Sri Lankan shares hit near one-week closing low on profit-taking

Reuters: Sri Lankan shares ended down for a second straight session on Tuesday, slipping further from their highest close in more than 10 weeks hit last week, with investors booking profits in telecom stocks while block deals boosted the turnover, brokers said.

The Colombo stock index ended 0.36 percent weaker at 6,572.05, its lowest close since Oct. 11. Last week, the bourse rose 1.6 percent, posting its fifth straight weekly gain.

“Today, we observed that profit-taking was still on,” said Atchuthan Srirangan, senior research analyst, First Capital Holdings PLC.

“The turnover is boosted by some big deals. We saw a foreign selling of over 1 billion rupees in East West Properties which might trigger more foreign selling in future.”

Shares of Dialog Axiata Plc ended 3.1 percent weaker, Sri Lanka Telecom Plc finished 5.4 percent down, while Lion Brewery Plc closed down 4.7 percent.

Shares of East West Properties Plc, which accounted for 58 percent of Tuesday’s turnover and saw 88 million shares of foreign selling, ended 4 percent up.

Turnover was 1.9 billion rupees ($12.38 million), more than double of this year’s daily average of 939 million rupees.

Foreign investors were net sellers of shares worth 1.1 billion rupees on Tuesday. They have, however, net bought 19.1 billion rupees worth of shares so far this year.

($1 = 153.5000 Sri Lankan rupees) 

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

Fitch rates first Sri Lanka Basel III sub debt; Sampath final A(lka)

LBO - Fitch Ratings has assigned Sampath Bank’s proposed Basel III-compliant subordinated debentures a National Long-Term Rating of ‘A(lka)’.

The final rating is the same as the expected rating assigned on 18 September 2017, and follows the receipt of documents conforming to information already received.

The notes, the first Basel III-compliant subordinated debt in Sri Lanka, will total 6 billion rupees, mature in five years and carry fixed coupons. The notes include a non-viability clause, and will qualify as regulatory Tier II capital for the bank.

The bank plans to use the proceeds to support its loan book expansion and to strengthen its Tier II capital base. The debentures are to be listed on the Colombo Stock Exchange.

KEY RATING DRIVERS

Fitch rates the proposed Tier II instrument one notch below the bank’s National Long-Term Rating of ‘A+(lka)’ to reflect the notes’ subordinated status and higher loss-severity risks relative to senior unsecured instruments. The notes would convert to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

Sampath’s National Long-Term Rating is used as the anchor rating because the rating reflects the bank’s standalone financial strength. Fitch believes that the bank’s standalone credit profile best indicates the risk of becoming non-viable.

Fitch has not differentiated the notching on the proposed notes from the notching on Sampath’s legacy Tier II notes. This is because we assume that the authorities would step in late, moving the point of non-viability close to liquidation. The legacy Tier II notes will taper off by end-2021.

Fitch has not applied additional notching to the notes for non-performance risk, as they have no going-concern loss-absorption features, in line with Fitch’s criteria.

Sampath’s ratings reflect its weaker capitalisation and higher risk appetite relative to peers, which counterbalance its growing franchise and satisfactory asset quality.

The Negative Outlook on Sampath’s rating reflects Fitch’s expectation of further deterioration in the bank’s capitalisation as a result of high loan growth. The bank expects to raise LKR7.6 billion in 4Q17 from a rights issue announced in July 2017. We expect the rights issue along with retained profits to boost the Tier I ratio to over 9% by end-2017 (8.5% at bank level at end-June 2017).

In addition, the proposed Basel III Tier II debt would increase the total capital ratio to over 13% by end-2017 (12.2% at end-June 2017). The bank has to meet regulatory Tier 1 and total capital ratio ratios of 8.875% and 12.875% by end-2017. These requirements will be raised to 10% and 14% by end-2018, respectively.

RATING SENSITIVITIES

The rating of the notes would move in tandem with Sampath’s National Long-Term Rating.

Our Outlook on Sampath could be revised to Stable if it can demonstrate a fundamental/sustainable improvement in its capital buffers commensurate with its risk profile.

Failure to sustain a reasonable buffer above rising regulatory capital requirements, increased risk-taking or a sharp decline in asset quality could lead to a downgrade.

Sri Lanka’s First Capital A- rating confirmed by ICRA

ECONOMYNEXT – ICRA Lanka Limited has confirmed the issuer rating of SL[A-] with stable outlook for First Capital Holdings PLC (First Capital).

ICRA Lanka Limited, a subsidiary of ICRA Limited, a group company of Moody’s Investors Service, also confirmed the issuer rating [SL]A- with stable outlook for First Capital’s standalone primary dealer First Capital Treasuries PLC.

First Capital Treasuries accounts for 70% of the consolidated assets and 80% of the consolidated net trading income of First Capital for FY2017, a statement said.

The ratings take note of First Capital’s efforts to expand the business and financial performances of the other subsidiaries, which are engaged in corporate debt structuring, corporate finance, asset management, stock broking, extending margin trading facilities and trustee services.

However, the scale of operations of these subsidiaries continues to remain moderate.

“First Capital’s borrowings are largely short term in nature and are used for investment and lending to group entities,” the statement said.

The rating factors the First Capital group’s established relationships with banks and financial institutions, providing access to funding.

ICRA Lanka said it expects timely funding support from First Capital Treasuries, considering the liquid nature of its assets.

First Capital, being a holding company, derives its income from the dividends from the group entities and income from its investments, which includes interest income and profit from investments.

For the FY2017 stand-alone income from investment activities improved, to Rs774 million total income in FY2017 from Rs336 million in FY2016, while the share of profit from subsidiaries increased steeply to Rs194 million in FY2017 from Rs14 million in FY2016.

First Capital Holdings group firms include First Capital Limited involved in structuring and placement of corporate debt and corporate finance advisory services and investments, First Capital Asset Management Limited involved in unit trust and portfolio management, First Capital Markets Limited involved in providing margin trading facilities and dealing and broking of listed debts, First Capital Trustee Services (Pvt) Limited a trustee services provider for corporate debt securities and First Capital Equities (Pvt) Limited engaged in stock broking activities.

Sri Lanka’s CIC buys Unipower specialised fertiliser firm

ECONOMYNEXT – Sri Lanka’s CIC Holdings, an agribusiness group, said it had bought control of Unipower (Pvt) Limited, a firm packing and selling specialised fertilisers.

A stock exchange filing said CIC Holdings about a 70% stake of Unipower or 376,600 shares at Rs632.17 a share. The total investment amounts to Rs238 million.

Unipower would now be a subsidiary of CIC Holdings.

Sri Lanka to enforce tougher stock market rules from January 2018

ECONOMYNEXT – Sri Lanka’s markets regulator said it has decided to adopt a more stringent policy of enforcement of listing rules with tougher regulations to be enforced from 1 January 2018.

The Securities and Exchange Commission said it has asked the Colombo Stock Exchange to incorporate several rules drafted in relation to violations of rules on corporate governance of listed companies.

These include late submission or non-submission of interim financial statements and annual reports and the incidence of modified audit opinions and incidence of an emphasis of matter of going concern in audited financial statements.

Under the new rules, listed firm must give to the CSE for public release an ‘impact report’ containing a detailed description on the impact of the audit qualification to the financial statements.

At present CSE listing rules do not contain any rules on action to be taken by the CSE in the event the audit opinion in the annual report is found to be a “modified audit opinion” or contains an “emphasis of matter on going concern”.

The impact report shall at a minimum contain cumulative impact on profit or loss, net assets, total assets, turnover/total income, earnings per share and any other financial item(s) which may be impacted due to qualified audit opinion.

Listed companies will also be required make an announcement to the market via the CSE on the qualified audit opinion, stating remedial action adopted or proposed to resolve the matters set out in the qualified opinion.