Sri Lankan index slips on banks, telecommunications; volumes thin

(Reuters) - Sri Lankan shares ended slightly weaker on Wednesday as investors offloaded telecommunications and banking stocks on thin volume as many investors and brokers stayed away ahead of holidays, dealers said.

The index ended 0.2 percent, or 13.52 points, weaker at 6,913.73 on Wednesday.

"Telecom shares were down on a taxation effect impacting the counter and there is no major selling or buying ahead of the holidays," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

The new government in January budget reduced mobile call rates by shifting the 25 percent tax from customers to the service provider.

The day's turnover was 394.8 million rupees ($2.97 million), well below this year's daily average of 1.13 billion rupees.

The market will be closed on April 13 and April 14 for traditional Sinhala-Tamil new year holiday.

The main stock index had lost 6.6 percent last month, its biggest monthly drop since October 2012 as investors sold their holdings to settle margin trading amid concerns about political stability and a rise in interest rates.

Yields on T-bills rose first time at the Wednesdays auction by 1 to 15 basis points after it had fallen between 55 basis points and 63 basis points in the three weekly auctions through April 1.

Analysts expect trading to stay thin through mid-April ahead of the New Year holiday and amid political uncertainty.

Shares in top mobile phone operator Dialog Axiata Plc fell 1.79 percent, while leading fixed line telephone operator Sri Lanka Telecom Plc declined 2.92 percent.

Development lender DFCC Bank fell 2.33 percent while Distilleries Co of Sri Lanka Plc edged down 0.84 percent. 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

Fitch confirms Hemas' debt at 'A+(lka)', outlook positive

COLOMBO (EconomyNext) - Fitch Ratings has confirmed the rating on Hemas Holdings PLC's (Hemas) outstanding senior unsecured debentures at 'A+(lka)'.

It has also published the company's National Long-Term Rating of 'A+(lka)' and revised the outlook on the rating to positive from stable, a statement said.

"The outlook revision reflects Fitch's expectations of an improved business risk profile and stronger earnings growth owing to expansion in its core businesses in the healthcare and fast moving consumer goods (FMCG) sectors," it said.

The full rating report follows:

Fitch Ratings-Colombo/Sydney-08 April 2015: Fitch Ratings has affirmed the rating on Hemas Holdings PLC's (Hemas) outstanding senior unsecured debentures at 'A+(lka)'. It has also published the company's National Long-Term Rating of 'A+(lka)' and revised the Outlook on the rating to Positive from Stable.

The Outlook revision reflects Fitch's expectations of an improved business risk profile and stronger earnings growth owing to expansion in its core businesses in the healthcare and fast moving consumer goods (FMCG) sectors. The Outlook is also supported by Fitch's expectations that the group is likely to improve its leverage (measured as gross adjusted debt / operating EBITDAR) on a sustained basis to below 2.0x following the divestment of its power business, despite significant investments within its core segments.

KEY RATING DRIVERS

Essential Goods and Services: Hemas' rating reflects the essential nature of the products and services of its key operating subsidiaries in healthcare, FMCG and transportation, supported by the company's low financial risk at the holding company and group level. The rating also factors in the businesses' strong brands, leading market share and strong cash flow generation. Hemas also has subsidiaries involved in hotel operation and destination management.

Strong Demand Dynamics: Hemas is Sri Lanka's largest private healthcare company by revenue and is strongly positioned to benefit from favourable macroeconomic factors such as a rapidly aging population and increasing demand for treatment of non-communicable diseases. Changes in regulations of prices of pharmaceuticals by the government remain a key risk. Higher disposable income and prevailing low inflationary and interest rates have created strong demand for Hemas' FMCG segment in Sri Lanka, while this segment's Bangladesh operation benefits from strong growth prospects.

Low Leverage: Fitch expects the group to sustain a lower leverage ratio despite continued investments to expand its core businesses. The divestment of the power segment in the financial year ended 31 March 2015 (FY15) has improved Hemas' financial profile given the significant amount of debt carried by the segment. Hemas' leverage fell to 1.9x at end-December 2014, from 2.2x, or 1.9x excluding the power segment, at end-FY14.

Growth Through Acquisitions: The acquisition of J L Morison Son & Jones PLC, which manufactures and distributes products in the pharmaceutical, healthcare, beauty and agriculture sectors, in FY14 has strengthened Hemas' product portfolio and local manufacturing capabilities. The purchase of J L Morison Son & Jones was in line with the group's strategy to accelerate growth through acquisitions. The company has demonstrated a long-term investment focus and a disciplined approach to capital management. The group's large cash balance of LKR5.0bn at end-2014, strong operating cash flows, and planned equity raising will ensure that Hemas' financial profile is commensurate with its rating even as it expands and makes acquisitions.

Dependence on Dividends: Hemas is dependent on dividends and fees from its operating subsidiaries to service debt at the holding company level. Fitch considers the structural subordination of the holding company's creditors to be low, because Hemas' key subsidiaries are either majority owned or have low leverage. However, should leverage at the operating subsidiaries increase significantly over time, this could weigh negatively on the rating.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

- Revenue growth driven by improved macroeconomic factors, rising tourist arrivals to the country and expansion within company's core segments

- EBITDAR margins to improve with the divestment of the power segment, turnaround in the hospital segment and efficiency improvements across the company

- Significant capex and acquisition spending in the healthcare and FMCG segments during FY16-FY18.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a rating upgrade include:

- Group gross adjusted debt/ EBITDAR maintained below 2.0x

- No material deviation from company's historical conservative approach to new investments.

Negative: Future developments that may, individually or collectively, lead to an Outlook revision to Stable include

- Group gross adjusted debt/ EBITDAR sustained above 2.0x- Any material integration issues or deviations from company's historical conservative approach to new investments.

Fitch Rates Central Finance's secured Rs3bn debt at 'A+'

COLOMBO (EconomyNext) - Fitch Ratings has given an expected 'A+(lka)(EXP)' rating to Central Finance Company PLC's proposed senior secured debentures of up to three billion rupees.

The issue has been rated at the same level as Central Finance's National Long-Term Rating and reflects its strong capitalisation, which is supported by robust profitability and high profit retention, the rating agency said.

"Counterbalancing these strengths are the pressure on loan quality and its low provisioning levels compared with its peers'," a statement said.

The full rating report follow:

Fitch Ratings-Colombo/Taipei-08 April 2015: Fitch Ratings has assigned Central Finance Company PLC's (CF; A+(lka)/Stable) proposed senior secured debentures of up to LKR3.0bn an expected National Long-Term Rating of 'A+(lka)(EXP)'.

The proposed debentures will have tenors of between three and five years, and fixed-rate coupons. CF expects to use the proceeds to fund lending growth, reduce structural maturity mismatches and diversify the funding mix. The debentures are secured by receivables from identified hire-purchase and lease agreements exceeding 110% of the total outstanding value of the debenture at any given time. As the debenture issuance is secured, CF will not be required to maintain liquid assets against it. This is in contrast to unsecured borrowings for which CF will need to post a 10% minimum reserve with the central bank if not included in the company's capital funds.

Fitch will assign a final rating to the issue subject to the receipt of final transaction documents conforming to information already received.

KEY RATING DRIVERS

The issue has been rated at the same level as CF's National Long-Term Rating. Fitch has not provided any rating uplift for the collateralisation as the secured notes' recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

CF's rating reflects its strong capitalisation, which is supported by robust profitability and high profit retention. Counterbalancing these strengths are the pressure on loan quality and its low provisioning levels compared with its peers'. The rating also captures CF's high margins, which are supported by the company's strength in raising funds at relatively low rates through the solid franchise developed over a long operating history.

RATING SENSITIVITIES

The rating of the issue will move in tandem with CF's National Long-Term Rating.

Greater product diversity, together with improved funding flexibility commensurate with higher-rated peers, could lead to an upgrade in CF's rating. However, taking into account the current pressure on its asset quality, Fitch does not see an upgrade as likely in the medium term.

CF's rating could be downgraded if it is not able to provide a buffer against further loan quality deterioration through profit, which would lead to an increase in unprovided NPLs relative to equity.

Sri Lanka 1-year Treasuries yields up

COLOMBO (EconomyNext) - Sri Lanka's Treasuries yields rose across maturities at Wednesday's auction with the one-year rising 14 basis points to 6.90 percent, data from the state debt office showed.

The 6-month yield rose 15 basis points to 6.83 percent and the 3-month yield edged up one point to 6.56 percent,

The weekly primary auction got bids worth 53.7 billion rupees with 25.8 billion rupees accepted. There were about 25 billion rupees of maturing bills this week.

Sri Lanka sells Rs 20.04b in 2 and 6 year bonds

Sri Lanka has sold 20.04 billion rupees of two and six year bonds after calling bids for 20 billion rupees of bonds, the state debt office said. The debt office on Tuesday sold 12.44 billion rupees of two year bonds maturing on 15 May 2017 at weighted average yield of 8.14 percent. A six year bond maturing on August 1, 2021 was sold at an average yield of 9.40 percent, raising 7.60 billion rupees.

The state debt office of the Central Bank offered 12.50 billion rupees in two year bonds and 7.50 billion rupees in six year bonds. At the last auction held in 30 March 2015, five year bonds were sold at an average yield of 9.07 percent and ten year bonds were sold at 10.03 percent.
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