Sri Lankan stocks slip to 8-month closing low

Reuters: Sri Lankan shares slipped to their lowest close in eight months on Friday as investors offloaded telecom and plantation stocks.

The Colombo Stock Index ended 0.08 percent weaker at 6,352.10, its lowest close since April 17. It dropped 0.4 percent this week, in its sixth consecutive weekly decline.

“The downtrend is continuing with the selling in blue chips,” said Dimantha Mathew, head of research at First Capital Holdings, adding that was a bit of a worrying sign for the market.

Plantation stocks came under pressure after the Russian agricultural safety watchdog said on Thursday that the country will place temporary restrictions on imports of all agricultural products from Sri Lanka, including tea, from Dec. 18.

“The Russian restrictions on tea could pose a threat to long-term tea prices and it could impact the earnings of plantation companies,” said Mathew.

Turnover was 345.4 million rupees ($2.25 million), the lowest since Dec.9, and well below this year’s daily average of 938.9 million rupees.

Foreign investors were net buyers of 180.1 million rupees worth of shares on Friday, extending the year-to-date net foreign inflow to 18.3 billion rupees worth of shares.

Shares of Sri Lanka Telecom Plc fell 1.5 percent, Hemas Holdings Plc ended 0.9 percent weaker and Asian Hotels and Properties Plc ended down 2 percent. 

($1 = 153.2000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Jetwing Symphony IPO oversubscribed

Jetwing Symphony Ltd’s Initial Public Offering worth Rs. 750 million has been oversubscribed, prompting the closure of its official opening day.

Registrars to the issue SSP Corporate Services said there were applications for over 50.2 million shares at Rs. 15 each by 4.30 p.m. yesterday and the IPO was closed following oversubscription. Capital Alliance Partners was the Manager to the issue.

Jetwing Symphony is the investment arm of the Jetwing leisure and travel group. The IPO of 10% stake was based on a formal book-building process with a price band ranging from Rs. 15-18.

The IPO funds will be utilised to complete Jetwing Symphony’s projects in the pipeline and settle debt payments. As per the valuation report, intrinsic value per share of JSL ranges from Rs. 13.21-17.51 based on Sum-Of-The-Part (SOTP) valuation.
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Investors snap up biggest IPO in 4 years by LVL Energy Fund

Investors have snapped up the biggest Initial Public Offering in four years by LVL Energy Fund Ltd. (LEF), with the Rs. 1.2 billion issue oversubscribed and closed on its official opening day yesterday.

The issue offered 120 million shares at Rs. 10 each. A spokesman for financial advisor and manager to the IPO, Acuity Partners, said by 4.30 p.m. yesterday the LEF IPO had drawn 744 applications requesting for shares worth Rs. 1.46 billion, prompting its closure. The last biggest IPO was worth Rs. 1.6 billion by Amana Bank in December 2013 and that too was handled by Acuity Partners.

LEF is a subsidiary of Lanka Ventures Plc and was incorporated in 2006 for the purpose of consolidating LVEN’s energy sector investments. LEF has invested jointly with reputed project developers to develop and operate power generation projects (installed capacity of operational projects amounts to 136.6MW). LEF will be using IPO funds to retire some debt, retire some preference shares and to be invested in three new hydropower projects.
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‘Corporate governance key priority of regulators’ - SEC Chairman

Corporate governance has become a key priority on the agenda of capital market regulators and is considered an important factor in strengthening capital markets, said Securities and Exchange Commission (SEC) Chairman Thilak Karunaratne.

“Implementing sound corporate governance practices that comprise clear and transparent disclosures, encourage accountability and ethical leadership create value for companies, facilitate access to capital and enhances investor confidence.”

He was speaking at the CA Sri Lanka “Code of Best Practice on Corporate Governance 2017.”

“I believe that while a lot has been done in the area of corporate governance, Sri Lanka needs to ensure a responsive regulatory framework and cannot afford to fall behind. Furthermore, good market conduct is driven by good behavior and not by rules and regulations alone.”

Corporate governance codes and frameworks were triggered as a result of corporate scandals that adversely affected capital markets across the globe, he recalled.

He said that it is sad to note that the current regime in the USA is trying to roll back these regulations brought in after the last financial crisis by directing a review of the Dodd-Frank Act.

He disclosed that the ASIC website indicates that Australia does not have a general corporate governance code that all companies must comply with. However, listed companies must benchmark their corporate governance practices against the Australian Securities Exchange Corporate Governance Council’s Principles and Recommendations.

“This means that listed companies are not obliged to adopt the ASX Principles, but are encouraged to do so. This is to create a level of flexibility for listed companies to adopt alternative practices more suited to their circumstances.”

Commentating on the Sri Lankan aspect, he said that the corporate governance code was initially developed by the Institute of Chartered Accountants of Sri Lanka (ICASL) in 1997. Thereafter, it has been revised in 2003, 2008 and most recently in 2013.

The existing code is on a voluntary basis and could be used by any business entity. But the level of governance and degree of accountability expected from public listed companies are much higher. Therefore, the ‘one size fits all’ approach on above requires re-visiting.

Based on the approach adopted by other jurisdictions, the SEC Sri Lanka has started to pursue an initiative to ensure enforceability relating to governance is enhanced and grant oversight by absorbing the voluntary governance requirements into mandatory listing rules.

He also commended Chartered Accountants of Sri Lanka for their commitment towards upholding good corporate governance and business ethics.
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Moody’s affirms long-term ratings of 3 banks

Moody’s Investors Service has affirmed the long-term ratings of three banks, Bank of Ceylon, Hatton National Bank Ltd and Sampath Bank PLC in Sri Lanka, B1 negative.

The rating actions follow the affirmation of Sri Lanka’s B1 sovereign rating.

The baseline credit assessments (BCAs) and Adjusted BCAs of the three banks were affirmed at b1. The counter party risk assessments (CRAs) of the three banks were affirmed at Ba3 (cr)/NP (cr).

The outlook on the ratings of the three banks, where applicable, are maintained at negative.

Operating conditions for Sri Lanka’s banks have weakened because of the high loan growth over the last two years, driven by a loosening of underwriting standards. As a result, Moody’s has changed Sri Lanka’s Macro Profile to “Weak +” from “Moderate -”, and considered the new Macro Profile in the affirmation of the three Sri Lankan banks.

The affirmation of the three banks ratings and the maintained negative outlooks follow Moody’s affirmation of Sri Lanka’s B1 sovereign rating with a negative outlook on December 12, 2017.

The ratings and outlooks of banks typically follow the ratings and outlooks of their respective governments if the banks’ ratings are positioned at the same level as the sovereign rating, which is the case for Bank of Ceylon, Hatton National Bank Ltd and Sampath Bank PLC.

Typically, such linkages between the sovereign credit profile and the credit metrics of the domestic banks are driven by the banks’ large investments in sovereign bonds, as well as by common drivers of the underlying operating conditions, Moody’s say.

The key factor driving the negative outlook on Sri Lanka’s sovereign rating is Moody’s view that persistently high government liquidity and external vulnerability risks continue to pressure Sri Lanka’s credit profile.

Specifically, measures to build reserves and smooth the profile of external payments may be insufficient to stem imminent government liquidity and balance of payments pressures starting in 2019, when large international debt repayments come due and Sri Lanka’s three-year International Monetary Fund (IMF)

Meanwhile Moody’s has also changed the Macro Profile for Sri Lanka to “Weak +” from “Moderate -”, reflecting Moody’s view that operating conditions have weakened for Sri Lankan banks. In particular, Moody’s has adjusted downwards the credit conditions score by one notch to reflect rapid credit growth in Sri Lanka over the last three years to end June 2017, growing at a compounded annual growth rate (CAGR) of 21%.

Because Sri Lanka is an underpenetrated banking market, strong credit growth in itself is not necessarily a cause for concern. However, the current episode of strong credit growth has come against a backdrop of moderating economic growth.

The lowering of Sri Lanka’s Macro Profile to “Weak +” from “Moderate -” has no impact on the BCAs of the three Sri Lankan banks.

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S&P upgrades DFCC Bank’s rating outlook to Stable - Ratings affirmed at B/B

S&P Global Ratings has revised its credit rating outlook for DFCC Bank from negative to stable, while affirming ‘B’ long-term and ‘B’ short-term issuer credit ratings on the bank. In its assessment of DFCC’s business position, the Bank is projected to maintain its satisfactory market position and business stability over the next 12-18 months.

The stable rating reflects the rating agency’s confidence in the financial institution’s ability to navigate operating conditions in Sri Lanka and maintain its financial profile in the coming months. At the same time, it has affirmed its ‘B’ long-term and ‘B’ short-term issuer credit ratings on DFCC Bank while affirming its senior unsecured debt ratings on the bank.

Further, the rating agency noted that an improvement in the bank’s risk position balances a decline in the bank’s risk-adjusted capital under its new updated methodology. It anticipates bank’s loan growth to be 14%-18% while profitability is likely to remain stable, with healthy net interest margins and fee income balancing credit costs.

DFCC’s credit costs are expected to increase somewhat in the next 12-18 months due to sluggishness in economy in the past 18 months and elevated interest rates.

However, S&P expects losses to remain well within its normalized loss expectations. The bank’s loan growth has been lower than the industry average and the proportion of granular retail assets has increased in the past few years.

Commenting on the latest rating, Lakshman Silva – CEO, DFCC Bank, said, “We are pleased that S&P has recognised that DFCC Bank’s fundamentals keep improving with the deposit base increasing, loan to deposit ratio moving in the right direction and NP ratio within industry average.”

“The upward revision of the rating outlook fully justifies the decision of the Board taken last year to sacrifice short term profitability in exchange for long term stability.”

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