Sri Lanka 3 and 6 months Treasury bill yields up, 12 months flat: Central Bank

(LBO) – Sri Lanka’s Treasury bill yields were up at Tuesday’s auction with 3-months yield up 03 basis points to 6.11 percent and 6-month yields also were also up 03 basis points, to 6.21 percent, data from the state debt office showed.

It was decided to accept 12,175 million rupees from the auction of 03 month yields from received 17,750 million rupees worth bills.

Treasury bills of 20,000 million were issued through the auction held today.

6-month bills closed at 6.21 percent and it was decided to accept 6,055 million rupees.

12-month closed at 6.28 percent and 845 million rupees were accepted from the auction.

The auction was oversubscribed with bids amounting to 47,870 million rupees being received.

It was decided to accept 19,075 million rupees from the auction.

Sri Lanka inflation 0.1-pct in June 2015

COLOMBO (EconomyNext) - Sri Lanka's consumer prices rose 0.1 percent in the 12-months to June 2015, falling back to the rate in March and April, the central bank said.

Prices rose 1.0 percent during the month of June, the highest rate since January, it said in a statement.

Sri Lanka's consumer prices are now at their lowest since the 0.5 percent reported in January 2004 with the government having cut taxes on some consumer goods and dropped fuel prices earlier this year.

The annual inflation rate had edged up to 0.2 percent in May.

The 12-month moving average fell to a record low of 1.7 percent in June 2015 from the earlier low of 1.9 percent in May.

The monthly increase in Colombo Consumers’ Price Index was mainly caused by the increase in food prices, the central bank said.

“Prices of some varieties of vegetables, fresh fish, green chilies, red onions, limes, dhal, potatoes and sprats increased during June 2015,” it said.

“However, prices of many varieties of fruits, coconuts, coconut oil, big onions and green gram decreased during the month.”

Criminal probe for Sri Lanka Insurance Corporation, Litro Gas hotel deal

ECONOMYNEXT - A criminal probe will be initiated into alleged procurement fraud and mis-appropriation of hundreds of millions of rupees at a unit of state-run Sri Lanka Insurance Corporation group which is building a 27 billion rupee hotel in Colombo, officials said.

"They have not followed government procurement processes," Chairman Hemaka Amarasuriya told reporters in Colombo.

"In procurement activities they have totally dis-regarded processes. There is no corporate governance, no respect for rules and regulations. No audit committee. No risk committee."

SLIC had invested 8.5 billion rupees in Canwill Holdings (Pvt) Ltd, an investment vehicle which in turn controlled SinoLanka Hotels and Spa, a firm with land and building expropriated from the Ceylinco group, which is expected to house a Grand Hyatt hotel in 2017.

SLIC unit Litro Gas held another 23 percent in Canwill with a 5 billion rupee investment and the Employees Provident Fund another 23 percent with a 5.0 billion rupee equity investment.

A forensic audit has uncovered evidence of padded contracts, mis-appropriation of hundreds of millions of rupees without board approval and awarding deals without competitive tender involving a hotel project, where the SLIC group had invested, officials told reporters.

The group had also initiated another hotel project in Hambantota, where 300 million rupees had been.

Evidence uncovered so far will be handed over to the police criminal investigation department, Chairman Hemaka Amarasuriya said.

Amarasuriya said the new board had cancelled a series of contracts awarded without competitive tender.

About 100 million rupees had been reduced from existing contracts by negotiation and the new board was hoping to slash another 150 million rupees.

Contracts apparently awarded by personal negotiation appeared to be padded Amarasuriya said.

Former SLIC Chairman Gamini Senarath and Managing Director Piyadasa Kudabalage had spent money without board approval apparently by email communication, during the ousted Rajapaksa administration officials alleged.

Both Sri Lanka Insurance and Litro Gas were privatized entities which was taken back to the state providing opportunities for corruption.

SinoLanka Hotels had also bought three blocks of land bordering the hotel from private parties at prices higher than the government valuation. The government valuation had also been increased three times in succession.

In one case a land had been valued at 191 million rupees in January 09, 2013, 253 million rupees on October 27 and 260 million rupees on November 22 for which eventually 270 million rupees had been paid.

"How the prices went up is a mystery," Amarasuriya said.

Managing Director Piyadasa Kudabalage had drawn multiple salaries from SLIC and its subsidiaries totalling 3.4 million rupees, an official said.

Litro Gas Executive Chairman Shalila Moonasinghe said Kudabalage had drawn 1.19 million rupees a month for Sri Lanka Insurance, 1.3 million rupees from Litro Gas, 450,000 rupees from Litro Gas Terminals and 500,000 rupees from Canwill Holdings.

His son who had been employed at the group had been given a 10,000 rupee phone allowance, while senior engineers were given only 1,500 rupees, they were told.

Sri Lanka’s Access Engineering buys property firms for Rs523.6mn

COLOMBO (EconomyNext) – Access Engineering Ltd. said it has invested 523.6 million rupees to buy into two property companies developing land in a suburb of the Sri Lankan capital Colombo.

The construction firm invested 273.6 million for 100 percent control of Horizon Holdings Ventures (Pvt) Ltd., a company incorporated in June 2015, a stock exchange filing said.

Access Engineering also invested 250 million rupees for a 50 percent share in Horizon Holdings (Pvt.) Ltd., a firm incorporated in March 2014.

Both firms are in the business of developing their 12.5 acre property located in Malabe, a fast-growing suburb of Colombo.

“Whilst this investment has synergies with the core business, it will enable AEL to enter the promising property development sector adding a complimentary segment to its operations,” the statement said.

Sri Lanka shares end weaker; pre-poll uncertainty weighs on sentiment

Sri Lankan shares fell on Tuesday, hovering near 2-1/2 month lows, led by large caps such as Nestle Lanka Plc as political uncertainty before parliamentary elections weighed on sentiment.

President Maithripala Sirisena dissolved parliament on Friday and scheduled elections for Aug. 17, in an effort to consolidate power and push through political reforms.

The main stock index ended 0.16 percent, or 11.35 points, weaker at 7,020.80, hovering near its lowest close since April 15 hit on Friday.

The day's turnover was 651.5 million rupees ($4.87 million), well below this year's daily average of 1.07 billion rupees.

"Still the political situation is not clear. We expect the market to continue on sideways due to political uncertainty," said Reshan Wediwardana, a research analyst at First Capital Equities (Pvt) Ltd.

The market saw net foreign outflow of 82.1 million rupees on Tuesday, after suffering net outflows of 4.15 billion rupees over the past 25 sessions.

But foreign investors were net buyers of 1.79 billion rupees worth of shares so far this year.

Shares in Nestle Lanka fell 0.03 percent, while Ceylon Theatres Plc declined 2.84 percent. 

($1 = 133.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

Sri Lanka revives tea auction automation plan

COLOMBO (EconomyNext) – Sri Lanka’s tea trade has revived the idea of automating the more-than-century-old Colombo tea auctions, a senior official said.

“It has been decided to revisit the prospect of the automation of the Colombo tea auction,” Anselm Perera, chairman of the Colombo Tea Traders Association (CTTA), said.

A committee of stakeholders has been set up to study the development of an integrated computer system for the automation of the pre- and post-auction procedures of the Colombo tea auction, he told the CTTA’s annual general meeting.

A Colombo University information technology consultant has been hired for the work.

The CTTA has been running the Colombo tea auction since 1894 although the first public sale of tea in the island took place in 1883 in the offices of a broking company.

The tea trade has previously considered automating the auctions and commissioned studies on the issues but the idea was abandoned almost 10 years ago.

Textured Jersey Lanka to buy Indian fabric maker for US$15mn

COLOMBO (EconomyNext) – Sri Lanka's Textured Jersey Lanka (TJL) said it will acquire an Indian knit fabric manufacturer, owned by one of its main shareholders, Brandix Lanka, for 15 million US dollars.

TJL will pay half the price in cash and the balance through a share swap by issuing new Textured Jersey Lanka shares valued at 28.50 rupees each.

Textured Jersey Lanka, whose shares were last traded at 28.60 rupees on the Colombo bourse Monday, said the acquisition was part of its regional expansion and capacity enhancement strategy.

The company will buy all 36.6 million shares of Ocean Mauritius Ltd., the parent firm of Ocean India, which operates a knit fabric manufacturing plant in Visakhapatnam, India.

In May this year, TJL said it will acquire Quenby Lanka Prints (Pvt) Ltd, a fabric printer, for 3.5 million US dollars.

“The acquisition of Quenby Lanka and Ocean India should potentially launch TJL to the next level of solution provision and innovation while also catering to growing customer demand,” TJL said in a stock exchange filing.

It said the acquisitions should make TJL, whose major shareholders are Pacific Textured Jersey Holdings and Sri Lankan apparel exporter Brandix, one of the leading textile players in the South Asian region.

“These acquisition also offer prospects of margin improvements through business and production synergies,” TJL said.

Ocean India is a joint venture between Brandix Lanka and Leading Investment Holdings, in which the Brandix is the largest shareholder with management control, the three other partners being Jacob BAC (a subsidiary of Brandot), Compagnie Mauricienne de Textile Ltd (Mauritius) and Pioneer Elastic Holdings Ltd. (Hong Kong).

TJL is to issue 35,197, 368 shares by way of a share swap to the selling shareholders in return for the transfer of 17.8 million shares – half of Ocean Mauritius – with a cash value of just over a billion rupees (7.5 million dollars).

Brandix Lanka, which now holds 29.81 percent of TJL, will be paid 11.28 million dollars, and raise its stake in TJL to 32.11 percent with the share swap.

TJL said it has been told by Pacific Textured Jersey Holdings and Brandix Lanka – major shareholders of TJL - that they are acting in concert and agreed to maintain a collective shareholding in TJL of not less than 51 percent for five years from 1 April 2015.

Pacific Textured Jersey Holdings, which now has 39.65 percent of TJL, plans to sell about 10 percent of its stake, the stock exchange filing said.

Sampath Bank goes to Myanmar

By Ishara Gamage

Ceylon Finance Today- Sampath Bank PLC., Sri Lanka's third – biggest privately owned lender by assets, is looking to invest and lend in Southeast Asia's developing economies like Myanmar, Managing Director/CEO Aravinda Perera revealed to the Ceylon FT yesterday.

"We wish to start our Myanmar operations with a representative office. Sampath is the first Sri Lankan bank applied for the Myanmar banking licence. We wish, we will get it soon," he said.

Myanmar is a virgin market. Firstly, we have to study the situation, he said.

Banks in Sri Lanka is highly competitive; our branch expansions with strategic locations contribute positively in increasing market share in credit and deposits, Aravinda Perera said.

The bank now operates 220 branches. So far this year we opened three new branches with another five to follow he said.

According to the Asian Development Bank (ADB), Myanmar could follow Asia's fast growing economies and expand at 7-8% a year, become a middle income nation and triple per capita income by 2030.

Commercial Bank has become the first Sri Lankan bank to be granted a licence by the Central Bank of Myanmar to operate a Representative Office in the Southeast Asian Republic which has more than 50 million people, which was exclusively reported in the Ceylon FT in its 1 June edition.

The Commercial Bank of Ceylon opened its representative office in Yangon on Monday, 8 June, formally launching its operations in Myanmar, initially to offer Advisory Services to Sri Lankan and Bangladeshi businesses wishing to enter that country, and to arrange Banking and Advisory facilities, funds transfer and encashment services.

"Due to Myanmar's restricted banking environment, we didn't expect much from it," the Commercial Bank official said.

Meanwhile, Hatton National Bank PLC (HNB)., second-biggest privately owned lender by assets, also is looking to invest and lend in Southeast Asia's developing economies, HNB, Chief Executive Officer Jonathan Alles recently said in Bloomberg interview.

"The region of Cambodia and Myanmar are presenting opportunities," for lending to small and medium enterprises and microfinance, he told Bloomberg news wire.

According to Bloomberg news wire, Hatton National may also look at 'placing debt or taking equity stakes in companies' in the Asia-Pacific region.
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Sri Lanka Monetary Policy Review, June 2015 - Policy Rate - Unchanged

The Sri Lankan economy expanded by 6.4 per cent in the first quarter of 2015, with positive contributions from all three key sectors of the economy. The Services sector and the Industry sector grew by 7.5 per cent and 6.5 per cent, respectively, while the Agriculture sector displayed strong signs of recovery. Going forward, the prospects of improved performance in advanced economies along with low inflation and low market interest rates are expected to benefit domestic economic activity.

In the external sector, proceeds from the International Sovereign Bond, Sri Lanka Development Bonds, foreign currency swap arrangement with the Reserve Bank of India and regular inflows in the form of earnings from the export of goods and services, including tourism as well as workers’ remittances, improved the country’s foreign reserves. Meanwhile, cross currency movements, tax adjustments favouring the importation of lower engine capacity motor vehicles and eased monetary conditions resulted in increased imports in April 2015. However, the substantial reduction in global oil prices resulted in a significant decline in the expenditure on oil imports.

Broad money supply (M2b) recorded a year-on-year growth of 13.9 per cent in April 2015. The year-on-year growth of credit to the private sector in April 2015 was 15.2 per cent. In absolute terms, credit extended to the private sector has been increasing by around Rs. 25 billion on average per month up to April 2015 supporting continued expansion of economic activity. Meanwhile, the increase in net credit to the government and State Owned Enterprises (SOEs) by the banking sector also contributed to the monetary expansion.

Inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (CCPI) was 0.2 per cent in May 2015 and remained well below 1.0 per cent for four consecutive months. Annual average inflation declined further to 1.9 per cent in May 2015 from 2.1 per cent in the previous month. Meanwhile, core inflation on a year-on-year basis also remained low at 2.6 per cent in May 2015. Inflation is projected to remain comfortably below 4.0 per cent during the remainder of the year.

In this background, the Monetary Board was of the view that the current monetary policy stance is appropriate. Accordingly, the Monetary Board, at its meeting held on 26 June 2015, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.00 per cent and 7.50 per cent, respectively.

Banks under pressure with LCR, NSFR regulations

Indunil Hewage

The introduction of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) under Basel III is likely to put pressure on bank capacity to take high risks and improve margins, Asia Securities,Senior Analyst, Srimal Liyanage said.

He made these remarks addressing a wealth insight series organized by Asia

Securities under the theme,“Banks;An evolving story of Elephants an Cheetahs, held in Colombo recently.

Under the LCR proposals, the banks need to hold high quality liquid assets to survive in emerging stress scenario whilst NSFR will limit the over reliance on wholesale and short term funding and ensures that investments activities are funded by stable liabilities.

“While there is insufficient data to calculate if the banks do meet the proposed ratios, our channel checks suggests that the banks are maintaining the ratios well above requirements. In order to maintain margins, banks will have to maintain the ratio limits well above the minimum standards which we think will result in additional capital being raised in the near future.

The banking sector represents for 14% in the total market capitalization of the Colombo bourse. Institutional funds will hold positions in the sector to maintain a positive alpha despite short term risks.” he added.

The banking sector must maintain its position in a sector which has a high weightage in the market index and is also largely secured by regulations due to recent political uncertainty. In order to maintain margins, banks will have to maintain the ratio limits well above the minimum standards. This will result in additional capital being raised in the near future.

The banks should also raise additional capital to cater to the increasing banking activities with economic growth.
www.dailynews.lk

Arpico Finance posts Rs.269 m profit

Arpico Finance Company PLC (AFC) has posted a strong financial performance in the year ended March 31,2015, achieving commendable growth in several new product lines and customer segments.

The company achieved the highest ever profit in its operating history of 64 years, with a profit-after-tax of Rs 269.32 million, compared to Rs 88.34 million the previous year.

AFC’s interest income was relatively unchanged at of Rs 1.01 billion, primarily due to the low interest rate scenario whereas loan growth was robust at 35%, significantly higher than the industry average of 16%.

The company adopted a strategic and focused approach to growth leveraging on its branch network to pursue expansion in new products and market segments which also enabled diversification of its business lines.

Net interest income was Rs 488.06 million, reflecting a growth of 11% compared to the previous year.

Notwithstanding the robust growth in its loan books, the Company maintained a relatively healthy loan portfolio, with its gross non-performing-loans ratio improving to 6.86% by end-March 2015.

The company’s deposit base grew by 42% during the year, reaching a record high of Rs 4.13 billion, an attestation to the stability and security offered to our depositors throughout our track record of over 6 decades.
www.dailynews.lk

Sri Lanka sells Rs 32.3bn of 4, 6 and 8 year bonds

(LBO) The issue of treasury bonds amounting to 30 billion rupees have been oversubscribed with Rs 79.15 b of bids received from investors.

The Central Bank has accepted Rs 3.7 b of four year bonds maturing on June 1,2020 at a weighted average yield rate of 8.16.

The bond auction held on Monday accepted Rs 13.3 billion of six year bonds maturing on January1,2022 at a rate of 8.67.

Sri Lanka shares recover after election announcement

Sri Lankan shares recovered on Monday from a near 2-1/2 month low hit in the previous session after President Maithripala Sirisena dissolved parliament and announced elections, but trading volume slumped due to the political uncertainty.

Sirisena dissolved the parliament on Friday and scheduled the elections for Aug. 17, in an effort to consolidate power and push through political reforms, ending a months-long deadlock.

The main stock index ended 0.23 percent, or 15.95 points, higher at 7,032.15, recovering from its lowest close since April 15 hit on Friday.

The day's turnover was 394.3 million rupees ($3 million), just over a third of this year's daily average of 1.07 billion rupees.

"There is uncertainty over who is going to win the election and if there will be political stability after the election," a stockbroker said on condition of anonymity.

"So there will be volatility until the elections are over. Possible split in Sirisena's own party and predictions over a Prime Minister-led ruling party not getting a majority in the parliament are some concerns at the moment."

The market saw net foreign inflow of 26.3 million rupees on Monday, after suffering net outflows of 4.09 billion rupees over the past 23 sessions through Friday.

Top mobile phone operator Dialog Axiata edged up 0.2 percent, while fixed line operator Sri Lanka Telecom ended 0.5 percent firmer.

The market shrugged of the central bank's key monetary policy decision announcement as there were no surprises, traders said. 

($1 = 133.7000 Sri Lankan rupees) 

(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Prateek Chatterjee)

Singer Sri Lanka to buy control of related firms from parent

ECONOMYNEXT - Singer (Sri Lanka) Plc said it was buying out its parent in listed two captive manufacturing units with control of one unit coming below market price.

The firm said it was buying 5.58 million shares of Regnis (Lanka) Plc for 110 rupees from its foreign parent Singer (Sri Lanka) BV. The stock was quoted at 133.90 in intra-day trade Monday. Regnis mainly manufactures refrigerators.

Singer Sri Lanka Plc was also buying 3.21 million shares in Singer Industries for 206.00 rupees a share. On Friday Singer Industries fell to 192 rupees, down 7.90 rupees.

Singer Asia Limited had decided to sell the firms as part of a restructuring of the group.

The firm said the pricing was decided by an independent valuation, but the valuation report or the basis of valuation was not disclosed.

Will call for Sri Lanka parliament's probe on bond deal to be made public: Eran

COLOMBO (EconomyNext) - Deputy Investment Promotions Minister Eran Wickremeratne said he will call for the proceedings of a parliamentary committee on a controversial bond deal to be made public.

Wickremeratne said the Committee on Public Enterprises (COPE), of which he was himself a member had called questioned persons involved, including primary dealers, officers of the Central Bank, the Treasury and even retired persons.

"We started collecting information," Wickremeratne told reporters in Colombo.

"It was in the midst of all this that the parliament was dissolved. The interim committee could not come to a final decision."

"I plan to call for the proceedings to be made public, in the interest of transparency. We have nothing to hide. If the report is published, all of you can come to a decision."

He was responding questions from reporters who asked how the public can be assured of wrongdoers of the last regime being punished, when there was no assurance that wrong doers of the current regime being punished either, as was seen in an alleged fraud involving the Central Bank.

In the alleged fraud, a primary dealer connected to Central Bank Governor Arjuna Mahendran's family bid over 250 basis points above market rates at an auction for 30-year bonds and was given five times the initial action volume.

There were also allegations of insider dealing in the secondary market, ahead of the bond sale, as well as questions over monetary tightening outside the monthly rate announcement.

The actions shell-shocked gilt markets, bring trading to a standstill for almost two days, while market participants were unable price any bond across the yield curve.

Prime Minister Rani Wickremesinghe has vigorously defended the deal, much to the disappointment of good governance activists, who spoke out against corruption during the last regime, and helped bring the new administration to power expecting a change.

Reporters also raised questions about allegations that Prime Minister Wickremesinghe had also interfered in the event, asking what the party nominations committee would do amid such allegations.

"There is no allegation against the Prime Minister, I can say that categorically," Wickremeratne said.

"The COPE chairman DEW Gunesekera himself said the Prime Minister can make his views known especially on policy.

"This is just a mud throwing attempt by the opposition."

Bartleet Finance Plc Sri Lanka and Orient Finance merger approved

ECONOMYNEXT- A merger with Bartleet Finance Plc, Orent Finance had been approved by shareholders, Orient Finance listed company said in a stock exchange listing.

Existing shareholders could get one share of Bartleet Finance or 14.97 rupees for every existing share of or Orient Finance.

In a related deal, First Capital Holdings Plc said it had accepted an offer by Bartleet Finance Plc for a 25 percent stake in Orient Finance for 432.7 million rupees.

First Capital Holdings will make a 23 million rupee profit on the deal.

Controversial CIFL Chairman due soon - Alleged to have defrauded Rs. 1.6 Billion

By Ishara Gamage

Ceylon Finance Today- Sri Lanka's failed Central Finance and Investments (CIFL) controversial former Group Chairman Deepthi Perera will come back to Sri Lanka soon, Presidents Counsel Tilak Marapana confirmed to Ceylon FT yesterday.

Colombo Chief Magistrate, Gihan Pilapitiya, recently gave him a temporary court clearance for his visit, he said.

"He was under an international arrest warrant for a while. As his lawyer, I appeared before the court and convinced the court that he was unaware of such situation, so he is willing to come to Sri Lanka and support the ongoing CIFL investigation," Marapana remarked.

Following this court direction, I hope that he will back to Colombo soon and listen to CIFL grievances, he said.

However, depositors claim that Perera will be back in Sri Lanka either next week or around July 5.

The Fraud Bureau in late 2013 started special investigations against this Deepthi Perera alias Chulaka Gunawardena who is married to a Thai Woman while running some Colombo night clubs and later took off money from CIFL leaving CIFL bankrupt and its depositors to run off on the streets.

The CIFL Depositors' Association says that a former chairman of CIFL had defrauded a sum of Rs.1.6 billion from the depositors.

The CIFL Depositors Association noted that 4200 persons had deposited a sum of around Rs. 3.5 billion in the company. A majority of the depositors are pensioners who had deposited their gratuity payments.

The Colombo Stock Exchange recently inquired from the regulator- the Securities and Exchange Commission about the possibility of the suspension of the CIFL shares which are now trading at 70 cents.

Meanwhile, when contacted the Securities Exchange Commission of Sri Lanka officials said that, they had submitted CIFL & Touchwood Investment PLC cases to the Attorney General's Department for legal action.

"Our investigations found severe fraud and fraudulent activities among those two listed companies. So, we hand over such cases to the Attorney General's Department but more than one and half years past now, we didn't get any response, the SEC official said.

The SEC also started special investigation against auditors and accountants of two companies who were misguided the investor community by submitting fake account details, he said.

We don't have powers to punish those auditors, but we can act against those wrong information, he said. Four independent directors of the troubled Central Investments and Finance PLC (CIFL) recently alleged that there had been many manipulated figures in the financial statements of the company since 2004.

The numbers presented to the board meetings we attended as independent directors from end 2012 have been completely distorted, these four independent Directors told Ceylon FT on the basis of anonymity.

They alleged that the former Central Bank Governor Ajit Nivard Cabraal ignored all the revival proposals which were put forward by them in 2013.
www.ceylontoday.lk

NDBIB structures first listed zero coupon debenture

NDB Investment Bank Limited (NDBIB), the premier investment bank in Sri Lanka, yet again demonstrated their commitment to introduce novel products to the market by structuring the first ever zero coupon debenture to be listed on the Colombo Stock Exchange.

This innovation was successfully introduced to the market through the recently concluded Rated Unsecured Subordinated Redeemable Debenture issue of National Development Bank PLC (NDB) amounting to LKR 10 Billion.

Commenting on the successful issuance of this pioneering instrument, Chief Executive Officer of NDBIB, Darshan Perera said, “We, at NDBIB, are committed to introduce new products to the capital market and the Listed Zero Coupon Debenture is yet another innovative security to the Colombo Bourse.

The Instrument was well received by the market and the entire quantum was quickly snapped up by provident funds, insurance funds and high net worth individuals”.

Zero Coupon instrumentsdo not carry periodic interest paymentsand are issued at a discount to theFace Value.

The expected return to the investor is generated through capital gains.In thecase of NDB Debentures, the Zero Coupon instruments with Face Value of LKR 100/- were issued at a discount price of LKR 63.8136 each providing the investors an Annual Effective Rate of 9.40% for a tenure of 5 Years.

Commenting on the issuance of this Zero Coupon instrument, Chief Operating Officer of NDBIB, Kaushini Laksumanage said, “Zero Coupon Instruments offer benefits to both investors and issuers alike. In a plain vanilla Debt Instrument, investorsneed to reinvest the periodic interest receiptsat the same interest rate offered initially in order to realize theoriginal Annual Effective Rate of the Instrument.”

“As such, if the prevailing interest rates are lower than the rate offered initially, the Investors face the risk of earning a lower Annual Effective Rate on the investment.

This risk is referred to as the “Reinvestment Risk”.

Commenting further on the Zero Coupon instrument, Kaushini Laksumanage said, “from the issuers’ point of view, Zero Coupon Instruments will have no cash flow obligations until redemption,thereby enabling better cash flow management.Furthermore, Zero Coupon Instruments enable issuers to minimize duration mismatches in their asset and liability portfolios.”

“This can also be useful for investors such as provident and insurance funds and banks in order to achieve better management of assets and liabilities”.
www.dailynews.lk

Browns Investments completes Ajax Engineers acquisition

Browns Investments PLC said it had completed the balance 49% acquisition of Ajax Engineers (Pvt) Ltd.

Brown Investments indicated in a stock filing that it had paid Rs.100 million for the balance 49% percent stake, making it a wholly owned subsidiary.

Ajax is classified as an F 1 Super Contractor by ICTAD and is also a market leader dealing in aluminum construction materials and is a fully owned subsidiary of Brown Investments PLO.

The 30 year old Company has a fully equipped modem workshop in Ragama which is equipped with German and Austrian machines. 
www.dailynews.lk

Rs 5 b CESS fund unutilized - CTTA

Ananda Kannangara (anandakannangara12@gmail.com)

The CESS fund of nearly Rs. 5 billion collected from Tea exporters to promote Ceylon Tea brand globally is left unutilized, said Anselm Perera, Chairman of the Colombo Tea Traders Association.

“Tea industry is facing a crisis as prices have dropped and this is the time a globe promotion is urgently needed, he said speaking at the Colombo Tea Traders’ Association (CTTA) Annual General Meeting in Colombo.

The funds had been used so far only to promote Ceylon tea using the Sri Lanka Cricket team and in the Dubai Airport advertising board. “We need more to be done.”

“Political problems in key markets like Russia and the Middle East had reduced demand for Sri Lankan tea. Russia is one of the largest single importers and the devaluation of the Russian Ruble by 70% has badly affected to our auction prices”

He said the country’s key export markets in the Middle East are in turmoil and Iran, Iraq and Libya are in conflict.

“Sri Lanka has seen a progressive decline in tea auction prices since the third quarter of 2014 but it was only for a short period.

Chairman Perera further said the tea trade is most skeptical about the decision to pay the small- holders who cultivate less than 10 acres of tea as they get a guaranteed price of Rs. 80 for green leaf.

“On the positive side, with the world population exceeding 7.3 billion within the next few years and continuing to grow rapidly, we would expect the consumption of tea to register an upward movement,”

He also said the Colombo Trade contributes US Dollars 1.6 billion to the national income and planned to improve this to four billion US Dollars in the next 3 to five years.

Talking about the global tea production, he said although Sri Lanka produced 338 million kilo of tea in 2014, the country still remains the fourth largest producer in the world with China, India and Kenya are ahead of us.

Chairman Perera finally said the country will celebrate the 150th year of Ceylon tea in 2007 and arrangements have been made to celebrate the event by conducting an Exhibition and an International Convention. “This exhibition will help to popularize our tea among countries,”.

Dr. Dayan Jayatilleke observed on the Government’s new foreign policy, particularly with regard to the major buyers of Sri Lankan tea including USA, the European Union and also issues in relation to the Middle East, Russia and other CIS nations will open doors for our tea trade once again. Over 200 members of the CTTA attended the AGM to elect the new committee for the year 2015/2016. 
www.dailynews.lk

CDB PAT grows 25% to Rs 701 mn

Citizens Development Business Finance PLC (CDB) posted a noteworthy 25% growth in Profit After Tax to notch Rs. 701 Mn as profit, as detailed by interim results released to the Colombo Stock Exchange.

The upward trajectory in performance continues as CDB’s Balance Sheet showcases growth of 13% standing at Rs. 38.01 Bn, the Loan Book detailing an incline of 14% displayed at Rs. 29.38 Bn and the Deposits & Savings portfolio growing by 10% to be notched at Rs. 27.07 Bn.

Net Assets is recorded at Rs. 4.30 Bn reflecting a growth of 20%. Revenue recorded a growth of 9%, commendable given the low interest backdrop experienced, while Net Interest Income also moved upwards by 23% to stand at Rs. 2.87 Bn.

Profit Before VAT on Financial Services, Crop Insurance Levy, Nation Building Tax and Income Tax surpassed a milestone of Rs. 1 Bn, showcased at a historic Rs. 1.04 Bn, reflecting a growth of 33%. Despite an increase of 48% in Income Tax, the Company showcased an impressive Rs. 701 Mn in Profit After Tax.

Earnings Per Share recorded a figure of Rs .12.92, while Net Asset Value Per Share is detailed at Rs. 79.22. Having always been a company that has remained well above par in its compliance culture, Capital Adequacy Ratios for both Tier I and Tier II remained well above the regulatory requirement of 5% and 10% respectively.

Tier I is now at 10.14%, while Tier II is at 12.92%. Liquidity Ratio is posted at 14.66%, compared to the required 10%, which once again is above the regulatory directive.

Non-Performing Loans (NPL) stood at 5.78% and 3.19% on gross and net basis respectively.

Aligned with the directives instituted within the Financial Sector Consolidation Programme, CDB acquired 86.26% stake in Laugfs Capital Ltd, a specialized leasing Company during the period under review.
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Targets need realistic timelines: SEC Chairman

The Chairman of the Securities and Exchange Commission of Sri Lanka (SEC), Thilak Karunaratne says the establishment of the Central Clearing Corporation, amending the SEC Act and facilitating the Demutualisation of the CSE will only be possible before the end of the year 2016.

“I think it is time we gave serious consideration to achieve concrete outcomes on several important fronts by defining realistic timelines. I am of the belief that before the end of the year 2016 we will be able to establish the Central Clearing Corporation, amend the SEC Act and facilitate the Demutualisation of the CSE,” the Chairman said in his review of the SEC’s 2014 Annual Report released last week. Also commenting in the report, SEC Director General Vajira Wijegunawardane said that the implementation of the Central Counter Party (CCP) will enable the capital market of Sri Lanka to be compliant with international requirements from the G20 which is to migrate all capital markets to a centrally cleared environment. He also noted that CCP would provide a prerequisite for enabling products such as derivatives.

“The importance of implementing a CCP mechanism has been in the pipeline for many years to address the counterparty risk, asset commitment risk and minimising the risk of settlement failure in the present equity market. The SEC, CSE and the Central Bank of Sri Lanka (CBSL) commenced a joint initiative to set up a CCP for settlement of securities, including shares, corporate debt and Government securities thereby implementing a blueprint for a national securities central counterparty to support Sri Lanka’s growing capital market,” he said.

Meanwhile, the SEC DG said that as fund raising and investment activity is currently dominated by the banking sector, Sri Lanka’s capital market should be positioned to complement the banking sector and support the growth targets of the country. The capital market size is around 30% of Gross Domestic Product (GDP) and this presents a unique opportunity for all stakeholders.

“The deepening of capital markets has been critical for sustaining rapid economic expansion in many countries and to achieve this end, investor and public confidence as well as the integrity of markets and their participants is essential,” Wijegunawardane said.

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The Coconut Industry of Sri Lanka: Glorious Past, Dismal Present, Uncertain Future

by Dr. P.G.Punchihewa

"It’s an old and common saying, the coconut tree afford meat, drinks, and cloth; true, but far short to my own knowledge; besides I shall add, toddy, wine, vinegar, oil, milk, and honey all eatables: but besides it afford other necessaries as mats, brooms, bottles, dishes and ropes." - Robert Knox

Long before Knox, coconut had played a vital role in the lives of the people of Sri Lanka. The first coconut plantation in the island, (cocopalm garden three yojanas in length) may be even in the world, was established during the reign of Aggabodhi I, according to Mahavamsa. He ruled from 571 to 604 A.D.

But Knox’s statement was the first which spelled out the many uses of the coconut tree so vividly.

Coconut, a subsistence crop, had to await the arrival of the colonial powers to the island, particularly the British, to be made into a plantation crop. With the finding of new uses of coconut oil in the manufacture of margarine, candles and soap in Europe, the demand for coconut oil increased by leaps and bounds. Accordingly, all the major colonial powers started the cultivation of coconut in their colonies - the British in India and Sri Lanka, the Dutch, in the East Indies, the French in Africa and the Germans in the Pacific. The Foreword written by Sir W.H. Lever, the founder of Lever Brothers, to ‘Coconuts-the Consols of the East’ by Smith and Pape, speaks of the keen interest shown by the British in the cultivation of coconut.

"I know of no field of tropical agriculture, that is so promising and I do not think in the whole world there is a promise of so lucrative an investment of time and money as in this industry. The world is only just awakening to the value of coconut oil in the manufacturing of artificial butter of the highest quality and of the byproduct copra cake as a food for cattle."

Accordingly, the colonial government encouraged the cultivation of coconut, particularly in the North-West of the island. "The rapid expansion of the coconut industry had begun in the late 1850s, but the pace had been accelerated in the 1860s. The acreage went up from about 250,000 in the 1860s to 850,000 in the first decade of the 20th century. (K.M. de Silva:A History Sri Lanka page 287)

Apart from encouraging the rapid expansion of the area under coconut, the English diverted the industry to processing of coconut products as well. The establishment of a crushing plant for milling copra into oil and copra meal commenced around 1830 and there had been regular shipments of oil from Ceylon to Europe. In 1853 Sri Lanka had exported 1,033,900 gallons.(Samuel Baker: Eight Years in Ceylon: pg 158).

In 1855 soap making commenced and several kinds of soap were produced and exported. Sri Lanka was thus ahead of most of the coconut producing countries that were continuing to export only copra.

The 19th century also saw Sri Lanka taking another important step in processing of coconut products.

Following the industrial revolution, the need arose for a cheap ingredient for the ever increasing demand for candy among the working class in UK. Coconut proved to be ideal. But the practice at the time to import the whole nut was cumbersome and expensive. Experiments had been carried out in U.K to find a solution. It was discovered that grated coconut meat heated on steam tables resulted in it not becoming rancid and the result was desiccated coconut. The first desiccated coconut factory was established at Dematagoda and by 1890 Sri Lanka had exported 6,000 tons of desiccated coconut. In 1900 it had gone up to 60,000 tons. At that time, Sri Lanka was the leading exporter of desiccated coconut.

Similarly, the first fiber mill was set up in the 19th century and in 1853, 2,380 tons of coir had been exported.

But that is the past. What about the present and the future? Dismal and uncertain.

Though Sri Lanka was the first to export desiccated coconut with 60,000 tons in 1900, over the years her competitors have overtaken her. In 2013, export of desiccated coconut from major exporting countries was as follows.

Metric tons

Philippines 116,115

Indonesia 75,930

Sri Lanka 33,273

Export of coconut oil (in MT) from the same three countries was as follows,

Philippines 1.096,861

Indonesia 630,568

Sri Lanka 3,821

In 1985 Sri Lanka had exported 52,000 metric tons of desiccated coconut and 64,000 metric tons of coconut oil.

There are number of factors responsible for this huge drop in exports. While the Philippines and Indonesia have vast extents brought under coconut, running into several millions of hectares, in Sri Lanka coconut acreage is shrinking due to urbanization, pests, diseases, and drought. From a peak of 1.15 million acres in 1962 the area under coconut had decreased to 0.976 million acres in 2002. In 2006 ‘Weligama Wilt’ was reported and it was estimated that 300,000 palms at the initial stages and more in repeated cycles had to be removed. Production of coconut has remained static. Since 1980 Sri Lankan coconut production had exceeded the 3,000 million nuts mark only twice. That was in 1986 and 2000.The average yield hovers around 2,500 nuts per acre per annum.

With increasing population, exportable supply declined. In 1981 the population of the island was 14,846,000. In 2012 it had gone up to 20,277, 597. Domestic consumption is eating into exports. It had gone up from 1,784 million nuts in 1980 to 2,481 million in 2012. Shortfall in production is met with the import of more and more alternative vegetable oils. (In 2014 more than 100,000,m.t of crude palm oil, palm kernel oil, soya and sunflower oil and coconut oil have been imported to Sri Lanka.)

Efforts made to increase production and productivity had not had much effect.

Sri Lanka has introduced only three high yielding varieties since 1960.But these cannot meet the demand. The total number of seedlings issued since 1980 up to 2012 is nearly 70,000,000 according to Sri Lanka Coconut Statistics 2012.On the basis of 64 trees to an acre this should cover an area of more than 1,000,000 acres! Obviously there is something wrong with the quality of seedlings!

As it is, there is no likelihood of increasing production/productivity in the immediate future.

An opportunity Sri Lanka has missed is in the processing and exporting of coconut water which remains a waste product. Neither the government nor the private sector had made a genuine effort to penetrate this new market. In 2013, desiccated coconut production was 29,200 metric tons. To produce one ton of desiccated coconut about 8,000 nuts are needed. That is about 2.4 million nuts of which the water, at least a part, could have been used as a Ready to Drink (RTD) product.

"The total global packaged RTD coconut water market is estimated to be worth close to $600 million in 2013, with US and Brazil leading consumption growth. It is known for being a nutritious, refreshing, and rehydrating beverage and is convenient to purchase and consume. The versatility of coconut water allows for many innovations in this category. (Cocoinfo International vol. 21 no 2, 2014)

Among the main exporting countries of RTD are the Philippines, Indonesia, Thailand, Malaysia, Vietnam and India. (The production of coconut in Malaysia, Vietnam and Thailand is comparatively less than that of Sri Lanka.)Exports from the Philippines from 2009 to 2012 was as follows,

Sri Lanka was the pioneer in exporting coconut products to the world. Even in processing of coir dust she showed the way. Surprisingly, the Sri Lankan coconut industry had not shown much interest in producing a RTD product for export. The Middle East should be a market that could be tapped. Now, technology must be freely available. Already Sri Lanka is falling by the way side.

(The writer held the posts of Secretary Ministry of Coconut Industries and Executive Director, Asian and Pacific Coconut Community, Jakarta.)

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How is the Economy faring under the transitional government?

By R.M.B Senanayake

The defeat of Mahinda Rajapaksa on January 8 was hailed by democratic opinion here as well as abroad as a victory for liberal democracy and for the values of freedom over arbitrary government. But our people who are more impressed by grand displays of power rather the freedom they enjoy want to see the spending power of the government, never mind if such spending comes from borrowed money- mostly borrowed from foreigners and which have to be repaid. The days of reckoning when we have to pay back such loans have not yet come. The people seem to have grumbled about the lack of infrastructure spending by the new government. Reacting to this criticism the government has decided to allocate Rs 300 million for the construction of rural roads, displaying a correct sense of priority instead of on impressive urban infrastructure.

The government must decide how they want to raise money if they want to carry on their government instead of going for an election. Otherwise it will expose itself to similar criticism perhaps more stridently. How can he raise sufficient government revenue without introducing taxes? The taxes introduced y the Minister of Finance in the recent budget have not yet  been passed yet. The present government headed by veteran politician, Ranil Wickremesinghe, knows what should be done but he finds himself at a loss on how to proceed unless the President co-operates with him.

On the external front the current account of the balance of payments continues to run at a deficit indicating that we are paying out to foreigners more than what we receive from them. It means running down our Foreign Exchange Reserve unless such Reserve is simultaneously increased by foreign investment inflows. In this respect, the UNP has a better chance of attracting foreign investments than an SLFP Government. But politicians of the SLFP are impatient to obtain power since they form the majority in Parliament. But if it were to happen, a sudden outflow of foreign money could bring on a currency crisis. The SLFP has never shown much talent or ability in governance and particularly in the economic governance of the country. If they were to take power a currency crisis cannot be ruled out considering the continual erosion of our Foreign Exchange Reserves.

But it is said that our GDP has been maintaining the recent growth although it has slowed down in this year’s first quarter though the official figures are not yet available. The Sri Lankan economy grew by 7.7 per cent in the first half of 2014, reflecting increased domestic economic activity and rising external demand. It probably maintained a figure of 7.4% for the year.  But the sustainability of growth depends on the source of economic growth. During the Rajapaksa government the growth came mainly from government infrastructure investment using funds borrowed from China. But infrastructure investment cannot be carried out for too long when the country is small. It will also depend on our capacity for foreign borrowing. Our net external debt has been growing faster than our GDP. There is of course no immediate danger of a foreign debt crisis since our Aggregate Foreign Debt is still only 34% of our GDP. Some countries have exceeded 100% when there are danger signals. But we have not taken any action to increase our exports of goods and services and increase our debt repayment capacity. Our current account in the balance of payments continues to be in deficit although last year it reduced slightly. But we cannot run current account deficits in the balance of payments indefinitely and must take corrective action. Until then foreign funds must be attracted to fund the deficits. It is best if the foreign funds flow into direct foreign investments in the country rather than into portfolio investments like the debt and stock markets. In short we are dependent on continued attraction of foreign investment flows to maintain our living standard, particularly in paying for the imported goods we consume. Meanwhile, per capita GDP in US dollar terms also increased to US dollars 3,625 in 2014 from US dollars 3,280 in 2013 moving forward the country within the middle income per capita trajectory.

Some people point to the high borrowings of the present government and newspapers blare out headlines about the increase in government borrowings. They were however silent when MR borrowed and spent wantonly.

The economy left to itself has progressed and it shows that left to itself without too much interference by the State it could do quite well. Politicians like to believe that it is their efforts that contribute to growth. But it is not so. In fact their contribution is often more negative than positive.

But this doesn’t mean that there is no role for the government. No progress has been made with regard to the working out of devolution of power to the regions. Since we are a plural society and since politics dominate the allocation of funds to regions and electorates it is necessary to entrust more power over finances to the Provincial Councils. There is really no role for MPs to become spending units of the government. They are elected to be legislators not to look after the needs of their electorates. This erroneous conception of the MP is deeply rooted in the mindset of our people judging from the debates conducted on the Sirasa TV. This conception of the MP is the product of SLFP misrule after 1956. It is instead the role of those elected to the local authorities. This issue was debated and settled in England almost a century ago.

The MP’s role is as a member of the legislature and not to look after the parochial interests of his voters. Some MPs from the governing party (or parties) become government ministers with specific responsibilities in certain areas, such as Health or Defense. But their role is not to look after their electorate. But our public doesn’t understand this and go to their MPs to invoke their support to resolve their problems with government authorities, a pernicious practice which leads to the interference of the MPs in the administration and thereby undermining public administration.

The SLFP began the practice of allocating public funds to MPs to be spent by them in their electorates. This is not a practice suitable for a democracy. Public expenditure must be entrusted to Public Authorities not to individuals- whether MPs or otherwise. This is .a practice unheard of in the liberal democracies of the developed world. It is an open invitation to financial malpractices and the prime minister should resist the demand for such financial allocations to individuals who are not public authorities.

Devolve power to the PCs or confine them to the North and East

There is a strong case for devolution of spending power to the authorities at the grass roots level and that through the intermediate level of Provincial Councils and Pradeshiya Sabhas. It could make the central government allocation of funds to the different provinces more fair and equitable. There is a Finance Commission provided by law which is to be entrusted with this function of allocation of finances. Why is this Commission ignored in the distribution of funds? Such allocations would lead to better satisfaction among the regional and local authorities. The technical capacity of the local authorities should be expanded instead of adding to the staff and facilities of the central government agencies at the local level. A more rational allocation of funds from the Central Government would help to reduce income differences between regions and districts.

In the developed countries competition between regions and between local authorities lead to better public services as people compare their own council’s performance with that of the more efficient councils. This provides an incentive for all councils to improve their services as they get compared to other more efficient councils. Efficiency in their working should be our aim for it promotes economic growth with less usage of resources.

A local authority will also be more conscious of the environmental impacts of their policies and they being closer to the people cannot avoid the issue of environment if it adversely affects the people. When it is the Central Government that is responsible they find it more difficult to hold it responsible. The local authority level will also be able to decide more rationally between a project which is labor intensive (suitable where there is unemployment in the region) or capital intensive.

Another reform that is needed is to do away with the present case by case approvals of projects and instead to lay down a negative list disallowing any project which could fall into such list. Any project not included in such negative list will then automatically qualify and there will be no need for case by case approvals. We need to reduce bureaucratic red tape and controls and permit greater freedom for businessmen and entrepreneurs to invest their moneys. This will not only hasten the progress of new projects but it will also reduce corruption and graft.

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First Capital realizes Rs. 23 mn. capital gain selling 25% of Orient Finance

First Capital Holdings PLC has accepted an offer of Rs. 432.75 million made by Bartleet Finance PLC to purchase its 25% stake in Orient Finance PLC, First Capital said in a Stock Exchange filing on Friday.

First Capital will realize a capital gain of Rs. 23.24 million on the deal based on its carrying value as at March 31, 2015.

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Five-star hotels feel competitive bite from new properties

Cheaper three and four stars take a small slice of the cake

Cinnamon Red Hotel on Green Path launched in Sept. 2014, one of the properties competing with the five-stars. JKH owns a slice of this hotel it manages. Cinnamon Red has been ranked the best new hotel opened in South Asia last year.

The five star City Hotels are feeling the competitive bite of three and four star properties opening shop in Colombo with Asian Hotels and Properties Plc., controlling the Cinnamon Grand and Cinnamon Lakeside Hotels seeing group occupancy down to 66% from the previous year’s 70%, Asian Hotels have said in their latest annual report for the year ended March 31st, 2015.

"The room inventory within the city of Colombo witnessed substantial growth in the year under review, particularly in the three and four star category, intensifying competition and restricting growth in average room rate for the five star city hotels," Mr. Susantha Ratnayake, Chairman of Asian Hotels and Properties said.

"Whilst this increase in capacity stem from the expected growth in tourist arrivals, these new offerings at lower rates resulted in a citywide drop of two percent in the business segment of the five star city hotels."

The report revealed that the Cinnamon Grand, the biggest of the Colombo five stars with 501 luxury rooms and a full range of services including extensive dinning venues had seen occupancy levels drop marginally to 75% from 76% the previous year.

The hotel claimed it had "retained its star performance" during the period under review "despite the plethora of lower cost new entrants into the city hotel sector."

Cinnamon Lakeside, however, saw occupancy down to 51% in the year under review from 61% a year earlier, with its market share also shrinking from 18% to 15%. The Cinnamon Grand, however, had held its 32% market share.

Ratnayake said that the Asian Hotels Group had retained its leadership position among the five stars reflected by the 46% market share achieved during the year.

However, all the main financial indicators pointed to declines with group revenue down two percent to Rs. 8.08 bn., the gross profit down six per cent to Rs. 4.72 bn., net finance income down 34% to Rs. 199.77 mn., profit before tax down 23% to Rs. 2.35 bn. and profit after tax down 26% to Rs. 2.09 bn.

But the company said that it had maintained the dividend per share at Rs. 4 on par with the previous two years, despite the drop in profits.

In addition to its two five star city hotels, Asian hotels, owns the Crescat Boulevard claimed to be "the finest upmarket shopping mall in Colombo," which had maintained 99% occupancy, on par with the previous year, although the 2.07 mn. footfall was down 12% from the previous year.

Ratnayake said that tourist arrivals in 2014 had topped 1.5 million, representing a growth of 19.8% over the previous calendar year, with "the surge in arrivals led by the Chinese market which had grown 136% year-on-year and became the third largest source market behind India (up 16.3%) and the UK (up 4.9%).

JKH controls Asian Hotels, with 78.56% of the company followed by the EPF (9.84%) Sri Lanka Insurance Corporation – Life Fund (2.27%) and the Ceybank Unit Trust (2.15%). Dr. S Yaddehige (0.77%) and Mr. Merril. J. Fernando (0.46%) are among the individual large shareholders.

The Asian Hotels share which closed at Rs. 63 during the year under review, traded at a high of Rs. 75 and a low of Rs. 58 during the year. This compared to a closing price of Rs. 58.80 and a low of Rs. 57 and a high of Rs. 79 a year earlier.

The Directors of the company are Messrs S C Ratnayake (Chairman), A D Gunewardene (MD), J R F Peiris, Rohan J Karunarajah (Rohan Karr), Suresh Rajendra, Sanjiva Senanayake, Ms. Shiranee Anoja Jayasekara and C J L Pinto.

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Rising construction costs major challenge to property development

Pioneer developer says middle class salary earners can’t afford city apartments

Escalating construction cost over time has become a major challenge to the property development industry, Mr. D C R Gunawardena, Chairman of Equity One Plc., with which the Carson Cumberbatch group entered the real estate business by developing a commercial building on Dharmapala Mw., Colombo 7, over three decades ago.

Given current construction costs, he has said in the company’s annual report, their focus currently lies in maintaining the existing properties of the group to be in line with industry benchmarks while providing a superior quality service to their tenants.

"Considering our modest cash flow from current operations, coupled with the existing commitments pertaining to debt servicing and capital expenditure, we are reluctant in taking on additional borrowings for large scale development activities due to our limited ability to service such debts," he explained.

"As we have mentioned in the past we will continue patiently to maintain our position until a feasible opportunity arises to realize potential value."

In a business review, Carson’s Management Services (Pvt.) Ltd., the managers of Equity One, said that the impact of rising construction cost is a significant challenge faced by the overall property industry, given its impact on return on property development projects and on recurrent expenditure on property renovation and maintenance.

They further commented on the disproportionate growth in property prices and average income levels of people that has made it difficult for mainly salaried middle class income earners to afford residential property in the vicinity of Colombo and within the city limits.

"This is clearly visible in the residential apartment segment where based on the trend in valuations, the number of years of salary it takes to acquire an apartment from the city has increased significantly over time," they said.

The year ended March 31, 2015 saw Equity One, which owns a 0.524 ha. property at Vauxhall Lane, Colombo 2, with three buildings, in addition to the Dharmapala Mw. property, posting a group profit of Rs. 403.9 million, up from Rs. 192.7 mn. a year earlier. At company level there was a profit after tax of Rs. 244.5 mn., up from Rs. 127.4 mn. the previous year.

Much of this profit arose from the overall appreciation of investment property under the Equity One group resulting in a net unrealized gain of Rs. 300 mn. At company level, an operating profit of Rs. 58.7 mn., excluding the impact of change in fair value of investment property and gains booked on divestment of investment property.

"Compared to the same for the previous year, this was an increase of 12.8%, mainly stemming from rental revisions and letting of the Dharmapala Mw. building penthouse on a long term basis during the year under review.

Equity Two Plc., a group company, owns two buildings at Janadhipathi Mw., Colombo 1 standing on 0.072 ha. and 0.146 ha.respectively. These buildings had a market value of Rs. 363.7 mn. and Rs. 561.18 mn. while the Dharmapala Mw., property was valued at Rs. 763.4 mn. and the Vauxhall Lane property Rs. 652.3 mn.

A third group company, Equity Three (Pvt.) Ltd. owns two buildings standing on 0.208 ha. of land valued at Rs. 279.3 mn.

Gunawardena said that the much awaited re-opening of the entrance to Janadhipathi Mw. was commendable. However, access to their two properties via Janadhipathi Mw. is still restricted due to the guard fence erected between the roadway and the buildings.

"Whilst we strongly commend the initiative to open Janadhipathi Mw. – even as a thoroughfare – we would also like to make a humble plea to the authorities to remove the guard fence and permit full access to the buildings via our main entrance to the property," he said.

Gunawardena made the further point that the opening up of the roadway itself will be a likely catalyst enhancing valuations of the Equity Two buildings located in the area.

Equity One has a stated capital of Rs. 1.085 bn., a group capital reserve of Rs. 13.2 mn. and group revenue reserves of Rs. 1.14 bn. At company level, the capital reserves stood at Rs. 13.2 mn. and revenue reserves at Rs. 705.1 mn.

Total assets of Equity One stood at Rs. 2.06 bn. and total liabilities at Rs. 253.6 mn. At group level, total assets were Rs. 2.78 bn. and total liabilities Rs. 448.3 mn.

Carson Cumberbatch with 96.27% of the company is the dominant shareholder with all other shareholders owning less than one per cent individually.

The Equity One share closed at Rs. 42 on March 31st, 2015 trading between a high Rs. 56.90 and Rs. 27 during the year. This compared to a closing price of Rs. 27.60 a year earlier and a trading range of Rs. 35.70 – Rs. 25.40.

The directors of the company are Messrs. D C R Gunawardena ( Chairman), S Nagendra, K C N Fernando, E H Wijenaike, A P Weeratunge, S Mahendrarajah, and P D D Fernando.

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