Commercial real estate market has high potential for ROI: Analysts

(LBO) – The demand for Sri Lanka’s commercial property is growing and there will be high potential for return on investment, experts said.

“Sri Lanka’s commercial real estate has high potential for return on investment (ROI),” Ravi Abeysuriya, group director of Candor, a financial consultancy service said.

“Retail rental yields for commercial property average around 10 percent.”

The demand for commercial property is growing strongly in Sri Lanka where the focus was previously in residential properties.

He was speaking at the second annual real estate conference organized by Lamudi Sri Lanka held in Colombo recently.

Experts say that there is a strong demand for good commercial space in Colombo and this demand is not expected to slacken given the island’s macro-economic outlook.

“The commercial property market had been ignored for many years because developers were getting good returns on residential properties,” Roshan Madawela, managing director of Real Estate Intelligence Unit (RIU), a real estate consultancy said.

“However now international investors are showing interest and we see the entry of more commercial projects.”

RIU data shows that Sri Lanka’s top end of commercial space offers around 2.5 million square feet of space in total provided by around a dozen developments with the World Trade Center topping the list for aggregate capacity with a total of over 700,000 square feet available for commercial purposes.

“The prevailing rental rates show that the WTC is still well ahead of the pack,” he said.

“Looking at the overall rental price levels, we see that the market has enjoyed exceptional price hikes over the past five years.”

This price surge Madawela says is due to the fact that the market has been dealing with an acute shortage in supply of grade A space in and around the city for several years.

“With occupancy at the top facilities close to 100 percent, those seeking large space have had to settle for the middle market, both in the city and in the suburban areas.”

However Abeysuriya says that the island still lacks innovative financing options for commercial real estate, but can expect improved financing options.

“Soon we will see new financing options such as REITS and CMBS becoming available for commercial real estate developers,” he said.

A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock while a commercial mortgage-backed security (CMBS) is a fixed-income security, typically in the form of a bond, which uses commercial real estate loans as collateral.

“They provide investors with an extremely liquid stake in real estate and receive special tax considerations and typically offer high dividend yields,” he added.

Central banks may use negative interest rates as stimulus

(LBO) – Negative interest rates is a possibility in the United States following in the foot steps of interest rates pushed below zero in countries such as Sweden, Switzerland and Denmark, according to some analysts.

Speaking in Colombo at the DFCC Economic Forum, Akshay Chinchalkar, head of charts and technical analysis for Bloomberg in South Asia, said no central bank knows how to handle deflation.

Central banks worldwide have cut interest rates 68 times this year and some countries are experiencing negative interest rates.

Investors now pay the Swedish and Swiss governments to hold their cash, a phenomenon previously thought unlikely by economists, which could be used to attempt further economic stimulation.

Sweden’s Riksbank has a repo rate of negative 0.35 percent, and in Denmark the rate on certificates of deposit with the central bank is negative 0.75 percent.

The U.S. government has held 46 Treasury-bill auctions since 2008 in which yields have been zero, according to CNBC.

Narayana Kocherlakota, president of the Minneapolis Fed, said on Oct 8 that the Fed should consider pushing rates below zero to help raise employment and drive inflation toward the Fed’s two percent target which it has missed for the past six years.

Although the need for negative interest rates is a minority view, many Fed members have expressed their opposition to a rate hike this year.

According to Chinchalkar, loose monetary policy has pushed up stock markets worldwide creating a false sense of economic prosperity.

There has been a concurrent surge in central bank balance sheets to the tune of 10 trillion dollars, with central banks holding more bonds.

“The big risk is to bond prices when interest rates start going up,” he said.

Fitch Assigns Sampath Bank’s Subordinated Debt Final ‘A(lka)’

(LBO) – Fitch Ratings has assigned Sri Lanka’s Sampath Bank PLC’s Base lI-compliant subordinated debentures of up to seven billion rupees , a final National Long-Term Rating of ‘A(lka)’.

The final rating is the same as the expected rating assigned on 9 October 2015, and follows the receipt of documents conforming to information already received, the rating agency said.

The debentures will mature in five years and carry fixed and floating coupons.

Sampath Bank plans to use the proceeds to strengthen its Tier 2 capital base and match the duration of the assets and liabilities in its long-term lending portfolio. The debentures are to be listed on the Colombo Stock Exchange.

Fitch Rating’s rating drivers are given below :-

KEY RATING DRIVERS

The issue is rated one notch below Sampath Bank’s National Long-Term Rating to reflect the subordination to senior unsecured creditors.

Sampath Bank’s rating reflects its lower capitalisation relative to that of its peers and relatively higher risk appetite, which offset benefits from the growth of its franchise. The Outlook is Stable.

RATING SENSITIVITIES

The rating on the proposed debentures will move in tandem with Sampath Bank’s National Long - Term Ratings.

Fitch views the upside potential of Sampath Bank’s ratings as limited as long as the trend of higher risk-taking and declining capitalisation persists. A sharp decline in its asset quality could result in a rating downgrade.

At treasury bond auction Rs45.4 bn bids accepted

(LBO) – Sri Lanka’s Treasury bond auction on Monday for 30 billion rupees in bonds received bids amounting to 129.7 billion rupees. The Central Bank accepted 45.4 billion rupees worth of bids.

Bonds maturing on 15 September 2019 received 32.5 billion rupees in bids for seven billion rupees in bonds on offer. The central bank accepted eight billion rupees in bids. The weighted average yield was 9.14 percent down from 9.5 percent at the previous auction.

For bonds maturing on 1 October 2022 the auction received 32.6 billion rupees in bids for seven billion rupees in bonds on offer. The central bank accepted 6.22 billion rupees in bids. The weighted average yield was 9.65 percent down from 9.95 percent at the previous auction.

Bonds maturing on 1 September 2028 received 27.2 billion rupees in bids for six billion rupees in bonds on offer. The central bank accepted 8.88 billion rupees in bids. The weighted average yield was 10.39 percent down from 11.04 percent at the previous auction.

Bonds maturing on 15 March 2035 received 37.2 billion rupees in bids for 10 billion rupees in bonds on offer. The central bank accepted 22.34 billion rupees in bids. The weighted average yield was 11.13 percent down from 11.20 percent at the previous auction.

Sri Lankan shares end steady; turnover at 6-wk low ahead of holiday

Reuters: Sri Lankan shares ended steady on Monday, but the day's turnover slumped to a six-week low ahead of a holiday as investors awaited clues from a key policy statement by the government.

The main stock index ended up 0.03 percent at 7,083.48, its highest close since Oct. 12. It gained for a fifth straight session, closing at its highest in nearly two weeks.

Turnover slumped to its lowest since Sept. 11 ahead of a holiday on Tuesday. The day's turnover was 481.4 million rupees ($3.41 million), less than half this year's daily average of 1.1 billion rupees.

Both currency and stock markets will be closed for a Buddhist religious holiday on Tuesday.

"It's a very dull day and nothing was happening. Investors are waiting for the budget to be announced," said Yohan Samarakkody, head of research at SC Securities (Pvt) Ltd.

"The cloud needs to be cleared with regard to the economy. Everyone has taken a step back and is looking at the direction of the overall economy."

Foreign investors, who have been net sellers of 2.89 billion rupees worth of equities so far this year, bought a net 23.1 million rupees worth shares on Monday.

Prime Minister Ranil Wickremesinghe is expected to announce the country's economic policy in the first week of November, outlining the government's economic priorities ahead of the 2016 budget scheduled for Nov. 20.

Analysts said a government move to implement a budget proposal of a retrospective tax targeting corporates has dented sentiment.

Shares of conglomerate John Keells Holdings rose 0.85 percent, while Sri Lanka Telecom Plc gained 1.46 percent. 

($1 = 141.0000 Sri Lankan rupees) 

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

Colombo Stock Exchange promotes SL Capital Market in Europe

The Colombo Stock Exchange (CSE) will host “Invest Sri Lanka” Investor Forums in Zurich on October 28 and on London 29.

The Breakfast Meeting in Zurich will be hosted in association with the Swiss Asian Chamber of Commerce (SACC), while the Investor Forum in London will be hosted in association with Bloomberg.

The combined attendance at the forums numbers nearly 200 and includes major Institutional Investors with assets under management of USD 110 Million or above.

The Breakfast Meeting in Zurich held at the Widder Hotel will be an event which will show case Sri Lanka’s potential as an investment destination, Whereas the Forum in London to be held at the Savoy spanning two days, will feature a longer programme and allow for investors to meet with Listed Companies.

The Forum in London will feature 12 Listed Companies which will each hostone-on-one or group meetings. The companies attending are; John Keells Holdings PLC, Commercial Bank of Ceylon PLC, Hatton National Bank PLC, National Development Bank PLC, Dialog Axiata PLC, Carsons Cumberbatch PLC, Lion Brewery (Ceylon) PLC, People’s Leasing & Finance PLC, Softlogic Holdings PLC, Tokyo Cement PLC, Singer Sri Lanka PLC , MTD Walkers PLC and Sunshine Holdings PLC.

The Minister of Finance Ravi Karunanayake will deliver the keynote address, while Chairman of the Colombo Stock Exchange Vajira Kulatilaka and Director General of the Securities and Exchange Commission of Sri Lanka (SEC) Vajira Wijegunerwardane will make presentations on the opportunities in the capital market and the regulatory framework, respectively. A Macroeconomic Overview of the country will be provided by Country Head - Sri Lanka of Copal Amba (A Moody’s Subsidiary) Chanakya Dissanayake. The main presentations will be followed by a panel discussion and question and answer session with the audience.

In Zurich the Permanent Representative of Sri Lanka to the United Nations in Geneva, Ravinatha Ariyasinha will make the opening remarks while in London the opening remarks will be made by Acting High Commissioner to the United Kingdom Dr. Chanaka Talpahewa.

The London forum will also feature presentations by Chief Executive Officer, London Stock Exchange plc & Director of International Development and Ashish Swarup of First State Investments, as an endorsement of the Sri Lankan capital market and the investment experience in Sri Lanka.

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Janashakthi shareholders approve Rights Issue to Fund Acquisition of AIA

In a bid to further bolster its position in the market, Janashakthi Insurance PLC., signed a share purchase agreement with AIA Insurance Lanka PLC., to acquire 100% of the shares of AIA General Insurance Lanka Limited on October 9, 2015.

Janashakthi’s entrepreneurial spirit, innovative products and steadfast growth momentum have helped the company establish itself as a formidable force in Sri Lanka’s insurance sector. This is further accelerated through this acquisition which the company intends to close by the end of the month, subject to customary closing conditions including regulatory and transactional approvals.

Janashakthi Insurance PLC., received the formal go ahead from its shareholders to raise over Rs.3.357 billion by way of a Rights Issue of over 181.5 million new ordinary shares at its Extraordinary General Meeting (EGM) held on October 16, 2015.

Under this rights issue, Janashakthi will be issuing one (01) new ordinary share for every two (02) ordinary shares (1:2) held in the capital of the Company at a price of Rs.18.50 per share.

The Board of Directors of the company had passed a resolution in this regard on August 19, 2015.
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Ceybank Equity Funds distribute over Rs 400 mn in tax free dividends again

For a second consecutive year, Ceybank Asset Management Limited, the managers for Ceybank Funds continued to distribute high tax free dividends paying out Rs 417 millionn for investors in their Equity Funds, Ceybank Unit Trust and Ceybank Century Growth Fund recently.

The distribution effectively would translate in to a tax free dividend of Rs. 2 per unit, totaling Rs 383 mn from Ceybank Unit Trust and Rs 34 mn from Ceybank Century Growth Fund for FY 2014/15. This distribution follows the payout of a similar amount of Rs 417 mn for the previous financial year.

Chairman of Ceybank, A.M.L. Charith Kamaladasa said, “we are indeed happy to have distributed record tax free dividends to our investors for two consecutive years, despite volatile market movements.”

He added, “Our funds have outperformed the broader market, benefited by asset allocation decisions made by the fund management team. Additionally capital gains realized by trading of shares enabled us to declare a high dividend this year too.”

Chitra Sathkumara the CEO of Ceybank AML said the current dividend of Rs 2 per unit for both Ceybank Unit Trust and Ceybank Century Growth Fund would translate to a dividend yield of 6.9% and 3.2% respectively to its Unit Holders and an appreciation for the period of 6.03% and 13.25% respectively based on Unit offer prices as at March 31, 2014.

Sathkumara said the both Ceybank Unit Trust and Ceybank Century Growth Fund have achieved commendable returns for its investors over the years.

"For example the total return of an investor who had invested in Ceybank Unit Trust 10 years ago as at today would be 248% (CAGR of 13.3%) while it is 390% (17.2% CAGR) if one had invested on Ceybank Century Growth Fund.

He added the significant capital gains realized by the funds over the years have enabled the Funds to maintain its regular dividend policy even during the periods of poor market performance. "The Ceybank Unit Trust has realized Rs 3,965 mn while Ceybank Century Growth fund realized Rs552 mn during the last ten years as capital gains from the share trading." He further said, "With the current dividend, Ceybank Unit Trust has paid Rs.21.90 per Unit while the Ceybank Century Growth Fund which has paid Rs.17.00 per Unit cumulatively, more than the investment made by the original investor.

"Had an investor reinvested the dividends back in the Ceybank Unit Trust since inception in 1992 his investment would have grown at CAGR of 11.5% as against All Share Price Index growth of 9.9% while if he had done the same with Ceybank Century Growth Fund since inception in 1997 his investment would have grown at CAGR of 15.0% as against 14.31 growth in the All share Price Index"

Commenting on the outlook of the stock market, M. Sathkumara said that despite 2015 being a somewhat volatile period for the stock market due to the Presidential and Parliamentary elections "We think that the market has potential to grow with better corporate earnings being reported and the country gradually opening up as a potential investment destination. We are bullish on equities and are looking at providing our unit holders good returns in the medium to long term".

Ceybank Unit Trust which began operations in 1992 is the biggest Balanced Fund in the country with a Net Asset value of Rs. 5.7Bn. The Ceybank Century Growth Fund is the country's first Equity Fund was established in 1997, and has a Net Asset value of Rs. 1.2Bn.
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Seylan Bank PAT surges to Rs. 2.7 b, 21% growth over last year

Seylan Bank recorded an impressive performance with profit before income tax reaching Rs. 4,062 million for the nine months ended 30 September 2015. Profits after tax reached a record Rs. 2,730 million, a 21% increase compared to the Rs. 2,253 million reported in the corresponding nine-month period.

The quarterly PAT figure (Q-3 2015) was reported at Rs. 989 million, compared to the Rs. 1,041 million reported in the corresponding three months of last year.

Net interest income increased from Rs. 8.22 billion to Rs. 8.85 billion, an 8% increase for the nine months ended 30 September 2015. Net fee and commission income increased by 13% from Rs. 1,648 million to Rs. 1,869 million, with the bank showing a continuation of the solid growth trend recorded in the past few years.

During 2015, the bank grew its deposit base from Rs. 185.9 billion to Rs. 199.5 billion. A significant amount of this growth was achieved through the mobilisation of current and savings deposits, which enabled the bank’s low cost deposit base to be increased from 38% in December 2014 to almost 40% as at end September 2015. The bank’s net advance portfolio too increased from Rs. 155 billion to Rs. 172 billion, reporting an 11% growth during the nine months under review.

The bank was also able to improve its asset quality through effective recovery and rehabilitating efforts. This enabled the bank to reduce its Gross NPA (net of IIS) from 7.69% in December 2014 to 6.12% as at end September 2015. The bank has consistently been able to improve its asset quality since 2009 through focused, sustained and effective recovery efforts.

The bank based on its 4-year Strategic Plan (2012-2016) has focused significantly on areas which include advance/deposit growth, branch expansion, customer service improvement, staff development, NPA reduction, cost control, new product development, IT infrastructure, shareholder value, etc. The Strategic Plan also earmarks the opening of 100 libraries in underprivileged schools; 72 such school libraries have been opened by the bank since 2013.

The branch relocation and refurbishment project too continued full steam during 3Q 2015, with a view to enhance the customers’ service experience. The bank opened two new branches, fully refurbished another 12 branches and relocated a further two branches to more customer friendly locations. As of end September 2015, over 85% of the branch network has been refurbished since 2010.

As at 30 September 2015, the bank network comprised 159 branches, 181 ATMs and 93 student savings centres.

The bank’s total capital adequacy ratio stands at 13.13% at the end of Q-3 2015, well above the regulatory requirements. In July 2015, Fitch affirmed the Bank rating at ‘A –lka’ with a stable outlook.

As a result of the impressive performance, Earnings per share was at Rs. 7.91 for Q-3 2015, while return (profit before tax) on assets and return on equity stood at to 2.08% and 15.03% respectively. The bank’s net asset value per share as at 30 September 2015 was Rs. 72.31 (Group Rs. 75.76).
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