Mahinda hands over SLFP chairmanship to Prez Maithripala

Former President Mahinda Rajapaksa has agreed to hand over the Chairmanship of the SLFP to President Maithripala Sirisena, SLFP sources told Ada Derana. The Central Committee of the SLFP is sheduled to meet today at 4pm to ratify the appointment of President Sirisena as Chairman.

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Oil near six-year low; Brent trades at par to US crude

NEW YORK (Reuters) – Oil tumbled 5% to near six-year lows before recovering ground on Tuesday, and Brent briefly traded at par to US crude for the first time in three months as some traders moved to take advantage of ample storage space in the United States.

Traders were searching to store the glut of oil, which has knocked prices down 60% in the last six months. So far this week, Brent has lost 7% and US crude 5%.


Brent settled down 84 cents at $46.59 a barrel, after falling to $45.19, its lowest since March 2009.

US crude closed down 18 cents at $45.89, after hitting an April 2009 low of $44.20.
Oil tumbled earlier after big OPEC producer United Arab Emirates defended the group's decision not to cut output to boost prices.

Losses were pared by a flurry of short-covering toward the close, as players moved to cash in on profitable short positions, traders said.

The arbitrage between Brent and US crude traded at parity for the first time since October, with both markets touching $46 a barrel at one point.

Traders said the benchmarks converged as limited storage on land for Brent forced traders to look for storage in the Cushing, Oklahoma, delivery point for US crude.

US onshore storage tanks for crude are barely a third full, showing the highest vacancy rate since the government's Energy Information Administration began its bi-annual survey of tank farm capacity in 2010.

Some said the convergence was not sustainable because the narrowed arbitrage attracted foreign imports.

In the case of Brent, some the world's biggest traders booked supertankers to store at least 25 million barrels at sea in recent days in hopes of profiting later if prices recover.

At least 11 very large crude carriers (VLCCs) have been reported booked with storage options, shipping sources and fixture lists show, rising from about five vessels at the end of last week. Each VLCC can hold a maximum of 2 million barrels of oil.

Price differentials for U.K. North Sea Forties crude weakened on Tuesday, pressured by an abundant supply in the Atlantic basin.

The US Government said domestic oil production will rise by 200,000 barrels per day in 2016, the slowest rate of growth since 2011, reflecting the impact of plunging prices on drilling.

Traders continued to wonder when the price rout would end.

"Despite the magnitude of the selloff, there are no indications anyone knows what the bottom is," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

The industry group American Petroleum Institute (API) late on Tuesday reported that US crude stocks had risen 3.9 million barrels last week. [API/S]

Gasoline and distillate stockpiles also rose, the API said.

The Energy Information Administration's oil inventory report is due on Wednesday at 1530 GMT
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OGL calls EGM on 20th January 2015 to save 4,000 jobs

Directors of the only listed garment manufacturer Orient Garments Plchas decided to go ahead with a rights issue first announced on 9th September 2014.

The General Meeting seeking shareholder approval for a 1:1 rights issue of ordinary shares at an issue price of Rs 15/- and provisional allotment is set for 20 January 2015 and ex rights for the following day with share transfer books kept open, stated the CSE website.

The rights issue was called to infuse much needed capital to meet overdue statutory payments and other outstanding, which have been hampering the progress of the company explained OGL Chief Operating Officer Udeni Abeykoon.

Orient Garments Plc enjoys the custom of high profile buyers including giant retailer Tesco, as well as renowned labels such as Dillards, Next, SuperDry, Guess and others who continue to support the company since Adam Investments Ltd wrested management control from the previous major shareholder in a hostile takeover last year.

OGL COO Udeni Abeykoon noted in an interview held on 10th January at OGL office at Mattegoda that the rights issue is primarily to safeguard the employment of over 4,000 faithful workers who have stood by the company through thick and thin and to drive the operations forward with renewed vigour and excellence.

"We are confident that our shareholders will support this noble cause to safeguard the turnaround of the company and employment of the 4,000 workers", she explained. She further stated that she has already received commitments from some major shareholders to this effect.

Since the takeover on 8th January 2014, OGL has spruced up its compliance standards, increased the number of machines in operation by 76% – from 1100 to 1940 machines - and carried out an employee skill upgrade initiative resulting in improved efficiency and greater confidence by its highly quality conscious international buyers. The revamped marketing department has built a strong confirmed order book securing a bright future for the company.

"Since the beginning of last year we have expanded our reach to new markets and added new orders from buyers in Germany and Australia. We just need capital to make good on them. It will help us bring the company back to its former glory and save the jobs of our loyal workers", she stated.

As at 30th September 2014 the major shareholders of OGL are: Dr.TSenthilverl 45.4%
Adam Investments Limited 39.8%
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Chairman Nimal Perera buys 1.5 M more shares of Pan Asia Bank

Veteran stock market investor and Pan Asia Bank Chairman, Nimal Perera has brought 1,507,312 more shares of the bank on 8 January worth Rs 39.9 million (Rs 39,965,343.90).

In six separate transactions, he has purchased 1,000 shares of the bank at Rs 26.10; 1,545,000 shares at Rs 26.50; 5812 shares at Rs 26.70, 8000 shares at Rs 26.80; 8365 shares at Rs 26.90 and another 30,135 shares at Rs 27. Earlier, Perera has bought Rs 3.4 million worth of shares in the bank on 23 December.

He has purchased 7,250 shares at Rs 24.90 in a transaction worth Rs 180,525 and a further 129,600 shares at Rs. 25 worth Rs 3,420,000 on the same day. The total transaction value of both deals have been Rs 3,420,525.00.
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Cabraal's moves eroded foreign banks' confidence Rs 111B worth of excess liquidity 'lost'

By Paneetha Ameresekere

Ceylon Finance Today: Two decisions made by Central Bank of Sri Lanka (CBSL) in the space of nine days under its former Governor Ajith Nivard Cabraal eroded the confidence of foreign banks, from which the markets are yet to recover, sources told Ceylon FT.

"It began by the Monetary Board of the CBSL in its monetary policy statement of 23 September 2014 saying that banks parking their excess liquidity for more than three calendar days a month would be paid a lower standing deposit facility (SDF) rate of five per cent, rather than the standard, and the higher SDF rate of 6.5%," they said.

That statement further said that CBSL would suspend its repo auctions until further notice.

But in a space of nine days, that is, on 2 October, 2014, CBSL resumed its repo auctions, thereby causing uncertainty among foreign banks due to the reversal of CBSL's order made only nine days previously, they said.

This led to foreign banks not only not engaging in interbank lending, but also not parking their excess liquidity in CBSL's SDF window, due to the contradictory stance taken by CBSL in a space of just nine days, sources said.

This way a massive sum of Rs 111 billion worth of excess liquidity was 'lost,' just five days after this new directive was enforced, which was on 7 October, 2014, statistics showed. 

Three intervening days between the six days in question, that is, from 4 October to 6 October, 2014, were holidays due to the weekend, coupled with Monday, 6 October, 2014, being a special bank holiday in the island.

And markets are yet to recover from these controversial decisions made by CBSL, they said.

The objective of its 23 September statement was to enhance interbank lending, sources said. It was also a directive to prevent banks which were short, from borrowing from CBSL's standing lending facility (SLF) to meet such shortfalls, by inducing banks which had excess liquidity to indulge in interbank lending, rather than parking their excess in CBSL's SDF window, sources said.

Most of banks' excess liquidity is held by foreign banks which however are constrained in their interbank lending due to limits issues, they said. Therefore, they used to park their excess liquidity in CBSL's SDF window, which earned them an overnight 6.5% interest rate, rather than indulging in interbank lending, sources said. This was particularly so, up to 6 October, 2014.

Meanwhile, the lower five per cent SDF rate was introduced by CBSL on 23 September, 2014 so as to induce such banks to enhance their interbank lending. The weighted average rate of interbank call money rates as at 23 September, 2014 was 6.3%, 130 bps more than the five per cent SDF rate, which however was yet, not large enough a carrot to induce foreign banks to lend to local banks which were short.

The suspension of repo auctions, also, as per CBSL's 23 September directive was another move to induce interbank lending.

Prior to and including 23 September, 2014, the last time CBSL had a repo auction was 11 days previously, that is, on 12 September, 2014. On that day it had a short term repo auction to mop up excess liquidity which fetched a weighted average yield of 6.50%, equivalent to the 6.50% standard SDF rate of 6.50%, but 150 bps more than its lower SDF of five per cent instituted on 23 September, 2014, which is currently being applied, in the event banks park their excess liquidity under CBSL's SDF window for more than three calendar days a month.

But in a space of nine days, on 2 October, 2014, CBSL resumed its repo auctions, thereby causing uncertainty among foreign banks due to the unexpected lifting of this suspension, they said. These incoherent and contradictory decisions by CBSL led to foreign banks not only not engaging in interbank lending, which was the main purpose of the 23 September, 2014 ruling, but also led those banks to not parking their excess liquidity in CBSL's SDF window, sources said.

Instead, they rather preferred to park such excess liquidity in their own vaults, despite the fact that such an action didn't earn them an interest. "They preferred to engage in such an exercise, rather than run the risk of losing their capital in the event they parked such excess liquidity in CBSL's SDF window," sources said.

And, three months later, up to now, this activity by foreign banks is still continuing, they said.
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Bank deal out due to Govt. change Devasurendra exited on polls eve

By Paneetha Ameresekere

Ceylon Finance Today: A key deal involving a local bank with foreign shareholding buying a sizeable stake in a recently bailed out bank by the Government of Sri Lanka (GoSL) and of its agents such as the EPF is now in limbo after the change of governments in the 8 January, 2015 Presidential Election, market sources told Ceylon FT.

This stake which was to change hands is being held by the EPF.

Currently, under banking laws, a single shareholding in a bank is limited to 10%. But, with Central Bank of Sri Lanka's (CBSL's) concurrence, it may be increased to 15%. However, under 'exceptional' circumstances, even those shareholding limits may be exceeded. A few examples of which are business magnate Dhammika Perera's control over Pan Asia Bank, blue chip JKH's control over NTB and DFCC Bank's control over DFCC Vardhana Bank, which controlling stakes are well over the 15% shareholder limits.

Meanwhile, businessman Ajit Devasurendra who had a stake in this once troubled bank, sold this stake a few days prior to the 8 January Presidential Poll, they said. "Probably, Devasurendra had that political sense to know which way Sri Lanka's political winds were blowing, that's why he sold his stake prior to the change of government!" they said.

Nevertheless, previously, CBSL wanted business magnate Don Harold Stassen Jayawardena to reduce his holdings in blue chip Commercial Bank and HNB as per CBSL's aforesaid banking laws to which Jayawardena complied. But the question then arises as to why the country's banking laws were being applied selectively by the previous regime which was unseated at the 8 January poll? They asked.

What is sauce for the goose should be sauce for the gander, sources said. Otherwise, the 
selective application of banking laws may lead to questions of moral turpitude, they said. Further, such actions which tend to border on mala fide, do not encourage bona fide investments in to the country, the sources said.

Sri Lanka is badly in need of investments to provide employment opportunities to the 400,000 who annually enter the country's job market, CBSL's former Governor Ajith Nivard Cabraal speaking at a seminar a few days prior to the elections said. Consequent to that elections and the change of government that came with it, Cabraal who had been CBSL Governor since 2006 under the previous regime, resigned from office.

Foreign direct investments in particular are much needed by the country to reduce the deficit in the current account balance of Sri Lanka's balance of payments, caused by a deficit in its trade account.

Sri Lanka is an import dependent economy. Additionally, Sri Lanka is a heavily indebted country, with official public debt running to nearly 80% of GDP. In this backdrop, the island's foreign debt too has been steadily increasing.

Therefore, a weak rupee will not only make imports more expensive, but will also increase the Government of Sri Lanka's (GoSL's) foreign debt servicing commitments. 

However, GoSL's local borrowings in order to buy the required US dollars to service its foreign debt would not only cause further depreciating pressure on the rupee, but will also create upward pressure on interest rates.

When interest rates rise, it makes borrowings more expensive. And when borrowings become more expensive, that shuns investments, especially private sector investments. 

And when such investments don't take place, a question mark arises as to how to provide jobs to the 400,000 who enter the job market annually?

Nevertheless, foreign banking sources told Ceylon FT that after the election of the new government, European investors were queuing up to invest in the country.

In related developments, because of the feel good factor because of the change of government, the rupee which had been on a depreciating trend for the past five months since September 2014, changed gear on Tuesday (13 January), to appreciate by 30 cents to Rs 132.50 to the dollar in 'spot next next' trading.
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