Sri Lanka shares fall to near 5-week low on foreign selling

Reuters: Sri Lankan shares fell more than 1 percent to hit a near five-week closing low on Tuesday as foreign investors sold off risky assets on fears of a China-led global economic slowdown and panic selling by retail investors for month-end settlements.

The main stock index ended down 1.36 percent, or 99.51 points, at 7,231.58, its lowest close since July 23. The index has fallen 3.2 percent in the last two sessions, mainly due to a global selloff.

Turnover stood at 1.44 billion ($10.73 million), above this year's daily average of 1.16 billion rupees.

"With the huge fall yesterday there was some panic selling," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd. "The market will be slow, dull and in the red this week."

Mathew expects the market to recover in September.

Foreign investors were net sellers of 199.7 million rupees worth of shares on Tuesday, extending the year to date net foreign outflow to 1.53 billion rupees.

Shares in conglomerate John Keells Holdings Plc fell 2.12 percent, while Nestle Lanka Plc fell 2.19 percent, dragging the index down. 

($1 = 134.2500 Sri Lankan rupees) 

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

Sri Lanka sells Rs30.5bn in 08 and 09 year treasury bonds

(LBO) – The issue of treasury bonds amounting to 40.00 billion rupees have been oversubscribed with 127.1 billion rupees of bids received from investors.

The Central Bank has accepted 10.2 billion rupees of 08 year bonds maturing on 01 September 2023 at a weighted average yield rate of 9.76 percent.

The bond auction held on Tuesday also accepted 20.2 billion rupees of 09 year and 11 month bonds maturing on 01 August 2025 at a rate of 9.97 percent.

The Central Bank rejected 52.7 billion rupees of bids received for the 04 year bond and 14 year bond.

Sri Lanka’s Fitch rates HDFC Bank at BBB

(LBO) – Sri Lanka’s Fitch Ratings on Monday assigned Housing Development Finance Corporation Bank of Sri Lanka a National Long-Term Rating of ‘BBB(lka)’ and a Stable Outlook.

The full text of the rating announcement is reproduced below.

Fitch Ratings-Colombo-24 August 2015: Fitch Ratings has today assigned Housing Development Finance Corporation Bank of Sri Lanka (HDFC Bank) a National Long-Term Rating of ‘BBB(lka)’ and a Stable Outlook. At the same time, Fitch has assigned HDFC Bank’s proposed senior debentures of up to LKR4bn an expected National Long-Term Rating of ‘BBB(lka)(EXP)’ and outstanding senior secured debentures a National Long-Term Rating of ‘BBB(lka)’. A full list of rating actions is at the end of this rating action commentary.

The proposed issuance, which will have tenors of five and 10 years and carry fixed and floating coupons, will be listed on the Colombo Stock Exchange. HDFC Bank expects to use the proceeds to reduce asset and liability maturity mismatches.

The final rating on the issuance is subject to the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS

NATIONAL RATINGS AND SENIOR DEBT
HDFC Bank’s rating reflects Fitch’s expectation that the bank would receive extraordinary support from the state, if needed, given that the state effectively holds 51% of the bank. It also reflects Fitch’s view of the bank’s quasi-policy role in supporting the state’s initiatives to develop more housing for low- and middle-income families. However, the potential for state support is lower than for larger state-owned banks in Sri Lanka due to HDFC Bank’s lower systemic importance.

The state holds most of its stake in HDFC Bank through the National Housing Development Authority, a state-owned corporation that is tasked with formulating and implementing the national housing policy. The rest of the stake is held through the Condominium Management Authority and the Urban Development Authority. The majority of board members represent state institutions.

Housing loans accounted for 91% of HDFC Bank’s total loans at 1H15. The bank has the authority to grant to members of the Employees Provident Fund (EPF) housing loans that are secured against EPF balances (34.5% of total loans at 1H15). HDFC Bank’s reported gross NPL ratio has been extremely high (20.88% at 1H15) due to non-payments on EPF-backed housing loans, which are often used by individuals to access the balances in their EPF accounts. The Central Bank of Sri Lanka annually reimburses the bank for the instalments of EPF-backed loans that are in arrears for over three months.

HDFC Bank’s capital ratios have been declining alongside the expansion in its assets. Regulatory capital ratios benefit from zero risk weights accorded to housing loans backed by EPF balances. HDFC Bank is required to meet a minimum capital requirement of LKR5bn as a licensed specialised bank by 1 January 2016. The central bank has granted approval to extend the deadline to comply with the minimum capital requirement to 1 January 2018. Fitch believes that although the bank is likely to meet the first interim target of LKR3bn, an infusion may be needed in order to meet the LKR5bn requirement as internal capital generation may not be sufficient.

Interest rate risk is significant for HDFC Bank, given the maturity mismatches between its assets and liabilities. Management is looking into regular issuance of medium- to long-term debentures as a means of reducing asset and liability maturity mismatches.

The outstanding and proposed debentures are rated in line with HDFC Bank’s National Long-Term Rating. The issues rank equally with the claims of company’s other senior unsecured creditors. Fitch has not provided any rating uplift for the collateralisation on the senior secured debentures as the secured debentures’ recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

HDFC Bank was established as a building society in 1984. It was converted into a government corporation in 2000 and then into a regulated licensed specialised bank in 2003.

RATING SENSITIVITIES

NATIONAL RATINGS AND SENIOR DEBT
A change in Fitch’s expectation of state support to HDFC Bank due to a weakening of the linkages with the state, including a dilution of state’s majority ownership of the bank or a revision of Fitch’s view of HDFC Bank’s policy role, could result in a downgrade of the ratings.

The ratings on the proposed and outstanding debentures will move in tandem with HDFC Bank’s National Long-Term Rating.

The rating actions are as follows:
National Long-Term Rating assigned at ‘BBB(lka)'; Outlook Stable
Outstanding senior secured debentures assigned ‘BBB(lka)’ rating
Proposed senior unsecured debentures assigned ‘BBB(lka)(EXP)’ rating

High spice prices seen luring Sri Lankan plantations firms

ECONOMYNEXT – High prices for spices should make it more attractive for Sri Lankan plantations companies to take up spice cultivation, diversifying from the main crops of tea, rubber and coconut, an industry official said.

M C M Zarook of the Spices and Allied Products Producers and Traders Association (SAPPTA), said 15 of Sri Lanka’s regional plantations companies are now cultivating spices.

“They have plenty of land for spice cultivation. The only problem is investment,” he said.

Zarook said it had been difficult for the chief executive and managements of the plantations companies to convince investors to invest in spices because of fluctuating commodity prices.

“The prices of the main spices all exceed 1,000 rupees a kilo,” Zarook, outgoing chairman of SAPPTA told the association’s annual general meeting. “So it is an attraction for plantations companies to come into it.”

Exports earnings from spices had gone up in 2014 although volumes shipped had not increased because prices had risen, he said.

“There were good prices for our prices like cinnamon, cloves, pepper, cardamon, nutmeg and mace.”

All spices and allied products produced in Sri Lanka are exported and none go waste, Zarrook said.

“Whatever produced is used for exports to bring in foreign exchange.”

Fitch: policy clarity from new Sri Lankan government is key

Improved economic policy credibility and coherence would strengthen Sri Lanka’s resilience to growing investor uncertainty towards emerging Asia. The establishment of a new government with a clear electoral mandate following parliamentary elections on 17 August, should mitigate some political uncertainty, though the direction of economic policy and the stability of the likely coalition remain unclear.

The broadly peaceful election campaign, which follows the orderly transition of the presidency in January 2015, will further reinforce the perceptions of Sri Lanka as a functioning democracy with relatively strong institutional capacity - in line with its ‘BB-’ rating.

The new administration inaugurated in January under President Maithripala Sirisena has made some progress in addressing perceived governance shortcomings, in particular by adopting a constitutional amendment limiting presidential powers and launching anti-corruption investigations. However, there has been no corresponding strengthening in economic management. A populist budget was introduced in February that raised public sector wages and reduced publicly administered prices. The government has also disclosed that the 2014 budget deficit was around 1pp higher than previously thought, owing to revenue shortfalls. This indicates that fiscal consolidation has stalled. Sri Lanka has the fourth-highest share of government debt - 72% of GDP - of any country in the ‘BB’ range, after Portugal. Hungary and Croatia.

Monetary policy has also been accommodative, allowing credit growth to accelerate sharply to 17.6% yoy in May 2015, from almost 0% in 3Q14. This has fuelled a 45% yoy rise in consumer goods imports in the first five months of the year at a time when exports were unchanged owing to stagnant agriculture and textiles. A rise in tourism receipts and remittances has acted as a buffer, although the trade deficit widened to USD3.4bn in May, up from USD3.1bn in May 2014. The current account deficit had narrowed to 2.7% of GDP in 2014 from 7.8% in 2011, but should widen back to 3.0% this year.

Gross foreign reserves had dropped sharply to USD6.8bn by end-May 2015 from USD7.5bn a month earlier, further highlighting pressures on external balances. The authorities indicated that reserves had been bolstered back up to USD7.5bn by end-June through a USD650m sovereign dollar debt issue and USD338m Sri Lanka Development Bond, though the latest data for end-July show reserves had fallen back down to USD6.9bn. External liquidity has been buffered by a USD1.1bn swap facility with the Reserve Bank of India in July. These factors have buffered external liquidity recently, though it is not a sustainable way of improving the stability of the external accounts.
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Richard Pieris Finance posts Rs 200 m PAT in second year

Richard Pieris Finance Limited, the newest subsidiary of Arpico Group was able to record Rs 200 million profit after tax in its second year, a top official said.

The company currently operating at Hyde Park Colombo plans to set up eight branches in the during this year. The company has performed well during the short span of two years, Chief Executive Officer K.M.M Jabir told Daily News business.

“We are also going to open Richard Pieris Finance service centres in Arpico Super Centres and super markets, which is the biggest strength of the company,’ Jabir said.

Jabir said they plan to venture into all sectors under a finance company’s mandate. The company now two years has an asset base of Rs 6.5 billion. Jabir also said they have a strong customer base including major corporate in the country. The company is to focus on leasing Islamic financing and other business areas covering micro finance, he said.

The company acquired Chilaw Finance, a Rs 1.3 billion worth assets based company in the North Western Province.

“We have acquired Chilaw Finance company recently and it is now running as an independent entity,” he said.

He said that current government has not forced mergers and acquisition of financial entities like the previous government.

“We are still in the process of ironing out certain issues of the company.”

Although the consolidation programme is ideal to create a strong banking and financial sector in the country, the Sri Lankan financial sector was not ready at that time to accept the consolidation programme of the previous government, he said.

“Since we could witness a rapid economic development in the North Western Province it is an opportunity to make our presence felt in the area with the acquiring of Chilaw Finance Company,” he said.

The company also won the emerging financé company of the year award.
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Ceylon Tea Brokers musters Rs. 278.27 m turnover for 2014/15

Ceylon Tea Brokers PLC registered Rs. 278.27 million as revenue during the 2014/15 financial year compared to Rs. 259.20 million in 2013/14.

The gross profit for the year under review accounted for Rs. 209.54 million as against 202.56 million in 2013/14 and Profit Before Tax (PBT) of Rs. 72.86 million as against Rs. 77.23 million in 2013/14 was achieved said, Suranga Perera, Director / Chief Executive Officer in the annual report.

“In view of the diluted demand from some of the key international markets for Ceylon Tea, resulting in sharply declining auction prices, the company implemented strategies to intensify effortsto improve the operational efficiencies and also focus on the cost factors that could be reduced without disturbing the quality of service.

These changes which were carried out with the concurrence of the entire team made sure that everyone understood the importance of a lean but an efficient operation in moving forward at this crucial juncture.”

“At the risk of creating controversy, we are of the view that we should examine the hotly debated topic of making Sri Lanka a Tea Hub without compromising the inherent value of marketing Pure Ceylon Tea.

We believe that there could be a happy medium said Ceylon Tea Brokers PLC, Chairman.Chrisantha Perera.

“When analysing Sri Lanka’s tea export profile, it will be found that our exports to some of the major markets where we had a dominant position have declined, whilst exports to the so-called “Tea Hubs” such as UAE & Turkey have increased. In fact, Turkey is presently the single largest export outlet for our tea although it is likely that most of this tea is traded out of Turkey either to the neighbouring Middle Eastern countries or Russia & other CIS countries.”

“An encouraging trend which we must develop is the emergence of China as a potential large export outlet for our teas. A significant feature that has taken place in 2015 is also the substantially higher quantities of exports to India.

“We should endeavour to maximize the potential of our Free Trade Agreement with Pakistan.”

Airing their future plans he said that they would be investing in a Warehousing Complex. “This project is well underway with potential land identified as well as the incorporation of a separate Company for this purpose,” Ceylon Tea Brokers PLC, Chairman. Chrisantha Perera

Suranga Perera, Director / Chief Executive Officer

The Daily News business inadvertently carried Tea Traders Association musters Rs. 278.27 m turn over for 2014/15 on its August 21 issue. The error is regretted.
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Mercantile Investments posts Rs 631 m profit

Mercantile Investment and Finance PLC (MI) has posted a solid performance for the financial year ended March 31, 2015 with Gross Income reaching Rs. 4.29 billion.The profit after tax has come down marginally from Rs. 675.4 from previous year to Rs. 631.3 this year.

Founded by George Ondaatjie and is still largely owned by his family, Mercantile Investment and Finance said its success over the years is attributable to its unique business model that exemplifies strategic thinking and precise execution.

The group with three quoted hotel companies - Grand Hotel Nuwara Eliya, Tangerine Beach Hotel and Royal Palm Beach Hotel - along with the unquoted Nilaveli Beach Hotel, has recently launched a new 3 star hotel in Wellawatte.

Chairman Saro Weerasuriya said the national economy growth forecast looks very positive with GDP growth levels expecting to be hovering around 7% even in the medium term. This should pave the way for the corporates to exploit emerging opportunities to their advantage and thrive”

MI’s Managing Director Gerard Ondaatjie says in the annual report “We have kept our promise of generating stakeholder value and therefore celebrate this fiftieth anniversary with a real sense of achievement” He elaborated further saying that “The year had seen growth in the licensed finance company sector fuelled by the resurgence of the economy in key sectors and improved spending power of the people.

This indeed sustained the steady demand to provide finance support to purchase brand new as well as registered motor vehicles, while demand for non-traditional lending such as personal loans, property mortgage loans and microfinance showed potential as lucrative areas of focus for the sector” MI’s dividends payment to its investors was Rs. 89 million, up from Rs. 30 million of the previous year.

Sound financial results and retaining profits provided the strength for the company to ensure consistent increase in shareholder funds which exceeds Rs. 7.5 billion as at March 31,2015.

- See more at: http://www.dailynews.lk/?q=business/mercantile-investments-posts-rs-631-m-profit#sthash.46L3BGWD.dpuf

NSB 1H pre-tax profit up 68% to Rs. 6.2 b

Savings giant NSB has recorded the highest half yearly profits in its history with an impressive Profit Before Tax (PBT) growth of 68% as compared to same period last year.
The profitability for the first half for 2015 reached Rs. 6.2 billion with the increase mainly fuelled by growth in its traditional lines of business. 

The Profit After Tax (PAT) was reported at Rs. 3.9 billion for the first half of 2015. These profits were reported following prudent provisioning policies adopted for any adverse impact on declining gold market prices.

The bank’s loans and advances grew by 6.9% during this period with investments in Government securities increasing up to Rs. 519 billion. The total assets of the bank surpassed the Rs. 800 billion milestone by end of June indicating a growth of 4.7%.

A concerted effort to aggressively mobilise deposits during first and second quarters reaped benefits to the tune of Rs. 21.5 billion in incremental deposit balances of which Rs. 11.9 billion generated through savings related products. The total deposits of the bank stood at Rs. 575 billion at end of June 2015.

The bank’s Tier 1 capital adequacy ratio stood at 19.9%, while total capital adequacy for the reviewed period was at 18.5%. These ratios remain well above the regulatory standards for well capitalised banks.

The bank will continually evaluate initiatives to further enhance business and develop infrastructure as appropriate. Further improvements in customer delivery standards could be envisaged to maintain momentum in order to build competitive advantages with focus on information technology.  

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