Sri Lankan stocks up; Block deals in Keells, Nations Trust Bank

Reuters: Sri Lankan shares recoverd on Thursday from a 11-week low hit in the previous session, with block deals in John Keells Holdings Plc and Nations Trust Bank boosting the day's turnover.

The main stock index ended up 0.42 percent at 7,080.48, edging up from its lowest close since July 15 hit on Wednesday.

Foreign investors were net buyers of 284.2 million rupees ($2.02 million) worth of shares on Thursday, but they have been net sellers of 2.88 billion rupees worth of shares so far this year.

"With the start of a new month we have seen improved buying levels. We have also seen some retailers coming in slowly," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

"We expect the positive sentiment to continue."

Shares of Dialog Axiata Plc rose 1.83 percent while Commercial Leasing and Finance rose 5.00 percent.

Blue-chip shares such as John Keells rose 0.18 percent while Commercial Bank of Ceylon gained 0.5 percent.

Nations Trust Bank, which along with Keells accounted for 43.79 percent of the day's turnover, gained 0.82 percent

Turnover was 1.8 billion rupees, more than this year's daily average of 1.12 billion. 

($1 = 141.0000 Sri Lankan rupees) 

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

Fitch affirms Sri Lanka Insurance Corporation at IFS BB- rating

(LBO) – Fitch Ratings has affirmed Sri Lanka Insurance Corporation Limited’s Insurer Financial Strength rating (IFS) at ‘BB-‘ with a Stable Outlook.

The agency has also affirmed the National Insurer Financial Strength Rating and National Long-Term Rating at ‘AA(lka)’ with Stable Outlook.

KEY RATING DRIVERS

SLIC’s ratings reflect its well-established franchise and market position in Sri Lanka, 99.9% state ownership, and its importance to the government as the largest state-owned insurer.

SLIC’s profit retention dropped to 38% in 2014 (2013: 78%) due to higher dividends to the government. In 2014, total comprehensive income increased to LKR14.9bn (2013: LKR7.5bn) driven mainly by fair-value gains in available-for-sale financial assets (LKR11.2bn in 2014 and LKR2.8bn in 2013). Net profit in the non-life segment dropped to LKR1.65bn in 2014 (2013: 2.9bn) due to poor underwriting results. This stemmed mainly from a one-time increase in provisions for third-party motor claims.

SLIC’s total premiums fell to LKR20.7bn in 2014 from LKR21.35bn in 2013 with the gross written premiums (GWP) in both life and non-life declining slightly. The non-life business’s combined ratio deteriorated in 2014 due to higher reserving for third-party motor claims and the competitive environment.

SLIC has significant investments in non-core subsidiaries that have been made in line with government policy and a high proportion of equities in its investment portfolio, which weaken SLIC’s risk-based capital (RBC). The company is also exposed to high interest rate risk due to the asset and liability mismatches in the life business, which stem from the limited availability of long-term investments in the market. The company is in discussions with the regulator on separating its life and non-life businesses to comply with new regulatory requirements.

SLIC’s regulatory solvency ratio at end-June 2015 was 13.6x (end-2013:11.5x) for life and 3.4x (end-2013: 4.9x) for non-life. These ratios are well above the regulatory required ratio of 1x for each business and compare well against that of its peers. RBC, which takes into account the high exposure to equity investments, was 202% for non-life and 448% for life, well above the regulatory minimum of 120%. Fitch expects the RBC for both life and non-life to be maintained above 200% in the medium to long term.

SLIC has an asset base of over LKR150bn. The company is the market leader in non-life insurance in Sri Lanka, accounting for 22% of GWP in the market. In the life segment, the company is the second-largest, accounting for 18% of market GWP in 2014.

RATING SENSITIVITIES

An upgrade is unlikely in the near term, as SLIC’s IFS rating is at the same level as Sri Lanka’s Long-Term Local-Currency IDR (BB-/Stable). Conversely, if Sri Lanka’s rating is downgraded, SLIC’s Insurance Financial Strength rating is likely to be downgraded.

SLIC’s National Ratings may be upgraded if it is able to maintain sizeable market share, maintain its combined ratio well below 95% (2014: 103.7%) and significantly reduce its non-core investments.

The National and International ratings may be downgraded if there is:

– Significant weakening in SLIC’s market position,

– Deterioration in the non-life combined ratio to above 100% on a sustained basis,

– Weakening in SLIC’s importance to the government, increased pressure from the state for higher dividend payouts or a significant increase in non-core investments.

Deflation increases to 0.3 pct in Sept from 0.2 pct in Aug

(LBO) – Sri Lanka’s deflation was lower at 0.3 percent, year-on-year, in September, from 0.2 percent in August, the census and statistics department said.

On a 12 month moving average basis, inflation fell to 0.7 percent in September from 1.0 percent in the previous month.

There were slight price declines from August to September in most types of rice, coconut oil, eggs, red onions, green chillies, vegetables and fish. Among non-food items, there were declines in electricity, L.P. gas, kerosene and bus fares, the department said.

Textured Jersey to offer share options to employees

(LBO) – Sri Lanka’s Textured Jersey Lanka says it will implement an employee share option scheme (ESOS) for directors and selected executives in management positions, in a stock exchange filing.

The total number of shares to be issued, if all of the share options are exercised in full, amounts to 27 million shares or 4.1 percent of the total issued shares, the company said.

The ESOS will “entitle the Eligible Employees to subscribe to and purchase ordinary shares in the company,” the statement said.

Textured Jersey has a market capitalization of 20.8 billion rupees. The share was trading flat at 30.50 rupees on Wednesday.

Sri Lanka Treasuries yields flat, bids rejected

ECONOMYNEXT - Sri Lanka's 3 and 6-month Treasuries yields were help flat at 6.78 percent and 7.07 percent at Wednesday's auction with all bids for 12-month bills rejected, data from the state debt office showed.

The debt office which is a unit of the Central Bank said it sold 5.26 billion rupees of 3-month bills and 617 million rupees of 6-month bills, totalling 5.87 billion rupees after offering 20 billion rupees of bills to the public.

There was an estimated 24 billion rupees of bills maturing this week.

There is a large almost 200 basis point gap between the 12 month bill yield and the 2-year bond yield due to monetization of short term debt in recent months and effective defence of at least the 3-month yield by the Central Bank.