Sri Lanka plans Europe listed rupee bonds

ECONOMYNEXT - Sri Lanka is planning to sell internationally traded rupee bonds cleared in Europe, which will increase the liquidity of the securities, Central Bank Governor Indrajit Coomaraswamy said.

The Central Bank was already in talks with EuroClear to settle trades in rupee securities, he said.

He said the sale of rupee debt will reduce exchange risks.

"We have already seen growing confidence in the currency among some large international investors, which means, in the near future, we should be able to issue international bonds in rupees, which would minimise our exposure to exchange rate movements," Governor Coomaraswamy said, delivering a road map for monetary policy in 2017.

"In this endeavour, we are working to cooperate with the Euroclear System to facilitate us to trade our bonds in their system in the future.

"Such an initiative will increase the efficiency and effectiveness of settlement for investors, and increase the pool of savings available for investment in domestic securities."

Analysts say trading in other markets and platforms will also allow foreign investors to sell the bonds to other foreign investors, rather than Sri Lankan buyers.

Sri Lanka was also revamping the public debt law. The Treasury is expected to set up its own debt management unit, freeing the Central Bank from a longstanding conflict of interest.

Sri Lanka Treasuries yields rise across the board

ECONOMYNEXT – Yields on Sri Lankan Treasury Bills rose across the board at Wednesday’s auction with the 03-month bill yield up 06 basis points to 8.78 percent, the debt office of the Central Bank said.

The 06-month t-bill yield rose 16 bp to 9.79 percent at the auction while the yield on one-year bills rose 05 bp to 10.22 percent, a statement said.

The debt office got Rs76 billion worth of bids and accepted bids worth Rs31 billion.

Sri Lanka starts building Volkswagen assembly plant

ECONOMYNEXT - Sri Lanka's Prime Minister Ranil Wickremesinghe laid the foundation stone for a plant to assemble Volkswagen vehicles.

The $26.5 million plant is promoted by Sri Lanka's Senok Automobiles group, which is the agency for Volkeswagen.

Prime Minister Wickremesinghe kicked off construction of the factory in Kuliyapitiya in north central Sri Lanka on January 03.

The cars will be initially sold in the domestic market. Sri Lanka has high import duties for fully assembled vehicles.

Sri Lanka to decriminalize forex transactions, relax exchange controls

ECONOMYNEXT - Sri Lanka will decriminalise foreign exchange transactions, replacing a draconian law that bans the use of foreign currency, which was brought when a money printing central bank started generating foreign exchange shortages after independence.

Sri Lanka would bring in a foreign exchange management law to parliament in 2017 and further relax exchange controls in the medium term, Central Bank Governor Indrajit Coomaraswamy said.

Deputy Governor P Samarasiri said Sri Lanka had draconian foreign exchange controls that prohibited transactions in foreign exchange between Sri Lankan citizens and foreign citizens.

All uses of foreign currency, including for current transactions and the holding of foreign currency accounts, were operated by permission given while the underlying law was still in effect, he said.

As a result, such permission could be revoked at any time, creating uncertainty.

Foreign exchange controls were enacted in 1952, soon after the Central Bank was set up, as it started to print money and generate forex shortages and currency pressure.

Under the British, Sri Lanka had a currency board system where there was no special requirement for capital controls, and the exchange rate was fixed and could not be broken. However, due to money printing by the Bank of England during the war, the British Empire's so-called Sterling Area had some restrictions with other currencies such as the US dollar.

Sri Lanka has made current transaction free, but there are still capital controls.

Governor Coomaraswamy said there may not be any immediate removals of restrictions in the capital account.

Under the new foreign exchange law, there will be no criminal penalties but only civil penalties would be charged, Samarasiri said.

Analysts say people who 'violate' exchange controls and take money out are simply trying to protect their wealth from being expropriated by the state through currency depreciation and inflation created by money printing.

Capital controls evolved in the 20th century, as governments mis-used central banks to create money.

The first of modern style exchange controls were started by Tsar Nicholas II of Russia in 1905, where Russia's central bank was asked to limit conversions to 50,000 German marks per person and forex sales were limited unless it was required for an actual import of goods.

In Sri Lanka, exchange controls expanded into trade controls and severe economic controls in the 1970s.

"The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges," economist Friedrich Hayek said in 1944.

"Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference.

"Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty.

"It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape — not merely for the rich but for everybody."

Full convertibility of a currency can be provided if the exchange rate is fixed with a hard peg or currency board, which Sri Lanka had until 1951, and the interest rate free floats.

If the central bank prints money to maintain a policy rate, then the exchange rate has to be allowed to free float. Britain abolished all exchange controls on October 1979, by the Margarast Thatcher administration. Thatcher was a fan of Hayek. Her key economic advistor was Alan Watlter, who helped build a currency board in Hong Kong and accurately predicted the fall of the soft-peg style ERM.

Sri Lanka’s Lamurep seeks control of Sunshine Holdings at Rs47.50 a share

ECONOMYNEXT – Sri Lanka’s Lamurep Investments Ltd. has made a voluntary offer to buy the remaining shares of Sunshine Holdings at Rs47.50 a share after the investment company increased its stake in the diversified group through a share transfer last month.

Lamurep’s stake in Sunshine Holdings increased to 32.12% from 20.27% after G. Sathasivam, a director and big shareholder, transferred an 11.85% stake he held in Sunshine Holdings through Tansinghe (Private) Ltd. to Lamurep in December for Rs760.7 million.

The Rs47.50 a share offer for the remaining 91,287,436 ordinary voting shares ( a 67.55% stake) is the highest price paid for Sunshine shares in the preceding three months, a stock exchange filing said.

T. Senthilverl, a director and single biggest shareholder of Sunshine Holdings with a 22.42% stake, Deepcar Ltd., which owns 18.94%, Ceylon Property Development Ltd. which has a 2.22% stake and Sunshine Group Managing Director V. Govindasamy, brother of G Sathasivam, who has a 0.33% stake, have informed the company they will not accept the offer to buy their shares.

Colombo Stock Exchange Market Review – 04th Jan 2017

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Colombo Stock Exchange Trade Summary 04-Jan-2017

Colombo bourse closed with mixed returns on Wednesday despite the higher market activity. Benchmark index edged lower for the fourth straight day to close at 6,153.13, with a loss of 5.99 index points (-0.10%). High caps constituent, S&P SL20 index advanced by 9.35 index points or 0.27% to end at 3,447.75. 

Premier blue-chip counter, John Keells Holdings (closed at LKR 140.60, +1.2%) drove the index to positive territory with high investor preference. However, price declines in Ceylinco Insurance (closed at LKR 1,220.80, -18.1%), Ceylon Tobacco (closed at LKR 800.40, -1.6%) and Hatton National Bank (closed at LKR 221.00, -1.3%) adversely impacted the index. 

Daily market turnover reached LKR 958mn, boosted by negotiated deals in blue-chips which accounted for 75% of the turnover. John Keells Holdings was the major contributor to the turnover with LKR 785mn underpinned by seven crossings of 4.9mn shares at LKR 139.00-140.00. 

Sizeable contribution was seen in Lanka Hospitals (LKR 33mn), Chevron Lubricants (LKR 32mn) and Hemas Holdings (LKR 20mn). Single crossing was recorded in Chevron Lubricants where 0.2mn shares changed hands at LKR 155.00. 

Apart from JKH, LOLC Finance, SMB Leasing and Melstacorp witnessed high investor activity. After three days of listing, Melstacorp counter closed with a positive gain of 1% at LKR 55.50. 

Shares of Summit Finance advanced to LKR 30.00 but closed at LKR 29.00 (+12.8%) following the announcement on proposed acquisition by Prime Lands (Pvt) Ltd. Company intends to acquire 75.5% of the issued shares of Summit Finance at a price of LKR 30.00 per share. 

Foreign investors were net sellers with a net foreign outflow of LKR 745mn. Foreign participation was 46%. Net foreign outflows were seen in John Keells Holdings (LKR 729mn), Lanka Hospitals (LKR 33mn) and Tokyo Cement (LKR 7mn). Net foreign inflow was mainly seen in Hemas Holdings (LKR 20mn). 

Meanwhile, at the Treasury bill auction today, yields increased across the board. Three month rate advanced by 6bps to 8.78%, six month rate increased to 9.79% (+16bps) and one year treasury bill yield increased to 10.22% (+5bps). CBSL offered LKR 31.5bn worth Treasury bills and the auction was oversubscribed by 2.4 times with bids received amounting to LKR 76.1bn. It was decided to accept LKR 31.2bn worth of treasury bills.

Source: LSL

Sri Lanka shares end near 9-mth low; foreign selling in Keells weighs

Reuters: Sri Lankan shares fell for a fourth straight session on Wednesday, to end at a near nine-month low, as investors sold large-cap shares on fears that continued foreign selling in John Keells Holdings could dampen market sentiment further.

Foreign investors sold a net 745 million rupees ($4.98 million) worth of equities on Wednesday, the highest in a day since Sept 22, 2016, extending the net outflow in the first three trading sessions of the year to 815 million rupees.

Worries over a weakening rupee and rising interest rates also weighed on the sentiment.

"Investors still don't have the confidence to buy the shares," said Atchuthan Srirangan, a senior research analyst with First Capital Equities (Pvt) Ltd.

"Amid interest rate volatility and policy uncertainties, they are not willing to buy for long term. They will wait to see the long-term picture."

The Colombo stock index ended 0.1 percent down at 6,153.13, its lowest close since April 4. The bourse fell 9.7 percent in 2016, its second straight annual decline.

The index dipped into the oversold territory further on Wednesday with the 14-day relative strength index extending its fall to 28.569 points versus Tuesday's 29.238, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.

Conglomerate John Keells Holdings Plc, which saw net foreign selling of 5.22 million shares that accounted for 82 percent of the day's turnover, however ended 1.2 percent higher on the back of bargain hunting by domestic investors.

Talks of a high net worth foreign investor exiting from Keells has triggered panic selling, dealers said.

Yields on treasury bill auctions rose 5-6 basis points at a weekly auction on Wednesday.

Sri Lanka's central bank governor on Tuesday signalled less intervention to defend the currency and the market has braced for a depreciation in the currency.

The country's failure to attract foreign direct investment and a lack of investor confidence due to a reversal in some 2016 budget policies weighed on the market and on the rupee, stockbrokers said. The currency lost 3.9 percent in 2016 and continues weaken.

Turnover stood at 958.3 million rupees ($6.41 million).

Shares in Ceylinco Insurance Plc dropped 18.1 percent while large cap Ceylon Tobacco Company Plc lost 1.6 percent. 

($1 = 149.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)