Sri Lanka's Treasuries yields rise at auction, bonds follow

ECONOMYNEXT - Sri Lanka's 06 and 12 month Treasuries yields rose up to 09 basis points at Wednesday's auction, with 21.9 billion rupees of bills being sold, the state debt office said, while market bond yields also edged up.

In the secondary market, bond yields edged up after the auction.

The 12-month yield rose 09 basis points to 6.63 percent, with 3.39 billion rupees of bids being accepted.

The 6-month yield also rose 7 basis points to 6.57 percent with 18.5 billion rupee of bids being accepted.

Three months bills were not offered. Bill yields also rose at the last auction, where three month securities were not sold.

Sri Lanka ratcheted up spending in a January 2015 budget and has been borrowing heavily in domestic market. Rates were kept down by the Central Bank by releasing liquidity generating foreign reserve losses, up to end May.

After June the Central Banka has also purchased some Treasury bills either to print money outright or to accommodate foreign debt repayments. However about 20 billion rupees of such bills were then sold down.

Auctioning of securities, which may raise rates communicates rates to the market faster and signals the market to generate more savings and reduce consumption. It may also reduce the severity of balance of payments crises, and avoid very 'hard landings' that occure when rates are suddenly raised.

Bond yields also edged up after the auction.

Two year bonds (15.05.2017) were quoted at 7.08/20 percent, dealers said up from 7.06/12 percent.

Three year bonds (01.06.2018) were quoted at 7.80/90 percent, up from 7.80/83 percent

Four year bonds (01.07.2019) were quoted at 8.15/25 percent, up from 8.12/18 percent.

Five year bonds (01.05.2020) were quoted at 8.38/44 percent, up from 8.36/40 percent.

Six year bonds (01.08.2021) were quoted at 8.91/94 percent, up from 8.88/92 percent.

Seven year bond (01.10.2022) were quoted at 9.10/16 percent, up from 9.08/10 percent.

Eight year bonds (01.09.2023) were quoted at 9.27/34 percent up from 9.24/28 percent.

10 year bonds (01.08.2015) were quoted at 9.62/67 percent up from 9.58/62 percent.

30 year bonds (01.03.2045) were quoted at 10.40/11.00 percent.

Sri Lanka vehicle registrations hit new high in July 2015 amid cheap credit

ECONOMYNEXT - Sri Lanka's vehicle registrations hit a new high of 61,953 units in July 2015, up 85 percent from a year earlier, with cars up 85 percent, three wheelers up 73 percent and motor cycles up 68 percent, an analysis of vehicle registry data showed, amid low interest rates.

Car registrations rose to 9,666 units in July 2015, up from 2,555 in 2015 with small car sales rising 5,393 units from 367 units a year earlier, following a tax cut in January, an analysis of vehicle registry data by J B Securities, a Colombo-based equity brokerage showed.

Vehicles sales had already picked up to 4,311 units in December from 2,419 in November amid a recovery in bank credit when the tax cut was made.

Registrations of imported used cars also rose 3,950 units in July from 3,072 units in January led by hybrids despite a tax hike by the new administration.

Hybrid registrations dropped to 4,069 units in July from 4,320 in January.

Though the Suzuki Alto is the country's best-selling car, observers say they are not very visible on the roads of Colombo, indicating that owner are relatively less well-off and are keeping them home for weekend use.

Colombo's traffic jams are however are packed with hybrids, which are used by relatively well-off people including executives with vehicle and petrol allowances.

Hybrids have also low running costs, making them cheaper to run, encouraging their use, compared to conventional cars like the Maruti used by the less affluent some of who are first time users.

A hybrid family car and a Maruti Alto, which takes less space on the road, does about 20 kilometres a litre.

Three wheeler registration rose to 12,218 units in July up from 7,047 last year and up from 8,248 in January. Most three wheeler are bought on credit.

"In almost every category when one compares the 3 months Feb to April and May to July the level of financing is increasing from an already high level," the JB Securities said in a note clients.

"The vehicle financing industry is estimated to have a monthly turnover of around LKR 27 billion – this figure includes second hand cars."

Sri Lanka now has historically low interest rates which discourages savings and promotes consumption, not only of cars but of all goods and services and discourages savings.

Economic analysts have pointed out that the Central Bank has released hundreds of billions of excess liquidity firing credit and imports, and preventing a market-clearing interest rate from becoming established.

In July and August outright purchases of Treasury bills have been made, injecting further demand into the economy, pressuring a soft-peg with the US dollar.

Global commodity prices however have been falling, which analysts say gives space for depreciation without causing too much domestic inflation. However if excess liquidity injections persists or is injected the rupee would be under pressure at the new rate.

The state has also borrowed heavily from domestic markets and used the money to give subsidies and salary increments, firing credit pressure further.

JB Securities said a 10,000 rupee salary hike is making it easier for families of state workers to buy motor bikes and three wheelers which are also increasingly being used as a personal transport vehicle rather than just as taxis.

Sri Lanka Islamic bank June quarter net profit Rs47.5mn

ECONOMYNEXT – Amãna Bank, a Sri Lankan bank operating on the non-interest based Islamic banking model, made a net profit of 47.5 million rupees in the June 2015 quarter against a loss of 85.6 million rupees a year ago.

Financing income rose 15 percent to 676 million rupees while expenses rose 7.3 percent to 330 million rupees resulting in net financing income rising 24 percent to 346 million rupees during the period.

Earnings per share of Amãna Bank were four cents in the quarter, a stock exchange filing said.

Net fee and commission income rose 16 percent to 38 million rupees. Amãna Bank’s total assets were up 15 percent to 40 billion rupees as at 30 June 2015 from 31 December 2014 while total deposits rose 13 percent to 33 billion rupees.

Amãna Bank said in a statement it achieved an “impressive acceleration in profitability” during the June 2015 as profit more than doubled from the net profit 23 million rupees in the March 2015 quarter.

As a result, the bank’s profit for the first half of 2015 was 70.6 million rupees, compared to a loss after tax of 134.9 million rupees in the corresponding period of 2014.

“The bank continued to maintain a quality advance portfolio through effective credit risk management policies and procedures which resulted in a low Gross Non Performing Advances Ratio of 1.38 percent, well below the industry average,” it said.

Amãna Bank’s main shareholders include Bank Islam Malaysia Berhad, AB Bank in Bangladesh and The Islamic Development Bank based in Saudi Arabia.

Sri Lanka's Commercial Bank net up 19-pct in June quarter

ECONOMYNEXT - Profits at Sri Lanka's Commercial Bank of Ceylon grew 19.3 percent to 2.64 billion rupees in the June 2015 quarter, helped by lower loan loss provisions, interim accounts show.

The group reported earnings of 3.01 rupees per share for the quarter. In the six months to June, the group reported earnings of 5.92 rupees on total profits of 5.1 billion rupees, up 14 percent from a year earlier.

Fees and commission income grew 4 percent to 1.2 billion rupees.

Interest income grew 3.1 percent to 16.2 billion rupees, interest expenses grew at a slower 0.3 percent to .6 billion rupees and net interest income 6.6 percent to 75 billion rupees.

Loans grew 2.9 percent to 513 billion rupees in the six months to June.

Loan loss provisions were down 28 percent to 1.34 billion rupees.

The bank also brought down its financial investments available for sale down to 206 billion rupees from 214 billion rupees in December.

In the March quarter its bond portfolio took a hit of 4.7 billion rupees as interest rates picked up. In the June quarter however it recovered 1.7 billion rupees bringing down the book loss to 2.9 billion rupees, when interest rates eased.

Rates however are picking up again.

Sri Lankan shares close at near 7-month high

Reuters: Sri Lankan shares closed at their highest in nearly seven months on Wednesday as hopes of improved corporate earnings and political stability after the Aug.17 parliamentary election boosted sentiment, brokers said.

Some foreign investors however sold shares ahead of the key election, they said.

The main stock index ended 0.17 percent or 12.98 points higher at 7,471.90, its highest close since Jan. 16.

The index has risen nearly 8 percent since July 8 through Wednesday.

Foreign investors sold a net 683.9 million rupees worth equities on Wednesday. They have offloaded a net 1.17 billion rupees worth of shares so far this year.

"Today, the... market started to slow down during the latter part of the day with some profit-taking," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd, adding dealers expected stock market activity to remain sluggish until the election.

Shares in Nestle Lanka Plc jumped 3.97 percent while Dialog Axiata Plc rose 2.59 percent.

Turnover stood at 2.12 billion rupees ($15.84 million) on Wednesday, more than double this year's daily average of 1.13 billion rupees. 

($1 = 133.8000 Sri Lankan rupees) 

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

Sri Lanka’s Fitch affirms ratings of seven Finance Companies

(LBO) – Sri Lanka’s Fitch Ratings has affirmed the ratings of People’s Leasing and Finance, Central Finance Company, Melsta Regal Finance, Siyapatha Finance, Senkadagala Finance, AMW Capital Leasing And Finance and Singer Finance.

The full text of the announcement is reproduced below.

Fitch Ratings-Colombo/Singapore-11 August 2015: Fitch Ratings has affirmed the ratings of People’s Leasing & Finance PLC (PLC), Central Finance Company PLC (CF), Melsta Regal Finance Ltd (MRF), Siyapatha Finance PLC (Siyapatha), Senkadagala Finance PLC (Senka), AMW Capital Leasing And Finance PLC (AMCL) and Singer Finance PLC (SFL).

A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS

ISSUER DEFAULT RATINGS, NATIONAL RATINGS AND SENIOR DEBT

Finance Companies with Institutional Support Driven Long-Term Ratings

PLC’s Issuer Default Rating (IDR) and National Long-Term Rating reflect Fitch’s view that PLC’s parent, the state-owned and systemically important People’s Bank (PB; AA+(lka)/Stable), has a high propensity but limited ability to provide extraordinary support to PLC if required. PB’s high propensity to provide support to PLC stems from its 75% shareholding in PLC and a common brand. In addition, PLC accounted for 12.6% of PB’s loan book and 24.4% of PB’s consolidated post-tax profits in end-2014. and PLC has 108 window offices within branches of PB.

PB’s limited ability to provide support to PLC is evident from its own ‘AA+(lka)’ rating, which is driven by the government of Sri Lanka’s (BB-/Stable) high propensity but moderate ability to provide support to the bank under extraordinary situations.

The two-notch differential between the National Long-Term Ratings of PLC and PB reflects Fitch’s view that timely support from the state may be constrained by regulatory restrictions between the entities (such as maximum exposure limits) or administrative delays usually seen in layered support structures.

PLC is the largest non-bank financial institution (NBFI) in Sri Lanka in terms of assets, with a 12.6% share of sector assets at March 2015.

AMCL’s rating reflects Fitch’s view that support would be forthcoming from Associated Motorways Private Limited (AMW), which owns 90% of AMCL, given the finance company’s strategic importance to the parent. This is based on AMCL’s role in the group, given strong synergies and operational integration. While its share of financing of AMW’s vehicle sales has remained moderate, AMCL accounted for a substantial share of group profit and assets at end-2014. About 46% of its advances comprised vehicle finance facilities provided to its parents’ clients at end-2014. Fitch believes that additional incentives for AMW to provide support to AMCL stem from the common AMW brand, which could have high reputational impact on AMW should AMCL default. In addition AMCL’s funding relies on the parent, which provided 48% of AMCL’s borrowings at end-March 2015.

SFL is rated two notches below its parent, retailing company Singer (Sri Lanka) PLC (Singer; A-(lka)/Stable). This reflects Singer’s majority ownership in SFL, the common Singer brand and Singer’s influence on SFL’s strategic direction through representation on the finance company’s board. The two-notch differential also reflects SFL’s limited role in the group; SFL finances a low proportion of Singer’s sales (2010-2014: an average of 8% of Singer’s sales). Fitch expects SFL’s contribution to Singer’s sales to remain low in the medium term.

Although not planned, the disposal of SFL would not materially alter the group’s operations or earnings as the parent’s sales growth is supported by the presence of a well-managed in-house hire-purchase portfolio. SFL contributed an average of 16% to group EBIT for 2011 to 2014.

SFL’s rating also reflects its standalone credit profile, which Fitch has assessed to be at the same rating level. SFL’s National Long-Term Rating reflects higher capitalisation levels compared with its peers amid modest loan growth and improved asset-quality metrics.

Siyapatha’s ratings reflect Fitch’s view that support would be forthcoming from its parent, Sampath Bank PLC (SB; A+(lka)/Stable), which owns 100% of Siyapatha and involvement in the strategic direction of Siyapatha through board representation.

Siyapatha is rated two notches below its parent because of Siyapatha’s limited role in the group’s core business. SB’s leasing book accounted for just 4% of group advances at end-2014, of which Siyapatha provided 29%. Since its conversion to a licensed finance company, Siyapatha ceased to share a common brand with its parent while branches situated within SB’s premises have also decreased. Siyapatha’s contribution to group profit remains low, averaging 5% of group profit for 2012 to 2014. Fitch does not view a potential disposal of Siyapatha, which is not being planned, as being material to the group.

MRF’s rating reflects Fitch’s expectation of support from its ultimate parent, Distilleries Company of Sri Lanka (DIST; AAA(lka )/Stable). DIST has full effective ownership of MRF through Melstacorp Limited, the investment holding company for DIST’s non-beverage assets. DIST’s ability to support the entity is based on its market leadership in alcoholic beverage production in Sri Lanka, a highly profitable sector characterised by relatively stable demand through economic cycles and high entry barriers.

MRF is rated four notches lower than DIST due to MRF’s insignificant role in the group. MRF has limited synergies with the group’s core business, a low level of operational integration, and a lack of a common brand with the group. MRF accounted for just 1.3% of group revenue, 1.2% of consolidated net profit and 5.3% of group assets in the financial year ended March 2015. Although not planned, the disposal of MRF would not materially alter the group’s operations or earnings.

Finance Companies with Long-Term Ratings Driven by Intrinsic Strength
CF’s rating continues to be supported by its strong capitalisation, which stems from robust profitability and high profit retention, and a better funding profile than its peers due to a higher proportion deposits that are sourced from its established franchise. However, these strengths are counterbalanced by weakening asset quality and lower provisioning levels compared to peers. CF’s Outlook has been maintained at Stable on Fitch’s expectation of a sustained improvement in asset quality.

Senka’s ratings reflect its satisfactory credit profile through economic cycles, strong franchise and access to long-term institutional funding. SFC’s asset quality remains weak due to its inability to dispose of repossessed vehicles in a timely manner.

The senior unsecured debentures of PLC, Siyapatha, Senka and SFL, and the senior secured debentures of SFL and CF are rated in line with their National Long-Term Ratings according to Fitch criteria. 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 unsecured notes in a developing legal system.

SUBORDINATED DEBT
Subordinated debentures of Siyapatha, CF and Senka are rated one notch below their National Long-Term Ratings to reflect the subordination to senior unsecured creditors.

RATING SENSITIVITIES

IDRS, NATIONAL RATINGS AND SENIOR DEBT

Finance Companies with Institutional Support Driven Long-Term Ratings

PLC’s ratings may be downgraded if PB is no longer a majority shareholder in PLC, or if PB’s ability to provide support weakens, or if PLC’s strategic importance to its parent diminishes over time.

AMCL’s rating is sensitive to changes in its parent’s ability and propensity to provide support. The rating may be downgraded if AMCL’s size relative to AMW increases and if its operations become more independent of that of its parent, or if the parent’s credit profile weakens.

SFL’s rating may be upgraded if there is a significant increase in SFL’s strategic importance to Singer. One indication for this could be closer strategic alignment between the two entities resulting in consistently and sustainably higher financing for Singer’s customers.

A rating upgrade could also result if SFL is able to continue to maintain its capitalisation and asset quality metrics at levels comparable to higher rated peers while achieving a stronger franchise relative to its higher rated peers.

Sustained deterioration in SFL’s capitalisation and asset quality relative to its similarly rated peers would result in a downgrade of SFL’s standalone rating.

Siyapatha’s rating could change if SB’s rating changes or if Siyapatha’s strategic importance to the bank changes. Narrower notching could result from higher importance to the group through greater synergies, shared brand, and closer operational integration while retaining majority-ownership by SB.

MRF’s rating may be downgraded if there is a decline in DIST’s ability or propensity to provide support. This may stem from a downgrade of DIST’s National Long-Term Rating, or weakening linkages between DIST and MRF. An upgrade of MRF’s rating would only result from an increase in DIST’s willingness to provide support as DIST’s ratings are already at the top of the national rating scale. Narrower notching could result from MRF’s stronger operational integration or higher importance to the group.

Finance Companies with Long-Term Ratings Driven by Intrinsic Strength

CF’s rating could be downgraded if it asset quality deteriorates further alongside weakening capitalisation. Fitch does not see an upgrade as likely in the medium term given the current pressure on CF’s asset quality and low provisioning cover.

An upgrade of Senka’s rating is contingent upon maintenance of stronger capitalisation and a more robust deposit franchise that would allow the company to expand in a controlled manner. Senka’s rating could be downgraded if asset quality continues to weaken, leading to a material decline in capitalisation or excessive asset encumbrance.

The ratings on the senior debt of PLC, Siyapatha, Senka, and SFL will move in tandem with their National Long-Term Ratings.

SUBORDINATED DEBT

The assigned subordinated debt ratings will move in tandem with the institution’s National Long-Term Ratings.

The following ratings have been affirmed:

People’s Leasing & Finance PLC:
Long Term Foreign-Currency Issuer Default Rating at ‘B+'; Outlook Stable
Long Term Local-Currency Issuer Default Rating at ‘B+'; Outlook Stable
National Long-Term Rating at ‘AA-(lka)'; Outlook Stable
National Long-Term Rating for senior unsecured debt at ‘AA-(lka)’
National Long-Term Rating for senior unsecured debt at ‘AA-(lka)(EXP)’

Central Finance Company PLC:
National Long-Term Rating at ‘A+(lka)'; Outlook Stable
National Long-Term Rating for senior secured debt at ‘A+(lka)’
National Long-Term Rating for senior unsecured debt at ‘A+(lka)’
National Long-Term Rating for subordinated debt at ‘A(lka)’

Senkadagala Finance PLC
National Long-Term Rating at ‘BBB+(lka)'; Outlook Stable
National Long-Term Rating for senior unsecured debt at ‘BBB+(lka)’
National Long-Term Rating for subordinated debt at ‘BBB(lka)’

Singer Finance (Lanka) PLC
National Long-Term Rating at ‘BBB(lka)'; Outlook Stable
National Long-Term Rating for senior secured debt at ‘BBB(lka)’
National Long-Term Rating for senior unsecured debt at ‘BBB(lka)’

AMW Capital Leasing And Finance PLC
National Long-Term Rating at ‘BBB+(lka)'; Outlook Stable

Siyaptha Finance PLC
National Long-Term Rating at ‘A-(lka)'; Outlook Stable
National Long-Term Rating for senior unsecured debt at ‘A-(lka)’
National Long-Term Rating for subordinated debt at ‘BBB+(lka)’

Melsta Regal Finance Ltd:
National Long-Term Rating at ‘A+(lka)'; Outlook Stable

Government pumps Rs 185 b on four SOEs

The government’s plan to restructure the loss making State Owned Enterprises (SOEs) to be self financed without depending on the General treasury will be a reality soon, Finance Minister Ravi Karunanayake said.

“At present Sri Lanka has around 245 public Corporations, institutions and the boards classified as SOEs of which 55 have been identified by the government as strategically important enterprises which are engaged in commercial, industrial and financial activities,” Karunanayake said .

He said that as part of the government’s plan to restructure these strategic SOEs, actions have been taken to make SriLankan Airlines, Mihin Lanka, Ceylon Petroleum Corporation and the Water Board to be self financed with capital infusion from the general treasury .

Under this major restructuring programme, the government will make a capital infusion of Rs 65 billion to the Water Board, Rs 100 billion to the Ceylon Petroleum Corp, US Dollar 125 million to Sri Lankan Airlines and US $ 25 million to Mihin Lanka in 2015 by way of Treasury bonds, he said.

Many of the SOEs were making losses for the last several years. Commercial operations of energy, aviation and commuter transport and plantation clusters have ended up with losses, he said.

CPC has an accumulated debt of Rs 234 billion while CEB ‘s corresponding value of Rs 57 billion. Sri Lankan Airlines debt is running at Rs 124 billion. Karunanayake said.

The major setback identified in these institutions were operational inefficiency resulting in poor financial performance, poor product quality and supply shortages, inability to mobilize resources to meet large investments to expand capacity and improve quality and excessive dependence on transfers or credit guarantees from the government causing a heavy burden on the budget.

(HDH)
www.dailynews.lk

CIFL Chairman, Deepthi Perera arrested

Shirajiv Sirimane

The Criminal Investigations Department has arrested former Central Investments and Finance (CIFL), Chairman Deepthi Perera on Monday night returning from Laos, Cambodia.

The former Chairman who had an International Red Alert against him was produced before the Colombo Magistrates Court yesterday and was ordered to be remanded until Friday.

CIFL, also known as Central Investments and Finance under the supervision of the Central Bank of Sri Lanka collapsed in 2013 and to date they have to pay Rs. 3.5 billion to 4,000 deposit holders. This does not include the interest component.

However the deposit holders made several complaints to the Central Bank and this resulted in a CID launching an inquiry and an International Red Alert against him.

Subsequent to this arrest Deepthi Perera had said to court that he is willing to negotiate and settle the dues and had said that he has a repayment plan. The court has orders that this be expedited with the consolation with Central bank and Depositors Association when the case comes up for hearing on Friday (15)

Perera is also being accused of taking the CIFL deposits and reinvesting in ASPIC homes without paying the depositors. He is also accused on Monday laundering.

An official from CIFL Depositors Association told Daily News that this issue was brought to the notice of senior officials of the previous government including Ministers but no action was taken.

“Even the International Red Alert warrant against him was issued subsequent to the change of government and after making fresh representations to the new government.”
www.dailynews.lk

Laugfs Group lights up two mega ventures

Signs deal for LPG storage terminal in Hambantota port; 

Buys two solar power firms with 20 MW capacity in Hambantota

Laugfs Gas Plc (LGL) yesterday announced two major initiatives which will strengthen Group’s future prospects.

In separate filings to the CSE, Laugfs Gas (LGL) said it has entered into a business venture agreement and lease agreement with the Sri Lanka Ports Authority to lease a land located within the Hambantota port to setup a Liquefied Petroleum Gas (LPG) storage terminal project in Hambantota port.

The land leased is 4 hectares and located within Magam Ruhunupura Mahinda Rajapaksa Port.

Laugfs Power Ltd, a wholly owned subsidiary of LGL has decided to acquire 100% shares of Anorchi Lanka Ltd and Iris Eco Power Lanka Ltd.

The two firms are engaged in setting up two 10MW solar power generation projects in Hambantota.
www.ft.lk