Three strongest private banks make cash calls within weeks of each other

Three of the country’s strongest privately owned banks have made cash calls on their shareholders within a matter of weeks to increase their Tier l capital to comply with Basel 111 requirements.

Hard on the heels of the Commercial Bank of Ceylon PLC’s recent rights issue for both its voting and non-voting shares, Hatton National Bank floated a similar rights issue which closed last week for its voting and non-voting shares.

Now Sampath Bank PLC on Friday announced a rights issue under which slightly over 31.03 million new shares will be issued in the proportion of one new share for every six shares held at a price of Rs. 245 a share. Sampath has only voting shares with no non-voting category.

Commercial Bank priced its new shares at considerably less than the trading price of these shares at the time the rights issue was floated giving its existing shareholders a distinct price advantage and ensuring the likelihood of full subscription that was achieved.

"Some of the major shareholders of ComBank like motor vehicle importer Indra de Silva and the DFCC Bank, ComBank’s top shareholder, sold part of their holdings to raise funds to subscribe for their rights," a share analyst said.

"In the event, Silva bought a part of the DFCC holding that was put out for sale after he had sold his stake and subscribed to the rights accruing to those shares."

ComBank priced its voting shares at Rs. 113.16 and the non-voting shares at Rs. 90.80 offering one new share for every 10 held on the rights issue. The day the issue was announced the voting shares were trading above the Rs. 140 level. The issue was fully subscribed infusing Rs. 10.1 billion zero cost capital into the bank’s books.

HNB which offered both its voting and non-voting shares in the proportion one for 10, priced the voting shares at Rs. 220 and the non-voting at Rs. 190 seeking to infuse Rs. 15 billion new equity funds into its books.

"Unlike ComBank, HNB priced its rights fairly close to the trading price giving its shareholders less of an advantage," a broker said. "In fact, when the issue closed last week, the non-voting shares were trading at around the issue price."

Analysts said that ComBank shareholders who applied for additional shares over and above their rights entitlement from unsubscribed rights were satisfied to some extent indicating that some shareholders did not subscribe despite the profit that could have been made by taking and selling the shares.

Whether this would be so in the case of HNB too is being watched by the share broking and trading community. The Sampath share closed on Friday at Rs. 272.10 against the rights price of Rs. 245.

HNB has not yet made an announcement on the results of its rights issue. This is likely to be made in the near future, analysts said.

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Kelani Cables profits down despite historically high turnover

Kelani Cables PLC has seen a dip in net profit to Rs. 378 million in the year ended March 31, 2017 from Rs. 499 million a year earlier despite the company achieving a historically high turnover of Rs. 7.12 billion during the year against the previous year’s Rs. 6.62 billion.

Mr. Upali Madanayake, the company’s chairman, has said in its recently released annual report that they had succeeded in "sustaining commendable growth despite adverse conditions both globally and locally to ensure consistent shareholder value."

"Our sales team performed well despite tough market conditions and the growth over last year amounts to 8% year-on-year," he added.

Director/CEO Mahinda Saranapala reporting the historically high turnover said the overall performance was highly commendable considering the market conditions and severe condition in the distribution market.

Kelani Cables which was founded in 1969 to manufacture and distribute power and telecommunication cables and enameled winding wires began operations with just 12 workers. The brand is today a household name with a 500-strong workforce and a solid reputation for quality and stability, the company said in the report.

It has undergone several changes in ownership since its founding by the Wijegoonewardena family. The company became a subsidiary of Australian multinational Pacific Dunlop Cables Group in 1994 and in late 1999 the majority shareholding was acquired by ACL Cables.

"These alliances have provided opportunities for expansion and knowledge sharing which have enabled the company to enhance its operations.

Kelani became a public quoted company in 1973 and its shares are quoted on the Colombo Stock Exchange. Madanayake said that the Kelani share had traded during the year under review between a high of Rs. 112.50 and a low of Rs. 101. Net assets per share were up to Rs. 159.38 from Rs. 146.47 the previous year.

Despite the drop in net profits, a dividend of Rs. 4.50 a share against the previous year’s Rs. 3 has been proposed.

The company has a stated capital of Rs. 218 million and total assets of Rs. 5.65 billion against total liabilities of Rs. 2.17 billion.

He also reported that a capacity expansion program was currently in progress and a new cable manufacturing line installed the previous year was performing well. They were also exploring the possibility of investing in new state-of-the-art machinery with high speeds to further boost productivity.

"We also hope that the current political and economic conditions will remain steady," he said, "ensuring that consistent policies are in place to spur the economy to greater performance."

Lanka Olex Cables (Private) Ltd. with 75% of the company is the controlling shareholder. All other shareholders including the Bank of Ceylon and the ETF individually own less than 5%.

The directors of the company are: Messrs. Upali Madanayake (chairman), Suren Madanayake (deputy chairman), Mrs. NC Madanayake, Dr. Bandula Perera, Dr. Ranjith Cabral and Mahinda Saranapala (CEO).

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Piramal Glass Sri Lanka unit June net down, floods hit sales

ECONOMYNEXT – Piramal Glass Ceylon PLC said June 2017 quarter net profit fell 3.7% to Rs105 million from a year ago with sales slumping after floods triggered by heavy rains.

Total sales of the firm, a unit of India’s Piramal Glass, fell 17% to Rs1,403 million over the same period, according to interim results filed with the stock exchange.

Earnings per share were 11 cents.

“Amidst the adverse sales impact the company showed marked improvement in its profitability indicators,” a statement said.

The Gross Profit margin during the June 2017 quarter was 25% as compared to 18% in the same quarter a year ago with operating profit up to 15% from 9% the previous year.

“The incremental operational profit margin improvement was possible due to the reduction of trading sales,” the statement said.

Piramal Glass Ceylon’s relined furnace and expanded production line is now well stabilised and the domestic market is being supplied mainly with in house manufactured bottles which has replaced imported bottles, the company said.

Last year due to capacity constraints when the furnace was shut for renovation a considerable portion of the domestic sale was done through imports.

Even though the operating profit has increased the net profit after tax was subdued and pre-tax profit was affected due to the high interest cost resulting from the long term loan of Rs 3 billion borrowed for the funding of the project, the statement said.

“The operations during the quarter were impacted by the heavy floods which occurred during the latter part of May,” it said.

“Though the company premises itself was not affected access roads went under water hampering transportation of raw material and energy and the despatch of bottles.

“Several customers’ premises and operations were also affected due to the floods.”

Domestic sales stood at Rs. 1,084 million as against Rs. 1,346 million in the previous year, reflecting a fall of 19%.

“A dip in the overall domestic market was experienced which impacted the sales in all segments,” the company said.

Export sales for the quarter were at Rs. 319 million as against Rs. 338 million the previous year.

“The major decline in the export market was from export to India due to the changes in the tax structure with the announcement of GST implementation country wide,” the statement said.

“All other geographical locations namely Australia, USA and Canada have showed positive growth figures during the period under review.”

Piramal Glass Ceylon said it remained concerned the Ceylon Petroleum Corporation has not revised the rates of furnace oil for past four years although crude oil prices, which hit US$ 120 a barrel in 2011 had fallen below US$50, a more than 50% reduction in the price.

“Yet the corresponding furnace oil prices has not been addressed accordingly,” it said. “This state of affairs is affecting our competitiveness in the international market. The company has been requesting the government to introduce a formulae pricing based on international crude oil price which will be a fair transparent pricing mechanism.”

Sri Lanka Treasuries yields fall sharply across maturities

ECONOMYNEXT – Yields on Sri Lankan Treasury Bills fell across the board at an auction Wednesday with the 03-month bill yield down 12 basis points to 9.44 percent from 9.56 percent last week, the Central Banks public debt department said.

The yield on the 06-month bill fell 30 basis points to 9.71 percent at the auction from 10.01 percent last week, it said in a statement.

The one-year bill yield fell 19 basis points to 9.99 percent from 10.18 percent last week.

The debt office said it got bids worth Rs1.4.5 billion and accepted bids worth Rs27.3 billion.

Sri Lanka’s John Keells PLC June net up 30-pct

ECONOMYNEXT – Sri Lanka’s John Keells PLC said June 2017 quarter net profit rose 30% to Rs60 million from a year ago, with its stock broking business turning profitable largely helped by finance income.

Quarterly sales of the broking unit of John Keells group rose 46% to Rs215 million over the period, according to interim results filed with the stock exchange.

Earnings per share for the June quarter were 98 cents, up from 76 cents the previous year. The share last traded at Rs60.

John Keells PLC has three operating segments, produce broking which includes tea and rubber broking, warehousing, which includes tea and rubber pre-auction produce warehousing, and stock broking.

Produce broking earned the biggest profit, of Rs70 million, in the June 2017 quarter, up from Rs54 million a year ago.

The warehousing business made a profit of Rs7 million compared with earnings of Rs5.6 million the previous year.

The share broking business of John Keells PLC made a profit of Rs7.9 million in the June 2017 quarter compared with a loss of Rs1 million the year before.

The stock broking unit earned finance income of Rs6.2 million in the quarter with Rs1.9 million profit coming from operating activities.

Sri Lanka's JKH net up 19-pct in March on finance income

ECONOMYNEXT - Sri Lanka's John Keells Holdings Plc, which has interests in logistics, leisure, property and financial services said net profits for the June 2017 quarter rose 19 percent to 2.8 billion rupees helped by finance income, amid narrowing profits from several segments.

The group reported earnings of 2.04 rupees per share.

Revenues rose 18 percent to 26 billion rupees and cost of sales rose at a faster 25 percent to 20.1 billion rupees and gross operating profits rose barely increased by 1 percent to 6.7 billion rupees.

Group finance income rose 65 percent to 3.4 billion rupees while finance cost fell to 144 million rupees from 271 million.

Profits in transport rose to 774 million rupees from 694 million in the quarter, financial services rose to 235 million rupees from 195 million, information technology rose to 51.6 million from a loss of 2.1 million a year earlier and property maintained profits with 49.3 million profit up from 48.8 million.

Profits in leisure fell to 106 million rupees from 475 million a year earlier amid a closure of some hotels, retail fell to 755 million rupees from 924 million.

There was a sharp increase in 'other' segment which usually contain items such as finance income to 1.0 billion rupees from 310 million.

Sri Lanka's TJL net down 45-pct, expects GSP+ bounce

ECONOMYNEXT - Sri Lanka based Teejay Lanka, a fabric maker said profits plunged 45 percent to 219 million rupees in the June 2017 quarter from a year earlier with cotton prices up, but its already seeing higher demand from duty free access to the European Market.

Revenues rose 13 percent to 5.4 billion rupees but expenses rose at a faster 19 percent to 4.8 billon rupees, shrinking gross margins 17 percent to 604 million rupees.

Cotton prices which rose in the last quarter of 2016 has remained high, Chairman Bill Lam told shareholders. But he expects better prices in the future.

"Other factors included competitive sales pricing which prevented us promoting any price hikes and the growth product mix," he said.

"With the expansion in India underway, overheads have also increased mainly through depreciation related costs increasing for the quarter."

Teejay Lanka has ended its tax holiday from September 2016, and group tax had increased to 72 million rupees from 44 million rupees a year earlier.

"The overall market remains competitive with the price swings and high demand for low cost products which posed challenges on selling prices and margins," Lam said.

"However, cotton price volatility is expected to ease out during the third quarter of the new financial year. Also with the GSP benefit, a potential surge in EU business is expected and is already being observed."

SEC to strengthen guidelines on top positions at local firms

By Duruthu Edirimuni Chandrasekera

In a few months’ time, those aspiring to hold high positions at all capital market institutions will have to undergo a litmus test.

This will come when the Securities and Exchange Commission (SEC) will set criteria on who can hold board positions at stockbroking houses, funds, Unit Trusts, etc while they aim to revamp and strengthen the guidelines on fitness and propriety applicable to market institutions and market intermediaries. They aim to expand this to key management personnel at these institutions as well. The fitness and propriety criteria will perform a gatekeeper’s role and this assessment is done when an application is considered for licensing or registration and also on a continuous basis which will consider the conduct of the business and its history of compliance with the applicable laws and regulations, according to SEC officials.

SEC’s 2016 annual report, released on Saturday, said that in line with the Capital Market Strategy 2020 which proposes to enhance and maintain high levels of professionalism among persons engaged in capital market activity, the qualification framework of the SEC designed for stockbroker certification, etc would undergo extensive revision, allowing for multi-tier licensing and continuous professional development for the institutions/persons.

“These new guidelines would drive a positive industry culture encouraging honesty and integrity among the regulatees of the SEC so as to better protect the investing public,” the report said. A SEC official told the Business Times that certification standards will increase with the new syllabuses for brokers. “Fit and proper criteria for directors will be set in addition to the rules now applicable for company directors,” he said.

As an important conduit and enabler of retail investment, unit trusts are pivotal to the Capital Market Strategy 2020 and the SEC seeks to actively engage provident funds and pension funds in diversifying their portfolios and increasing asset allocation to capital market investments, the report said. “Increased participation by such long-term institutional investors can improve market stability and sustainability, as a result of their holding power and ability to act in a counter-cyclical manner.”

Traditionally having significant exposure to government securities, these funds could optimise portfolio returns and extent maturity profiles to provide better asset-liability matching through calculated investment in the market. At present, with the broad-basing of market participation in mind, minimum public holding thresholds apply to listed companies upon initial listing, and enforced thereafter on a continuous basis. The SEC would drive requisite policy formulation for the introduction of short-selling, securities borrowing and lending, and other new products in order to deepen liquidity, the report said.

Many new products
To increase portfolio choice of investors, the SEC is developing a sequencing framework for the introduction of new products ranging from Real Estate Investment Trusts (REITs) and Exchange Traded Funds (ETFs) to Financial Derivatives. “The SEC would enable the introduction of a multi-asset offering for investors by spearheading policy formulation in order to facilitate related rule-making by the Colombo Stock Exchange (CSE),” the report added.

Representations have been made to the Government by the regulator in exploring the potentiality of invigorating the capital market through the listing of State-Owned Enterprises (SOEs) with compelling investment proposition. “Entry by SOEs into the capital market engenders less dependence on state financing whilst enhancing governance standards. The CSE is encouraged to engage with private sector corporate in order to facilitate their efforts to tap the capital market to fulfill funding requirements. The implementation of new listing platforms for issuers of varied size, scale, maturity, and value-recognition needs is underway collaboratively with the CSE,” the report said noting that the Multi Currency Board would enable local and foreign issuers to explore multi currency listings, whilst small and medium enterprises (SMEs) would be provided access via the SME Board.

Interesting foreigners
Foreign investors were the net sellers in the market in 2015 with net sales of Rs. 5.3 billion. Rs 2.2 billion net foreign investment to the market can be considered as one of the highlights in 2016, the SEC report said. The Health Care Sector recorded a growth of 11.6 per cent in the year as against 9.6 per cent negative growth of the All Share Price Index (ASPI). Manufacturing and Stores and Supplies sectors grew by 6.5 per cent and 4.1 per cent respectively during the year. Services and Investment Trust sectors declined significantly by recording a negative growth of 24.8 per cent and 23.6 per cent, respectively.

The Diversified Sector accounted for Rs. 19.7 billion of the total market turnover, out of which Rs 12.5 billion came from foreign investors.

There were three new listings during the year 2016 (People’s Insurance PLC, Orient Finance PLC and Amana Takaful Life PLC) raising Rs. 1.8 billion through the Primary Market. There were 17 corporate debenture issues during the year which raised Rs. 77.9 billion and two delistings during the year.

There were 30 companies with a public holding of over 50 per cent as at 31st December 2016 and 34 companies had a public float of less than 10 per cent. 73 companies were in the category of 10 per cent to 20 per cent. These statistics reveal that still public holding is a serious impediment towards the development of the capital market in Sri Lanka especially in attracting foreign investors. Foreign institutional investors prefer to invest in stocks with a large free float, as they can purchase or sell a significant number of shares without heavily impacting the share price, the report noted.

At the end of 2016 there were 801,685 CDS accounts opened at the CDS out of which only 38,781 accounts have traded at least one transaction in 2016. There were 23,867 accounts that carried out one transaction per quarter. When the stock market was at its peak in 2010 and 2011 there were 78,517 and 117,712 active CDS accounts (minimum one transaction per year).

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Standard Capital AGM runs into ‘storm’ of issues

Standard Capital Plc, whose last 2015/16 annual report showed post-tax losses nearly doubling to Rs. 64.5 million from Rs.33.3 million in the earlier year, ran into a ‘storm’ of issues from shareholders at the recently held annual general meeting.

According to shareholder A.K. Gnanakanthan, the AGM held on June 30 at the Colombo City Hotel – in the view of many shareholders – should be declared deemed null and void.

Company officials were not immediately available for comment and clarification. The company is in the business of manufacturing and selling Sulphuric Acid and Aluminium Sulphate.

In a letter to the newspaper, Mr. Gnanakathan, giving details of the meeting, said:
“Mr. K.C. Vignarajah is in the top 20 major shareholder list and largest individual shareholder in position number 5 and he was the former truly independent Director who opposed the controlling interest and their nominee directors when there were (alleged) wrongdoings in the company and in a very scrupulously manner they manipulated his exit from the board at a previous AGM after unanimously endorsing him in the Annual Report of 2014/15.

At the meeting Mr. Vignarajah read out the “Note of Protest” which enumerated many of the faults in the process prior to the AGM. The Secretaries were not able to announce the proxies received “for and against”, the resolution at the beginning of the meeting as required. The Chairman did not ask the Secretaries to announce the proxies received for or against. In fact the Secretaries stated that they were kept away from the process altogether. Most of the shareholders who were present complained that they did not receive the notice of the above meeting and the annual report.

No independent shareholders proposed or seconded the resolutions to elect the directors. Mr. Vignarajah pointed out the distorted percentages shown by including totally different categories of non-voting, redeemable shares, etc. Auditors explained that the percentages reflected only adjustments for consolidation and will not affect the voting equity.

During elections, the company staff issued and collected the ballot papers counted and did everything related to the poll. At a later stage the Auditors helped in the count of ballot papers shown to them.

The AGM was not conducted in a proper manner and the chairman didn’t release the details of the polls as demanded by all. Several shareholders including myself raised many issues of vague statements, lack of transparency and exaggerated forecasts from the board of directors without any valid explanations and plans. Considering all the above facts and the ‘no care attitude’ towards the public shareholder concerns, relying only on the strength of majority control, the public shareholders agree that the AGM was null and void.”

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‘Unfair pricing’, claims Piramal over furnace oil sold by CPC

“Unfair pricing,” claimed Piramal Glass Ceylon PLC this week referring to unchanged furnace oil prices by the Ceylon Petroleum Corporation (CPC) over the past few years.

In releasing its quarterly results for April-June 2017, the company reiterated earlier concerns that furnace oil prices have remained unchanged despite crude oil pricing crumbling overseas.

“There is concern that the Ceylon Petroleum Corporation has not revised the rates of furnace oil for the past four years. Crude oil prices which hit a US$120 a barrel in 2011 is now hovering below $50 in the past four years and as at date is a more than 50 per cent reduction in the prices. However the corresponding furnace oil prices and the need for a reduction based on international prices hasn’t been properly addressed. This state of affairs is affecting our competitiveness in the international market. The company has been requesting the government to introduce a pricing formula based on international crude oil price which will be a fair transparent pricing mechanism,” the company said in a media release.

Meanwhile, its first quarter 2017-2018 earnings fell marginally with revenue recorded at Rs. 1,403 million and post-tax profit at Rs. 105 million.

Sales during the first three months (April to June) was Rs. 1,403 million, down by 17 per cent from the same period in the earlier financial year.

The company said there was a major decline in the export market as per sales to India due to the changes in the tax structure with the announcement of GST implementation country wide. However ,all other geographical locations – Australia, US and Canada showed positive growth figures during the period under review.

Increase in the operational profit margin was possible due to the reduction of trading sales. “With the new facility now well stabilised the domestic market is being supplied mainly with in house manufactured bottles which has replaced the imported bottles. Last year due to capacity constraints a considerable portion of the domestic sale was done through imports,” the company media release said.

Even though operating profit rose, post-tax profit fell, affected by the high interest cost resulting from the long term loan of Rs. 3 billion borrowed to fund expansion.

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SEC reopens eight ‘pump & dump’ cases

By Duruthu Edirimuni Chandrasekera

The Securities and Exchange Commission of Sri Lanka (SEC), has dealt a tough blow against pump and dump operators of the past, reopening eight cases. The regulator, under fire for ‘not doing much’ during the past three years, is now flexing its muscle, according to the SEC Annual Report for 2016.

Amidst implementing and shoring up the capacity to implement structural changes, governance practices and many other changes, the regulator has completed three probes into market manipulations while 26 cases are in progress, it said.

Among these, eight previously concluded cases during the infamous ‘pump and dump’ era were re-opened amidst further investigations into three cases which were reopened in 2015 are being conducted. “As at end 2016 further investigations into these cases were in progress.” Certain cases were awaiting the Attorney General’s (AG) opinion, the SEC report revealed.

“We continued to upgrade our investigative skills in order to effectively detect and investigate potential securities law violations. During the year, the new investigation team was able to complete three investigation and four others are at different stages of completion,” SEC chairman Tilak Karunaratne has said in his annual statement. Being a signatory to the International Organisation of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding (MMoU), the SEC successfully sought assistance from several jurisdictions to conduct investigations, he said.

The SEC in 2016 revisited a number of recently concluded investigations, and, finding them to have been summarily assessed and prematurely concluded, decided to subject them to further scrutiny, the SEC Director General Vajira Wijegunawardane has said in his statement.
“Our Investigations Division in now entrusted with a larger-than-usual caseload, the handling of which, to date, has been laudable,” he has added.

Investigations of a criminal nature are often long-drawn and time-consuming, but these investigations are being duly conducted, he has said noting that with enforcement actions in several cases are imminent over the next year. “We are well-prepared for the journey ahead and prevail upon regulatees and participants alike for their cooperation in ensuring that the capital market of Sri Lanka is at its safest-year for investors.”

The SEC aims to install a technologically advanced system for market surveillance and regulatory reporting to ensure that transactions are carried out in compliance with the rules governing capital market activity, the report alluded noting that such a system would enable the regulator to detect and deter potential market abuse and enhance its ability to pre-empt the occurrence of disruptions in the market as a result of irregular trading activity.

Not only direct participants, but others in the periphery will also be scrutinised by SEC in the future. “It is also proposed to cast duties on supplementary service providers including those hitherto unregulated by the SEC. This is to ensure that such persons remain accountable for the scope and quality of work performed in relation to the capital market. The SEC also hopes to extend its regulatory reach to encompass other hitherto-unregulated entities and instruments,” the report said.

During the past year the regulator handled 52 complaints, conducted 93 On-site inspections, 2,347 off-site reviews, provided 13 analytical trading reports to law enforcement agencies, sought clarifications / cautioned 36 brokers / traders and 23 investors through market monitoring and compiled 7- surveillance referrals, the report added.

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