Sri Lankan shares close at over 7-week low; large caps decline

Reuters: Sri Lanka's stock index fell for the second straight session on Tuesday to close at its lowest in more than seven weeks, with turnover slumping to a near three-month low as concerns over political uncertainty dented demand for risky assets.

President Maithripala Sirisena's government has said it would dissolve parliament once some crucial reforms including an electoral bill are passed, but has yet to fix a date for the election.

The main stock index ended down 0.16 percent at 7,067.11, slipping to its lowest closing level since April 15.

"Elections might be the triggering point. There is no buying and it'll be like this till the announcement of the elections," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

Some stockbrokers said investors were waiting for the right moment, and sellers were not ready to dispose of holdings at low prices given the lack of buying interest.

Turnover was 328.8 million rupees ($2.46 million), the lowest since March 13 and well below this year's daily average of about 1.11 billion rupees.

Analysts said foreign investors have been selling shares amid expectations the U.S. would hike key interest rates sooner than later. An upbeat U.S. nonfarm payrolls in May, the largest gain since December, has raised chances for a rate hike as early as September.

Foreign investors sold a net 6.9 million rupees ($51,608) worth of shares, extending net foreign outflow to 1.52 billion rupees worth shares in the past ten sessions.

The bourse, however, has seen net inflows of 4.42 billion rupees in equities so far this year.

Political uncertainty due to the Ranil Wickremesinghe-led coalition government not having a parliament majority has been a drag on the market, though the trend reversed after the central bank cut key monetary policy rates to record lows on April 15.

Stockbrokers said better corporate earnings would help the market gain.

Shares in Ceylon Tobacco Company Plc eased 2.64 percent while Nestle Lanka Plc fell 2.27 percent. 

($1 = 133.7000 Sri Lankan rupees) 

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

Eight insurance companies respond to IBSL guidelines

By Ishara Gamage

Ceylon Finance Today: Eight out of twelve composite insurance companies have responded to guidelines issued by the Insurance Board of Sri Lanka (IBSL) to separate life insurance and general insurance business operations, Damayanthi Fernando, Director General of the IBSL told to Ceylon FT yesterday.

The IBSL requested composites to split their life and non-life businesses by February 2015. Except, Sri Lanka Insurance Corporation Ltd, MBSL Insurance Company Ltd, LOLC Insurance Company Ltd and Seemasahitha Sanasa Rakshana Samagama, all other eight composite insurance companies have fulfilled our deadlines, she said.

"Remaining companies ask further time for their segregations. We are closely mongering their progress," she remarked.

When contacted, Chairman of the government- owned Sri Lanka Insurance Corporation Ltd , Hemaka Amarasuriya said that the company was waiting for government's final decisions to implement this segregation decision.

"We have to obey the regulatory decisions. We hope that the government will respond to this before end of this year, and also stock market listing of the SLICL is not government policy," he said.

Meanwhile, the latest Fitch Rating insurance sector report highlighted that the split was expected to provide greater focus and promote efficient use of capital, in the medium and long term. In the short term the credit profiles of some of the smaller players could be affected depending on factors such as ownership structures and the split of existing capital and growth.

Some regulator-approved post-split structures include: a holding company with two subsidiaries life and non-life; or the life business is placed in the holding company with a subsidiary incorporated for non-life. Regardless of the structure, many companies have opted to retain the long-tail, life business in the existing company and move the non-life business to a newly incorporated company.

Fitch expects post-split operational issues to be minimal for established companies, as they have previously operated with a quasi-separation between the two segments.

The IBSL has allowed shared services in some functions including actuarial, legal, finance and IT to ease the process of splitting and minimize immediate cost escalations from the split.

Fitch expects all regulatory changes underway (split, risk-based capital and listing) to promote consolidation due to the higher compliance and administrative costs.

The Insurance Board of Sri Lanka is expected to release their year 2014 annual report within few weeks.

There were some ownership changes in insurance companies in 2014. John Keels Holdings PLC, the parent company of Union Assurance Ltd (fourth largest insurer by assets) announced its intention to divest 78% of its non-life business to Fairfax Asia Limited, an international company. AIG Insurance, which held less than 1% of non-life market share, has exited the market, citing a lack of fit of the local operation with the group's strategic growth plans.
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Earnings growth in Sri Lanka listed firms slows in March quarter

COLOMBO (EconomyNext) - Aggregate profit growth of Sri Lanka's listed companies rose 2.2 percent to 53.3 billion rupees in the March 2015 quarter from a year earlier, slowing from a 9.3 percent growth in the December quarter, an equities research report said.

CAL Research said aggregate profits for the 12-month ending March was up 9.3 percent to 139 billion rupees with 271 companies releasing results.

Profits of bank, finance and insurance companies rose 34 percent in the March quarter to 18 billion rupees helped mostly by finance and other companies which grew 94 percent and insurance companies, which grew 102 percent due to a 1.2 billion rupee capital gain at Union Assurance.

Profits at private commercial banks grew 12 percent with the net interest margins of the banking sector contracting 39 basis points to 4.3 percent. At non-bank financial institutions net interest margins grew 140 basis points to 10.8 percent.

Diversified Holdings profits fell 21 percent to 11 billion rupees mainly due to Carsons whose profits from Indonesian units fell with the depreciation in the rupiah.

Food beverage and tobacco grew 5 percent to 6.8 billion rupees, helped by Ceylon Tobacco and Distilleries.

Hotels and Travels profits fell 24 percent to 3.5 billion rupees with costs rising, CAL Research said.

Most hotels were unable to pass or increasing costs to their customers as average room rates came under pressures with revenues flat (down 0.7 percent).

Healthcare grew 68 percent.

Manufacturing grew 47 percent to 5 billion rupees, with helped by Royal Ceramics, Lanka Lubricants and Textured Jersey.

Motor sector profits were up 41 percent to 845 million rupees, helped by United Motors.

Power and Energy fell to a net loss of 382 million rupees with LIOC running into losses due to state intervention in pricing and taxes.

Adam Investments new plant heats up Sri Lanka activated carbon competition

COLOMBO (EconomyNext) - Sri Lanka’s Adam Investments said it is upgrading its activated carbon factory and aims to resume production shortly with carbonisation and recycling technology that produces higher yields and saves cost.

A total of 151 million rupees in bank debt of Bieco Link Carbons, the activated carbon factory renamed Adam Carbons, due at the time the unit was acquired last year with the takever of PCH Holdings, was settled in full, the company said.

A complete plant upgrade is being done with full refurbishment of one vertical kiln, one rotary kiln, three carbonizers and laboratory along with required modifications with production planned to start in mid 2015, its annual report revealed.

The highly porous structure of activated carbon, produced by steam activation of coconut shell charcoal, is used to remove impurities in air and water.

“At present renovation and testing of the 12 acre plant of Bieco Link Carbons is being completed which will give your company the second largest manufacturing capacity of granulated activated carbon in Sri Lanka,” chairman Ali Asger Shabbir Gulamhusein told shareholders.

The carbons factory in Giriulla, in the North Western province ‘coconut belt’, is only plant in Sri Lanka using both vertical and rotary kiln technologies in the steam activation process, he said.

The throughput of its rotary kilns has been increased to 3.75 -4.00 metric tonnes a day compared to the standard 2.5 - 2.8 MT per day from similar sized kilns, the report said.

“The previous practice of using furnace oil as a heating source for steam activation has also been eliminated saving about 30 million rupees per annum.”

The firm is using carbonizer technology with energy recovery for steam production for which it aims to obtain intellectual property rights to develop it further.

The process uses volatile gases emanating during carbonization (charcoal production) as an energy source to raise steam which is required for the activation process, and also eliminates the air pollution.

The activation process yield of its two vertical activation kilns is about 45-46 percent compared to 40 percent yield from rotary kilns in producing the medium activity activated carbon, the report said.

“The throughput of activated carbon is also high, approximately six metric tonnes per kiln per day. Additionally there is almost zero percentage of particle breakdowns during production, making particle size recovery very high.”

De-listing not the answer to Sri Lanka companies below 20-pct public float: official

COLOMBO (EconomyNext) - Sri Lanka's Colombo Stock Exchange will not force companies to de-list if they fail to meet a 20 percent minimum public float requirement newly imposed by regulator, a top official said.

The coercive rules advocated by interventionists, which critics say are tighter than several developed markets especially in the US, are due to come on line next year.

"If they do not conform, they would probably be given a little more time to come up with a plan," CSE Chief Executive Rajiva Bandaranaike said.

"De-listing itself would not be an answer, for the simple reason that there are shareholders, and it may not be advisable for companies to de-list merely for that reason."

He was responding to questions at a recent press briefing.

"We are actively engaging listed companies on how they can conform to the minimum public float requirement," Bandaranaike said.

"We are talking to them right now, the regulator is talking to them, so as to arrive at conformity or compliance with the rules."

The rules were imposed before Bandaranaike took-over as Chief Executive, following a process of public consultation.

Critics say the even New York Stock Exchange's continuing listing criteria (Rule 802.1A) for distribution is less stringent than that of Sri Lanka's.

At NYSE Euronext a company's free float can be less than 5 percent of market cap if the volume is greater than 5 million Euros.

Some of Sri Lanka's large companies, including multi-nationals have small public floats by percentage but the total volume is equal to several of listed companies put together.

Analysts say big companies are large, because they do certain things right over long periods and can also withstand economic shocks over time, and listing them even with a smaller public float should be encouraged.

At the Hong Kong Stock Exchange a large company can even go for an Initial Offer with a 15 percent public float if the total market capitalization is high.

Freedom advocates say most draconian interventionist rules usually originate in Europe, which are followed by control-happy jurisdictions elsewhere. However the opposite does not happen especially in developing markets.

Europe has also take longer to recover from the last burst credit bubble than the US due to many regulations, classical economists have pointed out.

Unlike in countries like the US, there are no other regional stock markets in Sri Lanka for de-listed companies to move to. There are also no over- the-counter trading boards.

Instead analysts say Sri Lanka should discontinue the All Share Price Index as soon as possible, create a different benchmark index using the public float as one criteria if necessary, and a separate second board index like other markets.