Sri Lanka to get over $3.5 billion from Japan for development

COLOMBO (Reuters) - Japan will lend Sri Lanka more than $3.5 billion, mostly to finance development, Finance Minister Ravi Karunanayake said on Thursday, as the island nation tries to reduce its debt costs and avert a balance of payments crisis.

Karunanayake told parliament the cost of borrowing would be between 3.5 and 4 percent once the cost of swapping yen to dollars was taken into account.

"We are getting more than $3,500 million from Japan for our development activities," he said, adding that $1.2 billion would be used to buy government bonds and $2.5 billion used for lending to development projects.

Sri Lanka agreed to a $1.5 billion bailout by the International Monetary Fund (IMF) last month to help address the balance of payments crisis caused by big foreign outflows from government securities and high external debt repayments.

The previous government borrowed heavily to fund infrastructure, while foreigners have sold around $2 billion of government debt since early last year.

Karunanayake said a special advisor to Japanese Prime Minister Shinzo Abe had met President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe on Wednesday before pledging the money.

The government that took office in August last year has already has raised taxes and introduced new taxes to reduce a yawning budget deficit and borrowing.

"There won't be any difficulty for capital expenditure and we have stopped commercial borrowing at expensive cost," the finance minister said. "We will go for commercial borrowing only if we can get money below the rate at which we can raise money through international bonds."

Karunanayake said Sri Lanka's new loan would be taken in yen at an interest rate of 0.05 percent. Most of the money will then be swapped into dollars, with some yen used to pay for imports from Japan.

He said the total borrowing cost would be 3.5-4 percent "with the exchange fluctuation risks and dollar swap".

Japan disbursed $2.69 billion to Sri Lanka between January 2006 and September 2014, Treasury data showed, putting it second only to China as a sovereign lender.

Sri Lanka floods disrupt Industrial Asphalts production

ECONOMYNEXT – Flood waters have disrupted work at Industrial Asphalts (Ceylon), a Sri Lankan firm making bituminous products and surface coatings for industry and household use, including road construction and maintenance.

The company said there had been flooding in the production, warehouse and administrative facilities at its site at New Nuge Road in Peliyagoda, close to the Kelani River, which overflowed after several days of heavy rain.

The facility has been “inundated by flood waters” that have brought the company’s commercial activities to a standstill, a stock exchange filing said.

The management was working with government authorities and insurance companies to minimise and contain the damage and resume normal operations.

“As of now, we are not in a position to quantify the damage as the water level within the premises remains high,” the statement said.

Sri Lanka Kingsbury hotel March profit down on tax charge

ECONOMYNEXT – A sharp increase in income tax payment reduced March 2016 quarter net profit of The Kingsbury hotel owned by Hayleys Group.

Net profit for the quarter fell 2 percent to Rs75 million from a year ago, interim accounts filed with the stock exchange showed.

The hotel’s tax charge rose to Rs64 million in the March 2016 quarter from Rs7 million the year before.

Sales rose 26 percent to Rs747 million in the period. March 2016 quarter earnings per share were 31 cents.

In the year to 31 March 2016, EPS was almost stagnant at Rs1.21, with net profit at Rs293 million and sales up 12 percent to Rs2.7 billion.

Sri Lanka Alumex March quarter net up 61-pct

ECONOMYNEXT – Alumex PLC said March 2016 quarter net profit rose 61 percent to Rs210 million from a year ago, with the construction boom continuing and low aluminium prices offsetting the weakening of the rupee against the US dollar.

Sales of the firm, a subsidiary of Hayleys Group, rose 32 percent to Rs1.2 billion, a stock exchange filing said.

Earnings per share for the quarter was 70 cents.

EPS was Rs1.97 in the financial year ended 31st March 2016 and net profit up 24 perent to Rs589 million, while sales rose 29 percent to almost Rs4 billion.

Alumex, which makes aluminium profiles for the construction industry, said profit before tax was Rs801 million, up 31 percent.

Its products are used for the fabrication of windows, doors and facades in commercial and residential buildings.

Alumex has its manufacturing facility in Makola, Kelaniya, and has a marketing and distribution network covering Sri Lanka.

“Construction industry growth reduced to 4.6 percent, but low interest rates and inflation created an environment for investment in apartments, hotels and residencies, continuing high demand for aluminium profiles,” the statement said.

“Aluminium prices dipped mid-year and premiums reduced to compensate for the depreciation of the rupee against the US dollar, and this helped the industry maintain a stable pricing structure,” said Rohan Peris, Managing Director of Alumex.

Sri Lanka IOC unit in profits soar in March

ECONOMYNEXT - Profits at a Sri Lanka unit of Indian Oil Corporation, which is involved in fuel, lubricants and bitumen distribution, soared to Rs1.59 billion in the March 2016 quarter from a loss of Rs1.178 billion a year earlier.

The firm reported earnings of Rs2.92 for the quarter. In the year to March, the firm reported earnings of Rs4.21, on total profits of Rs2.2 billion.

Revenues rose to Rs16.4 billion in the March quarter from Rs15.8 billion and the cost of sales fell from Rs16.1 billion to Rs15.6 billion, with gross profits soaring to Rs2.7 billion from a loss of Rs394 million.

Net finance income also turned positive this quarter, from negative last year.

Monetary Policy Review – May 2016 - Policy rates unchanged

The year-on-year growth of broad money (M2b) indicated some deceleration, recording 18.9 per cent in March 2016, compared to 19.8 per cent in February 2016. The expansion in domestic credit remained the key driver of broad money growth, within which credit extended to the private sector by commercial banks recorded a year-on-year growth of 27.7 per cent in March 2016, compared to 26.5 per cent in the previous month. With regard to sectoral distribution of credit, Industry and Services sectors attracted the highest levels of credit disbursements, while personal loans and advances also recorded a substantial increase. Meanwhile, with the low level of excess rupee liquidity in the domestic money market amid recent monetary tightening measures, an upward movement in short term money market rates and other market interest rates was observed. Reflecting the gradual transmission of increased short term interest rates to broader market interest rates, the expansion of monetary and credit aggregates is expected to moderate from the second quarter of the year.

Headline inflation, as measured by the Colombo Consumers’ Price Index (CCPI, 2006/07=100), was 3.1 per cent, year-on-year, in April 2016 compared to 2.0 per cent in the previous month. Annual average headline inflation based on CCPI edged up to 1.3 per cent from 1.1 per cent in March 2016. However, the CCPI based core inflation remained unchanged at 4.5 per cent in April 2016, on a year-on-year basis, compared to the previous month. Meanwhile, the National Consumer Price Index (NCPI, 2013=100) based headline inflation increased to 2.2 per cent, year-on-year, in March 2016 compared to 1.7 per cent in the previous month, while on an annual average basis, it stood at 2.4 per cent. The recent increase in the Value Added Tax (VAT) rate and the removal of certain exemptions applicable on VAT and the Nation Building Tax (NBT) are expected to have a one-off impact on inflation, while the supply side disruptions due to prevailing adverse weather conditions could exert some upward pressure on inflation in the immediate future. In spite of these temporary disruptions, inflation is expected to remain in midsingle digit levels supported by appropriate demand management policies.

On the external front, the trade deficit registered a contraction of 2.2 per cent on a cumulative basis in the first three months of 2016. Meanwhile, earnings from tourism are estimated to have increased by 20.0 per cent in the first four months of the year while workers’ remittances recorded an increase of 8.1 per cent during the first quarter. Gross official reserves are estimated to have declined marginally to US dollars 6.1 billion by end April 2016 from US dollars 6.2 billion in the previous month while the Sri Lanka rupee has recorded a marginal depreciation thus far during 2016. Meanwhile, a renewed foreign interest in investments in Government securities has been observed since April 2016 as reflected by net foreign inflows to the Government securities market. Going forward, the Extended Fund Facility (EFF) expected from the IMF and the other multilateral and bilateral credit facilities, along with the planned structural reforms, would enhance the country’s resilience to external shocks and improve investor confidence in the economy.

Taking into consideration the developments discussed above, the Monetary Board, at its meeting held on 20 May 2016, was of the view that the current monetary policy stance of the Central Bank is appropriate. Accordingly, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.50 per cent and 8.00 per cent, respectively.

Sri Lankan shares fall to near 2-wk closing low amid foreign outflows

Reuters: Sri Lankan shares fell on Friday to a near two-week closing low, led by shares that could be easily affected by the floods, amid foreign selling and ahead of the central bank's policy rate announcement due later in the day.

Lion Brewery Plc dropped 3.45 percent, a day after the company said it had halted production in its main factory in Colombo suburb due to the floods.

Investors awaited some cues on the interest rates ahead of the central bank's May monetary policy decision.

The benchmark stock index fell 0.22 percent, or 14.86 points, to 6633.27, its lowest close since May 10, and the index fell 1.12 percent during the week, the first weekly fall in seven weeks.

"It looks like there is a little more selling pressure and investors are bit concerned on rising interest rates," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

Stockbrokers said manufacturing and banking sectors might get affected due to low employee turnout during the floods.

Concerns over a government move to increase the value added tax and impose new taxes, which could hit the bottom line of many companies, also hit the sentiment.

Yields on T-bills, which move in tandem with market interest rates, rose between 11 and 14 basis points at a weekly auction on Wednesday.

Hopes have faded for the survival of about 150 people trapped under the mud and rubble of two landslides in Sri Lanka, as heavy rain hampered rescue operations and the death toll from the disaster rose to 64 on Friday.

Turnover was 839.2 million rupees ($5.76 million), more than this year's daily average of around 796.4 million rupees.

Foreign investors sold a net 101.2 million rupees worth shares on Friday, extending the year to date net foreign out flow to 4.3 billion rupees worth shares.

Shares in Ceylon Tobacco Company Plc dropped 1.79 percent dragging the overall index. 

($1 = 145.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips)