Sri Lankan shares slip in thin trade; political woes weigh

(Reuters) - Sri Lankan shares ended a tad weaker on Monday in thin volume led by select shares such as Access Engineering Plc, while investors awaited cues on interest rates.

The main stock index ended 0.17 percent, or 12.28 points, weaker at 7,042.3, hovering near its lowest close since Feb. 2 hit on Wednesday. It had lost 3.74 percent in the last 13 sessions through Wednesday.

"It seems like people are staying out of the market," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

Infrastructure firm Access Engineering was down 5.56 percent, a day after it fell 10 percent after the new government cancelled an $85 million airport runway project awarded by the previous government.

Analysts expect the market to be in the red until the political situation stabilises even after Sri Lankan President Maithripala Sirisena formed a national government on Sunday.

Sirisena, incorporating the main opposition party, has formed a national government in a bid to push through reforms and preserve political stability.

Analysts said the market was awaiting clarity on interest rates after yields on t-bills fell between 31 and 44 basis points at a weekly auction on Wednesday, after having spiked to 112-124 basis points the two previous weekly auctions.

The central bank on Wednesday said the low-interest rate environment is expected to continue benefiting from lower inflation while keeping policy rates steady.

The day's turnover stood at 395.1 million rupees ($2.97 million), well below this year's daily average of 1.22 billion rupees.

Foreign investors were net sellers of 8.02 million rupees worth of shares, but have been net buyers of 3.35 billion rupees worth of shares so far this year.

($1 = 132.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

CSE signs consultancy agreement with BTA Consulting, UK to set up a Clearing House

The Colombo Stock Exchange (CSE) signed an agreement with BTA Consulting (BTA) of the United Kingdom to provide Consultancy and Project Management services to set up a Clearing House which will act as a Central Counterparty (CCP) for settlement of securities, including shares, corporate debt, Government Securities and any other financial market instruments transacted in Sri Lanka.

This is a joint initiative between the Central Bank of Sri Lanka (CBSL), the Securities and Exchange Commission of Sri Lanka (SEC) and the Colombo Stock Exchange (CSE). The project was launched in January 2015. The Clearing House is expected to be set up within a two year period.

The CCP will also enable the CSE to move to a Delivery Vs. Payment (DVP) settlement system, thus significantly minimizing the risk of settlement failure and counterparty risk in the secondary market for shares.

Presently for equities the delivery of shares occur immediately upon the execution of the transaction while fund settlement takes place three (3) market days after the transaction date (T+3), thus exposing the seller to a three (3) day settlement risk, while for Government securities the process is bi-laterally agreed. Although some interim measures have been introduced to reduce settlement risk, the globally accepted mechanism for minimizing settlement risk is through a CCP-DVP system where the securities and funds are exchanged simultaneously, finally with full irrevocability on the settlement day.

BTA consulting is a UK based consultancy firm specializing in capital market related assignments globally having specialists with exposure to most capital markets including Bursa Malaysia, the Stock Exchange of Thailand, Wien Bourse (Vienna Stock Exchange),the Swiss Exchange and many other European, Middle Easternand Asian markets. The consultants from BTA Consulting will work with a project team of specialists from CBSL, SEC and CSE.

A Steering Committee consisting of the Governor of the CBSL, the Chairman of the SEC, the Chairman of the CSE, the Deputy Director General of the SEC and the Chief Executive Officer of the CSE will have the overall oversight of the project.
A Working Group consisting of the Chief Operating Officer of the CSE,Director Capital Market Development of the SEC and the Superintendent Public Debt CBSL, will be responsible for the implementation of the project.

The Project Team of seven specialists from the CSE will be headed by Head of IT Project Management of the CSE under the purview of the Assistant General Manager Enterprise Risk Management of the CSE.

In preparation for the CCP, two preliminary phases have already been initiated by the CSE. In November 2014 the CSE launched a new generation Millennium Central Securities Depository (CSD) provided by the London Stock Exchange Group (LSEG)replacing the 19 year old legacy system which will be compatible with a DVP environment for securities settlement.

The second phase is the commissioning of new Broker Back Office (BBO) and Order Management Systems (OMS) for stock brokers. The OMS will contain a Risk Management System which will be a pre-requisite for the market to move to a CCP-DVP system.

Stock Brokers are expected to select and enter into agreements with one of the four (4) shortlisted vendors offering such systems. It is expected that the systems will be in place within 2015.

The CSE is also working in parallel with Primary Dealers, CBSL, SEC and Millennium IT (MIT), the CSE’s Trading System supplier to facilitate secondary trading of Government Securities through the CSE’s Automated Trading System (ATS). Presently the modalities and systems modifications in this regard are being designed by CBSL, Primary Dealers, CSE and MIT.

The CCP will usher in a new era for securities trading in Sri Lanka said Mr. Vajira Kulatilaka, Chairman of the CSE adding that he believes that the introduction of the CCP with DVP will be a ‘game changer’ for our securities market as this was one of the key criteria for re-classification of our market as an emerging market.

The CEO of the CSE Mr. Rajeeva Bandaranaike appreciated the support extended by CBSL, SEC, Stock Brokers and Primary Dealers for supporting the measures that are being taken to mitigate the settlement risk in the securities market. He further stated that the CCP and DVP system of settlement will facilitate plans to diversify the CSE’s product range.
www.adaderana.lk 

Sri Lanka's Colombo Stock Exchange get two directors

COLOMBO (EconomyNext) - Lal Nanayakkara, a senior accountant and Anton Godfrey, who head a company with an international presence have been appointed directors of the Colombo Stock Exchange.

Nanayakkara was a former President of the Institute of Chartered Accountants of Sri Lanka in 1997 and has been board member of the Securities and Exchange Commission.

Anton Godfrey is the founder and chairman of AGXA an AG International Company, which has a Australia, Singapore, India and Sri Lanka, principal network span over Europe and North America, the Colombo Stock Exchange said.

Godfrey holds an MBA from the University Of Leicester UK, Chartered Marketer and a Fellow of The Chartered Institute of Marketing UK and the Australian Institute of Management.

Vajira Kulatilaka (Chairman)
M R Prelis –Elected
Dakshitha Thalgodapitiya – Appointed
Jeewa Niriella – Appointed
Ray Abeywardena – Elected
Asanga Seneviratne– Elected
Aravinda Perera– Elected
Lal Nanayakkara – Appointed
Anton Godfrey– Appointed

Access Engineering sets record straight on $ 85 m BIA project

Access Engineering Plc (AEL) has issued a disclosure to the Colombo Stock Exchange (CSE) explaining its position in relation to the Government’s annulment of $ 85 million tender for a runway overlay and associated work at the Bandaranaike International Airport (BIA).

AEL said that whilst respecting the decision taken by the Cabinet of Ministers, the disclosure was for the purpose of further clarity. The following is the statement of disclosure.

Access Engineering Plc (AEL) is a responsible, civic conscious business enterprise operating in full compliance with the rules and regulations pertaining to a public company listed on the Colombo Stock Exchange. AEL values as well as practices transparency and principles of good governance in all its dealings and transactions.

Initially, for the execution of the works encompassed under the captioned project, a tender was published in the local newspapers in January 2013 to requesting for Proposals (RFP) with funding arrangements.

Two bids were received pursuant to the aforesaid RFP from two international contractors, namely M/s. Lagan Construction Ltd. of Northern Ireland and M/s China Harbour Engineering Company Ltd. of China where the financial bids were opened on 27 May 2013.

The following local contractors attended a meeting called by the Secretary, Ministry of Finance on 11 and 13 December 2013: Nawaloka Construction Company, Maga Engineering Ltd., Tudawe Brothers Ltd., Sierra Construction (Pvt) Ltd., Access Engineering Plc.

The contractors present were informed that the GOSL has decided to use local bank finance to carry out work with respect to the above project and the tender called in January 2013 for carrying of the project where finance was from overseas, would not be pursued. At this meeting, the local contractors expressed that they would not possess the required experience and would not meet with the required pre-qualification to carry out this work.

The local contractors were informed that they could collaborate with foreign contractors to meet with the relevant pre-qualification and experience criteria and was invited to submit their proposals.

The local contractors present were informed that this is a great opportunity to enhance their capacity and avail to themselves the opportunity to be prequalified for any future works in the region.

In the event the local contractors are unable to form a suitable consortium and submit a proposal, the GOSL will be compelled to proceed with the international contractor selected through the tender called. The RFP document was made available to the local contractors. (Attendance records and minutes would be available at the Ministry of Finance).

AEL submitted its preliminary proposal on 28 January 2014 together with Louise Berger Group (LBG) of USA, Katahira & Engineers International (KEI) of Japan and World Kaihatzu Kogyo Company Ltd., (WKK) of Japan.

Thereafter, having ascertained the exact scope of work and/or parameters of the project, and site visits, in consultation with AASL, AEL submitted its detailed proposal incorporating the scope changes and new requirements of AASL on 24 April 2014.

After further discussions with the Cabinet Appointed Negotiation Committee (CANC) and the Procurement Committee (PC) on 2 July and 12 August 2014, the final revised financial proposal was submitted by AEL on 18 August 2014. Pursuant to further negotiations between AEL and the CANC/PC on 25 August, 10,11 and 12 September and 31 October 2014, AEL agreed to the contract sum of $ 85,770,919.98 (consist of $ 34,308,367.99 and SLR.6,702,740,083.68).

A Letter of Acceptance dated 10 December 2014 was issued by AASL awarding the said contract to AEL. AEL accepted the said award of the contract through letter dated 11 December 2014. The award of the contract was communicated by AEL to their association partners who subsequently mobilised to carry out their respective scope of work.

Thereafter, on two consecutive occasions AASL granted an extension of time until 28 February 2015 for the submission of the relevant Performance Security.

Through letter dated 19 February 2015 AASL advised that the captioned project is under review for which we replied on 27 February 2015 explaining the factual position of the process followed in awarding us the project as mentioned above.
www.ft.lk