ICRA Lanka assigns A+ rating for Access debenture issue

(LBO) – ICRA Lanka has assigned a rating of A+ with a stable outlook for the proposed 5 billion rupees debenture issue of Access Engineering.

The rating announcement is reproduced below.

ICRA Lanka has assigned a rating of [SL]A+ (pronounced S L A plus1) with a stable outlook to the proposed LKR 3,000 Mn (with option for the amount to be increased to LKR 5,000 Mn) Senior unsecured debenture programme of Access Engineering Plc (“AEL”/ “the Company”). ICRA Lanka also has an Issuer rating of [SL]A+ outstanding on AEL with stable outlook.

While assigning the rating, ICRA Lanka has taken a consolidated view on Access Engineering Plc and its subsidiaries as whole, given the operational and financial linkages among them. The assigned rating takes into consideration the longstanding track record and established position of the Access group as a leading Engineering, Procurement and Construction (EPC) contractor in Sri Lanka.

AEL has sizable experience in the design and construction of Roads & Bridges, Medium-Rise Buildings segments, as well as foundations & sub-ground work for high-rise buildings. Further, it also has varied experience of undertaking EPC works in segments such as water resources, telecommunications, ports, airports, etc. The rating also takes into consideration the professional management team of the company supported by SAP Enterprise Resource Planning system which aids it in real-time project tracking and implementation. These apart, the rating also factors in AEL’s healthy financial profile backed by its comfortable profitability and debt-free capital structure.

The rating, however, is constrained by the modest size of AEL’s current order backlog of Rs. 24, 000 Mn of ongoing projects as well as the high concentration in the order-book in terms of exposure to few projects, segments and customers. The competitive pressure in the construction industry, particularly for government projects, and the prevailing macro uncertainty within the sector, act as key rating sensitivities for AEL.

ICRA Lanka also notes that, though the gearing and coverage indicators have been healthy in the past, the working capital requirements are sizable and could expose AEL to liquidity risk in case of increasing commitments towards larger projects and increasing scale of operations. To an extent, ICRA expects this liquidity risk to be mitigated over the next 12-18 months period on the back of the proposed fund raising programme2, which would ease AEL’s access to funds for its working capital requirements. Further, any change in government policy towards the construction sector would impact AEL, as the company is reliant on government orders; further, expansion into overseas markets or other sectors could increase the overall risk profile of the group, given it limited experience in such business operations.

Company Profile

Access Engineering PLC (AEL) started its operations in 2001 as the Engineering, Procurement & Construction arm of the Access Group. Over the last 14 years, AEL has become one of the leading players in the Civil Engineering and Construction industry of Sri Lanka.

The Company was listed in the Colombo Stock Exchange in March 2012 following an initial public offering. Since then, AEL has grown sizably with acquisitions of businesses, and through expanding its presence in construction, real estate and othersegments. In February 2012, Access Engineering acquired Sathosa Motors PLC (Sathosa), which holds the franchise for Isuzu commercial vehicles. Also, Sathosa’s subsidiary – SML Frontier Automotive (Pvt.) Ltd. –is the sole agent for Land Rover in Sri Lanka. This apart, Access Realties (Private) Limited, which owns a commercial office property – ‘Access Towers’ – and its subsidiary, Access Realties 2 (Private) Limited, which is developing another commercial property – “Access Tower II”, are fully-owned subsidiaries. In September 2013, the Company formed a joint venture, ZPMC Lanka Company (Private) Limited with Shanghai Zhenhua Heavy Industries Company Limited (ZPMC) of China, a large container handling equipment manufacturer, to repair and maintain container handling equipment in the Colombo port. These apart, recently, in June 2015, AEL acquired 100% shareholding in Horizon Holdings Ventures (Pvt.) Limited and 50% shareholding in Horizon Holdings (Pvt.) Limited. These companies are in the business of developing their property located in Malabe over an extent of 12.5 Acres. These acquisitions are expected to further enhance AEL’s footprints in the property development sector.

Promoted by Mr. Sumal Perera, Mr. Christopher Joshua, and Mr. Ranjan Gomez, the Access group has presence in telecom, healthcare, power & renewable energy, and information technology also in addition to the aforesaid businesses under AEL and its subsidiaries.

For the FYE Mar-15, on a consolidated basis, AEL reported a net profit of LKR 2,423.9 Million on a revenue of LKR 16,514.1 Million as compared to a net profit of LKR 2,901.5 Million reported on a revenue of LKR 16,373.3 Million in FYE Mar-14.

For the Q1 FYE Mar-16, on a consolidated basis, AEL reported a net profit of LKR 637.3 Million on revenue of 4,207.3 Million.

Sri Lanka DFCC Bank's debentures get 'AA-(lka)( EXP)' Fitch rating

ECONOMYNEXT - Fitch Ratings said it has assigned DFCC Bank PLC's proposed senior unsecured debentures of up to 10 billion rupees an expected National Long-Term Rating of 'AA-(lka)(EXP)'.

The proposed debentures, which will have tenors of four and six years and carry fixed and floating coupons, will be listed on the Colombo Stock Exchange, a statement said.

DFCC expects to use the proceeds to reduce asset and liability maturity mismatches.

The final rating is subject to the receipt of final documentation conforming to information already received, Fitch said.

“The proposed senior debentures are rated in line with DFCC's National Long-Term Rating. The issues rank equally with the claims of the bank's other senior unsecured creditors,” it said.

“DFCC's rating is driven by its high capitalisation and its developing commercial banking franchise.”

The ratings on the proposed debentures will move in tandem with DFCC's National Long-Term Rating, Fitch said.

“A rating upgrade for DFCC would be contingent on the bank achieving a significantly stronger commercial banking franchise while maintaining strong credit metrics,” the statement said.

“DFCC's rating could be downgraded if there is a sustained and substantial increase in risk appetite that could materially weaken its strong capital position.”

Sri Lanka Talawakelle Tea makes Sept quarter loss

ECONOMYNEXT – Talawakelle Tea Estates PLC, part of Sri Lanka’s Hayleys group, slipped into the red in the September 2015 quarter owing to the prolonged slump in tea prices.

The firm made a loss of two million rupees in the latest quarter against a profit of 18 million rupees the year before, interims accounts filed with the Colombo stock exchange showed.

Sales for the quarter fell 14 percent to 865 million rupees from the year before.

Talawakelle Tea made a loss per share of nine cents in the September quarter. Earnings per share for the six months ending September 2015 were 32 cents compared with EPS of 2.42 rupees a year ago.

Retail, ports, bunkering boost Sri Lanka JKH Sept profit

ECONOMYNEXT – Sri Lanka’s John Keells Holdings said group net profit for the September 2015 quarter rose 31 percent to 3.5 billion rupees from a year ago driven mainly by its ports and bunkering, and consumer foods and retail businesses.

Group sales rose five percent to 22.7 billion rupees in the quarter, a stock exchange filing said.

Diluted earnings per share for the September quarter rose to 3.01 rupees from 2.30 rupees the year before.

EPS for the six months ending September 2015 rose to 4.90 rupees from 4.15 rupees the previous year with sales up three percent to 43.7 billion rupees.

JKH chairman Susantha Ratnayake said the transportation business pre-tax profit rose 53 percent to 844 million rupees in the second quarter of 2015/16 over the second quarter of the previous financial year.

“The improved performance is attributable to the group’s ports and bunkering businesses,” he told shareholders.

“The bunkering business witnessed an improvement in volumes on the back of an increased demand for supplies over Colombo and maintained its market leadership position,” he said.

“Enhanced operational efficiencies and reduced overheads, contributed positively towards the performance of South Asia Gateway Terminals (SAGT).”

Ratnayake said JKH’s consumer foods and retail industry group pre-tax profit more than doubled to 1.04 billion rupees in the September quarter of 2015/16 from a year ago.

“The performance of the industry group was buoyed by the sustained growth in consumer spending where volumes continued to demonstrate encouraging growth,” he said.

“Ceylon Cold Stores (CCS) recorded an improved performance on account of the Frozen Confectionary and Beverage businesses recording a notable growth in volumes and improved margins.

“Keells Food Products (KFP) continued to witness a growth in profitability aided by improved operational efficiencies and an encouraging growth in volumes,” Ratnayake said.

Sri Lanka tourist arrivals up 8.8 pct in October

Tourist arrivals in to Sri Lanka continue to grow with the numbers rising 8.8 percent in October 2015 from a year ago, according to the data released from the tourism office.

Tourist arrivals for the ten months to October were up 17.9 percent from a year ago.

Tourist arrivals for 2015 crossed the 1.4 million mark.

Source: www.sltda.lk

Sri Lanka shares at near-4-month low; policy statement awaited

Reuters: Sri Lankan stocks ended at its lowest in nearly four months on Tuesday while turnover slumped as investors awaited a key government policy statement later this week and also the budget for direction.

The main stock index ended down 0.41 percent at 7,000.41, its lowest close since July 13. The index has fallen for four straight session through Tuesday.

The day's turnover was 391.2 million rupees ($2.77 million), the lowest since July. 14 and less than half this year's daily average of 1.1 billion rupees.

Prime Minister Ranil Wickremesinghe is expected to announce the country's medium-term economic policy framework on Nov. 5, outlining the government's economic priorities ahead of the 2016 budget scheduled for Nov. 20.

The index "was on an uptrend for the first hour of trading followed by continued, albeit volatile, downward momentum to bring down the index below 7,000 mark prior to losing 29 points to close at 7,000," First Capital Equities (Pvt) Ltd said in a note to investors.

Analysts said investors are waiting for the budget and the prime minister's statement for cues.

Shares in Asian Hotels and Properties Plc fell 3.94 percent while Carson Cumberbatch Plc fell 0.72 percent.

Foreign investors, who have been net sellers of 3.66 billion rupees worth of equities so far this year, bought a net 14.88 million rupees worth shares on Tuesday. 

($1 = 141.0000 Sri Lankan rupees) 

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

Sri Lanka targets revolutionary budget, Tax revenue should be increased: Ravi K

(LBO) – Sri Lanka’s tax revenue needs to be increased and expanded into more regions as the government may face difficulties in going ahead with low revenue generation, Finance minister told a forum on Monday.

“We are planning a radical and revolutionary budget and tax is a main component,” Ravi Karunanayake, finance minister of Sri Lanka said.

“Our income is declining year by year. It is 10.8 percent of GDP this year.”

“If we move in that direction it will be hard on government’s salaries and pensions,”

“Sri Lanka will be in danger if the country moves ahead in this manner, so we have to make a change,”

“To change we should find innovative ways to introduce new taxes for those who are not paying taxes but not tax the same people who pay every day.”

A tax is a financial charge or other levy imposed upon a taxpayer by the state or the functional equivalent of a state to fund various public expenditures.

However most of the state owned enterprises where the tax payers’ money is largely utilized are loss making entities.

The up coming budget has increased the island’s tax revenue target to 602 billion rupees for 2016 from 516 billion rupee target in 2015.

Karunanayake said Sri Lanka needs to modernize the current tax system and widen the tax base in order to increase the revenue flow to the government.

“What we should do is expand the tax base with higher compliance,” Karunanayake said.

“In the same time we need to modernize the system in a humane manner. That system should be equal to everyone,”

“With the new administration there is no political interference, so you have the freedom to think wisely from where the country do not get taxes,”

“You (Inland Revenue Department) should go into every corner of the country and see where and whom can be taxed. Tax systems should not only target Colombo. Even though most people in some regions do not have the capacity to pay, some can. You have to investigate it and come up with a new tax structure to capture this.”

He added the Inland Revenue department will get a new building through the coming budget.

Sri Lanka's Bank of Ceylon raises US$100mn

ECONOMYNEXT - Sri Lanka's Bank of Ceylon has raised 100 million US dollars from a 12-month syndicated loan, a media report said.

Bloomberg newswires said the Bank of Ceylon paid about 130 basis points above the London Interbank Offered Rate, pricing the loan between 170 to 190 basis points.

Bank of Ceylon is active the loan and bond markets and uses some of the funds to finance the government.

The government borrows through Sri Lanka Development Bonds on floating rates from banks and other domestic firms allowed to hold foreign currency.

Last month the government paid 335 basis points above the six month London Interbank Offered Rate for 12-month bonds.

Sri Lanka taxes to go online

(LBO) – Sri Lanka plans to increase revenue collection by setting up a platform for the public to pay taxes through an online based system, the Commissioner General of Inland Revenue said.

“Tax is the price we pay for the country we want,” Kalyani Dahanayake, commissioner general of Inland Revenue of Sri Lanka told a forum on Monday.

“I think we would be able to go for a better revenue target with new system in place combined with the traditional methods we have.”

The Inland Revenue department’s “Revenue Administration Management Information System” (RAMIS) phase one will go on live from mid -November this year which is designed to address inefficiencies in the current revenue management system, officials said.

Phase two will be go alive from end of December and by October 2016, the tax system of the island will be fully automated.

Official said Sri Lanka’s University of Motatuwa is currently testing the system while officials from ICTA, Customs, and BOI is monitoring and advising when needed.

RAMIS is aimed at automating all the business processes of the department of Inland Revenue relating to tax administration.

This is expected to lead to a more accountable system for increasing revenue collection by enabling access to timely and accurate information, tracking collections, and enabling DIR to reach out to tax payers in a more efficient and effective way.

The increased revenues resulting from the implementation of RAMIS will create the necessary fiscal space for the government to channel the resources towards addressing needs of the country.

“Tax payers would be able to pay taxes from home using this online system,” U P S A Japalath, president of Inland Revenue Commissioners’ Association said.

“RAMIS will include E filing, E payment and an interactive web portal,”

“By December about 90 percent of all the taxes could be paid online.”

According to some analysts, Sri Lanka’s tax system is fairly regressive and most of the taxes are derived from indirect taxation where poor can be taxed more than the rich.

Revenue target of the Inland Revenue department has been increased to 602 billion rupees for 2016 from earlier 510 billion rupee target for the same year.

Sri Lanka Sunshine Holdings group Sept net up 8-pct

ECONOMYNEXT - Sri Lanka’s Sunshine Holdings group said September 2015 quarter net profit grew eight percent to 171 million rupees from a year ago with improved healthcare and fast moving consumer goods business making up for a downturn in plantations.

Group sales grew four percent to 4.3 billion rupees, interim accounts filed with the stock exchange showed.

Earnings per share for the September quarter rose to 1.27 rupees from 1.18 rupees the year before.

For the six months ending September 2015, EPS rose to 2.47 rupees from 2.28 rupees the previous year with sales up five percent to 8.5 billion rupees.

Sunshine Holdings group Managing Director Vish Govindasamy said growth in group revenue for the six months ending September 2015 was driven by the healthcare and FMCG sectors, which grew 17.3 percent and 19.9 percent.

But sales from its plantations business fell 11.6 percent, Govindasamy said.
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Govindasamy said higher group earnings before interest and tax and EBIT margin helped Sunshine’s healthcare and FMCG sectors grow, in spite of margin contraction in the agriculture business.

The group controls Watawala Plantations whose tea business was hit by low tea prices at the Colombo tea auction.

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Branded tea boosts margins at Sri Lanka's 

Sunshine Holdings

ECONOMYNEXT - Sri Lanka's Sunshine Holdings Plc, said margins in branded tea grew sharply boosting profits, helped by the country's top selling brand, as commodity prices hit its agriculture sector pushing down raw material prices.

Low tea prices boosted helped boost profits in the fast moving consumer goods sector, 55 percent to 146 million rupees in the September quarter as margins grew 16.3 percent from 12.9 percent. In the six months to September profits margins were up to 14.4 percent to 9.3 percent.

Sunshine Holdings have built two of the country's strongest tea brands, Zesta and Watawala which allows retail prices to be maintained.

Unlike commodities, a brand has pricing power and engage in 'monopolistic competition' with loyal customers.

Branded tea sales rose 11.1 percent to 1.7 million kilograms, primarily by Watawala Tea which the company said has become the best-selling brand in the country.

Analysts say there are opportunities for a low cost brand to come and disrupt the market with global commodities prices expected to be low with a strong US dollar, as the Federal Reserve tightens policy and pulls back from excessive money printing.

Its subsidiary Watawala Plantations was hit by low tea prices, but gains from palm oil helped maintain it the firm said.

Palm oil prices are artificially kept high in Sri Lanka with interventionist import taxes, with rent-seeking pressure from the landowners who grow coconut, helping keep the price of basic and prepared foods high for the poor people in Sri Lanka, critics say.

The firm said there may be pressure on cost of production with wage negotiations now under way with plantations workers. World crude palm oil prices were also sharply down.

Sunshine's group profits rose 8 percent to 171 million rupees in the September 2015 quarter from a year earlier helped by FMCG and phamaceuticals.

Pharmaceuticals sales grew 17.2 percent to 1,765 million rupees above the industry growth of 4.8 percent with margins flat at 5.3 percent with pressure from suppliers, the Sunshine Holdings said. It had a 11.7 percent share of the market with profits coming from volume growth.

The group reported earnings of 1.27 rupees for the quarter.

Revenues rose 4 percent to 4.34 billion rupees and cost of sales fell 2 percent to 3.23 billion rupees helping grow gross profits 29 percent to 1,101 million rupees.

Mark Mobius shares his mantra for Sri Lanka

• Emerging markets guru and Executive Chairman $ 40 billion managing Templeton Emerging Markets Group in Sri Lanka on five day visit
• To call on Prime Minister Ranil Wickremesinghe today
• Hails new Government’s commitment to good governance; urges inclusiveness, coherent policies and planning
• Sri Lanka portfolio includes $ 2 b of Government Bonds and $ 100 m in equity; commits to invest more
• Calls for favourable taxation policy and focus on infrastructure to boost local and foreign investments
• Says retrospective taxation such as Super Gains Tax impacts new investments, private sector
• Places confidence on tourism boom; suggests Sri Lanka should proceed with Port City, casino/gaming inclusive integrated resorts
• Moots privatisation to better manage fiscal challenges, boost efficiency, capital market
• Insists more jobs via new investments key to alleviate poverty

By Nisthar Cassim

Emerging markets guru Dr. Mark Mobius yesterday declared Sri Lanka has great potential, provided the country gets its policies right, especially on taxation and infrastructure development to lure more foreign direct investment as well as bolster the local private sector.

Mobius, who is on a five day visit to Sri Lanka, told the Daily FT in an exclusive interview yesterday that his Templeton Emerging Markets Group, which oversees nearly $ 40 billion in assets and is part of one of the world’s largest asset management groups Franklin Resources, Inc. (Franklin Templeton Investments) with $ 771 billion in assets under management, would like to invest more in Sri Lanka if the policy environment was favourable, amongst other things.

Templeton Emerging Markets Group, of which Mobius is the Chairman, currently has $ 2 billion investment in Government Bonds and $ 100 million exposure in select blue chips.



Radiant as ever Dr. Mark Mobius smiles during the interview with Daily FT at the Tintagel - Pic by Daminda Harsha Perera

“We have had satisfactory returns on our investments to date but Sri Lanka has the potential to offer more and attract much larger investment and we would like to enhance our involvement,” said Mobius during the interview along with Marianne Page, the famous Lankan fund manager and consultant to CT CLSA Securities Ltd., of CT Holdings Plc.

Templeton continues to hold on to Government Bonds it invested in two years ago and scouting for more equity investments, both listed and private, as returns are attractive and on the positive outlook arising from the change of Government, improved profile for the economy and expectations of a progressive Budget.

Sharing his frank and objective assessment, Mobius said Sri Lanka needs foreign investment, both at direct and portfolio level and at the same time the private sector needs to increase its investments and activities as well. “To ensure both happen in a dynamic setting, tax policy must be favourable,” he added.

In that context, Mobius opined that the retrospective taxation must be avoided and regretted the imposition of Super Gains Tax (SGT) by the new Government. “I understand listed companies have expressed concern hence such taxation has an impact on investors too,” he said adding, “We or any investor will be worried about unpredictable and retrospective taxation.”

When told by Daily FT that one-off taxes such as SGT were to fund the stimulus announced as part of Presidential election pledge, Mobius said Sri Lanka needs to look at how some successful Asian nations managed the challenge. “These Asian countries pursued a policy of alleviating poverty by generating jobs, for which you need more business investments and economic activity. This is a more healthy and productive cycle,” he added.

The 78-year old Mobius, who joined Templeton in 1987 and currently directs the Templeton research team which is based in 18 global emerging markets offices, and manages emerging markets portfolios, said that lower rate of taxation will lead to less evasion. These, along with widening of the net, are two critical measures to boost revenue and best practice in taxation.

After arriving on Friday in his private jet Mobius took off to Trincomalee to savour some time on the beach and drove back to Colombo after visiting Sigirya and Kandy.

He said since his last visit there have been major improvements in the road network and having enjoyed the scenic beauty, Mobius said Sri Lanka was “terrific” as a tourist destination as it has much to offer in terms of weather, beaches, heritage, culture etc.

Apart from suggesting that the Port City, the $ 1.5 billion Chinese project, must resume, Mobius also opined that Sri Lanka needs casino/gaming to boost tourism.

He acknowledged that tourism is a key industry for Sri Lanka’s future prosperity provided the country lures big global brands in hotels, leisure and entertainment.

“Tourism has great potential and to scale up the proposition, the country needs big international hotel chains as well as entertainment. Once they have put their investments, they will draw the high spending tourists in larger numbers. In this regard gaming and entertainment is critical and integrated resort model will be a big boost especially when you consider China and India as major source markets,” Mobius said. He was of the view that Singapore has got it right with proper safeguards and incentives and Sri Lanka can do same.

The need for more favourable land policy was also emphasised and he suggested if outright purchase of land is restricted then the Government must be supportive on long term leasing. “Any tax incentives can be determined by the size of the investments,” he added.

Mobius also said Sri Lanka must persist with developing and modernising critical infrastructure saying “You need to combine infrastructure with more business friendly environment.” He also called for continued support to basic industries such as value added tea, spices and manufacturing apparel. He said outsourcing industry was a bright spark for Sri Lanka too given the high literacy and financial qualifications.

Hailing the election of President Maithripala Sirisena and Prime Minister Ranil 
Wickremesinghe and the unity Government, Mobius said global investors will be heartened by the commitment to good governance, end corruption, improve transparency and accountability.

“Improved transparency helps to govern better and achieve better results. That also means better planning. Sri Lanka needs to come up with a more coherent plan and decide where the country wants to reach in, say, five years. More national policies and plans are helpful. Uncertainty is the biggest enemy of investments,” he said.

With 2016 Budget looming, Mobius was of the view that the Government needs to embrace privatisation and effective public sector restructuring. He suggested privatisation or sale of minority stake of banks and other state entities via the stock market.

“There is no reason for the Government to be running these banks or commercial enterprises. However privatisation exercise should encompass a broader segment of society, especially retail and small investors with preferential allocation of shares. This will ensure wider distribution make the public a direct stakeholder. This will also boost the capital market, which is still very small as a percentage of GDP. That will enable for private sector to raise more capital via the capital market,” pointed out Mobius.

“What privatisation does is that immediately it puts lot of revenue to the state, increases productivity with more efficient management and increases tax revenue. Privatisation is a better way for governments to manage its fiscal program and put more money in people’s hands,” he added.

"Sri Lanka must understand that there is no shortage of money. We are not the only ones, but for many others who would like to invest, the conditions must be right and the availability of shares. Right now it is by appointment only if you want to buy shares. This is unfortunate for the country when it could raise so much investment.

Make governance inclusive and transparent and minimise political conflicts. Continue with good policies and programs of the previous regime if any and make people stakeholders of the development process and empower them with more wealth in their hands."

“If you want a fast growing economy you need to increase productivity and way to this is having a market economy. The Chinese are increasingly embracing this strategy,” he emphasised.

When asked going forward what can Sri Lanka expect from Templeton, Mobius said higher investments were likely provided there are right opportunities in a more conducive policy setting.

“For example if you look at Thailand, we have invested about $ 30 billion. If you consider 67 million population of Thailand, Sri Lanka is one third, and our investment in Sri Lanka could be $ 10 billion as opposed to $ 100 million at present,” he pointed out.

“Sri Lanka must understand that there is no shortage of money. We are not the only ones, but for many others who would like to invest, the conditions must be right and the availability of shares. Right now it is by appointment only if you want to buy shares. This is unfortunate for the country when it could raise so much investment,” Mobius said.

When asked for any political advice to the current unity government, his response was 

“Make governance inclusive and transparent and minimise political conflict. Continue with good policies and programs of the previous regime if any and make people stakeholders of the development process and empower them with more wealth in their hands.”
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