Sri Lankan shares end at 5-wk low; turnover hits 1-yr low

(Reuters) - Sri Lankan shares fell for the 10th straight session on Friday to a five-week closing low, with the day's turnover slumping to a one-year low, as investor worries over rising interest rates weighed on sentiment.

The main stock index ended 0.25 percent lower, or 17.82 points weaker, at 7,091.25, its lowest close since Feb. 5, extending the fall to 3.09 percent in the last ten sessions.

The day's turnover stood at 265.9 million rupees ($2 million), the lowest since March. 21 last year and less than a fifth of this year's daily average of 1.37 billion rupees.

"Nothing is happening and there is no investor interest at all," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd, adding investors are waiting for the rising interest rates to settle.

Stockbrokers also said most market participants were away due to a local annual cricket match in Colombo.

Dealers said the market was closely monitoring interest rates amid heavy government borrowing. Sri Lanka's new government has borrowed more than $1 billion in four days through Thursday, which economists have blamed on poor revenue and higher expenditure.

The heavy borrowing has resulted in a spike in market interest rates.

Yields on t-bills rose between 21 basis points and 38 basis points at a weekly auction on Wednesday with the 91-day t-bill yield rising to a 14-month high of 7.10 percent.

Foreign investors were net buyers of 24.1 million rupees worth of shares, extending the year-to-date foreign inflow to 2.58 billion rupees.

Shares in leading fixed line telephone operator Sri Lanka Telecom Plc fell 2.77 percent while Bukit Darah Company fell 2.36 percent. 

($1 = 132.9000 Sri Lankan rupees) 

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

RBI, Sri Lankan central bank enter $1.5 bln currency swaps

(Reuters) - The Reserve Bank of India has entered a $1.5 billion currency swap agreement with the central bank of Sri Lanka, Prime Minister Narendra Modi said on Friday after meeting Sri Lankan leader Maithripala Sirisena.

"This will help keep the Sri Lankan rupee stable," Modi told reporters.

Sri Lanka rupee has been under pressure since early January and fallen around 1.5 percent so far this year despite the central bank defended it with selling dollars.

(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Douglas Busvine)

Janashakthi amalgamates Orient Finance with Bartleet Finance

Under the Sri Lanka Central Bank’s master plan to consolidate the financial sector companies, Janashakthi PLC, earlier known as Janashakthi Limited, which had controlling interests over Orient Finance PLC, has entered into an agreement with Bartleets Transcapital Limited to acquire 86.79 per cent or 6,639,998 issues ordinary share capital of Bartleet Finance PLC with the aim of amalgamating Orient Finance PLC with Bartleet Finance PLC.

Janashakthi Limited has acquired 86.79 per cent shares of Bartleet Finance PLC on 22 January 2015 and thus holds 99.78 per cent voting rights of the company.
www.adaderana.lk

No faith on PM’s committee?

A group of representatives from companies involved in financial market activities say that it is hard for them to have faith on the committee appointed by Prime minister Ranil Wickremesinghe regarding the controversial Treasury Bond issue.

Different opinions expressed regarding the Treasury Bond issue which was declared on the 27th Feb – 2015 and the Prime Minister after having consulted the President over the phone decided to appoint a three member committee to investigate the matters concerning the above issue.

The company representatives say that although it was President Maithripala Sirisena who advised the Presidential secretary to look into the issue, it had changed and the committee was later appointed by the Prime minister.

They say that doubts are being raised whether this is a plan to shelve the issue.

Noting that they are doubtful whether the appointed panel has specialised knowledge on the subject, the representatives say that instead, it is more apt for the President to appoint a panel comprising of individuals with expertise on financial market activities.
www.srilankamirror.lk

Ranil took Mahendran’s responsibility - Rajitha

Cabinet Spokesperson, Minister Rajitha Senaratne says that Prime Minister Ranil Wickremesinghe has taken responsibility over Arjuna Mahendran’s appointment as Central Bank Governor due to continuous opposition over the appointment.

The Minister said that objections were raised by him even at a Cabinet meeting over the appointment.

However, Senaratne noted that Prime Minister Ranil Wickremesinghe had made the appointment claiming he would take full responsibility on the matter.

Mahendran is currently in the midst of controversy over alleged"insider trading" in the latest Treasury bond issue of the Central Bank. 

www.srilankamirror.lk

Rupee should also be allowed to fall - Major currencies decline between 7%-16%

By Paneetha Ameresekere

Ceylon Finance Today: The Central Bank of Sri Lanka (CBSL) allowing interest rates to rise in order to stave off pressure on the rupee from depreciating is not enough to take the flak off the local currency, market sources told Ceylon FT.

In tandem with allowing rates to rise, it also should allow the rupee to depreciate, so as to ease pressure on the local currency which is being artificially propped up, they said.

This has to be looked at in the context that all major currencies have depreciated against the US dollar since Christmas 2014, sources said.

For instance the common currency euro, which on Christmas Eve was trading at US$ 1.25 to the euro has since fallen by 16% to US$ 1.05. Similarly, the Singapore dollar which was trading at US$ 1.29 to the US dollar has further declined to US$ 1.38, a seven per cent depreciation and the Japanese Yen from 105 yen to one US dollar to 120 yen currently, a fall of 14.3%.

Sources however justified government borrowings amounting to over Rs 100 billion made from the Treasury (T) bill and T bond market this week alone, saying those are borrowings made at a relatively cheaper rate to pay off a Rs 77 billion maturing six year T bond, borrowed at a higher weighted average yield (interest rate) of 16% which realizes on Sunday 15 March.

Those funds were raised by issuing T bonds and T bills to the market of tenures as short as three months to as long as 30 years.

"Now a yield curve for the T bill and T bond market is also being developed," they said. 

"Under the previous regime, prior to such T bill and T bond auctions being held, CBSL used to tell us what the bid prices should be," the sources said. Now however there is no such administered regulation of interest rates. The market is allowed to 'rate discover' interest rates on their own, the sources said.

This is also one key measure to take the heat off the exchange rate, they said.
But, as aforesaid, that alone is insufficient, sources said.

Meanwhile, other sources said that under the previous regime, the yield curve was flat. But now, in reality, such a curve is developing.

CBSL Governor Arjuna Mahendran speaking at a seminar organized by Fitch recently said that the T bond market needs to develop a yield curve. "That way issuers in particular will be guided how to price their bonds," he said.

Dr. Koshi Mathai, IMF's previous Resident Representative to Sri Lanka, told reporters that bank borrowings were virtually unheard of, especially in mature markets, in the case of long-term borrowings. "Issuers go to the bond market to raise the required funds in such instances and not from banks," he said.

Also, in respect of such bank borrowings, there is a mismatch in the tenures, Mathai said. One borrows "short" (bank borrowings are generally of shorter tenures) for long-term projects, he said.

Meanwhile, Mahendran speaking at that seminar also said that a casino operator had wanted CBSL to increase the single borrower limit. "I told this operator to instead go to the bond market to raise the required funds," he said.
www.ceylontoday,lk

Slave Island Project disappointing – Tata Housing

Tata Housing expressed deep disappointment on the alleged press reports that have appeared over the past two weeks quoting some government authorities regarding the new government's decision to review the project based on allegations that are not factual in nature. Such actions by the government discredits the authorities in Sri Lanka that have been engaging with Tata Housing over the past three and half years and have granted multiple approvals for the project based on its merit. Besides, such arbitrary actions will also adversely impact confidence of overseas companies to make future investments in Sri Lanka.

Tata Housing today provided the factual details of the project to refute the allegations reported in various media reports over the last two weeks quoting various government authorities and reiterated its commitment to the Slave Island Project.

One-Colombo Project (Pvt) Ltd, ultimate subsidiary of Tata Housing Development Company Limited, has partnered with the Urban Development Authority (UDA) to participate in the vision of the Sri Lankan Government to uplift the standards of living for inhabitants of the under-served areas in Colombo city and provide better infrastructure to the city of Colombo. Under the partnership, One-Colombo has been entrusted with the re-development of eight acres of land located in Slave Island, Colombo.

Under the re-development project, One-Colombo is developing around three acres of land for rehabilitation of the inhabitants in lieu of which, around four acres of land, net of areas for roads and public infrastructure, has been granted for a mixed use development project to One-Colombo.

The whole process of land acquisition including negotiating with the inhabitants, payment of rental and compensation, signing of the agreements and demolition of earlier buildings was handled solely by the UDA. In accordance with the terms of the contractual understanding with UDA, One-Colombo has reimbursed the rental and compensation payment to the UDA and given guarantees to ensure completion of the redevelopment buildings.

Prior to commencement of construction, Tata Housing has been closely coordinating with the UDA over the past two years to develop the design for the redevelopment building which has been reviewed by the UDA multiple times and has taken into account the requirements of the inhabitants as communicated by the UDA. The re-development buildings, which shall provide nearly 100 commercial units and 550 homes in three towers aims to provide bigger than original dwelling areas and other benefits such as better amenities, parking, safety and hygiene to significantly improve the living standards of the inhabitants. Besides, the project will also provide an additional commercial area to generate income for maintenance and upkeep of the building.

Tata Housing assumes that before the execution of the project agreements, UDA has followed the due process which includes getting the necessary approvals from ministry, cabinet, board, chief valuer etc. Further we also understand that land acquisition has been done as per the provisions of the Land Acquisition Act which includes publication of the various gazette notifications and vesting orders to vest the title with the UDA. Only once the title was vested in favour of the UDA, the land for re-development building and mixed development was handed over to One-Colombo in June 2014.

Highlighting its factual position on the matter, the company spokesperson said that the project has been identified as a Strategic Development Project under the agreement with Board of Investments wherein it has made a commitment to invest US$ 429.5 Million over a period of eight to ten years with a foreign direct investment of US$ 130 Million over this period.
www.ceylontoday.lk

Fitch affirms SLIC at IFS ‘BB-/Stable

Fitch Ratings Lanka has affirmed Sri Lanka Insurance Corporation Limited's (SLIC) Insurer Financial Strength rating (IFS) at ‘BB-’ with a stable outlook. The agency has also affirmed the National Insurer Financial Strength Rating and National Long-Term Rating at ‘AA(lka)’ with a Stable Outlook.

SLIC's ratings reflect the company's well-established franchise and market position, 99.9% state ownership, and its importance to the government as the largest state-owned insurer.

SLIC's capitalisation, which is supported by sustained profits and satisfactory earnings retention, is commensurate with the rating. These strengths are balanced by its significant investments in non-core subsidiaries that have been made in line with government policy and a high proportion of equities in its investment portfolio, which weaken SLIC's risk-based capital.

The company is also exposed to high interest rate risk due to the asset and liability mismatches in the life business, which stem from the limited availability of long-term investments in the market. The company is in discussions with the regulator on separating its life and non-life businesses to comply with new regulatory requirements.
www.dailynews.lk

Lanka to gain GSP Plus

Indunil Hewage indunil.hewage@gmail.com

The prospects of Lanka gaining back the EU's GSP plus preferential trade concessions are brighter,Industry and Commerce Minister Rishard Bathiudeen said.

The Minister made this remark addressing the inaugural ceremony of sixth TEXTECH Sri Lanka 2015 International Expo’ – An International Exhibition on Textile Apparel Technology and Machinery for Sri Lanka at the Sri Lanka Exhibition and Convention Centre (SLECC) in Colombo. The loss of the GSP plus concession from the European Union greatly affected the Sri Lankan apparel sector; realizing this, the present government under the 100 - day program has promised to negotiate this facility again. The Minister noted that the various EU committees have already assured their support to help regain the GSP plus facility.

The Sri Lankan apparels sector is set to reach the US $ 5 billon exports mark in the near future. The apparel exports in 2014 totalled US $ 4.9 billion, an increase of 9.2 % from 2013 annual exports of US $ 4.4 billion.

“Promotional and networking events of our apparel industry are therefore now more important than ever since it establishes our brand identity. The event is taking place at an interesting time as per our global apparel status and this is clearly a key step in the right direction to advance our global apparel status. This event will bring world’s leading manufacturers of the apparel supply chain including Yarn, Dye and Fabric under one roof,”Bathiudeen said.

The three-day event from 12th to 14th March 2015 , organized by CEMS Global will be one comprehensive exhibition under one roof focused to the entire Textile and Apparel Industry of Sri Lanka and a perfect One-Stop Buyer-Seller meet for all the requirements of the Industry. On the same dates, Concurrent Exhibitions will also be held, namely, 20th Dye+Chem Sri Lanka 2015 International Expo – An International Exhibition on Dyes and Fine and Specialty Chemicals, and, 6th Colombo International Yarn and Fabric Show 2015.
www.dailynews.lk

HDFC Bank records ‘impressive performance’

Housing Development Finance Corporation Bank of Sri Lanka (HDFC Bank) has recorded Rs. 634.5 Mn profit before tax in the year ending 31st December 2014 as against Rs. 231.3 Mn in 2013 an increase of 174.3%. (subject to finalizing of Audit). The profit after tax was Rs. 374.6 Mn as against Rs. 158.1 Mn an increase of 137.1%.

"The new business model with diversification of product portfolio that we have been perfecting over the last two years to strengthen our balance sheet, gained fruition in the year 2014 enabling the Bank to post its highest ever profit after tax of 374.6 Mn" stated the Bank’s Chief Executive Officer/ GM, Nimal Mamaduwa in a press release.

The Bank’s interest income has grown up to Rs. 4.377 Bn in 2014 from Rs. 3.538 Bn an increase of 24%. The net interest income has risen to Rs. 1.843 Bn from Rs. 1.058 an increase of 74%. The fee based income has increased up to Rs. 211.4Mn from Rs. 189.9 Mn an increase of 11%. The Bank’s loan book has grown to 23.4 Bn from 19.7 Bn an increase of 18.6%. The deposit base stands at Rs. 24.5 Bn from Rs. 18.9 Mn an increase of 30%. The Bank was able to record a steady growth in our asset base with total assets of 34.4 Bn from 27.5 Bn marking a growth of 25% over the year 2014.

Despite our high quality credit evaluation process, we experienced a slight increase in gross non-performing loans (NPL’s) from 7.26% in 2013 to 9.81 in 2014 mainly due to certain internal classification issues which are being addressed along with stringent controls in place to bring this figure down to more acceptable levels.

The Return on Assets (ROA) stood at 2.51% as against 1.28% in the corresponding period in 2014 an increase of 51% and the Return on Equity (ROE) risen from 6.36% to 13.72% an increase of 46%. HDFC Bank met the Capital Adequacy Requirement stipulated by the CBSL. T1 and T2 Capital Adequacy Ratio stands at 13.78% and12.92% as against 5% and 10% regulatory requirements respectively. The Bank also maintains 28.9% statutory liquid asset ratio as against 20% regulatory requirement. (HDFC)
www.island.lk

Heavy borrowing of over $ 1 b by Govt. props rates

Reuters: The Government borrowed more than $1 billion in four days, mostly through local Government securities, Central Bank data showed on Thursday, with economists blaming poor revenues and higher expenditures for the move.

The Public Debt Department of the Central Bank borrowed Rs. 142.68 billion ($1.07 billion) in the four days through Thursday, with Government securities making up 85.2% of the total.

“We are embarking on very heavy investment drive,” Finance Minister Ravi Karunanayake told Reuters.

“We retire the old (Government) securities and take the new. On the investment drive, we consider to push forward capital investments that have been heavily degraded (in the past).”

The borrowing comes as the Government prepares to roll over Rs. 79 billion worth of 
Treasury bonds next week, with a longer tenure and lower rate, dealers said.

“Most of its revenue measures in the Budget will be realised only in April,” said a private sector financial analyst, who asked not to be named because he is not authorised to speak to the media.

“So this heavy borrowing shows the Government is under pressure due to fall in revenue and rise in spending.”

After the Government took power following an 8 January presidential poll, yields on T-bills have spiked between 134 and 145 basis points, while key policy rates have stayed unchanged at record lows since January 2014.

“The worrying thing is the pace of the borrowing with the rise in market interest rates,” said Shiran Fernando, an economist at Colombo-based Frontier Research. “But a rising rate is good to ease pressure on the currency and foreign exchange reserves.”

The rupee has been under pressure since January, when foreign currency reserves fell 13.2% in the month, as the Central Bank paid loans and intervened in markets to stem the decline of the rupee.

The heavy local borrowing comes as Sri Lanka prepares to kick off a non-deal roadshow in the United States this week, followed by Hong Kong, Singapore, and London next week, to update investors on the latest economic situation after the January election of a new President.

The Government revised the 2015 Budget and allocated Rs. 89.7 billion to a salary hike for the bloated state sector, and imposed a retrospective tax for revenue. It has also cut taxes on some imports, including fuel.

The Budget aims to cut the 2015 fiscal deficit to 4.4% of Gross Domestic Product (GDP), the lowest since 1977, a target the International Monetary Fund (IMF) has described as “challenging”.
www.ft.lk

First IPO for 2015 Singhe Hospital opens

The first Initial Public Offer for 2015, Singhe Hospitals’ Rs. 250 million IPO, opened officially yesterday.

The company is offering 25% stake to the public or 100 million shares valued at Rs. 2.50 per share.

The company is a BOI approved project with a five-year tax holiday. The main purpose of the IPO is to list the company on the Colombo Stock Exchange’s Diri Savi Board and allow the public to participate in the equity of a start-up hospital and the reap the benefits later.

From the Rs. 250 million funds raised Rs. 140 million will be used to part settle the loans obtained from Bank of Ceylon and Rs. 30 million to settle the Bank Overdraft facility. This will enhance earnings per share and the net asset value of the company with 100% savings due to tax-free BOI project. Another Rs. 80 million will be used for expansion of business and capital expenditure.

In terms of the capital expenditure, a laparoscopy machine and a mammography machine will be purchased for Rs. 17 million. In terms of expansion, micro labs will be setup in Balangoda, Avissawella and Embilipitiya for Rs. 26 million. Further, an eye surgical unit at a cost of Rs. 12 million and a car park for Rs. 10 million will be built at the hospital premises. In terms of pharmacy and lab stocks, the company intends to use Rs. 15 million in the post IPO era.

Singhe Hospital was incorporated on 16 December 2009 as BOI approved project and commercial operations commenced in June 2012. It is the only private hospital with modern facilities in the Ratnapura District with 50 beds to accommodate inpatients.
Services offered at the hospital includes 24 Hour OPD services, X-ray facility and pharmacy. Further a dental unit, CT scanning facilities, paediatric ward, specialist consultancy, intensive care, 24 laboratory services and ultrasound scanning are some of the services available at the hospital.

The vision of the company is to provide the safest, highest quality healthcare and be the preferred health service provider to the nation. Going forward the company will be working towards those objectives set and in the post IPO era towards the stated objectives.

As per the share valuation prepared by BR De Silva & Co. Chartered Accountants included in the prospectus for prospective investors, free cash flow valuation stood at Rs. 2.59 per share whilst the price to book value valuation stood at Rs. 1.73 per share. It is a positive note to evaluate considering the independent valuations carried out by an external party.

A.M. Weerasinghe, Chairman and main shareholder with 74.7% holding post IPO of Singhe Hospitals Ltd., was the founder of Royal Ceramics Lanka PLC in 1990 and has been involved in real estate, constructions and transportation industries. He acts as the Chief Executive Officer of the company.

Merchant Bank of Sri Lanka & Finance PLC’s investment banking and business advisory division has been a pioneering many initial public offers since its inception in 1982. IPOs for many large corporates such as Laugfs Gas PLC, Royal Ceramics PLC, Chevron Lubricants PLC, Nawaloka Hospitals PLC and Janashakthi Insurance PLC were some of the key milestones.

Similarly, in terms of debt issues, Bank of Ceylon, L B Finance PLC, Commercial Credit & Finance PLC, Alliance Finance Co. PLC, Regional Development Bank and Arpico Finance PLC. Sri Lankan Catering Ltd. was one of the key foreign currency debt issues that were offered for fixed income securities investors by Merchant Bank of Sri Lanka & Finance PLC in 2010.
www.ft.lk