Sri Lankan shares fall for seventh straight session

Reuters: Sri Lankan shares ended lower for the seventh straight session on Tuesday as rising domestic interest rates and global economic worries dampened investor sentiment.

Sri Lanka's main stock index ended down 0.19 percent at 6,254.16, its lowest close since May. 7, 2014, after erasing early gains. It has fallen 2.35 percent in the last seven sessions.

"Market is down because there is not much of an economic direction and also due to the global market volatility," said Reshan Kurukulasuriya, chief operating officer of Richard Pieris Securities (Pvt) Ltd.

"But if global markets settle with oil prices settling, it might be good news for emerging markets also."

Brent crude, which has been on a roller-coaster ride this year, hit a 12-day high after oil producers Russia, Saudi Arabia, Qatar and Venezuela agreed to freeze output to tackle a global oil glut.

The key index has fallen 9.3 percent this year through Monday, amid a rise in market interest rates.

Yields on t-bills rose between 8 and 17 basis points at a weekly auction on Wednesday, with the 182-day and the 364-day t-bill yields climbing to more-than-two-year highs, signalling a further rise in market interest rates.

Turnover was 358.6 million rupees, less than half of this year's daily average of 721 million rupees.

Foreign investors were net buyers of 52.05 million rupees worth of shares on Tuesday. But they have been net sellers of 293.7 million rupees worth of shares so far this year.

Shares of Dialog Axiata Plc fell 1.00 percent while Aitken Spence Hotel Holdings Plc eased 2.7 percent and Hayleys Plc lost 2.3 percent. 

($1 = 143.9500 Sri Lankan rupees) 

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

AIA’s Lankan life insurance unit December net up 26%

The local unit of the third most valuable Asia-based insurer – AIA Insurance Lanka PLC Group (AIA) – posted a net profit of Rs.174.2 million for the quarter ended December 31, 2015 (4Q15), up 26 percent from a year ago, as the life insurer saw its premiums and the investment incomes rising while the claims remaining low, the interim results showed.

The earnings per share (EPS) for the quarter rose to Rs.5.66 from Rs.4.49. 

However, the group’s net profit shot up to Rs.1.22 billion with the one-off gain on disposal of its general insurance unit. 

The group in October 2015 diversified its fully-owned subsidiary, AIA General Insurance Lanka Limited, to Janashakthi Insurance PLC for a consideration of Rs.3.2 billion. This resulted in a gain of Rs.1.27 billion. 

AIA General Insurance Lanka Limited incurred a loss of Rs.78.8 million up to the date of the divestiture, turning from a net profit of Rs.89.6 million posted for the financial year ended December 31, 2014. With the sale of its general insurance unit, the life insurer will consolidate its position in the Sri Lankan market, which has the lowest life insurance penetration in the region. 

The insurer however is yet to reveal what it will be doing with the pile of cash resulted from the sale, which is now parked in financial investments. 

The top line measured by the gross written premium (GWP) rose by 22.5 percent year-on-year (YoY) to Rs.2.34 billion while the investment income rose by 16.1 percent YoY to Rs.1.05 billion. 

The group paid Rs.1.44 billion as gross claims and benefits during the quarter, compared with Rs.1.54 billion paid a year ago. 

Meanwhile, for the financial year ended December 31, 2015 the group posted a net profit of Rs.303.2 million (EPS of Rs.9.86), up 15.3 percent. The net profit of the group with the profit from discontinued operations rose to Rs.1.19 billion. 

The GWP has increased by 16 percent to Rs.8.43 billion while the investment income rose 4.9 percent to Rs.3.89 billion. 

The claims and benefits paid during the year declined by Rs.1.91 billion to Rs.4.94 billion.  

As of December 31, 2015, the AIA group held a 97.16 percent stake in AIA Insurance Lanka PLC, while the public shareholding was 2.84 percent.

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Sri Lanka’s LOLC December net up 60-pct

(LBO) – Profits at Sri Lanka’s LOLC group which has interests in financial services, insurance, plantations, trading and leisure rose 60 percent to 2.2 billion rupees in the December quarter.

The group reported earnings of 4.66 rupees per share for the quarter up from 2.91 rupees from a year earlier on last year profits of 1.4 billion rupees.

For the nine months ended December 2015 the group reported earnings of 13.10 rupees on total profits of 6.2 billion rupees.

The stock last traded at 76.80 rupees on Monday down 20 cents.

The group gross income rose 52 percent to 16.5 billion rupees in the December quarter.

Interest income rose 27 percent to 10.0 billion rupees and interest expenses rose at a faster 39 percent to 4.0 billion rupees resulting net interest income to rise at a slower 20 percent to 6.0 billion rupees.

Interest income and income represent the income receivable for the period on all contracts, rentals on operating leases, income on factoring of client debtors, earned premium on insurance contracts and IT service fees.

It includes all income related to operations such as interest on overdue rentals, profit/loss on leases and loans terminated and collections on contracts written off.

Revenues up 83 percent to 5.3 billion rupees and cost of sales also rose at the same rate to 3.7 billion rupees resulting gross profits to rise at the same rate to 1.7 billion rupees.

Revenue includes revenue from trading, manufacturing, plantation and other activities of the Group.

Among the segmental information financial services has recorded 7.6 billion rupees profit for the nine months while reporting 2.3 billion profit from equity accounted investees.

It has recorded a loss of 477 million rupees from the leisure and entertainment sector and 140 million rupees loss from life and general insurance.

In October 2015, Browns Capital, a subsidiary of the Group acquired controlling stake (50.1%) of Saga Solar Power (Private) Limited (SSP) for 407 million rupees.

SSP is to engage in to 10 MW solar power project at Baruthakanda in Hambantota.

Lanka IOC profits up 45-pct in December quarter

(LBO) – Profits at Lanka IOC, a unit of Indian Oil Company rose 45 percent to 882 million rupees in the December quarter, interim accounts showed.

The firm reported earnings of 1.66 rupees per share in the quarter compared to earnings of 1.15 rupees per share posted a year ago.

Revenue at Lanka IOC fell 11 percent in the quarter to 18.1 billion rupees and sales costs dropped at a faster 13 percent to 16.4 billion rupees reporting a gross profit of 1.7 billion rupees for the quarter.

Net finance income was 11.8 million rupees and for the nine months the group reported earnings of 1.28 rupees per share.

In the nine months to December 2015 Profits at Lanka IOC, fell 77 percent to 680 million rupees.

Sri Lanka banks raise deposits rates 200bp

ECONOMYNEXT - Sri Lanka's commercial banks have raised deposit rates around 200 basis points over the past six months, as credit demand picked up, despite money printing by the central bank to enforce a 50 basis point rate cut earlier in the year.

One year fixed deposit rates in February 2016 range around 8.25 percent to 8.75 percent up from around 6.0 to 6.5 percent in September 2015, according to newspaper advertisement and online announcements.

State-run Bank of Ceylon, People's Bank, NSB and private Commercial Bank are paying around 8.25 percent for one year deposits.

Seylan and NDB, which saw 20 percent credit growth last year are offering 8.5 percent for 12 month deposits.

Smaller banks are paying higher rates. Newly set up Cargills Bank is offering 8.75 percent. Pan Asia Bank advertised a promotional 10 percent rate for 12-month deposits.



Many banks, including large banks, however giving as much as 9.0 percent to customers with large deposits who negotiate.

Higher rates are required to curb spending, and generate more resources for credit and investments when budgets go off track and private credit also picks up.

Central Bank data shows that average weighted prime lending rates has also risen about 100 to 150 basis points at most banks.

Credit Cycle

Sri Lanka's banks were flushed with liquidity (deposits that were not loaned out) at the beginning of 2015, due to weak credit up to the second quarter of 2014 in the wake of a balance of payments crisis in 2011/2012.

But a sharp hike in state salaries and subsidies in January 201 pushed up state domestic borrowings just as private credit was picking up, and banks rapidly used up excess liquidity in new loans, which generated imports.

The excess liquidity was mopped up in forex markets by the Central Bank by spending forex reserves. In April the Central Bank cut rates by 50 basis points despite rising state and private credit, accommodating the fiscal shock.

Economic analysts pointed out that the move was similar to a January 2011 rate cut (the unkindest cut of all), which accommodated a supply shock from drought and a petroleum price spike, triggering a BOP crisis later in the year.

By the third quarter 2015 large volumes of money was being printed in quantity easing exercise outside the overnight policy rate corridor, replacing lost liquidity with 'synthetic deposits' and adding fuel to the fire.

In September an attempt to float the rupee failed as money printing and credit growth continued.

But deposits rates began to move up sharply from around October as banks on their own raised rates, generating deposits from real customers to finance credit.

In January a statutory reserve ratio was hiked 1.50 percent, pushing up intermediation costs and reducing the efficiency of the banking system.

An orderly market driven rise in interest rates is required for economic stability and for credit markets to function effectively, though in many countries, central bank try to manipulate rates and get into trouble.

Countries with central banks that do not have a true floating rate and buys foreign exchange to 'smoothen volatility' also known as soft-pegged arrangements are the most badly hit when rates are manipulated down.

Keynesian Hangover

Steve Hanke, a professor at John Hopkins University writing in the bulletin of the Official Monetary and Financial Institution Forum (OMFIF) where he is an advisor says the focus on low policy rates is misplaced and the Fed rate hike will not harm the US.

"This obsession with the course of the fed funds rate is curious to say the least," he notes.

"Indeed, since the early 1980s, there have been five episodes in which the Fed raised rates. And, in each of these cases, economic growth remained steady or accelerated.

"So, why all the hand-wringing? This is probably a Keynesian hangover. The mainstream macro model that is widely used today is referred to as a ‘New Keynesian’ model.

"The thrust of monetary policy in this model is entirely captured by changes in current and expected interest rates. Money is nowhere to be found."

Hanke says tighter Basle III regulations and Frank-Dodd regulations have pressured bank lending.

"So the US economy looks in a healthy enough state to withstand a modest further
increase in interest rates," he says. "The biggest risk to the US economy is not Fed interest rate tightening, but another round of bank bashing through misplaced regulations.

Sri Lanka’s Mercantile Shipping losses widen in December quarter

ECONOMYNEXT – Sri Lankan ship owner Mercantile Shipping Company’s December 2015 quarter loss rose 56 percent to 24 million rupees from a year ago with the ship charter market still depressed owing to a global oversupply of tonnage.

December quarter sales were almost stagnant at 148 million rupees, interim results filed with the stock exchange showed.

The company, owned by Germany’s Reederei Eugen Friederich Gmbh in which Hemas Holdings has a 17 percent stake, reported a quarterly loss per share of 8.34 rupees.

In the nine months to 31 December 2015, earnings per share were 32.24 rupees against a 28.99 rupee loss the year before.

Mercantile Shipping made a profit of 92 million rupees in the nine month period with other income of 133 million rupees although sales fell nine percent to 401 million rupees.

The other income for the nine months period includes 45 million rupees on a claim made in 2009 against the charterer of M/V "Safmarine Soyo" and an exchange gain of 87.7 million rupees on loan conversions.

The company's fully own subsidiary, Mercantile Emerald Shipping (Pvt) Ltd., changed its functional currency from euro to the US dollar on a euro loan in July 2015 as its charter hire income and loan liabilities are in dollars while most expenses are in dollars.

C.W Mackie amalgamated with Scan Tours and Travels

C. W Mackie Plc has been amalgamated with its fully owned subsidiary Scan Tours and Travels (Pvt) Limited , by a resolution, in terms of Section 8 of the Colombo Stock Exchange(CSE), CSE sources said.

According to the Section 242(1) of the Companies Act, C.W Mackie will be the surviving entity upon the amalgamation becoming effective.

With this amalgamation the entire shares of Scan Tours become ineffective and will be cancelled without payment or other consideration, these sources said.

With the amalgamation all financial and administrative work comes under C.W.Mackie Plc. This amalgamation will become effective from 31st of March 2016, these CSE sources added. - HS 

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PCHH Improves Financial Performance

Adam Capital PLC, formerly known as PC House Holdings PLC, disclosed a quarterly profit of 1.3 Million, which is an increase of 109% over the last quarter. Its net asset value has also increased to Rs. 2.20 per share which is also an increase over the previous quarter.

Chairman of Adam Capital PLC, Ajita Pasqual has stated in his letter to shareholders "I'm glad to inform you that PCHH (Adam Capital PLC) has recorded a profit of Rs. 1.3 million for the quarter ended 31st December 2015 and its net asset value (NAV) has increased to Rs. 2.20 per share ensuring the investor community that the company is now in the right hands. PCHH is the 100% owner of Adam Carbons (Pvt) Ltd (Former Bieco Link Carbons) and Adam Capital Micro Credit (Pvt) Ltd.

Adam Carbons manufactures a diverse range of granular Activated Carbon to many overseas destinations including USA, Taiwan and South Africa. Over the period in review the company has steadily increased its production capacity and has successfully built a strong order book ensuring a long term sustainable growth of our business.

Adam Capital Micro Credit offers Sharia compliant lending facilities to the members of the under-served communities in the urban and the semi-urban areas. During the period under review the company has strengthen its lending portfolio and maintained a strong recovery ratio.
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Fitch rates Singer Finance's Senior Debt 'BBB(lka)(EXP)'

Fitch Ratings has assigned Singer Finance (Lanka) PLC's (SFL; BBB(lka)/Stable) proposed senior secured redeemable debentures of up to Rs 1.5 billion a 'BBB(lka)(EXP)' National Long-Term expected rating.

A full list of rating actions is at the end of this rating action commentary.

The issue will have three tranches with bullet principal repayments in the third, fourth and fifth years, with a fixed-rate coupon paid semi-annually. The debentures will be listed on the Colombo Stock Exchange.

SFL expects to use the proceeds to fund lending growth, lengthen maturities of its liabilities, and reduce structural maturity mismatches.

The issue has been rated at the same level as SFL's National Long-Term rating. The debenture is secured by a primary mortgage over receivables from identified lease agreements. 

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Richard Pieris records Rs.32 bn revenue in first 9M of 2015/16

The Richard Pieris Group has posted a group revenue of Rs.32 billion, with a 14 % growth from the previous year.

The Group PBT for the first nine months (M) amounted to Rs.2.7 billion which is a 33% growth compared to previous year. All business sectors with the exception of the plantation sector performed well with many activities. The plantation sector continued to suffer with the declining prices and the volumes of the crops. 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 centres, super stores and the network of Arpico outlets scattered island wide. The third quarter was the busiest period in the year for the sector with the seasonal peak in the month of December 2015.

The sector also began commercial operations in an Arpico daily outlet in the town of Palanwatte during the quarter under review.

The Plastics and Distribution Sector continued its success of 2014/15 and reported a growth of 75.3% in its reported Operating Profit over and above last year.

The Ayu mattress/Hybrid mattress introduced to the market continues to develop the market share and the consumer promotion 'Nidaganna Piyabanna' created a lot of excitement amongst consumers, driving the mattress volumes. The plantation sector of the Group experienced a very challenging first nine 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.

During the period under review the tyre sector recorded a growth of 16% in its operating profits over the corresponding period of the previous year.

The sector expanded its retreading distribution channel to north during the period under review.

The rubber manufacturing sector continued its success reporting 29% growth in operating profits over the corresponding period of the previous year. Sales volumes continued to increase in the sector due to market expansion activities and enabled by strategic investments made in the recent past.

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 a 253% growth in its operating profit over the corresponding period of the previous year.

Arpico Insurance PLC's new branches were opened at Kegalle and Ambalantota during the period under review.
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Expolanka posts Rs. 563 mn PBT for 3Q of 2015/16

Expolanka recorded a profit before tax (PBT) of Rs 563 million for the third quarter of the financial year posting an overall profit growth of 14% in comparison to the corresponding period of the previous financial year.

The recorded profit attributable to equity holders for the third quarter was Rs. 344 million. The recorded PBT for the nine months that ended in December 2015 was Rs 1.6 billion with an overall profit growth of 69% in comparison to the corresponding period last year.

Hanif Yusoof, Group CEO - Expolanka Holdings PLC said, "In last financial year we took several strategic steps to ensure the sustainable growth of our business. These positive results indicate the effectiveness of our concentrated efforts on business growth in the Group's core sectors including operational efficiencies and restructuring efforts".

The Group's core sector Freight and Logistics recorded a revenue of Rs 35 billion and a revenue growth of 23% for the nine months ended in December 2015 in comparison to the corresponding period of the previous financial year.

The positive results were fueled by steady performance of the Indian subcontinent and the strong contribution of the East Asian markets namely countries such as Vietnam, Indonesia, Hong Kong and China. The Travel and Leisure sector continued to show positive signs during the period recording a revenue of Rs2.8 billion for the nine months ended in December 2015. Both Inbound and Outbound operations performed well, posting a high level of growth.

Inbound operations has kept up the momentum gained in the last quarter to post better results in comparison to the corresponding quarter of the previous financial year.

Expolanka's Inbound business in particular shows better volume growth in the aftermath of the Company restructuring effort that took place during the previous year.

The International Trading & Manufacturing sector recorded a revenue of Rs. 3 billion for the nine months ended in December 2015.

In this sector, both the perishable goods business and the food processing business has performed well and shows potential to perform even better in the next quarter.

"Each sector in the Group has contributed to the positive growth of this quarter. We hope to capitalize on this growth to build a solid platform for future performances. We have already identified and implemented measures such as more focused investments on developing IT enabled business growth to seize greater growth opportunities," Yusoof added.
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Fitch rates DFCC Bank’s Senior Debentures Final ‘AA-(lka)’

Fitch Ratings has yesterday assigned DFCC Bank PLC’s (DFCC; AA-(lka)/Stable) proposed senior unsecured debentures of up to Rs 7billion a final National Long-Term Rating of ‘AA-(lka)’.

The assignment of the final rating follows the receipt of documents conforming to information already received, and the final rating is the same as the expected ratings assigned on 3 November 2015.

The proposed debentures, which will have tenors of three years and carry fixed coupons, will be listed on the Colombo Stock Exchange. DFCC expects to use the proceeds to reduce asset and liability maturity mismatches.

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.

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.

A rating upgrade for DFCC would be contingent on the bank achieving a significantly stronger commercial banking franchise while maintaining strong credit metrics. 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.
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Softlogic Group revenue tops 15 bn in 3Q

Softlogic group revenue reported a strong growth of 43.8% to near Rs. 16 billion while the cumulative revenue has increased 51.7% to Rs. 42.1 in the third quarter of FY2015/16.

Chairman, Ashok Pathirage said that the contributors to the Group's outstanding performance were primarily derived from its fully owned subsidiaries in the Retail (33.3% contribution to Group topline) and ICT (29.7% of Group revenue) sectors followed by Healthcare Services (17.3%) and Financial Services (16.0%).

"We are yet to reach full potential of our Leisure sector with our 5-star city hotel to be opened, perhaps, by mid-2016.The sales team of the automotive sector is taking aggressive sales effort and cost cutting measures to enhance bottom line," he said.

Consolidated Gross Profit has reached Rs.4.9 billion, reflecting an increase of 24.2%, during the third quarter of the financial year with cumulative Gross Profit increasing 35.8% to Rs. 13.6 billion. Operational expenses increased 17.7% to Rs. 3.4 billion during the quarter with operating expenses for 1-3 QFY16 growing 25.5% to Rs. 9.6 billion.

Stringent cost control measures have been a vital part of our expansion strategy and helped operating cost margins to decline from 22.8% in 1-3QFY16 from 27.6% in the cumulative comparative period.

The quarter registered an increase of 11.3% in administrative costs to Rs. 2.6 billion and 44.1% increase in distribution costs to Rs. 820.6 million.

Thereby, distribution costs increased to Rs.2.1 billion (up 29.5%) while administration costs reached Rs. 7.5 Bn(up 24.4%) for the cumulative period under review.

Finance Income, which registered a decline of 12.1% to Rs. 860.6 million during the nine-month period and Rs. 312.9 million for the quarter (a decrease of Rs. 243.5 million in the comparative quarter).

The increasing interest rates resulted in 14.9% increase in finance cost for the cumulative period to Rs. 2.4 billion whilst the quarter witnessed a marginal increase of 7.7% to Rs. 811.7 million.

Group PBT reported a significant increase of 70.0% to Rs.2.4 billion during the cumulative period while the quarterly PBT improved 92.9% to Rs. 1.4 billion. Taxation for the period more than doubled to Rs. 700.7 million (Rs. 327.7 million in 1-3QFY15) during the nine-month period.

Profit after tax for the period during the nine months of FY2015/16 amounted to Rs.1.7 billion (up by 56.9%) with 3QFY16 reporting Rs.1.0 billion (up99.6%).
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