Sri Lankan shares edge up from 8-month closing low

Reuters: Sri Lankan shares edged up on Thursday, recovering from an eight-month closing low hit in the previous session, and snapping a six-session losing streak as foreign investors bought into big caps, traders said.

The main stock index ended 0.26 percent, or 17.87 points, firmer at 6,880.66, after losing 2.7 percent in the previous six sessions.

On Wednesday it closed at its lowest level since March 31 at 6,862.79 on worries earnings of financial firms would be hit after the new budget proposals announced were implemented.

The index was in neutral territory with the 14-day Relative Strength Index at 31.662 versus Wednesday's 27.625, Reuters data showed. A level between 70-30 indicates the market is neutral.

"Bit of foreign buying in big-cap shares helped the market," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

"It's a good sign that foreigners were back with a fourth consecutive day of net foreign inflow."

Foreign investors, who have been net sellers of 3.47 billion rupees ($24.23 million) worth of shares so far this year, were net buyers for a fourth straight session with purchases of 79.1 million rupees on Thursday.

Turnover was 1.29 billion rupees, more than this year's daily average of 1.1 billion rupees.

Shares of Ceylon Tobacco Company Plc rose 0.92 percent, while John Keells Holdings Plc gained 0.39 percent.

Analysts said local institutions and retail investors remained on the sidelines.

Gains were capped after Prime Minister Ranil Wickremesinghe warned on Wednesday of lower economic growth in 2016 due to the global slowdown. 

($1 = 143.2000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Sri Lanka tourist arrivals up 20.4 pct in November

Tourist arrivals in to Sri Lanka continue to grow with the numbers rising 20.4 percent in November 2015 from a year ago, according to the data released from the tourism office.

Tourist arrivals for the ten months to October were up 18.1 percent from a year ago.

Tourist arrivals for 2015 crossed the 1.5 million mark.

Colombo Stock Exchange adopts GICS

Tabs on leasing, gold loans, progressive

'Banning' banks from leasing (consumer finance) activities and limiting such institutions' exposure to gold backed financing are good moves, considering the seemingly uncollateralized nature of finance of the former and the volatility in gold prices.

Moody's in a statement released yesterday, commenting on some of Budget 2016 proposals, vis-à-vis the banking sector, said that by such limitations, it will encourage the growth in other sectors of the economy such as 'women in business'.

Following are excerpts from this report: Budget 2016 of 20 November, presented by Finance Minister Ravi Karunanayake, proposed introducing limitations on pawning loans and consumer finance loans for the.....country's commercial banks.

The proposal is credit positive for Sri Lankan banks because it will limit their exposure to these higher-risk loans, said Moody's. "Two of our rated entities, Bank of Ceylon (BOC, B2/B1 stable, b17) and Hatton National Bank plc (HNB, B2 stable, b1) are among the banks that will benefit from these tighter rules, it said.

Karunanayake also proposed limiting pawning loans to 5% of a bank's loan book. The quality of these loans is directly linked to volatile gold prices, which makes them risky for banks.

'Problem' loans for Sri Lanka's commercial banks increased materially in 2013 following a 27% decrease in gold prices that year, said Moody's. The asset quality of Sri Lankan banks has stabilized as banks shrank their pawning loan books to 5.2% of gross loans as of the end of June 2015, from 14.4% at the end of 2012, it further said.

The proposed 5% cap will further decrease banks' exposure to these loans and will prevent excessive growth in this segment if gold prices increase. The second proposal mandates that banks cease consumer finance lending starting 1 June 2016.

Such loans are provided to individuals and are typically higher risk and unsecured. As of the end of June 2015, consumer finance loans comprised around 5% of gross loans for the five largest banks engaged in consumer lending.

For those banks, the growth in this segment has been rapid, averaging a compounded annual growth rate of 44% over the past four years, compared with a 24% growth in gross loans excluding consumer finance.
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Com Bank to raise Rs 7B

Ceylon Finance Today: Commercial Bank of Ceylon plc yesterday informed the Colombo Stock Exchange (CSE) that it plans to raise Rs seven billion by selling debentures to the market.

The issue, once the necessary approvals are obtained, will comprise Rs five billion worth of debentures with an option to go up to Rs seven billion in the event of oversubscription, the Bank's Managing Director/CEO Jegan Durairatnam informed the CSE.

In other developments, BRAC LANKA Finance plc, an LOLC subsidiary, told the CSE that it has received a loan amounting to Rs 563 million from its parent, to meet its working capital needs. BRAC said that the interest charged on this loan is AWPLR + 4.5%.

BRAC further said that the loan is more than 10% of the equity and 5% of its asset base. (PGA)
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Dialog to buy Airtel for $ 100M

By Ishara Gamage

Ceylon Finance Today: Sri Lanka's mobile telecoms giant Dialog is currently negotiating to buy the Colombo operations of Bharti Airtel for US$ 100 million, sources close to negotiations told Ceylon FT yesterday.

"The transaction will be a mix of cash and an equity stake in Dialog at 'current' market prices, where the total value would be $ 100 million", they said.

Bharati Airtel Lanka Ltd and Dialog Axiata PLC officials, when contacted declined to comment.

Sources also said that Dialog Axiata is planning to transfer all its towers business to separate company.

Recent Indian media reports said that Airtel will separately look at selling its towers business in Sri Lanka and Bangladesh. Bharti Airtel has about 2,500 telecom towers of Sri Lanka and 4,000 in Bangladesh, it said.

Bharti Airtel, India's leading telecoms operator, is planning to sell its Sri Lanka and Bangladesh operations and for this purpose has roped in two bankers, Indian media had further said.

The move is a part of company strategy to move out of unproductive operation.

Bharti Airtel in a reply to an Indian stock exchange query said, "The company keeps evaluating various opportunities, on an ongoing basis in its ordinary course of business and will make necessary disclosures as and when required."

Speaking to Ceylon FT telecoms sector analysts welcome this move and said, "Spectrum is a critical factor for telecoms sector growth. Telecoms sector voice income has dropped by 32% and data income raised by 25% on a year on year basis. So, if they want to increase the current 1MBPS data speed to 5 to 10 MBPS data speed they definitely need additional spectrums".

They also said that the possible Mobitel- Hutchison Lanka deal is also a good move for the telecoms sector.

"At the moment, Mobitel has only an 'interrupted' spectrum. If they tie up with Hutch, Mobitel will be a powerful mobile operator", they said.Government sources alleged that the Mobitel- Hutchison Lanka deal is now before the Mobitel evaluation committee.

Recently Fitch Ratings has maintained a negative outlook on Sri Lanka's telecoms sector. 

This is based on uncertainty over proposals to increase taxes, which are likely to lower profitability and increase leverage for telcos, if implemented.

The original tax proposals were to impose a one-off 'super gains' tax of 25% on profits, and a tax of LKR250m (USD1.8m) on each telco. The proposals also shift the burden on to the telcos of a recurring telecom levies of 25% and 10% on prepaid voice and data revenue, respectively, having previously been borne by consumers. These tax proposals were originally introduced in February 2015, and in October 2015 government withdrew only the recurring taxes.

"We expect the industry's 2016 revenue to grow by the mid-single-digit percentage, driven by data services as cheaper smartphones proliferate. Yet, apart from the tax impact, profitability may still decline in 2016 as low-margin data services replace traditional, more profitable voice/text revenue.

We expect both Sri Lanka Telecom PLC (BB-/AAA(lka)/Stable) and Dialog Axiata PLC (AAA(lka)/Stable) to invest around 22%-25% of their revenue on capex. Both firms are exposed to depreciation of the Sri Lanka rupee - given that 95% (USD180m) and 81% (USD170m) of their respective debt are US dollar-denominated - while we estimate they each generate only around 15% of their revenue in US dollars.

Two smaller, unprofitable telcos - Hutchison Lanka and Bharti Airtel Ltd.'s Sri-Lankan subsidiary, Airtel Lanka - may exit the industry amid competition and the uncertain tax regime," Fitch further said.

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Hemas Holdings invests US$ 100 for Anantara hotels in Tangalle, Kalutara

Hemas Holdings has invested over US$ 100 million to build two Anantara properties in Tangalle and Kalutara.

Anantara Peace Haven Tangalle Resort a joint venture between Hemas and Minor Hotel Group (MHG), one of Asia's largest and rapidly expanding hospitality chains has being unveiled while Anantata Kalutara would be opened in March 2016.

Chairman, and Group Director, Serendib Leisure Management Ltd Abbas Esufally, said that the group was holing this property for almost 25 years. "We have now converted this property to a world class hotel which we think will be a 'game changer' for the Sri Lanka travel industry with many industry firsts."

He said that the hotel would be mainly catering to high end clientele and the forward booking for the hotel is very encouraging. "We are confident that we could look at ROI in seven years."

He also said that the travel industry in Sri Lanka is booming with 18% to 19% growth and more foreign direct investments to the industry are on the cards. Over 35% of the staff would be drawn up from the area and the extension of the highway too would bring them additional business. He said they were looking to invest another Rs 300 million to build a banquet hall to accommodate around 400 guests.

General Manager, Peace Haven Tangalle Resort, Tamir Kobrin, said that they are planning to market the rooms at US$ 300 and the villas at US$ 500.

He said that the Anantara Peace Haven Tangalle Resort has already garnered much interest in the world with CNN including the resort of their '11 hotels opening in 2015.'

Serendib Leisure Management Ltd (SLML) the leisure arm of Hemas Holdings PLC manages Hotel Sigiriya and Club Hotel Dolphin and the internationally branded hotels AVANI Bentota Resort & Spa and AVANI Kalutara Resort. The group would have a total room invent n the excess of 706 rooms from next March with the addition of the two Anantara properties.

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Richard Pieris Group revenue tops Rs 21 bn

The Richard Pieris Group ended its first half year reporting a Group Revenue of Rs.21 billion and a PBT of Rs.1.7 billion.

The six months ended September 30, 2015 resulted in a moderate performance in all sectors of the Group except for the plantations sector where the entire industry is in a crisis with declining volumes and prices.

The reported profits represent business profits, and do not include any gains of a capital nature.

The Retail Sector of the Group comprises of Arpico super centers, super stores and the network of Arpico outlets scattered island wide.

During the second quarter of the financial year the sector continued to focus on marketing activities through its top tips campaign. The Plastics and Distribution Sector reported an Operating Profit of Rs.644 million during the six months ended September 30, 2015.

The steady demand for water tanks which prevailed at the beginning of the period under review lost its momentum towards the end of the quarter due to adverse weather conditions.

The rigifoam sales were also adversely affected due to poor weather conditions and rough seas.

The Plantation Sector of the Group experienced a very challenging first six months facing many adverse factors.

The Richard Pieris Group possesses three of the largest plantation companies in the country with diverse crops which includes high grown, mid grown and low grown tea, rubber, oil palm, coconut, cinnamon, cardamom, rambutan and other crops contributing to more than 15% of Group Revenue.

The Tyre Sector reported an Operating Profit of Rs.316 million during the six months ended September 30, 2015.

The Rubber Manufacturing Sector reported an Operating Profit of Rs.358 million during the six months ended September 30, 2015.

The Financial Services Sector of Richard Pieris Group consists of its own life insurance, stock broking, fund management and a finance company. The Sector reported an Operating Profit of Rs.99m during the six months ended September 30, 2015.

CSE to launch infrastructure bonds

Indunil Hewage

The Colombo Stock Exchange (CSE) is planning to launch infrastructure bonds in the immediate future, said Vajira Kulatilaka , Chairman of CSE at a ceremony held to mark its 30th anniversary .

The CSE is also planning to set up a separate trading board for Small and Medium Enterprises( SME) and it is slated to be launched in the immediate future.

The CSE is also extending its reach beyond borders to cooperate commercially with its peer exchanges in the region, to collectively uplift the performance of regional Exchanges.

Prime Minister Ranil Wickremesinghe said that the government will also bring in new laws together with the Exchange Management Act and territorial taxation system to create complete confidence in the Stock Exchange. He said that Sri Lanka requires an efficient and transparent stock market. To achieve this target, the public sector entities are encouraged to go public. He urged the relevant authorities in the CSE and Securities and Exchange Commission to address issues relating to conflict of interest and integrity.

He said he is confident that with all these proposed initiatives, there will be a strong market reflecting a strong economy which the government has pledged to create. The Colombo Stock Exchange on Wednesday adopted the Global Industry Classification Standard (GICS) which was developed by MSCI and Standard and Poor's with a view to standardizing capital market activities. 

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