Abans Finance grows PBT by 51%

Abans Finance, a member of the Abans Group, has registered a pre-tax profit of Rs. 197.4 million for the period ended 31st March 2017, compared to Rs. 130.5 million recorded in the corresponding year of 2016, achieving a YoY growth of 51.29%. The post-tax profit of the company for the period under review has also improved by 48.2%, from Rs. 90.1 million in 2016 to Rs. 133.6 million in 2017.

The Abans Group consists of a large diversified set of companies and divisions overlooking the sales and financing of consumer durables/household appliances, motor vehicles, environmental services, logistics, hospitality and finance.Abans Finance has also enhanced its stated capital from Rs. 382.3 mn to Rs. 844 mn during 2016/17 and further to Rs. 1,121.4 mn during the current financial year of 2018.

Ironwood Investment Holding (Pvt) Limited has invested in Abans Finance and currently holds 41.89% Equity of the Company with the conclusion of the Mandatory Offer closed in July 2017. Ironwood is a private equity firm that successfully raised a Sri Lanka-focused Private Equity fund of up to USD 30 mn. in long term (8 year) capital commitments.

The company has continued to increase its profitability amidst external challenges such as increasing interest rates and slowdown in consumption. The increase in profitability was mainly due to favourable growth in net interest income.
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LB Finance crosses Rs 100 Bn mark in Assets

LB Finance accomplished a stellar performance overall for the year ended March 31, 2017. Total assets crossed the Rs. 100 Bn milestone to reach Rs. 102.8 Bn as at March 31, 2017, a growth of 21.6% over the previous year. The Company has been able to record compounded annual growth rates (CAGR) of 19.2%, 17.3% and 19.6% respectively in total assets, customer deposits and loans & advances over the past five years.

Profit before tax on financial services grew by 17% reaching Rs. 6.9 Bn for the financial year 2016/17, the highest recorded among all the players in the Non-Banking Financial Institutions (NBFI) Sector for the year.

Correspondingly, profit before income tax too grew to Rs. 5.9 Bn, the highest ever recorded in the Company’s history, albeit at a lower rate of 10% year on year due to an increase in the VAT rate. Profit after tax was recorded at Rs. 3.9 Bn with a growth of 5%.

Profitability in terms of Return on Assets and Return on Equity were recorded at satisfactory levels of 4.2% and 34.1% respectively for the year.

This is a commendable achievement given the challenging external environment during the year characterized by, amongst others, tight liquidity, rising interest rates, change in import duties on vehicles, restrictions on lending imposed by the regulator and lacklustre investor confidence.

Commenting on the performance, Sumith Adhihetty, Managing Director of LB Finance stated, “In a year filled with many challenges, we proved our resilience by successfully maintaining our growth momentum and meeting the challenges posed by the external environment and asserted our dominance in the industry.

The financial stability we have demonstrated is a testament to the trust placed in us by our valued stakeholders for the last 46 years.”

LB Finance recorded a strong, above industry average total capital adequacy ratio of 17.1% as at March 31, 2017 against the minimum regulatory requirement of 10%. Further, A- (lka) rating from Fitch Ratings Lanka Ltd. with a stable outlook denotes expectations of low default risk and strong capacity for payment of financial commitments.

In its endeavors to enhance shareholders’ value, LB Finance is committed to the highest standards of business ethics, corporate governance and risk management. Acknowledging the commitment to transparency, accountability and good governance in financial reporting, CA Sri Lanka bestowed many awards for the Company’s Annual Report 2015/16 including the overall special Gold award for Integrated Reporting Best Disclosure on Capital Management at its 52nd Annual Report Awards. The report also won Bronze at the CMA Excellence in Integrated Reporting Awards.

Taking up the challenge to offer a widely differentiated approach in its offering of products and services, LB Finance leveraged technology to capitalize on digital channels and platforms that empower and free employees to better focus their energies on serving the financial needs of its customers - including a whole new generation that demands a personalized approach.

Established in 1971, LB Finance succeeded in building an unmatched reputation as one of Sri Lanka’s most trusted financial institutions as evident from the total deposit base of over Rs. 60 Bn, one of the largest in the NBFI sector.

Licensed by the Central Bank of Sri Lanka under the Finance Business Act No. 42 of 2011 and listed on the Main Board of the Colombo Stock Exchange, LB Finance offers a variety of financial services including Leasing, Factoring, Hire Purchasing, Micro Finance, Mortgage Loans, Gold Loans, Currency Exchange service and Western Union Money Transfer service through an island-wide network of 154 branches and Gold Loan Centres, affording unparalleled convenience to the customer.

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Sri Lanka tourist arrivals down 1.8-pct in July

ECONOMYENXT - Sri Lanka's tourist arrivals fell 1.8 percent from a year earlier to 205,482 in July 2017 with visitors from China, Maldives and Russia down, and anaemic growth from other generating markets.

After surging 17.5 percent in April, with the re-opening of a partially closed airport, arrivals fell 2.5 percent in May and grew only 4.5 percent in June.

In the first seven months of the year, arrivals have grown only 3.6 percent to 1.17 million visitors. Sri Lanka's tourist authorities were targeting 2.5 million arrivals for 2017, almost a 25 percent increase.

Chinese arrivals fell 7.1 percent to 28,445 in July after also falling in June 13 percent. In the first seven months total arrivals were down 0.2 percent to 163,189.

Visitors from Japan grew 10.8 percent to 4,025, Philippines grew 14.4 percent to 1,207 but Malaysia fell 32 percent to 1,628.

Visitors from India, grew 4.8 percent to 29,006, with arrivals up to July up just 0.7 percent to 201,900.

Western European visitors grew 3.9 percent to 80,896 with arrivals from UK down 1.6 percent to 23,553, Germany down 1.2 percent 10,835. French visitors rose 4 percent to 11,390 and Dutch visitors rose 22.9 percent to 11,990.

List SOEs to elevate Sri Lanka to Morgan Stanley index

Sri Lanka could attract nearly US$ 4 billion by getting the Colombo Stock Exchange (CSE) reclassified into one of the world’s most popular emerging markets equity indices, the Morgan Stanley Capital International (MSCI) Emerging Markets Index, industry analysts say.

And this can be easily done through going public with some State Owned Enterprises (SOE). In fact analysts said that some international funds are eagerly awaiting SOE to go public.

What’s the deal?

So to meet MSCI Emerging Markets Index classification criteria, at least three companies listed in CSE should have a full market cap of Rs. 1,269 million and listed stock market cap of $635 million and security liquidity of 15 per cent Annualised Traded Value Ratio (ATVR) calculated as the median value of shares traded daily in relation to the market capitalisation of the stock.

Now Sri Lanka is in the MSCI Frontier Markets (FM) Asia Index which captures large and midcap representation across three Asian Market countries. The index includes 22 constituents covering about 85 per cent of the free float-adjusted market capitalisation in each country in terms of country weightage among the constituents. What we need to aspire and work towards is to get into the next level which is the Emerging Markets status. This is what Pakistan did.

Pakistan stocks have a potential weight of 0.2 per cent in the MSCI Emerging Markets Index, Financial Minister of Pakistan Ishaq Dar had said in a statement. MSCI’s decision to elevate Pakistan to Emerging Markets status was as part of its semi-annual Index Review in May 2017. The subsequent removal of Pakistani constituents from the Frontier Markets (FM) Asia Index resulted in Sri Lanka improving its weightage to 11.12 per cent and the inclusion of Commercial Bank and Ceylon Tobacco. The index rebalance has also increased the number of constituents from Vietnam and Bangladesh 17.43 per cent.

Analysts say that getting into this higher index would be seen as a ‘better invest in CSE’ option for investors. “The CSE will be in the radar screens of better and bigger investors,” an analyst said.

MSCI Emerging Markets Index is tracked by investors managing $ 3.9 trillion of assets. “When Sri Lanka is in the index, MSCI Emerging Market Index tracker funds will be required to invest in Sri Lanka as they need to replicate the index,” Ravi Abeysuriya, President Colombo Stock Brokers Association told the Business Times.

Assuming Sri Lanka attracts a mere 0.1 per cent of the assets following MSCI Emerging Market Index, Sri Lanka will have $ 3.9 billion of portfolio investors investing in the CSE, he said. “This will increase the current stock market capitalisation as a percentage of GDP of Sri Lanka to 27 per cent from 22 per cent,” Mr. Abeysuriya said.

He said the government should persuade a large SOE or private company to list in the CSE that fully meets the MSCI Emerging Markets Index classification criteria. “Now the criteria calls for a full market cap of $1,269 million and listed stock market cap of $ 635 million and security liquidity of 15 per cent ATVR,” Mr. Abeysuriya noted. Ray Abeywardena, Chairman CSE agreed saying that there should be a holistic approach by all stakeholders for the CSE to get to a better notch at MSCI. “Those who track the MSCI will be attracted to the CSE more,” he added.

Analysts noted that in this respect, the CSE is reviving the ‘All Or Nothing Board’, a mechanism that is used on a buy or sell a (large) parcel in its entirety at an open auction. This board instructs a broker to execute the order or sell/buy the parcel wholly or to do nothing. So now the ball is on the government’s court.

Representations have been made to the Government to explore the potential of invigorating the capital market through the listing of SOEs with compelling investment propositions by the CSE and the Securities and Exchange Commission (SEC) last year as well as this year. SEC has said that entry by SOEs into the capital market involves less dependence on state financing whilst enhancing governance standards. “The CSE is encouraged to engage with private sector corporates in order to facilitate their efforts to tap the capital market to fulfill funding requirements,” an SEC official told the Business Times.

Rajeeva Bandaranaike, CEO CSE told the Business Times that the exchange is working in its own capacity to get into the MSCI. “We are ‘ticking boxes’ as we go along,” he said noting that this entails enhancing of infrastructure, capitalisation etc.

PPPs before CSE
The Public Enterprise Ministry is more than struggling to ‘restructure’ (before going public with them) certain SOEs. It received Cabinet approval for a number of restructuring efforts for state plantation companies namely Janatha Estate Development Board (JEDB), Sri Lanka State Plantations Corporation (SLSPC), Elkaduwa, Chilaw and Kurunegala plantations. At present they are more concerned about Private-Public Partnerships (PPP). The Ministry got approval by the Cabinet to go public with the Grand Hyatt Colombo and the Colombo Hilton which the state owns, sources said. But analysts say that political will must be stronger than all approvals. “Then the CSE will ‘fly’,” another analyst said.

In a progressive move, the Ceylon Chamber of Commerce’s National Agenda Committee on Infrastructure presented a set of recommendations on speeding PPP to the Minister of Finance and Media Mangala Samaraweera recently, and highlighted the need for a robust institutional and operational set up for the new PPP agency last month. The chamber in a statement said that this committee’s latest set of recommendations focused on developing guidelines to ensure efficient collaboration between the PPP unit and line ministries; prioritisation of projects through developing a robust project pipeline; ensuring a fair, transparent and well managed procurement process; as well as implementing an effective communication strategy were, well received by Mr. Samaraweera.
Analysts noted that this is a ‘start’, but at least some of these entities should go public this year.
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Colombo Stock Exchange (CSE) plans stricter enforcement rules on disclosures

The Colombo Stock Exchange is planning some enforcement rules pertaining to their ‘Continuous Listing Requirements’ to take ‘errant bad boys’ to task, officials said.

There have been some issues in terms of Section 7.8 of the Listing Rules of the CSE, which specify immediate disclosure pertaining to a firm’s share dealing. The CSE has found instances where these disclosures aren’t immediate and has had ‘one-to-ones’ with certain offenders who complied after many ‘calls’ warning them to meet with the rules, officials said.

The most recent incident was a disclosure dealing in relevant dealings in shares at Anilana Hotels and Properties PLC which the company disclosed early last month, but was far from an immediate disclosure. There were 17 sales of shares of Anilana Hotels and Properties PLC by Investors Access Equities (Pvt) Ltd that were disclosed on July 7, but they happened from May 12 to June 23.

The dealings were by Asanga Chandana Seneviratne, Managing Director of Anilana Hotels and Properties PLC. All shares were sold at Rs. 1.30 barring a parcel of 5,000 shares at Rs. 1.40 on May 18.

In another instance, the date of transaction was November 10, 2016 but the particular incident was disclosed to the CSE only on February 8 this year, and CSE had warned the particular firm. Adam Investments PLC had disclosed two transactions on June 1 while the transactions were in January this year.

This was a clear breach of CSE rules. The CSE will be scrutinising firms in future pertaining to such instances and the new regulations will deter offenders from delayed disclosures, officials added, declining to state what these new rules are.

Public companies are required to disclose meaningful financial and other information to the public as it provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell or hold a particular security. Only through the steady flow of timely, complete, and exact information can people make sound investment decisions, officials said.

Earlier the Securities and Exchange Commission had directed the exchange to amend the listing rules on disclosure requirements in relation to related party transactions of listed firms in September 2010. This was after a Business Times story that same month highlighting this issue pertaining to listed firm directors’ disclosures.

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Colombo Stock Exchange (CSE) cleans up anomalies

The Colombo Stock Exchange (CSE) is being progressive, and is cleaning up the anomalies that have been dogging the share market for years.

Firstly they included non-voting shares which are listed and traded on the exchange in its Index Market Capitalisation (IMC) calculation. In jurisdictions where they allow non-voting shares to be traded, those same shares are included when calculating the capitalisation, but at CSE, despite allowing them to trade, they weren’t calculated in the index. “This was an anomaly that was corrected,” a CSE official told the Business Times.

Including non-voting shares in the calculation of indices is seen as a common practice internationally and is carried out by a number of leading exchanges and index providers globally, he said adding that these shares are non-voting shares eligible for inclusion in the calculation of domestic market capitalisation according to the statistical definition of the World Federation of Exchanges.

While the impact is small in including this in terms of increasing the capitalisation, it still makes a difference in being the right thing to do, the official added. So in June, the All Share Price Index included the non-voting shares currently listed on the CSE. “The non-voting shares listed by the respective constituents of the S&P SL 20 Index are set to be included in the S&P SL 20 Index, provided that they meet relevant liquidity requirements,” the CSE said in a release.

In another move, the CSE introduced a step-up fee structure with a revised threshold of Rs. 100 million in relation to secondary market transaction fee computations, as at end June.

A fee of 1.12 per cent was set to be applicable to share transactions below Rs. 100 million while a fee of 0.6125 per cent is set to be applicable for transactions above Rs. 100 million transactions above Rs. 100 million would therefore be applicable to the step-up fee structure. “This was introduced as initially the structure that was in place wasn’t thought through,” the official said, noting that the tax structure in general is step-up. “This too was introduced to be in line with the standards,” he said.

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Amana Bank almost triples 1H profits

Amãna Bank ended an exceptional first half as the Bank’s profit after tax for the period almost tripled to Rs 151.7 million from Rs 56.1 million achieved in the corresponding period of 2016. Profit before tax also reflected a similar YoY growth of 170% to reach Rs 210.8 million.

Profit after tax for the second quarter alone surged by 376% (YoY) to achieve Rs 85.1 million from Rs 17.8 million recorded in Q2 2016.

Driven by its retail and SME banking activities, the Bank’s top line performance showcased a remarkable YoY growth of 39% in Financing Income to achieve Rs 2.52 billion in the first half while Net Financing Income for the same period grew YoY by 38% to reach Rs 1.19 billion.

The Bank recorded a 14% growth in Net Fee and Commission Income to reach Rs 112.1 million. Net Operating Income of the Bank reached Rs 1.37 billion reflecting a healthy growth of 21.3% from 1H 2016.

The increase in Total Operating Expenses was maintained within 3.5% when compared with 1H 2016. The Bank’s financing margin ended higher at 3.9% compared to 3.6% in 2016.

During the first half the Bank’s Total Assets grew by 4.3% to close at Rs 56.64 billion while its Deposits and Advance portfolios closed at Rs 49.15 billion and Rs 40.02 respectively.

With effective credit risk management policies and procedures in place, the Bank continued to maintain a healthy Gross Non-Performing Advances Ratio of 1.47%, well below the industry average.

Having recorded its first year of core business profit in 2015, the Bank was successful in achieving a positive position in its reserves for the first time to close at a net reserve position of Rs 75.9 million. As a result the Bank’s Net Asset Value per share grew during the 6 months from Rs 4.63 to close at Rs 4.75.

Commenting on the Bank’s performance CEO Mohamed Azmeer said, “I am extremely pleased with the performance achieved by the Bank during the first half of 2017, thereby continuing to maintain the growing trend of income and profitability. The remarkable growth in income and profits were achieved amidst the capital raising activities, which we successfully concluded in our recently oversubscribed rights issue. With fresh capital infused which thereby supports our future expansion, I am optimistic that this performance trend will grow during the second half of the year as we make strong progress to achieve the goals outlined in our five-year strategic plan.”

The Bank recently succeeded in raising Rs 4.75 billion through its Right Issue which will result in the Bank’s Stated Capital growing to Rs 10.6 billion.
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Sri Lanka may be close to the top of rate cycle: CB Governor

ECONOMYNEXT - Sri Lanka may be close to the top of the rate cycle but government spending and inflation direction in the coming months will be key determinants of policy, Central Bank Governor Indrajit Coomaraswamy said.

"My gut reaction is that we are close to the top of the interest rate cycle," Governor Coomaraswamy told reporters.

"But there are important qualifications."

If there is a 'significant fiscal slippage' the central bank will have to respond with monetary policy.

And if headline inflation goes up due to supply side effects, there will have to be a monetary policy response to avoid secondary effects through wages for example, he said.

Inflation may spike in the months ahead, but fall back to the lower side of the 4-5 percent target in the first quarter of 2018, Coomaraswamy said.

Fiscal developments have been positive with government keeping to targets and making monetary policy easier, he said.

Coomaraswamy said he always complained that budget deficits was the key trigger of economic instability of Sri Lanka but from 2016, fiscal consolidation has been on the corrective path, though there may debate about individual spending decisions.

At the moment state enterprises were among borrowers.

Analysts say Sri Lanka's credit bubble seems to be abating but it is right to be vigilant about persistent rises in inflation, whether they seem on the surface to be 'supply' related or otherwise.

Sri Lanka currently has a flood, but with credit moderating, and the central bank sterilizing forex purchases there is less inflationary pressure, though currency depreciation is continuing to push up prices and destroy real wealth.

While temporary supply shocks can happen, where a price of one or more goods go up, it does not necessarily make all prices in the economy to go up over any significant period. In general, infltion occures when a central bank accommodates a supply shock with monetary loosening.

If supply side or cost-push inflation in general was true, it should have happened before the 21st century also, when there was no fiat money, no US Fed and the Bank of England was private.

Supply side inflation is a type of excuse that became popular as part of the post-second World War neo-Mercantilist cost-push inflation myth.

As inflation around the world ratcheted up after World War II with the failed Bretton Woods soft-peg system of deprecating currencies and later fully fiat money, all kinds of excuses were given for inflation, including droughts, floods, wage-spiral inflation, economic growth, oil shocks and laughably even interest rate hikes.

Any excuse for inflation sufficed critics say, as long the reason was not monetary (related to money and credit including currency depreciation).

Among developed nations, Germany stood out as the sole exception and later Japan, which maintained tight monetary policy which resulted in strong exchange rates and low inflation. They were also export powerhouses.

Sri Lanka feedmiiller asks to be freed from third party grip

ECONOMYNEXT - Ceylon Grain Elevators Plc, a poultry group with a feedmill has asked to import maize where licenses have been issued by the state to third parties, restricting trade.

"Hiked price of local Maize and associated import restrictions persisted during the period under review, which have directly affected the Group's bottom line," the firm said in a quarterly review.

"Therefore, with the aim of relieving the local Maize supply shortage condition, appeals have been made to the Government to issue import permits of Maize directly to the feed millers to enable them to use their management skills to procure better quality Maize at competitive prices at the right time."

Sri Lanka last week cut taxes on maize, but the referecne to a third party import scheme shows there could be an import cartel or a monopoly.

Critics say licensing and permits, which restricts trade, confers privileges to a few and lays the groundwork for corruption and rent seeking.

Sri Lanka's domestic maize production has slumped due to a drought. Domestic maize prices have been artificially propped up with import duties for several years, pushing up chicken and egg prices.

Sri Lanka's Sampath Bank June net up 39-pct

ECONOMYNEXT - Profits at Sri Lanka's Sampath Bank rose 39 percent to almost 3.5 billion rupees in the June 2017 quarter from a year ago, supported by robust growth in deposits and loans, according to interim accounts filed with the stock exchange.

The group reported earnings of 18.72 rupees per share for the quarter. The stock was trading at 281 rupees Friday .

Interest income rose 48.4 percent from a year earlier to 20.2 billion rupees, interest expenses rose at a faster 66.9 percent to almost 13 billion rupees with net interest income, representing almost 70% of the bank’s total operating income, up 23.7 percent to 7.2 billion rupees.

Sampath Bank said in a statement the June results were possible due to “the robust growth” recorded in the fund base, in deposits and advances.

“The timely re-pricing of asset and liability products and other fund management strategies adopted by the bank too played a pivotal role in achieving the growth in interest income, it said.

Fee and commission income rose 21.6 percent to 1.9 billion rupees. The accounts showed a sharp gain in other operating income which rose 151 percent to 1.1 billion.

Increases in realized exchange income and dividend income from financial assets have contributed to the increase in other operating income, the statement said.

Collective loan loss provisions rose 1,247 percent to 487 million rupees compared with a reversal of 42 million rupees the year before while individual provisioning fell 50 percent to 204 million rupees.

“Impairment provision of already impaired individually significant customers was further increased during the first half of 2017 after considering the current status of the recovery process,” the bank said.

Collective impairment charge increased mainly due to the growth in the loan portfolio, along with a marginal increase in the bad loan ratio from 1.61% in December 2016 to 1.77% in June 2017.

“However, the Bank’s NPA is still the lowest among industry peers and stands well below its closest competitors. This provides an indication of the quality of the loan book and the unique and efficient recovery measures implemented by the bank.”

The bank’s loan book grew 12.3 percent to 512 billion rupees from December 2016 to June 2017 while deposits grew 12.1 percent to 571 billion rupees.

Sri Lanka’s Watawala Plantations June net up helped by tea

ECONOMYNEXT - Sri Lanka’s Watawala Plantations said June 2017 quarter net profit rose 58% to Rs379 million from a year ago mainly because of a turnaround in the tea business and the sustained profitability in palm oil.

Sales of the group rose 20% to almost Rs2 billion, according to interim results. June quarter earnings per share were Rs1.59 compared with EPS of Rs1.01 a year ago. The stock last traded at Rs34.40

Watawala Plantations Managing Director Vish Govindasamy said the increased profits were “mainly

attributable to turnaround in the tea segment and the sustained profitability in palm oil segment.”

Profitability of the palm oil segment continued despite a 9% reduction compared to the same period last year, he said in a stateemnt.

The palm oil segment made a profit of Rs267 million, down from a profit of Rs294 million the previous year.

“ . . . the decline is primarily attributable to the lower Net Sale Average as a result of the import duty reduction by the government in 4QFY16/17,” Govindasamy said.

The tea segment saw a turnaround with a profit of Rs90 million compared to a loss of Rs79 million in the same period last year, he said.

“This was mainly attributable to the quality focus strategy, cost reduction measures, and continued favourable

market conditions. The company realised Net Sale Average ( NSA) above the market average, due to higher quality standards maintained by all tea factories.”

The group’s export sector profitability dropped due to less orders received from overseas buyers compared to the previous period, Govindasamy said.

Watawala Plantations has proposed separating its tea and palm oil businesses.