Record profits at Overseas Realty

Overseas Realty (Ceylon) PLC concluded a successful Financial Year 2014 recording its highest Profit after tax of Rs. 3.3Bn surpassing Rs. 2.6Bn of last year. The group maintained a worthy growth momentum to achieve a revenue of Rs 6.2Bn, an increase of 28 % through Property Leasing, Trading and Service Segments.

Growth in group profit was driven by high occupancy levels at the Iconic World Trade Center (WTC) and sales of luxury apartments at Havelock City. Property Leasing revenue grew by 11% to Rs 1.8Bn over 2013 with occupancy levels being maintained above 98%.Excellent quality facilities and services continued to be provided to the occupants of this building complex.

During 2014 the construction of Havelock City Phase 2 residential development was completed. The relevant revenue recognised from the sale of apartments amounted to Rs. 4.3Bn, an increase of 36% over the previous year.

Marketing of Phase 3 of the Havelock City residential development is progressing satisfactorily with more than 25% of units being reserved with deposits. The construction of Phase 3 is expected to commence in 2015.

The Group Net Asset Value per share as at end 2014 increased by 7% to Rs 30.76 and the Earnings per Share for the Year stood at Rs 3.51 rising 21% YoY.
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NDB Capital Holdings counts Rs. 100 billion in AUM

NDB Capital Holdings (NCAP) said this week it had surpassed a new milestone in early 2015 by recording an aggregate of Rs. 100 billion in Assets Under Management (AUM) within the group.

“This achievement solidifies NCAP’s leadership position as the entity with the largest fund base under management in the investment banking sector of Sri Lanka,” the company said in a statement.

NCAP Group has been active in developing the country’s capital markets whilst functioning as a full service investment bank by providing investment banking via NDB Investment Bank (NDBIB), stock broking via NDB Securities (NDBS) and asset management via NDB Wealth Management (NDBWM). NCAP also manages NDB Capital Bangladesh, a bold stride made into providing investment banking services to a growing market in Bangladesh.

Vajira Kulatilaka, CEO of NCAP, commenting on this achievement, stated, “Surpassing Rs. 100 billion in AUM is a great achievement not just because of the sheer size but especially because it is a reflection of the trust placed by clients on the group’s capabilities”.

He also noted that “while we are happy about this achievement, this also means that we are becoming bigger and better in terms of what we can offer our clients”.

NDBWM is currently the largest private sector asset manager in Sri Lanka with approximately Rs. 90 billion in AUM. The company has been driving awareness and adoption of unit trusts as a collective investment scheme for retail investors and offers a range of mutual fund investment products to suit the diverse needs of investors.
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Golden Key under fresh CB probe

The Central Bank (CB) is closely examining its various, market-related activities, whether proper risk management processes were followed and whether any individuals – within the regulator and outside – need to be prosecuted in the Golden Key fiasco.

The bank, under a new Governor, is also unlikely to adjust the rupee value right now and would retain it at current levels.

“There is a whole bunch of things that needs to be examined,” noted CB Governor Arjuna Mahendran in an interview with the Business Times on Thursday, emphasising that he is particularly looking at whether there is an Investment Policy Statement, was it followed and, if not, the need to create one.

The CB in the past few years has been criticised for investments – via the Employees Provident Fund (EPF) – in doubtful listed stocks and also in disastrous Greek bonds. The regulator also came under criticism in its handling of the crash of the Golden Key and the resultant collapse in many finance companies.

Mr. Mahendran said the Sri Lankan CB model – with its multifarious activities – was more powerful that the typical central bank model elsewhere and as a result drew a lot of criticism in the proposed merger of banks and using EPF monies to invest in various avenues including the stock market

“The control structure for these various investment activities is something that I am looking at very closely,” he said, adding that what needs to be examined is whether there was a clear separation of the compliance (with all laws) and risk management processes similar to any global bank. “We need to see whether we are properly controlling these risks,” he said, adding “Our priority is to take measures to stabilise the system”. (See Page 2 for comprehensive interview)

On the Golden Key fiasco, he recalled the words of former Chief Justice Sarath Silva, in a judgment saying that the CB had absconded from its duty of ensuring that any institution involved in financing activities must be supervised, and added: “The CB appears to have absolved itself of any responsibility. The chief justice made a very clear point that the CB had flouted its responsibilities. These are issues that we need to look at – the finance company structures, the Golden Key and several other similar companies”.

He said the CB is discussing with the Attorney General (AG) to ascertain whether “we could prosecute certain people (based on evidence) and I am optimistic that we can help the depositors at the end of the day”.

On the financial sector consolidation, he said he was not in agreement with the rationale of consolidation being to make banks bigger so that they could go to the international markets and tap bond and equity funding.

“Even with consolidation, for example, the DFCC and NDB combined are still too small in my view to really make an impact. To me the only consolidation that would make sense is to merge say the NSB and the Bank of Ceylon and then have a US$10 billion bank which is reasonably sized,” he said adding that with his international experience any bank with less than $10 billion won’t make a dent in the market.

The CB has requested technical support from the International Monetary Fund (IMF) to look at these issues from an international perspective and they have agreed to do so. “They would be looking at the financial stability of our financial system; how stable is it and what is impeding faster growth,” he said.

Asked whether the regulator strayed from its stated role, he was of the view that sometimes it did citing the example of its annual report last year praising the Mattala airport.

“The Central Bank’s role is to be more objective… not gush about projects where the feasibility study had not been done. From that point of view, the CB seems to have strayed from its role of being an objective advisor to the Government and the people of Sri Lanka.”

But he was quick to point out that this didn’t mean the entire bank was ‘rotten’ and irredeemable. “I don’t think the CB has lost its way – we just need a slight course correction to get back on track,” Mr. Mahendran said, adding that the bank had a qualified and very competent team of officials to move forward.

On the value of the rupee, he said the currency is at a critical stage with global markets being very volatile. “… exchange rate flexibility has to be the last option; we have to preserve confidence. At the moment the markets are waiting for the budget and the parliamentary election in June, and in that situation you need an anchor and the currency plays that role,” he added.
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SEC – Hunt on for new DG

By Duruthu Edirimuni Chandrasekera

Now with a brand new chairman at its helm, the Securities and Exchange Commission (SEC) has ‘restarted’ its hunt for a new Director General, SEC officials say. “There are a few names being discussed,” a SEC source told the Business Times, adding that someone who previously held this post may take it up for the second time.

A new set of Commissioners together with a new Director General will be appointed this week, he added.

The new Chairman, Thilak Karunaratne, while not letting in on who the new SEC Director General will be, told the Business Times that he will have a ‘chat’ with the departments individually this week.

On assuming duties, Mr. Karunaratne had ‘stressed’ to the staff on being ‘absolutely’ loyal to the organization.

“There should not be any divided loyalties. The SEC staff should be faithful to the organization and not to the outside world,” he had said, sending a strong signal to the alleged insiders’ disseminating sensitive information to the outside world.

When Deputy Director General Dhammika Perera in his welcome speech had referred to Mr. Karunaratne as a ‘successful’ businessman, the former had interjected and stressed that he is an ‘honest’ and a successful businessman, eliciting smiles from those preent.

The Colombo bourse fell sharply in Friday’s early trading session, on the back of the mini budget which saw many increased taxes.

The new fiscal plan for the year had many surprises while also accommodating the expected relief proposals as mentioned in the newgovernment’s election manifesto. At the outset, especially for the investors in the equity market this revised budget is nothing short of a shocker with increased taxes and additional levies on alcohol manufacturers and telecos, brokers said.

Analysts said that the introduction of the one off tax of 25 per cent on corporates and individuals who earned a profit of over Rs 2 billion for this financial year would have a significant impact on FY15E profitability of such company shares.
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Urgent need to revive SEC probes

Finance Minister Ravi Karunanayake hit all around the wicket, in cricket parlance, on Thursday providing a host of concessions, handouts and relief in the budget to Sri Lanka’s long suffering masses.

He announced a reduction in prices for LPG gas, chillie, Maldive fish, dried fish, green gram, bread, wheat flour, milk powder, sugar, bus and school van fares and kerosene among others.

Taxes were increased for a new category called the ‘super-rich’, liquor manufacturers, casinos and mansion owners to meet some of this expenditure.

Increased taxes on the products of companies listed in the stock market – alcohol and manufacturing among others – saw a sharp fall in the indexes in early trades at the Colombo Stock Exchange on Friday.

Government expenditure has been estimated at Rs. 2.1 trillion, revenue at Rs. 1.6 trillion while the budget deficit has been estimated at Rs.499 billion, according to statistics given by the Finance Minister.

What is refreshing is that all these figures were clearly given in the budget speech this time – like in the good old days of former Ronnie de Mel’s budgets – unlike former President Mahinda Rajapaksa’s practice as finance minister to list it as annexures which was not easily accessible to the public. The move is a sign of the transparency and governance structures being followed, as promised, by the new Government.

It was indeed a revolutionary budget, not only in the range of items that were reduced and the tax increases on the rich, so much so that the Finance Minister was likened to a modern day Robin Hood, but also the fact that the budget process will see many changes.

For example, this is the third time in a single budget that the figures have been altered. When the 2015 budget was presented by then President and Finance Minister Mahinda Rajapaksa last October, the expenditure and revenue figures were altered during the budget debate from the presentation of the Appropriation Bill stage.

The new regime’s budget is an amendment or adjustment of Rajapaksa’s budget contrary to being an ‘interim’ budget or a vote on account to meet just three months of spending. It deals with expenditure and revenue for the whole calendar year with amended expenditure, revenue and deficit numbers. The next question is will there be another budget amendment when a new government is elected in June.

The budget also dealt with a nagging issue; the stock market and the many unsavoury deals that were allegedly swept under the carpet by the Securities and Exchange Commission (SEC) before Thilak Karunaratne took over on Wednesday as the new chairperson. There were many transactions investigated during the tenure of Indrani Sugathadasa and Karunaratne (returning for a second stint) as SEC head. Both officials were then forced out due to pressure from powerful business interests. Former Sri Lanka Insurance Corporation CEO and former Sri Lanka Tourism chairman Nalaka Godahewa was brought to this crucial, regulatory role. During Godahewa’s tenure, the SEC took the position that there was no evidence to proceed with these investigations.

However the Finance Minister on Thursday said the massive transaction involving National Savings Bank and The Finance Company which was traced to insider dealing would be probed. None of the culprits in that deal has been brought to book. “Our government will ensure that the perpetrators of this unholy share deal also will be brought to face the judicial process,” Karunanayake said.

Former NSB Chairman Pradeepa Kariyawasam, husband of recently retired Chief Justice Shirani Bandaranayake, was forced to resign over the deal but there are suggestions that he approved the deal owing to pressure from political higher-ups.

Past investigations into these murky deals in the stock market are expected to be revived by the SEC chairman who is also seen putting together the mechanism to get cracking with these probes and complete them as soon as possible.

A little known fact is that Godahewa, who resigned after initially being reluctant to do so, was part of an election planning committee that included parliamentarian Namal Rajapaksa, businessmen Nimal Perera and Dilith Jayaweera formed in mid-2014 to prepare for the presidential elections. Despite his involvement in a political committee, the former SEC chairman was quoted in newspapers insisting that he is a not a political appointee to the post.

While the new SEC chairman has the onerous task of dusting the old files of the investigation, expectations are high that the perpetrators of these white collar crimes would be dealt with swiftly and some progress seen before the next election in June.Talking of perpetrators, the new Central Bank Governor is also discussing with the Attorney General as to whether action can be taken against those implicated in the Golden Key fiasco and its aftermath. The need for punitive action against individuals and recovery of all assets stems from the desperation of depositors who are still waiting for the ‘light in the tunnel’ to be returned their full dues, after many years of suffering.

There is growing expectations that the Government, its ministers and the different regulatory authorities – in particular the Central Bank and the SEC – would deliver the goods as speedily as possible.

Just like the 100-day programme, the authorities also need to show progress on various corrupt activities with expectations running high from the people. Progress on the SEC probes would provide positive signals to ‘real’ foreign investors who have been concerned about good governance and accountability issues.
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DFCC – NDB merger unlikely

The much talked about and much anticipated merger of NDB and DFCC banks is unlikely to go through, with highly placed government officials saying the state entities which collectively own over 30 per cent in each bank will not vote for the merger.

“They (new government) don’t see any business sense in this,” a high government official told the Business Times. A committee reviewing the previous regime’s banking sector consolidation process, headed by Dinesh Weerakkody, who is a Senior Advisor to Prime Minister Ranil Wickremesinghe, is to make a recommendation on this merger soon. “The recommendation by this committee (tentatively) is that DFCC and NDB shouldn’t merge,” a Central Bank source said.
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