Plantation share rise –recipe for a potential bubble

By Duruthu Edirimuni Chandrasekera

With high tea prices recorded over the past three months, retail traders are grabbing onto plantation shares, alarming regulators as this can be a potential bubble, analysts say.

“There’s a bit of good news on the plantations sector as tea prices are high and their June quarter results have been good. So, the retailers extrapolate tea prices and gauge the values of these stocks, which may be not so good news in the long run,” an analyst told the Business Times.

Another analyst added that there’s certainly a fundamental backing in the rise of these shares, with tea prices at auctions in August averaging Rs. 606.86 per kg, up from Rs. 473.78 a year ago, as per a Forbes and Walker Tea Brokers report. Prices of teas from all three elevations rose during August with the biggest gains in the high grown varieties. But this rise in shares shouldn’t last long. “A little bit of good news in an illiquid sector like this will send prices up,” he added.

Share of Lankem Developments from June 30 to September 28 rose by 230 per cent (from Rs. 3 per share to Rs. 9.90). A share in Madulsima Plantations which was Rs. 6.70 and went up to Rs. 15.50, a 131.34 per cent surge during the same, corresponding period. A share at Udapussellawa rose by 123.08 per cent, Malwatta up by 121.43 per cent, Colombo Trust Finance by 106 per cent and Balangoda Plantations by 106 per cent during the said 3- month period.

It’s a volatile sector and retailers should exercise caution, a regulator told the Business Times. While this isn’t a replica of the 2010 era when the mafia stumped the market with pump and dump in dud shares, prolonging these share hikes could be a recipe for disaster, she said.

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Continuous disregard of rules irks CSE

By Duruthu Edirimuni Chandrasekera

Are rules meant to be followed or broken? It’s a billion dollar question in the case of certain listed firms at the Colombo Stock Exchange (CSE).

For instance CSE rules say that within two (2) market days any information pertaining to the financials of a listed firm should be disclosed to the CSE. But yet, there’re errant firms who fail to follow this ‘simple’ rule.

A sale of 9.9 per cent stake on August 31 was communicated to CSE only after two weeks. The CSE when contacted said they’re in touch with the particular firm. “We wrote to them for an explanation,” a CSE source told the Business Times but declined to say what happened afterwards. Anyway it was clear that this behaviour has annoyed them. The authorities are also having 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 seen instances where they aren’t immediate and has had ‘one-to-ones’ with certain offenders who complied after many ‘calls’ threatening them to meet the terms, officials said.

This particular instance was a 178,931,037 share transaction. Directors of the holding company who are also directors in the particular firm effected the sale.

The CSE will be scrutinising firms in future pertaining to such instances and the new regulations will deter offenders from delayed disclosures, officials added.

The CSE is a disclosure based environment where 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, analysts said.

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