Sri Lanka improves fiscal transparency

ECONOMYNEXT - Sri Lanka's 'Yahapalanaya' administration which promised 'good governance' has started to re-publish monthly fiscal data, ending practice of data suppression that began in the last stages of the ousted Rajapaksa regime.

Disseminating monthly fiscal data, a practice dating back almost two decades was ended during the last stages of the ousted Rajapaksa administration.

The practice of publishing monthly budget data was started by then Central Bank Governor A S Jayewardne (who was also a Treasury Secretary) who build a working monetary transmission mechanism with monthly policy rate announcements.

Jayewardene inherited a bad budget, with desperate handouts promised by an outgoing United National Party administration.

He tightened monetary policy and current Deputy Foreign Minister Harsha de Silva, then at DFCC Bank was reputed to have been on the sell side of the overnight money market deal done at the highest rate in the financial history of the country.

Economic data was also released regularly allowing market participants to make decisions.

Observers will watch with interest how long current Finance Minister Ravi Karunanayake and Treasury Secretary R H S Samaratunga, a public servant who works without much fanfare, will continue the practice.

Sri Lanka's budget numbers are far from favourable this year.

Sri Lanka was late in publishing the half yearly fiscal position report in 2015 under the country's fiscal responsibility law, though similar data was released earlier, in a pre-budget report.

Under Jayewardene, International Monetary Fund reports were also made public, which unfortunately continued to be suppressed.

He ended decades of false doctrine where people were led to believe that inflation was an inevitable consequence of growth, and instead said inflation harmed the poor most and also de-stabilized conditions for growth.

No newspaper was willing to publish his weekly data, until then editor of Daily News, Manik de Silva started publishing them. Ironically the data was suppressed amid increased media attention during the latter stages of the last regime.

Jayewardene, also started auctions of Treasury bills to the public to end printing money, which was the core source economic instability, currency depreciation and inflation in the country, established the primary dealer system.

Backed by Deputy Governor W A Wijewardene a secondary market in government securities was also built with primary dealers being licensed.

In 1997, when the East Asia crisis hit the region, the Sri Lanka rupee remained strong, thanks to the prudent monetary policy followed by the Central Bank at the time. But after 2000 with fuel subsidies and an intensified war, monetization led to a balance of payments crisis.

Market participants vividly recall the day in January 2001 when the rupee was floated with a 300 basis point rate hike.

Sri Lanka HDFC Bank's senior debentures rated 'BBB(lka)'

ECONOMYNEXT - Fitch Ratings said it has assigned Housing Development Finance Corporation Bank of Sri Lanka's (HDFC Bank) proposed senior unsecured debentures of up to four billion rupees a final National Long-Term Rating of 'BBB(lka)'.

The assignment of the final rating follows the receipt of documents conforming to information already received, and the final rating is the same as the expected ratings assigned on 24 August 2015.

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.

A statement said HDFC Bank expects to use the proceeds to reduce asset and liability maturity mismatches.

The proposed senior debentures are rated in line with HDFC Bank's National Long-Term Rating. The issues rank equally with the claims of the bank's other senior unsecured creditors.

The issuer rating is driven by Fitch's expectation that the bank would receive extraordinary support from the state, if needed, given that the state effectively holds 51 percent 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 rating on the proposed debentures will move in tandem with HDFC Bank's National Long-Term Rating.

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 in the bank or a revision of Fitch's view of HDFC Bank's policy role, could result in a downgrade of the ratings.

A full list of HDFC Bank's's ratings follows:

National Long-Term Rating: 'BBB(lka)'; Outlook Stable

Outstanding senior secured debentures: 'BBB(lka)'

Proposed senior unsecured debentures: 'BBB(lka)'

Sri Lanka's Laugfs Gas buys Petredec of Bangladesh

ECONOMYNEXT - Sri Lanka -based Laufgs group said it had bought control of Petredec Elpiji Ltd of Bangladesh, a liquefied petroleum gas distributor, for 18.75 million US dollars.

Laugfs Gas said it bought 69 percent of PEL in its first overseas venture.

"We see tremendous potential for expanding LPG as a domestic and commercial energy source in Bangladesh," Laugfs group chairman W K H Wegapitiya said in a statement.

"The gap between supply and demand in terms of commercial energy needs is also increasing with their natural gas reserves now depleting at a fast pace."

He said the firm was looking at more overseas opportunities.

PEL has a 21 percent and has a 22,000 metric tonnes a year, LPG import facility in Mongla Port in Bangladesh. The market was growing at an annual rate of 12 percent, Laugfs said.

Petredec Elpiji had entered LP Gas distribution in 1997 and had been later acquired by Kleenheat Australia.

Laugfs has just completed the acquisition of a second LPG carrier and said the Bangladeshi operation would increase economies of scale and diversify markets.

Laugfs is Sri Lanka's second LPG distributor.

Sri Lankan stocks end little changed; corporate earnings eyed

(Reuters) - Sri Lankan stocks closed little changed in dull trade on Monday as investors waited for earning clues from September-quarter results, brokers said.

The main stock index ended 0.06 percent, or 3.94 points, higher at 7,100, its highest close since Oct. 2.

Analysts said trading was dull amid uncertainty ahead of Prime Minister Ranil Wickremesinghe's policy statement next month outlining his government's economic priorities.

Turnover stood at 988.3 million rupees ($7.06 million), compared with this year's daily average of 1.11 billion rupees.

Foreign investors, who have been net sellers of 2.80 billion rupees worth of equities so far this year, bought a net 245.9 million rupees worth of shares on Monday.

Shares of Sri Lanka Telecom Plc rose 2.12 percent, while Ceylon Tobacco Company Plc gained 1.06 percent. 

($1 = 139.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Sri Lanka has full support of WB, IMF says Finance Minister

(LBO) – Sri Lanka has the full support of the World Bank and the International Monetary Fund, Finance Minister Ravi Karunanayake said after attending Annual Meetings of the two institutions in Lima, Peru.

“I must reiterate that we are not subject to any conditions imposed by the World Bank and the IMF. In fact, they support us on our conditions and not on theirs,” he was quoted by media as saying.

Sri Lanka will seek support from the IMF as a last resort to boost foreign reserves which have fallen this year, Karunanayake told Lanka Business Online recently.

Sri Lanka will receive assistance for sectors including education, health infrastructure and women’s empowerment based on proposals in the budget, he added.

At the meetings, the IMF Managing Director Christine Largarde said the global economy is going through a period of change.

“Uncertainty over the global economy is on the minds of policymakers in all countries, including here in Peru,” she said.

“We are no longer in an economic crisis, but this is a time of change. Old paradigms no longer hold, new economic relationships emerge. This means it is also a time of opportunity and action,” she added.

Janashakthi looks for more with AIA General Insurance buy

* Rs. 3.2 b acquisition to be financed via Rights Issue first announced three months ago

By Shehana Dain

Janashakthi Insurance Plc’s quest for a bigger market share is expected to come to fruition with the announced acquisition of AIA’s general insurance subsidiary for Rs. 3.2 billion, funds for which will be met via the Rights Issue first announced in August.

On 19 August the company announced a Rights Issue of one for two at Rs. 18.50 each to raise Rs. 3.3 billion. At that time of the announcement, it merely said cash was to fund the future expansion of the insurance business.

The August announcement suggests the Janashakthi-AIA deal may have been in the making since then. An EGM has been called on 16 October for shareholder approval for the Rights.

At present Janashakthi general business is the third largest behind Sri Lanka Insurance Corporation and Ceylinco Insurance.

The strategic notion behind the acquisition according to Janashakthi Insurance PLC CEO Jude Fernando is to bridge the significant gap between the industry leaders.

“We have been the third in the general insurance industry since 2005 and that’s not a good place to be because there was a huge gap between us and our contenders. Our strategy behind this acquisition is to get closer to the leading spot,” he noted.

With the proposed acquisition of AIA’s general insurance business which accounts for 6% of the segment, Janashakthi’s market share is expected to rise to 17.4% from 11.4%.
In the first half Janashakthi’s general insurance GWP was Rs. 3.6 billion up from Rs. 3.2 billion a year earlier. Net benefits and claims rose to Rs. 1.9 billion from Rs. 1.6 billion. 

Pre-tax profit from the business was down to Rs. 252 million from Rs. 373 million. Assets of general insurance were Rs. 11.95 billion as at 30 June 2015, marginally down from Rs. 12.2 billion as at 31 December 2014. Liabilities were Rs. 7.7 billion up from Rs. 7.5 billion.

AIA’s general business assets amounted to Rs. 6 billion as at 30 June 2015. In the first half AIA’s general business had gross written premium worth Rs. 1.97 billion up from Rs. 1.43 billion a year earlier. AIA general insurance business finished the first half with a net loss of Rs. 22.15 million, as against a profit of Rs. 59.3 million a year earlier.

Commenting on the valuation Janashakthi PLC Managing Director Prakash Schaffter said: 

“We had professionals who did the valuation for us it was not only the net asset value of the organisation but other factors were considered as well. The purchase consideration is Rs. 3.2 b, the accounts of AIA general will indicate net assets worth close to Rs. 2 b. So you’re looking at a multiple of about Rs 1.6 times of net assets. That’s not the only method of valuation method we used; we also used discounted cash flows based on future estimated profits especially with the streamlining of share services which is where the synergistic effect will come in. We used all these components to anticipate future returns.”

Janashakthi will also absorb AIA’s general business staff numbering 236. The transaction is scheduled to finalise on or before 31 October.

Schaffter revealed that AIA Sri Lanka as a formality would summon an EGM and payment would only be made subsequent to the EGM approval from the shareholders, after which steps would be taken to go forward with the transaction.

“It does not constitute a major transaction for AIA Sri Lanka but because they just segregated the business nine months ago, they would prefer a form of transparency to go to the shareholders to get a specific consent from the shareholders for the acquisition.”

Post finalising of the payment, according to Janashakthi PLC Chairman W.T Ellawala a proposed process of amalgamation will take place. “After the payment is finalised, we intend to start a process of amalgamation. The intention is to amalgamate and integrate the general insurance business of AIA to Janashakthi General Insurance. We believe the process will take about three months or even less, if the regulators have all the information they need for the approval,” he added.

Ramesh further went on to say that listing of AIA General within the next three years was definitely on the cards.

“Based on the regulations new insurance companies will have to list within three years of registration, which takes us to 2018, not 2016. The 2016 regulation applies to existing companies at the time the law came into place. Most of the companies formed with segregation, AIA General, Janashakthi General, are all post the regulation, so they would come in as new companies. This gives a three-year time scale, we would definitely go for a listing but that will depend on post amalgamation results.”
www.ft.lk

AIA to re-invest general biz sale cash to boost life insurance

By Charumini de Silva

AIA Sri Lanka Plc on Friday said it hoped to reinvest proceeds from the sale of its general insurance subsidiary to further boost life insurance business in the country.

The company has agreed to sell its general insurance subsidiary to Janashakthi Insurance for Rs. 3.2 billion.

Responding to questions on the company’s plans following the sale, AIA Sri Lanka CEO Shah Rouf said that it was something for the shareholders to decide.

“Our shareholders will look at an organic growth in the life insurance business in Sri Lanka, thereby the shareholders will soon decide on the funds,” he added.

However, he said that it would be re-invested in areas of growing their business and growing insurance penetration levels in Sri Lanka.

In its filing to the CSE on the proposed sale, AIA said the divestiture would enable it to fully focus its resources on its existing core business of life insurance in Sri Lanka in accordance with the vision of the AIA Group to be the pre-eminent life insurance provide in the Asia Pacific region.

The company enjoyed a life insurance market share of 16.3% in terms of Gross Written Premium (GWP) in 2014.

Capitalising on the vast under-served life insurance market in Sri Lanka, AIA said it was set to bring in its global expertise to increase life insurance penetration in the country.

Noting that Sri Lanka’s life insurance penetration levels were very low, Rouf said that being the second largest life insurer in the world, the company would help take penetration levels into much higher numbers in the next three years.

“Being part of the AIA Group, we have seen how markets evolve in different markets and with our expertise we are committed to grow and prosper in the life insurance segment in Sri Lanka,” he added.

“Overtime we hope that Sri Lanka will grow not just in new businesses, but for some of the other Key Performance Indicators (KPIs) in life insurance that are used in other markets. We are very pleased how we are performing in Sri Lanka and happy about the way that Sri Lanka is performing compared to the rest of the Asian countries,” he noted.
Rouf also said that they believed they had one of the best bancassurance products in Asia Pacific and intended to apply them in Sri Lanka’s market as well.

“We have wonderful long-term partnerships with a number of banks in Sri Lanka and we hope to take them to the next level. We will focus our strategy on realising the significant growth opportunities the life insurance market has in Sri Lanka,” Rouf said.

Commenting on the segregation of life and general insurance from companies, he said that the industry had taken it on a positive way. “The split of composite companies is expected to promote greater focus, transparency, policyholder protection and visibility on profitability,” he added.

Notably, AIA was the first company to comply with the segregation requirement, which AIA views as a progressive move by the regulator.

AIA Deputy CEO Upul Wijesinghe said as economic landscapes and the disposal income of people improving significantly, life insurance sector has much potential for development.
“Being the second largest life insurer in the world, we are very competent in product development. A new product line-up is expected focusing on life, pension and health insurance areas in the near future,” he said.

Wijesinghe asserted that the company expected significant growth in the business within the next three years.

“We are really expecting Sri Lanka to take off soon. With the new Government change, the more it opens up to the markets, we will also grow with that momentum,” he added.

The company said the proposed sale did not constitute a major transaction as per the Companies Act and hence shareholder approval was not required. However the Board in pursuance of its commitment towards good governance and transparency approved the proposed sale subject to obtaining the approval of shareholders. It will shortly issue notice convening an EGM.
www.ft.lk