,230.00 at 0841 GMT.

"The sentiment is down due to defections yesterday," a stockbroker said. "Going forward the market may be sluggish and weaker with more defections expected from the ruling party raising concerns over political stability."

After market hours on Monday, two ruling party legislators, including a cabinet minister, defected from President Mahinda Rajapaksa's United People's Freedom Alliance to join the opposition camp.

With the latest defections, Rajapaksa has lost his two-thirds majority for the first time in more than four years.

Thirteen legislators, including former health minister Mithripala Sirisena, who is challenging Rajapaksa's bid for a third term as the consensus candidate of a united opposition, have defected after the president announced snap elections last month. Two opposition legislators have defected to the ruling party.

Turnover stood at 3.38 billion rupees ($25.78 million) due to some block deals, with 40.3 million shares changing hands.

Political analysts see a tight race between Rajapaksa and Sirisena, who in his policy announcement on Friday said he would eliminate rampant corruption and reduce prices of essential goods and fuel by cutting taxes.

Rajapaksa announced his policies on Tuesday and analysts said the market is yet to react to his manifesto.

In the forex market, four-day rupee forwards were steady at 131.99/132.05 per dollar at 0904 GMT with the central bank capping it at 132.00 through moral suasion, dealers said.

Three-day forwards, or spot-next, also traded at 131.9950, dealers said.

The spot currency was not traded. 

($1 = 131.1000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Sunil Nair)

Treasury Bill auction held on 23 December 2014

3Q Earnings Up 51% To Rs. 51bn; Banking Sector Leads The Pack

The Colombo Stock Exchange (CSE) listed entities upped their total earnings for the quarter ended September 30, 2014 by as much as 51.3 percent to Rs.51.1 billion from the same quarter in 2013, according to a 3Q earnings update released by an independent research firm.This is an acceleration from a 21.7 percent year-on-year (YoY) earnings increase in the second quarter of 2014, Capital Alliance Securities (Private) Limited’s research unit (CAL Research) said.

The banking, finance and insurance sector, composed of 57 listed entities, contributed as much as Rs.19.7 billion or 38.4 percent to the total market earnings during the quarter. The sector increased its earnings by as much as 56 percent YoY.This was followed by t he beverage, food and t obacco sector with earnings of Rs.6.9 billion, recording a 15 percent YoY increase and the diversified holdings sector with Rs.6.8 billion earnings, recording a phenomenal 159 percent YoY increase.Listed banking sector leader Commercial Bank of Ceylon PLC (ComBank) led the pack with the highest contribution to the total earnings with 6.5 percent or Rs.3.33 billion, up 21 percent YoY.

The banking sector earnings grew by 30 percent YoY during the September quarter against the 8 percent decline in earnings in the corresponding quarter last year. According to CAL Research, the sector earnings were pushed up by the lower impairments and capital gains on bond portfolios. This is despite most banks seeing a decline in net interest incomes.

However, the banking sector earnings are expected to come under pressure in the future due to shrinking net interest margins in the low interest regime.

“Non-bank financial institutes saw an 80 percent YoY growth i n earnings as fixed lease portfolios lent at higher rates during the last two years benefited from lower funding costs as interest rates declined 700 basis points YoY and impairment charges slowed during the quarter,” CAL Research stated.Sri Lankan stocks gained this year due to low interest rates, higher foreign buying and strong 3Q earnings.However, since mid November the Colombo bourse has seen some volatility due to the party defections and political uncertainty leading up to the January 8 polls.
www.dailymirror.lk

CSE, best in three years with highest net inflow – CEO

By Ravi Ladduwahetty

Ceylon Finance Today: The performance of the Colombo bourse has been the best in three years with the statistics for 2014 being better than 2013 and 2012.

Foreign purchases for 2014 (from January 1 to December 22) were Rs. 104.8 billion, which is more than that of 2012 and 2013, Director/ General of the Colombo Stock Exchange Rajeeva Bandaranaike told Ceylon FT yesterday.

While total foreign purchases of Colombo stocks for 2014 were Rs. 104.8 billion, foreign sales were Rs. 83.2 billion, leaving a net inflow of Rs. 21.6 billion.

Similarly, foreign purchases for 2013 were Rs. 83.2 billion while sales were Rs. 60.8 billion, thereby leaving a net inflow of Rs. 22.7 billion. In 2012, there was a total inflow of Rs. 72.6 billion, and foreign sales Rs. 33.9 billion, leaving a net inflow of Rs. 38.6 billion.

Bandaranaike also said that the All Share Price Index had risen by 22.6% for 2014 over 2013 while the S&P Index had also risen by 24.5% and the market gave the best returns in the current year.

He also said that in terms of Capital gains for 2014 through Initial Public Offerings for 2014, both debt and equity, Rights Issues and Placements, the market had raised Rs. 59.7 billion while a further Rs. 40 billion worth of issues was still pending at various stages of finalization.
www.ceylontoday.lk

Demand for Seylan’s Rs. 3 b debenture tops Rs. 5 b

Amidst the year-end rush of debenture issues, where six debt issuances were lining up for subscriptions, aspiring to raise a total value of approximately Rs.12.5 billion, Seylan Bank’s initial tranche of Rs. 3 billion, ‘A’- rated, Senior, Unsecured Listed debentures was successfully oversubscribed, receiving Rs. 5.134 billion worth of applications.

As notified to the Colombo Stock Exchange, the date of allotment is scheduled for 23 December 2014 and all applications accepted will be fully allotted.

Seylan Bank will mobilise the debenture funds raised to strengthen the medium- to long-term funding mix of the bank, leading to enhanced asset – liability and interest rate risk management.

Taprobane Wealth Plus Ltd. was the Managers to the issue while Bank of Ceylon acted as the Trustee. SSP Corporate Services Ltd. was the Registrars to the Issue and Seylan Bank itself acted as the Bankers and Lawyers to the issue.

The debenture issue comes in the wake of a very successful year for Seylan Bank, with net profits seen soaring by 47% to Rs. 2.25 billion and net interest income by 21% to Rs. 8.22 billion for the nine months ended 30 September 2014.

The improvement in the deposit base to Rs. 174.8 billion during the year also bears testimony to the solid growth achieved by the bank, continuously for the past few years. 

The deposit base comprised mainly current and savings deposits which enabled the bank’s low-cost deposit base to increase from 33% in December 2013 to 36% as at 30 September 2014.
www.ft.lk