Palm oil props up Sri Lanka’s Watawala Plantations September profit

ECONOMYNEXT – Sri Lanka’s Watawala Plantations said September 2015 quarter net profit shot up 320 percent to 131 million rupees from a year ago with profits from palm oil and branded teas helping offset losses from tea and rubber production.

Sales fell 13 percent to 1.6 billion rupees in the quarter but the firm also managed to cut costs sharply, according to interim accounts filed with the Colombo stock exchange.

Earnings per share for the September 2015 quarter rose to 55 cents from 13 cents the year before.

EPS for the six months ended September 2015 were stagnant at 1.11 rupees.

Watawala Plantations Managing Director Vish Govindasamy said the company continues to enhance the quality of its teas in order to gain a price advantage, while continuing to increase the palm oil yield.

The palm oil business made a “significant contribution” to company profitability, he said in a note accompanying the results.

Palm oil, which has import tariff protection, made a net profit of 436 million rupees for the September 2015 quarter compared to 421 million rupees in the same quarter last year.

Palm oil revenue grew only five percent to reach 865 million rupees in the September 2015 quarter from the year before mainly due to the increase in Crude Palm Oil production, Govindasamy said.

“The Net Sale Average marginally contracted compared to the corresponding period last year, consequent to a drop in the global palm oil prices.”

Losses in Watawala Plantations’ tea business grew to 243 million rupees in the September 2015 quarter from a net loss of 200 million rupees in the same period last year.

Tea sales fell to 1.9 billion rupees from 2.5 billion rupees last year.

“The decline in the tea sector performance is mainly due to a decrease in production compared to the corresponding period last year while the NSA has been maintained flat at the previous year’s level,” Govindasamy said.

“The initiatives taken to improve the quality of its teas has helped to maintain the NSAs at the previous year level although a sharp drop was reported in the Colombo tea auction.”

Net profit from exports, mainly of value added teas, rose to 32 million rupees in the September 2015 quarter from 12 million rupees the year before with sales rising to 362 million rupees from 255 million rupees last year.

Sri Lanka credit to state up 27-pct in August, printed money up 67-pct

CREDIT BUBBLE:  Sri Lanka's credit is surging in 2015 partly fired by printed money which is also keeping interest rates low.

ECONOMYNEXT - Sri Lanka credit to the government from commercial bank rose 27.4 percent in August 2015 from a year earlier with Central Bank credit (printed money) up 67 percent, official data showed as pressure mounted on the currency and foreign reserves.

Credit to the private sector rose 64.6 billion rupees to 3,068 billion rupees in August up, 21.3 percent from a year earlier.

Credit to state enterprises rose 6.7 billion rupees to 482.5 billion rupees, up 42 percent from a year earlier.

Since May however credit state enterprises have not grown.

Credit to the government from the banking system was stable at 1,735.6 billion rupees but Central Bank credit (printed money) rose by 25.6 billion rupees to 244.5 billion rupees.

The data indicates that some loans to bank had been repaid with printed money, which has the most de-stabilizing effect on the credit system, currency and the country's economy.

Central Bank credit, created by buying Treasury bills into with printed money generates excess demand in the economy, driving up imports. Unless foreign reserves are sold to 'redeem' the rupees in forex markets, the newly created money will force the currency to depreciate.

Central Bank credit was up 67.9 percent or 98 billion rupees in the year to August 2015.

Analysts say the official CB credit number understates the actual volume of excess demand generated by the Central Bank in the past year to generate balance of payments trouble and drive credit to unsustainable levels.

Due to the way data is accounted for liquidity releases by terminating term repo deals are not counted as CB credit, but they have exactly the same effect on credit, imports and the currency as outright monetization of debt.

Sri Lanka’s apartment market booming, but seen rife with risks

ECONOMYNEXT – The market for apartments in Sri Lanka is opening up with more developers coming in, giving greater choice, but buyers should take care to check title deeds and financial strength of property companies, an industry official warned.

The consumer mind-set is changing. Sri Lankan customers are realizing the value of apartments,” said Brahmanage Premalal of Prime Lands, a property developer.

“Their apprehensions have gone and the market segment has opened up with many opportunities for investors and developers. A lot of developers are coming in. It’s good for customers who have more choice.”

But he warned that there were risks in buying apartments and that buyers should take care to minimize these risks.

“Buyers need to be vigilant because they’ll be spending their lifetime savings,” Premalal ttold the annual real estate conference held by Lamudi, an online real estate platform.

Among the risks were non-completion, not meeting delivery deadlines or quality standards, and not getting clear title which may lead to litigation, he said.

Sometimes property companies may go bankrupt since many build properties relying on the cash flow provided from pre-sales.

“Most apartments are sold on presale basis so you get the property only in 2-3 years,” Premalal said.

“You must know your developer, do thorough background checks on them and see what previous projects they have done.”

He also warned that buyers must check title deeds since some properties going around are not good quality deeds.

“Sometimes you might get doctored or altered title,” Premalal said. “You must go beyond the land registry search and check extracts. See if the developer owns the property.

“There can be disputes. The developer may not have the financial capability to buy the land as building property involves bigger capital. The developer may be depending on your cash flow from presales and might get stuck halfway.”

Sri Lanka's Pan Asia Bank net up 197-pct with strong loan growth

ECONOMYNEXT - Profits at Sri Lanka's Pan Asian Bank rose 197 percent to 300 million rupees in the September 2015 quarter from a year earlier, helped by sharply higher loan growth and other income, interim accounts show. 

The bank posted earnings of 1.01 rupees per share for the quarter. In the nine months to September the bank posted earnings of 2.45 rupees per share, on total profits of 750 million rupees, which rose 171 percent. Fee income rose 26 percent to 189 million rupees. 

Other income which included exchange gains rose 161 percent to 217 million rupees. Loans grew 32 percent to 79 billion rupees during the nine months to September. Pan Asian Bank made loan loss provisions of 251 million during the quarter up from 74 million rupees a year earlier. 

Gross non-performing loans fell to 5.36 percent from 5.73 percent with strong loan growth. Financial investments held to maturity also rose 261 percent to 9.2 billion rupees. With a looming balance of payments crisis and a wide budget deficit, investments in long term government debt is considered risky this year. 

Customer deposits rose 19 percent to 77.4 billion rupees during the period. The bank also raised 10 million US dollars (1.43 billion rupees) from Global Climate Partnership Fund, a 'green' financing facility. Net assets grew 16 percent to 5.4 billion rupees and gross assets grew 29 percent to 103 billion rupees, topping the 100 billion rupee mark. 

The bank's core capital adequacy ratio fell to 7.14 percent in September from 8.97 percent in December amid strong loan growth but remains above the regulatory minimum. Total capital adequacy was also at 11.66 percent, though down from 14.19 percent.

Fitch rates Sri Lanka's US dollar bond 'BB-(EXP)'

ECONOMYNEXT - Fitch Ratings said it has assigned Sri Lanka's forthcoming US dollar-denominated bond an expected rating of 'BB-(EXP)'.

The expected rating is in line with Sri Lanka's Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BB-' with Stable Outlook, the rating agency said in a statement.

“The rating would be sensitive to any changes in Sri Lanka's Long-Term Foreign-Currency IDR,” it said.

In April 2015, Fitch affirmed Sri Lanka's Long-Term Foreign-Currency IDR at 'BB-' with a Stable Outlook. The Long-Term Local-Currency IDR is also 'BB-' with Stable Outlook. 

Japan’s Kansai firms keen on investing in Sri Lanka

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed ‘Agreement of Cooperation’ to promote two way commercial ties with Japan’s Kansai Economic Federation whose firms want to invest in Sri Lanka.

It enables both sides to exchange information on economic and business trends in the two countries, cooperate in trade, investment, environment conservation and energy-saving and work on human resources development.

A statement said the agreement’ was signed at a ‘Round table’ meeting with a top Japanese business delegation, led by the Kansai Economic Federation to explore business opportunities in the island.

It was held by the Ceylon Chamber of Commerce together with the Sri Lanka – Japan Business Cooperation Committee.

Masayuki Matsushita, Vice Chairman and the Chairperson of the International Committee of the Kansai Economic Federation said Kanzai region has a strong interest in expanding business to Sri Lanka.

Japanese firms such as Panasonic, Mitsubishi, Nippon Express, Takenaka Corporation, Hitachi Zosen, Marubeni Corporation, Daikin Industries, Mitsui and Company limited and Kyoei Steel Limited took part in the talks with Sri Lankan firms.

Sri Lanka launches 10-year sovereign bond

ECONOMYNEXT - Sri Lanka has launched a 10-year benchmark issue sovereign bond (minimum 500 million US dollars) with a price guidance of 7.00 percent, a media report said.

According to Bloomberg Newswires data, a 10-year bond issued earlier this year at 6.125 percent was quoted around 6.5/6 percent, in the secondary market.

Citi, DB, HSBC and Standard Chartered Bank is marketing the bond.

Standard and Poor's has given a B+ rating for a sovereign bond of up to a billion US dollars.