Sri Lankan stocks end weaker on higher interest rates

(Reuters) - Sri Lankan stocks closed lower amid thin trade on Monday on rising interest rates after the central bank scrapped a lower repo penalty and priced a 30-year treasury bond at a higher rate on Friday.

The central bank on Friday removed a lower repo penalty rate of 5 percent starting Monday, five months after it adopted the measure to boost credit growth.

The bank accepted over 10 billion rupees at a weighted average yield of 11.73 percent at an auction of 30-year t-bonds on Friday after it originally planned to borrow only 1 billion rupees. Dealers said the yield was at least 200 basis points higher than what the market had expected.

The main stock index ended 0.78 percent lower, or 56.89 points down, at 7,244.40, its lowest close since Feb. 9.

"Investors are slightly worried and the retailers are keeping out of the market," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd.

"The market will be stagnant until Wednesday's (t-bill) auction, which will show the direction on interest rates."

Shares of Ceylon Tobacco Company Plc fell 1.03 percent, while Dialog Axiata Plc dropped 1.67 percent.

Turnover was 642.3 million rupees ($4.83 million), its lowest since Feb. 16 and well below this year's daily average of 1.38 billion rupees.

Foreign investors were net buyers of 54.9 million rupees worth of shares on Monday, extending the year-to-date foreign inflow to 1.57 billion rupees. 

($1 = 132.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

China says Sri Lanka loans made 'based on consensus'

(Reuters) - China's loans to Sri Lanka were made based on consensus through talks between the two countries and at Sri Lanka's request, the Chinese Foreign Ministry said on Monday, after Sri Lanka's foreign minister expressed concern about the loans.

The minister, speaking in Beijing over the weekend, said Sri Lanka's finance minister would visit Beijing to discuss the roughly $5 billion owed to China.

Chinese Foreign Ministry spokeswoman Hua Chunying said the loans were made on the principle of mutual benefit and would help promote development in Sri Lanka.

"The loans are extended at the request of Sri Lanka and based on consensus through consultations," she told a daily news briefing.

"The loan arrangements are for the whole nation and people and have played a positive role in the economic and social development of Sri Lanka," Hua added.

New Sri Lankan President Maithripala Sirisena has unnerved China with his re-examination of certain projects that China has invested in, including a $1.5 billion (973.14 million pounds) "port city" in the capital Colombo.

India, which lost out to China in infrastructure development on the Indian Ocean island, was particularly concerned about the security threat posed by Chinese ownership of land, aggravated by the docking of Chinese submarines in Colombo last year.

India had grown increasingly wary of former president Mahinda Rajapaksa's pursuit of closer ties with China, which became a key supporter of the island's economy after its 26-year civil war ended in 2009.

(Reporting by Michael Martina; Writing by Ben Blanchard; Editing by Mike Collet-White)

Fitch Affirms Sri Lanka Telecom at 'BB-'/'AAA(lka)'/Stable

(The following statement was released by the rating agency) 

SINGAPORE/COLOMBO/SYDNEY, March 02 (Fitch) 
Fitch Ratings has affirmed Sri Lanka Telecom PLC's (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-'. The agency also affirmed SLT's National Long-Term Rating at 'AAA(lka)'. The Outlook is Stable. 

KEY RATING DRIVERS 
Tax Changes are Credit Negative: We believe that the Sri Lankan government's interim budget plan to impose significant recurring and one-off taxes will cause a decline in SLT's 2015 operating EBITDAR margin to 26% (2014: 30%) and its funds flow from operation (FFO)-adjusted net leverage to deteriorate to 1.8x (2014: 1.3x). SLT is likely to pay around LKR3.5bn-4bn in additional taxes. However, SLT's ratings will remain unaffected as headroom is sufficient. The interim budget introduced a one-off super gains tax of 25% on profits and a one-off tax of LKR250m on each mobile operator. It also shifted the burden of a recurring telecom levy of 25% on prepaid revenue on telcos from consumers; operators can no longer pass these taxes onto consumers given retail pricing changes require approval from the telecom regulator. The budget proposals, once enacted, will be effective from 1 April 2015. Acquisition Risk: We think that SLT's plan to do a debt-funded acquisition of a smaller operator in 2015 has the potential to threaten its National Long-Term Rating, although probably not its IDRs. Any rating action would depend on the acquisition price and forecast financial profile of the combined entity. We believe that the taxation changes will hasten industry consolidation as the number of telcos may be reduced to three from five. Two smaller loss-making operators including Hutchison Lanka and Bharti Airtel Limited's (BBB-/Stable) Sri Lanka subsidiary, Airtel Lanka, may exit the industry. Reduced Ratings Headroom: SLT's 'BB-' IDRs have sufficient ratings headroom to accommodate a debt-funded acquisition of a smaller operator as long as FFO-adjusted net leverage remains below 2.5x. The ratings are underpinned by its market leading position in fixed-line and second-largest position in the mobile market, along with its ownership of a country-wide optical fibre network. Negative FCF to Continue: We forecast that SLT will have negative free cash flows (FCF) in 2015-18 given lower EBITDA due to new recurring taxes and a large capex plan. SLT will continue to invest about 25%-28% of revenue in capex each year to expand its optical fibre infrastructure and 3G/4G mobile networks. Dividends would likely remain similar to the historical levels at LKR1.5bn. Profitability to Decline: Fitch expects SLT's 2015 revenue to rise by high single-digits driven by mobile data and fixed-broadband services, which will more than offset declines in fixed-voice and international revenue. Voice usage is likely to grow as subscribers save 25% of their telecom spend as a result of the shift of the telecom levy to telcos. Fitch forecasts that operating EBITDAR margin will also fall, apart from tax changes, due to a change in the revenue mix as low-margin data services replace relatively higher-margin voice and text revenue. 

KEY ASSUMPTIONS 
Fitch's key assumptions within our rating case for the issuer include: - The tax changes proposed in the budget in February 2015 are ratified by the parliament and effectively come in force starting 1 April 2015. - Revenue to rise by high single-digits, driven by higher voice usage on telecom levy savings and fast-growing data services. - Operating EBITDAR margin to decline by 400bp-450bp due to higher recurring taxes and a change in revenue mix as a low-margin data revenue replaces more profitable voice and international service revenue. - Capex/revenue to remain high around 25%-28% as SLT expands it fibre and 3G/4G networks. 

RATING SENSITIVITIES 
Negative: Future developments that may individually, or collectively, lead to negative rating action include: -A downgrade in the rating on the Sri Lanka sovereign (BB-/Stable) will result in a corresponding action on SLT's IDRs as the government directly and indirectly holds a majority stake in SLT. -FFO-adjusted net leverage increasing to above 2.5x (2014: 1.3x) on a sustained basis would lead to a downgrade of SLT's Foreign-Currency IDR. -A debt-funded acquisition of a smaller operator may threaten SLT's National Long-Term Rating depending on the acquisition price and the financial profile of the combined entity. Positive: Future developments that may individually or collectively lead to a positive rating action include: -An upgrade in the rating on the Sri Lanka sovereign is likely to lead to a corresponding upgrade in SLT's IDRs. -As the ratings are currently constrained by government ownership, the weakening of links with the sovereign may result in SLT's Local-Currency IDR being upgraded above Sri Lanka's Local-Currency IDR. However, SLT's Foreign-Currency IDR will remain constrained by the Country Ceiling of 'BB-'. 

Contacts: Primary Analyst Nitin Soni Director +65 6796 7235 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-03/04/05 Suntec Tower Four Singapore 038986 Secondary Analyst Kanishka de Silva Analyst + 94 11 254 1900 Committee Chairperson Steve Durose Managing Director + 61 2 8256 0307 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, "Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 and "National Scale Ratings Criteria", dated 30 October 2013, are available atwww.fitchratings.com Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkagehere National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Rates National Development Bank's Senior Debentures 'AA-(lka)(EXP)'

(The following statement was released by the rating agency) 

COLOMBO/HONG KONG, March 02 

(Fitch) Fitch Ratings Lanka has assigned National Development Bank PLC's (NDB; AA-(lka)/Stable) proposed senior debentures of up to LKR7.5bn an expected National Long-Term Rating of 'AA-(lka)(EXP)'. The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange. Fitch expects NDB to use the proceeds to refinance maturing multilateral funding. The final rating is subject to the receipt of final documentation conforming to information already received. 

KEY RATING DRIVERS 
The proposed debentures are rated at the same level as NDB's National Long-Term Rating in accordance with Fitch's criteria as they constitute unsecured and unsubordinated obligations of the bank. The issuer rating is driven by the bank's intrinsic financial strength. It captures NDB's long and stable operating history and its developing franchise as a commercial bank. NDB has continued to sustain better asset quality than its peers. However, Fitch expects NDB's asset quality to weaken alongside the seasoning of the loan book, as is already evident in an uptick in its reported gross NPL ratio to 2.5% at end-2014 from 2.4% at end-2013. Its loan composition is likely to remain stable, dominated by corporate banking at 48%, with retail banking and SMEs accounting for 36% and project finance accounting for a further 14% at end-2014. Capitalisation has deteriorated towards levels of its commercial bank peers as NDB's 27.7% loan growth in 2014 materially exceeded the average 13.7% growth for the banking sector. As a result, NDB's Fitch core capital ratio declined to 13.7% at end-2014 (2013: 15.2%). It also resulted in a high loans/deposits ratio of 119% at end-2014, with the bank relying on funding from multilateral agencies (16% of funding at end-2014). NDB's ratio of current and savings accounts to total deposits has remained low at 24% at end-2014. 

RATING SENSITIVITIES 
The rating on the proposed debentures will move in tandem with NDB's National Long-Term Ratings. Fitch believes that NDB's capitalisation and its rating would come under pressure if the bank sustains its growth momentum, in the absence of other mitigating factors. The consolidation of NDB's franchise alongside its ability to sustain strong credit metrics could result in an upgrade of NDB's ratings. NDB's merger discussions with DFCC Bank PLC (B+/Stable/AA-(lka)) appear to have slowed as the authorities' stance following the change in presidency earlier this year remains unclear. Fitch is of the view that synergies from such an amalgamation would be credit neutral for both banks in the short to medium term. 

A full list of NDB's ratings follows: 
Long-Term Foreign- and Local-Currency IDRs: 'B+'; Stable Outlook Short-Term Foreign-Currency IDR: 'B' Viability Rating: 'b+' Support Rating : '4' Support Rating Floor: 'B' National Long-Term Rating: 'AA-(lka)'; Stable Outlook Outstanding subordinated debentures: 'A+(lka)' Proposed senior debentures: 'AA-(lka)(EXP)' 

For more details on NDB's ratings and credit profile, see the full rating report dated 22 August 2014, available at www.fitchratings.com. 

Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +94 1 1254 1900 Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Jeewanthi Malagala Analyst +94 1 1254 1900 Committee Chairperson Sabine Bauer Senior Director +852 2263 9966 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. 

NDB has a 1.79% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, and "Evaluating Corporate Governance", dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch rates SriLankan bonds final‘BB-’

Fitch Ratings has assigned SriLankan Airlines Limited’s (SLA) US dollar-denominated government guaranteed bonds a final rating of ‘BB-’. The final rating is the same as the expected rating assigned on June 17 2014, and follows the receipt of documents conforming to information already received.

The bonds are rated at the same level as SLA’s parent the government of Sri Lanka (GoSL) due to the unconditional and irrevocable guarantee provided by the government. GoSL directly holds 95% and indirectly holds 4% of SLA, through state owned entities. The proceeds of the issuance were for the acquisition of aircraft and working capital.

The rating of the bond is based on an unconditional and irrevocable guarantee of principal and interest of the notes provided by GoSL.

As a result, the bond is rated at the same level as GoSL (BB-/Stable).
www.dailynews.lk

JKH, Fitch part ways

John Keells Holdings Plc (JKH) has decided to terminate the mandate given to Fitch Ratings Lanka Ltd., with effect from 27 March 2015.

JKH said it believes a local rating is not warranted at this juncture of time considering the Company’s current debt funding sources which are predominantly in foreign currency.

“However, if and when the need arises, the Company will consider obtaining an international credit rating,” JKH said. In September last year, JKH was downgraded by Fitch to AA+ from AAA with a stable outlook.

Fitch linked its action to reflect the what it viewed as a deterioration in JKH’s business risk profile, driven by the weakening competitive position of its key dividend-paying associate, South Asia Gateway Terminals as well as Fitch noting the JKH’s $ 650 million integrated resort project was unlikely to start generating income until FY19.
www.ft.lk

MBSL ends 2014 with aggressive growth

The pioneer Merchant Bank and subsidiary of Bank of Ceylon, Merchant Bank of Sri Lanka PLC, currently known as ‘Merchant Bank of Sri Lanka & Finance PLC’ (MBSL), after its merger with two own subsidiaries, recorded a jump start to 2015 by ending 2014 with a 17% growth of its asset base. MBSL posted revenues of Rs. 656.2 million for the ending quarter of 2014 with a Profit before Tax (PBT) of Rs. 120.6 million for the same period.

While the revenues grew aggressively during the last quarter of 2014, net interest income also displayed a sharp increase with a 39% growth from Rs. 800.1 million during the first nine months to Rs. 1,111.8 million by the end of the year. MBSL which did not compete in the public deposit and savings market up until the merger implementation on 1 January 2015, operated by raising funds through money market activities

Further, MBSL has been able to reduce the Interest and Similar Expenses significantly by 13% during the last quarter in 2014 against Q4 of 2013. The values stood at Rs. 345.1 million in Q4 of 2013 and Rs. 298.5 million in Q4 of 2014.

Speaking on the results MBSL CEO T. Mutugala said, “Q4 of 2014 was a tough period as everyone was busy with the merger, as well as winding up all business activities. But we were able to pull through due to commitment and team work.”

MBSL merged with MCSL Financial Services Ltd and MBSL Savings Bank Ltd on 1 January 2015. Fixed deposits, savings, property development and pawning are some of the new business activities carried out by MBSL. Further, the branch network of MBSL grew by 20 new branches and business places with the merger, covering north of the island, where MBSL did not have any presence prior to 2015. Currently the branches and business places stands at 49 covering all parts of the country.

Bank of Ceylon remains as the major shareholder of the merged entity, Merchant Bank of Sri Lanka & Finance PLC, with a strategic stake of 78%. 2015 marks the 33rd anniversary of MBSL, which they plan to celebrate in a grand scale.
www.ft.lk

Amãna Bank records first profitable quarter with Rs. 88.5 m PBT

Amãna Bank, Sri Lanka’s one and only licensed commercial bank operating in full conformity to the non-interest based Islamic banking model, has recorded its first profitable quarter for Q4 2014. 

According to the financials released to the Colombo Stock Exchange, the bank which commenced achieving monthly operating profits in August 2014, recorded Rs. 88.5 million as profit before tax for the 4th quarter of 2014. As a result, the bank has minimised its loss before tax for the year to Rs. 80.3 million from Rs. 438 million in 2013.

The bank continued to showcase a strong momentum in its top line performance while total assets of the bank witnessed an impressive growth of 49% to stand at Rs. 34.9 billion. For the year ending 31 December 2014, net financing income recorded a significant growth of 68% to reach Rs. 1,209.6 million. The bank achieved a total operating income of Rs. 1,668.7 million indicating a growth of 57%.

The bank’s growing popularity and acceptance resulted in a 62% growth in customer deposits during the year to reach Rs. 29.2 billion and a 69% growth in customer advances to reach Rs. 25.4 billion.

Commenting on the bank’s achievement, Chief Executive Officer Mohamed Azmeer said: “I am extremely pleased on the bank’s progress achieved during 2014, in the context of the challenging environment in which we operate. Our results reflect the continued confidence and trust placed in us by over 150,000 customers for which I am grateful. It is noteworthy that our growth in advances was coupled with an impressive asset quality which stood at 1.49% in gross non performing advances, well below industry average. I am confident that our current momentum will continue to grow in alignment with our strategic plan.”

Amãna Bank is listed on the Diri Savi Board of the Colombo Stock Exchange. The bank was recently recognised as the World’s Best ‘Up-and-Comer’ Islamic Bank by ‘Global Finance Magazine’ at the 18th Annual World’s Best Banks’ Award Ceremony 2014 held in Washington DC, USA, which coincided with the annual IMF and World Bank Conference.

Powered by the stability and the support of its strategic shareholders including, Bank Islam Malaysia Berhad, AB Bank in Bangladesh and Islamic Development Bank based in Saudi Arabia, Amãna Bank is making strong inroads within the Sri Lankan banking industry and is focused on capitalising the growing market potential for its unique banking model across the country.
www.ft.lk