Sri Lankan shares end firmer on foreign buying

Sri Lankan shares edged up on Friday hovering near its more-than-10-week high, hit earlier in the week, as heavy buying by foreign investors in index heavyweight John Keells Holdings Plc boost sentiment.

The benchmark Colombo stock index ended up 0.11 percent, or 7.37 points, at 6,522.14.

Investors hoped that the economic fundamentals would improve after the central bank on July 28 raised its main interest rates by 50 basis points each in a surprise move aimed at curbing stubbornly high credit growth.

"Foreign buying in John Keells buoyed sentiment. We see interest from retail investors as well, though one foreign fund has been exiting during the past few days," said Jaliya Wijeratne, CEO, First Capital Equities.

Foreign investors net bought 154.7 million rupees ($1.06 million) worth of shares, including a net 858,741 shares in John Keells on Friday, extending the net foreign inflow to 1.49 billion rupees worth of equities in the last 13 sessions.

However, they have sold 3.32 billion rupees worth of shares so far this year.

Turnover stood at 725 million rupees, on track with this year's daily average of around 731.7 million rupees.

Shares in John Keells Holdings Plc gained 0.07 percent while CT Holdings Plc climbed 3.7 percent and Hatton National Bank Plc rose 0.9 percent.

Analysts said investors also shrugged off a Supreme Court order asking the parliament to stop considering a bill to raise the value-added tax as the draft had not followed due process.

The move could put in jeopardy the government's ambitious fiscal consolidation plan to reduce the budget deficit to 5.4 percent of gross domestic product from last year's 7.4 percent.

($1 = 145.4000 Sri Lankan rupees) 

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

Sri Lanka’s Ceylon Tobacco unit profits flat in June quarter

(LBO) – Profits at Ceylon Tobacco, a unit of British American Tobacco, rose one percent to 3.0 billion rupees in the June quarter, interim accounts showed.

The firm reported earnings of 16.28 rupees per share for the quarter compared to earnings of 16.12 rupees per share posted a year ago. The share last traded at 900 rupees.

As a high dividend yield company, Ceylon Tobacco announced two dividends of 15.60 rupees per share and 16.70 rupees per share in May and August respectively.

Gross revenue at Ceylon Tobacco rose 12 percent in the quarter to 30.0 billion rupees and government levies also rose 10 percent to 22.5 billion rupees reporting net revenue of 7.6 billion rupees for the quarter, up 16 percent a year ago.

In the 6 months to June, profits rose 11 percent to 6.1 billion rupees posting a gross revenue increase of 13 percent for the quarter.

Ceylon Tobacco has paid 49 billion rupees to the government, in the form of excise tax, corporate tax and other levies, during the six months ended June 2016.

CTC said its contribution to the government increased by 12 percent against previous year, driven primarily by higher prices as a result of the excise led price increase experienced in October 2015 and relatively stable volumes during the first 6 months of 2016.

The company said a total of 811 raids has uncovered 2.5 million illegal cigarettes worth 88 million rupees during the first 6 months of 2016.

CTC said under regulated and low taxed products such as “Beedi” still remains a key threat to government revenue from the tobacco industry.

The public shareholding at the end of quarter was 15.87 percent comprising of 3,526 shareholders.

Ceylon Tobacco is the second largest listed entity in the island’s stock exchange in terms of market capitalization and its principal operations are manufacturing, marketing and selling cigarettes.

Government currently plans to bring in a new proposal to increase taxes of cigarettes to 90 percent from the current 72 percent of their purchase price.

Health Minister Dr. Rajitha Senaratne says that increasing the tobacco taxes up to 90 percent would help reduce smoking by 4.5 percent.

Sri Lanka's Distilleries expects 'clarity' over Pelwatte Sugar expropriation

ECONOMYNEXT - Distilleries Corporation of Sri Lanka says it is hopeful of 'clarity' this year over a subsidiary which was nationalised during the ousted Rajapaksa regime, despite it not falling within the criteria set in an expropriation law.

Pelwatte was listed in a controversial expropriation law enacted by during the last regime, where its land was taken over despite being in private hands over the time limit set in the statute.

However the law controversially banned legal action cutting out the judiciary, and by naming firms (ad hominem) it also cut out the executive action, in another controversial move.

DCSL has insisted that officials 'occupied' the land, but has also lodged compensation claim.

Pelwatte Sugar and Hotel Developers - another publicly traded firm - was expropriated by the state, but no money has been paid to shareholders.

"Following the occupation of the factory by state officials, the ownership of this property remains unresolved," DCSL Chairman Harry Jayawardena told shareholders.

"The Group has not changed its position, advocated since the occurrence of this unfortunate incident, of being the legal owner of the property and as such we have communicated our views to the Treasury.

"However, as a precautionary measure, the Group has also lodged an official claim with the Compensation Tribunal appointed by the State.

"We hope that some clarity regarding this untoward situation would be forthcoming during the new financial year."

DCSL as a former shareholder of Sri Lanka Insurance Corporation, which courts re-vested with the state, is supposed to get a profit share for the time it was managed by the group, under a court order.

"With regard to Sri Lanka Insurance Corporation Ltd. (SLIC), even after a lapse of 7 years, we still await the payment of profit earned during DCSL Group’s tenure at the helm of SLIC," Jayawardena said.

"We are hopeful that the profit earned, which has to be paid to us as per the Supreme
Court directive, will be reimbursed to us as early as possible."

Sri Lanka's NDB down 6.8-pct in June

ECONOMYNEXT - Profits at Sri Lanka's National Development Bank fell 6.8 percent from a year earlier to Rs535 million in the June 2016 quarter amid higher loan loss provisions and rising interest rates, interim accounts show.

The group reported earnings of Rs3.24 per share for the quarter. In the six months to June, it reported earnings of Rs6.56 per share on total profits of Rs1.04 billion, which were down 25 percent.

Interest income grew 34 percent to Rs6.9 billion in the quarter, and interest expense grew at a faster 43 percent to Rs4.7 billion, allowing net interest income to grow at a slower 19 percent to Rs2.1 billion. Interbank borrowings were up 59 percent to Rs18.4 billion.

Sri Lanka had two bad budgets in 2015, and the Central Bank initially released liquidity and printed money to trigger unsustainable credit, and generated a balance of payments crisis and a currency collapse, but interest rates are now correcting to match fiscal excesses.

Loans grew 5 percent to Rs220 billion in the six months to June, while deposits grew at a slower 3 percent to Rs190 billion.

Customer loans were up 21 percent from a year earlier and deposits rose 12 percent to Rs169 billion.

Loans loss provisions for the quarter rose 18 percent to Rs281 million.

The bank said during the first six months to June, general provisions were made on a prudent policy as loans grew fast over the past pear.

"In the six months to June, Rs438 million of specific provisions were made 'for a few customers made on sound judgement and objective evidence," the bank said in a statement.

Sri Lanka's NTB net down 12-pct in June

ECONOMYNEXT - Profits at Sri Lanka's Nations Trust Bank fell 10 percent from a year earlier to Rs685 million in the June 2016 quarter as interest expenses rose, interim accounts showed.

The bank reported earnings of Rs2.97 per share. In the six months to June, profits were up 2 percent to Rs5.54 per share on total profits of Rs1.27 billion, which were up 2 percent.

Interest income grew 24 percent to Rs5.0 billion in the quarter, and interest expense grew at a faster 47 percent to Rs2.64 billion, allowing net interest income to grow at a slower 5 percent to Rs2.4 billion.

NTB said net interest margins compressed as deposits grew faster than loans could be re-priced.

Sri Lanka had a two bad budgets in 2015, and the Central Bank initially released liquidity and printed money to trigger unsustainable credit and generated a balance of payments crisis and a currency collapse, but interest rates are now correcting to match fiscal excesses.

Specific loan loss provisions fell to Rs18 million from Rs52 million, and general provisions were also lower at Rs108 million from Rs143 million.

Loans grew 6 percent to Rs128 billion in the six months to June. The bank also grew customer deposits 6 percent to Rs137 billion.

Financial investments available for sale - which includes government securities, rose at a fast 48 percent to Rs24 billion, during the six months.

Fee and commission income was up 10 percent to Rs873 million.

Fitch confirms Sri Lanka's HDFC Bank at 'BBB(lka)'

ECONOMYNEXT - Fitch Ratings said it has confirmed Housing Development Finance Corporation Bank of Sri Lanka (HDFC Bank) National Long-Term Rating at 'BBB(lka)' with a stable Outlook.

The rating agency also confirmed HDFC Bank's senior secured and senior unsecured debentures at 'BBB(lka)'.

The full statement follows:

Fitch Ratings-Colombo-12 August 2016: Fitch Ratings has affirmed Housing Development Finance Corporation Bank of Sri Lanka (HDFC Bank) National Long-Term Rating at 'BBB(lka)'. The Outlook is Stable. The agency also affirmed HDFC Bank's senior secured and senior unsecured debentures at 'BBB(lka)'.

HDFC Bank's National Long-Term Rating reflects Fitch's expectation that the bank would receive extraordinary support from the Sri Lanka sovereign, if required. The sovereign's limited ability to provide support is reflected in Sri Lanka's 'B+'/Negative rating. Fitch believes the sovereign's propensity to extend support to the bank stems from the state's 51% effective holding and HDFC Bank's quasi-policy role in supporting the state housing-development initiatives. However, Fitch sees potential for state support for HDFC Bank as being much lower than for the country's larger state-owned banks, due to its lower systemic importance.

The Stable Outlook on the bank's National Long-Term Rating reflects its creditworthiness relative to the best credit in Sri Lanka.

Housing loans accounted for 87% of HDFC Bank's loan-book at end-1Q16. The bank is authorised to provide housing loans to members of the Employee Provident Fund (EPF), Sri Lanka's retirement savings scheme. The loans are secured against members' EPF balances and accounted for 29% of the bank's total loans in 1Q16. NPLs on these loans are much higher than for the rest of the bank's portfolio, but the Central Bank of Sri Lanka annually reimburses HDFC Bank for EPF-backed loans in arrears for over three months. However, the bank's reported gross NPL ratio remains high even after excluding EPF-backed housing loan NPLs, at 8.4% at end-1Q16 (19.7% including EPF-backed loans). This is mainly due to its exposure to low- and middle-income customer segments.

We see HDFC Bank's capitalisation as weak and believe that the bank relies on capital infusion from the state, as its internal capital generation may not be sufficient to meet the minimum capital requirement of LKR5bn by 1 January 2018.

The bank's outstanding debentures are rated in line with its National Long-Term Rating and rank equally with the claims of other senior unsecured creditors. Fitch has not provided any rating uplift for the collateralisation on the senior secured debentures as their recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

RATING SENSITIVITIES

Fitch may downgrade HDFC Bank's ratings if there is a change in our expectation of state support to the bank. This may occur due to a weakening of the bank's linkages with the state, as seen by a dilution of the state's majority-ownership of the bank or a revision of Fitch's view of the bank's policy role.

HDFC Bank's rating could be downgraded by several notches if the sovereign's ability to support it is significantly weakened or if Fitch concludes that the bank can no longer rely on sovereign support. This is because the bank's intrinsic strength is materially weaker.

The ratings of the senior secured and senior unsecured debentures will move in tandem with HDFC Bank's National Long-Term Ratings.

Sri Lanka Com Bank June quarter net up 23-pct

ECONOMYNEXT – Sri Lanka’s Commercial Bank said June 2016 quarter net profit rose 23% to Rs3.26 billion from a year ago.

Net interest income in the period rose 6% to Rs8 billion as interest income rose 21% to Rs19.5 billion while interest expenses rose 33% to Rs11.5 billion, interim results filed with the stock exchange showed.

Net fee and commission income rose 24% to Rs1.5 billion.

Earnings per share for the June quarter were Rs3.66.

EPS for the six months to June 2016 rose 24% to Rs7.32 with net profit up 26% to Rs6.5 billion.

Commercial Bank Managing Director Jegan Durairatnam said the six month period was one of low liquidity in the industry and reducing margins for the bank.

“The growth achieved despite these factors is attributed to the operational strength of the institution,” he said.

A statement said interest income improved by Rs 5.7 billion or 17.84% to Rs 37.5 billion helped by strong growth of the loan book in the six months.

But the higher cost of funds, particularly time deposits, resulted in interest expenses rising by 25.44% to Rs 21.4 billion in the six months under review, the bank said.