Sri Lanka LB Finance gets 'A-(lka)' Fitch rating

ECONOMYNEXT - Fitch Ratings said it has assigned LB Finance PLC a National Long-Term Rating at 'A-(lka)' with a Stable Outlook.

The rating reflects LB Finance’s established franchise among licensed finance companies, whose higher yielding exposures have supported sound profitability, a statement said.

It also captures the finance company’s relatively higher risk appetite as indicated by its exposure to gold-backed loans, the rating agency said.

The full rating report follows:

Fitch Ratings-Colombo-02 December 2015: Fitch Ratings has assigned LB Finance PLC (LB) a National Long-Term Rating at 'A-(lka)' with a Stable Outlook.

KEY RATING DRIVERS - NATIONAL RATINGS

LB's National Long-Term Rating reflects its established franchise among licensed finance companies (LFC), whose higher yielding exposures have supported sound profitability. The rating also captures its relatively higher risk appetite as indicated by its exposure to gold-backed loans. Fitch views LB's capital as satisfactory taking into account the entity's good revenue generation.

LB's leading 11% deposit market share among LFCs, as well as its extensive branch network have supported the company's funding position. At the same time, it also exposes LB to higher liquidity risk compared with peers in particular as gross loans reached 90% of assets at end 1HFY16 which is higher than the industry. Meanwhile, its share of liquid assets (as a % of total assets) declined to 9%. Mitigating factors include its moderately concentrated deposit base and un-utilised backup facilities.

Fitch sees LB's product exposure to gold-backed loans (17% of gross loans at end 1HFY16) as being a potential risk to its asset quality due to the volatility of gold prices even though the focus is on short tenure facilities (almost all under six months). This concentration is unique in the LFC peer group. LB's business focus remains on vehicle financing (75% of the loan book at end 1HFY16) with motor cars and three wheelers accounting for 26% and 24% of the total at end 1HFY16. About 60% of its motor car and three wheeler loans comprise unregistered vehicles, which is a positive as they are newly imported and are of a better credit quality.

Fitch expects LB's net incremental non-performing loans (NPLs) to increase in the medium term in line with the entity's projected loan growth. Its 90 days overdue loans are higher than peers'. Reported NPLs at a five month level improved to 4.6% at 1HFY16 from 5.2% in FY15, the latter being, however, mostly a function of solid loan growth (1HFY16: 12.6%, FY15: 15.1%). Revision of its impairment policy in FY15 resulted in a significant improvement in its provision coverage.

LB's pre-impairment profit to average total assets stood at 8.5% at end 1HFY16 (FY15: 8.8%, FY14: 6.8%), similar to higher rated peers. Its cost to income ratio remained the lowest among peers at 36% at end 1HFY16 on the back of greater scale. Higher net interest margins (NIMs) reflect relatively higher risk products such as gold-backed lending and three wheeler leasing, along with an increase in lower cost wholesale borrowings. However, Fitch believes that a potential increase in operating costs due to branch expansion and an increase in credit costs could hamper operating profitability and internal capital generation, in the medium term.

The rating reflects Fitch's expectation that LB's profitability remains sufficient to allow for growth, while maintaining capital ratios at the current level. The regulatory Tier-1 ratio stood at 16.0% at end-FY15.

Sri Lanka Treasuries yields fall

ECONOMYNEXT - Sri Lanka's 6-month Treasuries yields fell 10 basis points to 6.30 percent at Wednesday’s auction, data from the state debt office showed.

The 12-month yield fell six basis points to 6.86 percent. The three-month yield was 6.06 percent, down from 6.44 percent at the last auction on November 6.

The debt office accepted bids for a total of 9,970 million rupees of bills, having received bids of 42.9 billion rupees.

Sri Lanka parliament passes budget with two thirds majority

ECONOMYENXT - Sri Lanka's parliament has passed a budget for 2016 with an overwhelming two thirds majority with 159 out of 225 members voting for including the official opposition Tamil minority party.

The statist-nationalist Janatha Vimukthi Peramuna and a loyalists of ex-President Mahinda Rajapaksa voted against.

Thirteen members including ex-President Rajapaksa was absent.

Sri Lankan shares fall to 8-month closing low, turnover near 1-mth high

Reuters: Sri Lankan shares fell for a sixth straight session on Wednesday to their eight-month closing low, led by banking and diversified stocks on worries earnings of financial firms would be hit after the new budget proposals announced were implemented.

Sentiment was also hurt after Prime Minister Ranil Wickremesinghe warned of lower economic growth in 2016 due to the global slowdown.

"We have to expect declining commodity prices that have an impact on the Sri Lankan economy and there'll be reduced flows to emerging capital markets," Wickremesinghe said at a ceremony marking 30 years of the formal establishment of the Colombo Stock Exchange.

Rating agency Fitch last week said that Sri Lanka's 2016 budget provides no clear plan for fiscal consolidation over the medium term and the absence of such a framework will put more pressure on the fiscal deficit.

The government on Nov. 20 announced a raft of steps, including the removal of a 0.3 percent share transaction levy, to stimulate trading in the share market and increase liquidity.

The main stock index ended 0.47 percent, or 32.40 points, weaker at 6,862.79, its lowest close since March 31.

The index fell to its oversold territory with the 14-day Relative Strength Index at 27.625 versus Tuesday's 30.676, Reuters data showed. A level of 30 or below indicates the market is oversold.

"Market is down on banks and banks are down on taxes," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

Turnover rose to the highest level since Nov. 6 at 1.65 billion rupees ($11.53 million), led by block deals in conglomerate John Keells Holdings Plc.

This was against Tuesday's turnover of 509.2 million rupees and this year's daily average of 1.1 billion rupees.

Foreign investors, who have been net sellers of 3.55 billion rupees worth of shares so far this year, were net buyers for a third straight session with purchases of 21.3 million rupees on Wednesday.

Shares of Ceylinco Insurance Plc fell 6.10 percent, while John Keells Holdings dropped 0.94 percent. 

($1 = 143.1500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Access Engineering to invest Rs 2,586 mn in 28 floor building

By Hiran H.Senewiratne

Access Engineering Plc after its successful debenture issue recently will invest Rs 2,586 million in a 28 floor building called Access Towers 2, adjacent to the iconic Access Towers at Union Place in Colombo.

Another Rs 2,414 million will be invested to construct 941 housing units at Henamulla, Colombo 15, under the Urban Regeneration Project of the Urban Development Authority.

The above project is part of a larger urban regeneration project aimed at providing permanent houses for low income families by the government of Sri Lanka, while the second tower of the company would be targeting for office space for renting, Access sources said.

The initial debenture issue was 30 million Rated Senior Unsecured Redeemable debentures at a par value of Rs 100 each (Rs 3,000 million) with the option of accepting a further 20 million of the said debentures (Rs 2,000 million) at the discretion of the Board of Directors of AEL in the event of an over-subscription, Stock Market sources said.

AEL decided to exercise the oversubscription option and accepted a total of 50 million of the said debentures (Rs 5,000 million) as the initial issue was oversubscribed.

The keen interest in the market for the AEL debentures indicates the positive sentiment towards the company and the construction industry as a whole. The debentures are rated [SL] A+ by ICRA Lanka Limited with a positive outlook; and are to be listed on the Colombo Stock Exchange.

NDB Investment Bank (NDBIB) acted as the managers and financial advisors in both these issues. The success of this transaction is a testament to NDBIB’s leadership in the capital markets and its expertise in providing financial services to the construction industry in Sri Lanka.
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Lubricant players decry import liberalisation

The 2016 budget proposal for the liberalisation of lubricants imports is not the correct move says L. P. Tillekeratne CEO of N. M. Distributors, importers of Shell Lubricants.

Commenting on the on the Budget he says that the proposal made at the budget speech on the liberalization of lubricant imports will have several negative impacts on the lubricant user and the Government at large.

"The present annual demand for lubricants in the country is estimated around 54million liters and is in a downward trend due to the discontinuation of diesel power generation, and high quality lubricants with longer oil drain intervals being available to the vehicle users, he added.

He further said that the present small market is being shared by 13 international suppliers including 3 companies having blending facilities."

At present all most all the high quality international lubricant brands are available to the local consumer which makes the vehicle engines and the heavy industrial machinery to have a trouble free operation at low maintenance cost for a longer period of time.

He also said that even in India, having a much larger market volume comparatively has a lesser number of suppliers in the lubricant sector.

This will ensure better control and a better quality system, otherwise it will have several negative impacts in the automotive and industrial sectors.

Tillekeratne believes that the proposed liberalization will open the gates to several low quality imports to penetrate into our market resulting several engine failures in the automotive and industrial sectors where additional foreign exchange will be needed for importation of new engines and spare parts.

Also the country is presently not fully equipped to carryout high standard of quality control laboratory tests to ascertain suitability and the other parameters of the lubricants being imported to the country.

He further stressed that in spite of the present regulations in force, several non-licensed importers do import lubricants having different quality standards, which the government is yet to control.

Also in a market driven by price, most of the customers in the automotive sector and industrial sector are not fully aware of the major characteristics of various lubricants that are presently in use.

If the proposed liberation of Lubricants is made effective, several vehicle owners who have spent millions of rupees for their new vehicles may face serious difficulties,with engine failures, when low quality lubricants start penetrating to the country at a lower price.

Tillekeratne at the end said that all 13 players are requesting for a constructive dialogue with the Minister in order to stress their concerns.

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Adam Capital to launch two projects for Rs. 1bn

Adam Carbons (Pvt) Ltd has initiated discussions to operate a Renewable Energy based Electrical Power Generation unit.

The company hopes to generate an exportable capacity to the national grid of 3.4 Gwh electrical units per annum (approx installed capacity of 440 Kw). This project would eliminate pollution from the char-coaling process along with the renewable power generation should enable Adam Carbons to successfully register and trade in Carbon Credits under the guidelines of the Kyoto Protocol.

In addition Adam Carbons (Pvt) Ltd has initiated discussions to capture carbon dioxide (CO2), processed on site and refine it into food grade purity.

This would enable Adam Carbons (Pvt) Ltd to earn valuable non-core product income to its profitability. The project would be located at the Adam Carbon Factory site at Giriulla and this project would eliminate the deposition of effluent waste gases into the atmosphere.

Adam Carbons (Pvt) Ltd is a fully owned subsidiary of Adam Capital PLC. The total investment for the two projects would be in the excess of Rs. 1 billion.
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