Sri Lanka shares mark 3-wk closing high; political woes weigh

Reuters: Sri Lankan shares notched a near three-week closing high on Tuesday led by market heavyweight John Keells Holdings, but political uncertainty ahead of a local election next month weighed on sentiment, dealers said.

Sri Lanka will hold a long-delayed local government election on Feb. 10.

President Maithripala Sirisena in an election rally over the weekend said he was ready to form a new government with his Sri Lanka Freedom Party (SLFP), breaking away from the current coalition - a comment that exacerbated worries about the future of the coalition government.

“Nobody knows if the president is making statements for political reasons or if he actually means it. So investors are waiting for some clear direction and political stability after the polls,” said Prashan Fernando, CEO at Acuity Stockbrokers.

The Colombo stock index ended up 0.35 percent at 6,476.41, its highest close since Jan. 11. The index rose 0.19 percent last week, recording its first weekly gain in three.

Shares in conglomerate John Keells Holdings Plc closed up 1.1 percent, while Janashakthi Insurance Company Plc rose 17.7 percent. Dialog Axiata Plc ended 1.5 percent higher.

Foreign investors bought a net 18.5 million rupees worth of shares on Tuesday, extending the year-to-date net foreign inflow to 4.04 billion rupees worth of equities.

Sri Lanka’s stock, bond and foreign exchange markets are closed on Wednesday for a Buddhist religious holiday. Markets will resume trading on Thursday. 

($1 = 153.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair; Editing by Sunil Nair)

Sri Lanka's Softlogic Holdings plans Rs7bn equity sale to cut debt

ECONOMYNEXT - Sri Lanka's Softlogic Holdings, which has interests in hospitals, retail and finance said it was planning to raise 7 billion rupees from a placement of shares to Mauritius based firm, and cash call on shareholders in a bid to reduce debt.

The board of directors had decided to place 182.22 million shares with Samena Ceylon Holdings Ltd of Mauritius at 17 rupees a share, to raise 3.1 billion rupees. The new shares would be 19 percent of the existing share capital.

Shareholders will then be offered 230.8 million shares also at 17 rupees, at the rate of 24 for every 100 shares, to raise another 3.9 billion rupees.

The privately placed stock will also be entitled to the rights.

Softlogic said the cash from the share sales will be used to settle debt.

Sri Lanka's United Motors net down 52-pct

ECONOMYNEXT - Profits at United Motors Plc, agents for Mitsubishi automobiles in Sri Lanka fell 52 percent to 107 million rupees in the December quarter as revenues plunged 28 percent, interim accounts showed.

The firm reported earnings of 1.07 rupees per share for the quarter. In the nine months to December United Motors reported earnings of 4.16 rupees per share on total profits of 420 million rupees, which fell 38 percent.

Revenues fell 28.7 percent to 3,490 million rupees and cost of sales also fell 32.2 percent to 2,711 million rupees, and gross profit contracted 13.1 percent to 778.8 million rupees.

Finance costs rose sharply by 42 percent to 105 million rupees, despite lower business volumes.

Sri Lanka's car market has slowed amid credit restrictions and tax changes. Sri Lanka's central bank brought credit restriction for motor cars after printing 680 billon rupees to generate a balance of payments crisis and lose 4.0 billion US dollars in forex reserves.

Due to long-standng Mercantilism people in Sri Lanka think BOP crises are caused by trade deficits in general and cars and oil imports in particular. During the 2015/2016 crisis however, oil prices collapsed.

Sri Lanka sells new 15-year, 2033 bonds at 10.05-pct

ECONOMYNEXT - Sri Lanka has sold 80 billion rupees of 5 and 15 year bonds with bonds maturing on 15 January 2033 sold at a weighted average yield of 10.05 percent, the state debt office said.

The 2033 maturity has not been sold before. After the auction the bond was quoted at 10.00/05 percent, dealers said.

The debt office which is a unit of the central bank also sold 40 billion rupees of bonds maturing on 5-year 3-month bond maturing on 15 May 2023 at an average yield of 9.44 percent.

It was last auctioned November 29, 2017 at 10.20 percent. Before the auction the bond was trading around 9.40/50 percent. After the auction it was quoted also quoted at same levels, dealers said.

The cut-off rate s kept secret in Sri Lanka.

The debt office offered 40 billion rupees each and sold 40 billion in each maturity.

It has ended misleading practice of advertising lower volumes and taking higher volumes after a massive scam which allowed insiders to make a killing.

Sri Lanka's Teejay Lanka group net up 5-pct, helped by GSP+

ECONOMYNEXT - Sri Lanka's Teejay Lanka Plc, a knot fabric maker, said profits rose 5 percent to 496 million rupees in the December 2017 quarter from a year earlier, amid volatile cotton prices, but it had a strong order book and extra capacity in India.

The group reported earnings of 71 cents per share for the quarter. In the nine months to December it reported earnings of 1.54 rupees per share on total earnings of 1.08 billion rupees down 26 percent.

Revenues grew 5 percent to 6.6 billion rupees in the December quarter amid delays in getting new capacity in India utilized. Cost of sales rose 5 percent to 5.7 billion rupees and gross profit grew 4 percent to 5.7 billion rupees.

Chairman Bill Lam said teething issues in capacity expansion forced in India had slowed the pace but expected the problems to be sorted in the current quarter.

Rising cotton prices had pressured margins and another yarn price was expected, he said.

Teejay Lanka was operating at full capacity benefiting from GSP+ trade access to Europe.

Standalone profits at Teejay Lanka rose 24-pct to 369 millon rupees.

Sri Lanka's Bairaha Farms Dec net down 53-pct

ECONOMYNET - Profits at Sri Lanka's Bairaha Farms Plc, a poultry and food processing company fell 53 percent to 98.3 million rupees in the December 2017 quarter from a year earlier, amid falling revenues and shrinking margings, interim account showed.

The group reported earnings of 6.15 rupees per share for the quarter. In the nine months to December Bairaha Farms Plc, reported earnings of 18.08 rupees per share on total profits of 289 million rupees, down from 615 million rupees last year.

The stock last traded at 141 rupees.

The group said revenues fell 3 percent to 1,132.6 billion rupees, and expenses rose at a fast 7 percent to 869.7 million rupees, shrinking gross margins 24 percent to 269.75 million rupees in the quarter.

Share of joint venture companies fell to 9.6 million rupees from 47.67 million rupees.

Distribution costs rose 17 percent to 58.7 million rupees.

Finance costs rose 43 percent to 23.39 million rupees. Income tax fell 49 percent to 14.85 million rupees as profits fell.

Sri Lankan shares hold steady; political woes weigh

Reuters: Sri Lankan shares closed little changed on Monday in dull trade as political uncertainty ahead of a local election next month weighed on the sentiment, dealers said.

Sri Lanka will hold a long-delayed local government election on Feb. 10.

President Maithripala Sirisena in an election rally over the weekend said he was ready to form a new government with his Sri Lanka Freedom Party (SLFP), breaking away from the current coalition, in a comment that exacerbated worries about the future of the coalition government.

“The market is stagnated as most of the investors are on wait-and-see approach with election date coming closer,” said Dimantha Mathew, head of research at First Capital Holdings.

“The sluggish trend will continue until the elections are over.”

The Colombo Stock index ended 0.03 percent weaker at 6,453.95, slipping from its highest close since Jan. 12 hit on Friday. The index rose 0.19 percent last week, recording its first weekly gain in three.

Shares in conglomerate John Keells Holdings Plc were down 1.6 percent, while Dialog Axiata Plc lost 0.7 percent, and Sri Lanka Telecom Plc ended 2.5 percent weaker.

Turnover was 337.1 million rupees ($2.19 million), well below last year’s daily average of 915.3 million rupees.

Foreign investors bought a net 404,053 rupees worth of shares on Monday, extending the year-to-date net foreign inflow to 4.02 billion rupees worth of equities. 

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lankan shares hit 2-wk closing high

Reuters: Sri Lankan shares rose for a third straight session to hit a two-week closing high on Friday, led by telecom shares, but trading was dull as investors waited for direction amid political concerns over local-government elections next month, dealers said.

The Colombo Stock index ended 0.12 percent firmer at 6,456.04, its highest close since Jan. 12. The index rose 0.19 percent on week, its first weekly gain in three.

Shares in Hemas Holdings Plc were up 0.5 percent, while Dialog Axiata Plc ended 1.5 percent higher, and Sri Lanka Telecom Plc gained 2.5 percent.

“Things were very slow, even the foreign activity was very low today,” said Dimantha Mathew, head of research at First Capital Holdings.

“Activities have been coming down from the last few days. Probably towards elections it will slow down further as investors are on a wait-and-see attitude.”

Turnover was 264.1 million rupees ($1.72 million), its lowest since Jan. 2 and well below last year’s daily average of 915.3 million rupees.

Foreign investors bought a net 21.2 million rupees worth of shares on Friday, extending the year-to-date net foreign inflow to 4.02 billion rupees worth equities.

Sri Lanka will hold a long-delayed local government election on Feb. 10.

President Maithripala Sirisena said over the weekend that he would handle the economy, taking over from the government’s main coalition partner, led by Prime Minister Ranil Wickremesinghe.

The comments have sparked uncertainty over the future of the coalition government, analysts said.

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lankan shares end higher; foreign buying boosts turnover

Reuters: Sri Lankan shares rose on Thursday for a second straight session, helped by gains in telecom and banking shares, with foreign investor purchases in Commercial Bank of Ceylon Plc boosting sentiment and turnover, dealers said.

The Colombo Stock index ended 0.12 percent firmer at 6,448.21.

Shares in Dialog Axiata Plc rose 2.3 percent, while Cargills (Ceylon) Plc gained 2.7 percent and biggest listed lender Commercial Bank of Ceylon Plc ended 0.7 percent up.

Turnover was 1.33 billion rupees ($8.65 million), with foreign buying accounting for around 85.8 percent of the turnover. Last year’s daily average was 915.3 million rupees.

Foreign investors bought a net 876.8 million rupees worth of shares on Thursday, extending the year-to-date net foreign inflow to 3.99 billion rupees worth equities.

They bought equities worth 18.5 billion rupees last year, and 633.5 million rupees in 2016.

“Market is up on foreign buying in Commercial Bank,” said Hussain Gani, Deputy CEO at Softlogic Stockbrokers.

“Foreign investors are driving the market. Local investors are waiting for the situation to improve to take the next move.”

President Maithripala Sirisena said over the weekend that he would handle the economy, taking over from the government’s main coalition partner, led by Prime Minister Ranil Wickremesinghe.

The comments have sparked uncertainty over the future of the coalition government, analysts said. 

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lankan shares recover; Ceylon Tobacco up on foreign buying

Reuters: Sri Lankan shares rose on Wednesday after two straight sessions of decline, helped by gains in Ceylon Tobacco Co on foreign investor buying.

But turnover was low due to lower participation of local retail and institutional investors, dealers said.

The Colombo Stock index ended 0.35 percent firmer at 6,440.77.


Shares in Ceylon Tobacco Co rose 4.4 percent, while Sampath Bank Plc gained 2.4 percent.

“There is an election pending and local investors are waiting for some direction,” said Prashan Fernando, CEO at Acuity Stockbrokers.

Turnover was 453.2 million rupees ($2.95 million), with foreign buying accounting for around 66 percent of it. Last year’s daily average was 915.3 million rupees.

Foreign investors bought a net 29.4 million rupees worth of shares on Wednesday, extending the year-to-date net foreign inflow to 3.1 billion rupees worth equities.

Foreign investors bought equities worth 18.5 billion rupees last year, and 633.5 million rupees in 2016.

President Maithripala Sirisena said over the weekend that he would handle the economy from this year, taking over from the government’s main coalition partner, led by Prime Minister Ranil Wickremesinghe.

The comments have sparked uncertainty over the future of the coalition government, analysts said.

($1 = 153.7000 Sri Lankan rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Atlas acquisition to boost Hemas’ defensive cash flows: Fitch

LBO – Hemas Holdings acquisition of a controlling stake in Sri Lanka’s leading school and office stationery manufacturer, Atlas Axillia (Private) Limited, will bolster Hemas’ defensive operating cash flows, Fitch Ratings said.

Last week, Hemas agreed to buy a 75.1 percent stake in Atlas for 5.7 billion rupees. Atlas has a strong distribution network spanning over 70,000 outlets island wide.

“We believe the acquisition has no immediate impact on Hemas’ rating because we expect the transaction to be largely funded by cash at hand without a material increase in debt,” Fitch Ratings said.

Fitch views this acquisition as in line with Hemas’ strategy of using its significant cash balance to expand its core businesses through M&A.

Atlas’ stationery business broadly fits into Hemas’ fast-moving consumer goods (FMCG) segment, which includes the manufacture and distribution of homecare and personal care products, and contributed to around 38 percent of Hemas’ EBITDA in the fiscal year to end 31 March 2017.

“We view the Atlas business as defensive across economic cycles, which would strengthen Hemas’ FMCG business.”

Fitch expects demand for school stationery to grow over the medium term, supported by both government and private-sector investments in the education sector and rising per capita income in the country.

Atlas will be run as a separate subsidiary of Hemas after the acquisition, but may be able to benefit from operational synergies with the group’s larger FMCG business once the integration is complete.

As of end-September 2017, Hemas had 10.6 billion rupees of cash and cash equivalents at the group level, including 4.4 billion rupees at the holding company to be used for the acquisition.

“We do not expect a significant deterioration in the holding company’s credit quality, once it pays for the acquisition, as it has robust ability to extract dividends from its subsidiaries, many of which it fully controls,”

“We expect Hemas to maintain its leverage, defined as gross lease-adjusted debt/EBITDAR at less than 2.0x over the medium term, in spite of the acquisition.”

The 2.0x threshold is the level above which we would consider negative rating action. At 30 September 2017, Fitch estimates that Hemas’ leverage, computed using trailing 12 month EBITDAR, stood at 1.4x.

Sri Lankan shares edge lower; turnover up on foreign trades

Reuters: Sri Lankan shares edged down on Tuesday for a second straight session, their ninth session of losses in ten, but turnover was up on heavy trading by foreign investors.

The Colombo Stock index ended 0.05 percent weaker at 6,418.05.

Colombo Cold Stores Plc dropped 3.2 percent, while Ceylinco Insurance Company Plc declined 1.1 percent. Sri Lanka Telecom Plc fell 1.8 percent.

The index has shed around 2 percent in the past ten sessions. It dropped around 0.5 percent last week, the second straight fall on week.

“Foreigners are buying because they are looking at a time horizon of 3-5 years. But local institutional investors are staying away due to political uncertainties,” said Jaliya Wijeratne, CEO at First Capital Equities.

Turnover stood at 1.5 billion rupees ($9.73 million), with foreign trading accounting for around 85 percent of the day’s turnover, which was well above last year’s daily average of 915.3 million rupees.

Foreign investors bought a net 226.1 million rupees worth of shares on Tuesday, extending the year-to-date net foreign inflow to 3.1 billion rupees worth equities.

Foreign investors bought equities worth 18.5 billion rupees last year, and 633.5 million rupees in 2016.

President Maithripala Sirisena said over the weekend that he would handle the economy from this year, taking over from the government’s main coalition partner, led by Prime Minister Ranil Wickremesinghe.

The comments have sparked uncertainty over the future of the coalition government, analysts said.

($1 = 153.8500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lanka may sell Samurai, Panda bond in 2018: CB Governor

ECONOMYNEXT - Sri Lanka is open to selling a Samurai (Yen) or Panda (Renminbi) bond in 2018 after a US dollar denominated international sovereign bond sale is wrapped up, Central Bank Governor Indrajit Coomaraswamy said.

Sri Lanka has already called for managers to sell up to 2.0 billion US dollars in sovereign bonds in 2018. In the past Sri Lanka has sold up to 1.5 billion US dollars in bonds in a single offering.

The sovereign bond is expected to go market early this year, before the Fed raises rates again. Sri Lanka's last issued sovereign bond is also trading around 60 basis points narrower, and rating agencies have already given an outlook upgrade.

Sri Lanka was agnostic about the denominating currency, and was open to selling a Samurai or Panda bond after the dollar sovereign bond if the cost and tenor is right, Coomaraswamy said.

Sri Lanka is expected to pass a liability management law shortly which will allow the Treasury to sell more bonds than needed for debt repayment in a given year, to build a buffer to ride out a peak coming later.

A Samurai bond would allow Sri Lanka to tap into the Japanese bond market, while a Panda bond would allow Sri Lanka to enter the Chinese capital market.

Sri Lanka operates a 'de facto' soft-peg which generally depreciates uni-directionally against the US dollar generating high inflation. The currency collapses steeply whenever the central bank resists market interest rates by printing money, when the credit cycle turns strongly positive.

Due to operating a de facto dollar peg, there is also a currency risk in borrowings denominated in a currency other than the US dollar.

The Renminbi is also partially pegged to the US dollar, but it has shown a tendency to appreciate when the US Fed generates higher levels of inflation.

The Yen has weakened against the US dollar in recent years but is a floating rate with a very low interest rates.

Market analysts say it would be possible to sell a Samurai bond with a currency swap at a lower rate than a euro dollar bond of a similar maturity.

Cold Stores Dec. net down 32% as beverage segment slows

Ceylon Cold Stores PLC, a unit of the John Keells group, which has interests in soft drinks, ice creams and supermarkets, saw a significant fall in its December quarter earnings amid higher sales costs, the interim accounts released to the Colombo bourse showed.

The firm recorded a consolidated net profit of Rs.563.2 billion for the quarter, down 32 percent year-on-year (YoY) on a sales income of Rs.12.8 billion, up 14 percent YoY.

However, the higher top line was muted by a faster increase of sales costs, which rose 19 percent YoY to Rs.11.5 billion, denting the gross profit by 19 percent YoY to Rs.1.3 billion.

The sales costs are set to even go higher in the future quarters due to key regulatory changes. The 2018 budget last November introduced a 50 cent tax on every gram of sugar contained in beverages in a bid to discourage obesity, diabetes and a number of related illnesses.

As a result, Ceylon Cold Stores had to raise the prices of most of its soft drinks quite significantly, which may have affected the sales, specially during the December festive season.

Meanwhile, during the quarter under review, the firm saw increases in selling and distribution and administrative expenses, resulting in an operating profit of Rs.774.7 million, down 30 percent YoY, despite a similar percentage gain in the other operating income.

The earnings per share for the quarter deteriorated to Rs.5.93 from Rs.8.67.

The manufacturing operations of the firm, consisting of beverages and ice cream, saw the after-tax profit falling to Rs.261.8 million during the quarter under review, from Rs.478.8 million a year ago, on revenue of Rs.3.03 billion, down from Rs.3.2 billion.

The retail segment, which includes the Keells Super operations, saw its revenue increasing to Rs.9.8 billion from Rs.8.1 billion but the after-tax profit fell to Rs.302.4 million from Rs.344.6 million.

Meanwhile, for the nine months ended December 31, 2017, Ceylon Cold Stores made a net profit of almost Rs.2 billion, down 27 percent YoY. The earnings per share for the period also fell to Rs.20.94 from Rs.28.72.

As at same date, the John Keells group held over 80 percent of the issued shares of the company.

The company has announced Rs.3.8 billion investment on a new ice cream factory, which is currently underway and Rs.2.5 billion on a new bottling plant for beverages, which is yet to take off.

www.dailymirror.lk

Sri Lanka’s Keells Foods Dec net up 13-pct

ECONOMYNEXT - Sri Lanka's Keells Food Products, a processed meat firm which sells under Krest and Elephant House brands, said profit for the December 2017 quarter grew 13 percent from a year earlier to 87.2 million rupees.

The group reported earnings of 3.42 rupees per share for the quarter, in interim accounts filed with the stock exchange.

In the nine months to December earning were 6.94 rupees per share on a profit of 177 million rupees, down 22 percent from a year ago. The share was traded 130 rupees on the Colombo Stock Exchange in intra-day trading on Monday.

Gross revenue increased nine percent to 864.5 million rupees and cost of sales grew seven percent to 599.4 million rupees, helping expand profit 12 percent to 265 million rupees.

Profits from manufacturing grew 14 percent to 114 million rupees and trading increased 13.8 percent to 10.7 million rupees.

Selling and distribution expenses grew 14 percent to 80.7 million rupees and administration costs grew six percent to 39.3 million rupees.

Net finance income grew 44.5 percent to 1.7 million rupees.

The group is a unit of John Keells Holdings.

Sri Lanka’s Trans Asia Hotels Dec net halves

ECONOMYNEXT - Sri Lanka's Trans Asia Hotels Plc, which owns and operates Colombo's five-star Cinnamon Lakeside Hotel, said profit for the December 2017 quarter fell 52 percent to 98.8 million rupees from a year earlierwhile revenue also fell 4 percent in the peak December season.

The hotel reported earnings of 0.49 cents per share for the quarter in accounts filed with the Colombo Stock Exchange. In the nine months to December it reported earnings of 1.64 rupees per share on a profit of 320 million rupees, down 31 percent from a year ago.

The share last traded at 90 rupees on the Colombo Stock Exchange.

Gross revenue fell 4 percent to 859.3 million rupees, and cost of sales declined by three percent to 353.6 million rupees, shrinking gross profits eight percent to 505.7 million rupees.

Operating expenses was up one percent to 322.7 million rupees and finance cost increased 150 percent to nearly two million rupees.

Tax expenses increased 136 percent to 78 million rupees.

Trans Asia Hotels is a unit of John Keells Holdings which has interest in ports, consumer goods and finance.

Sri Lankan shares drop in dull trade; banks top drag

Reuters: Sri Lankan shares declined on Monday, marking their eighth session of fall in nine, as investors sold banking stocks in dull trade.

The Colombo Stock index ended 0.34 percent weaker at 6,421.40. On Thursday, it closed at its lowest since Dec. 29.

The bourse has shed 2 percent in the past nine sessions, and dropped 0.47 percent last week, recording its second straight weekly fall.

“The market was quiet till late. We saw some activities in the latter part of the day,” said Hussain Gani, Deputy CEO at Softlogic Stockbrokers.

“There were some selling in banks which brought the market down,” he said, adding that investors were waiting to see clarity on the political front from a local election which will be held on Feb. 10 after a long delay.

Turnover stood at 460.7 billion rupees, half of last year’s daily average of 915.3 million rupees.

However, foreign investors bought a net 196.6 million rupees worth of shares on Monday, extending the year-to-date net foreign inflow so far this year to 2.9 billion rupees worth of shares.

They bought equities worth 18.5 billion rupees last year and 633.5 million rupees in 2016.

After market hours on Friday, diversified company Hemas Holdings Plc said it will acquire 75.1 percent of stationery manufacturer Atlas Axillia Co (Pvt) Ltd for 5.7 billion rupees. Hemas fell 5.4 percent on Monday.

Shares in Lanka ORIX Leasing Co Plc dropped 3.5 percent, while Hatton National Bank Plc declined 1.1 percent. 

($1 = 153.8500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Most stocks traded are undervalued

By Duruthu Edirimuni Chandrasekera

Most stocks that are traded on the Colombo Stock Exchange (CSE) are undervalued estimated by analysts to at least 40 per cent, experts say.

“When analysing price to book value of certain shares that are trading on the CSE, their book value is higher,” an industry expert noted to the Business Times. “These are the things that investment advisors should educate retail traders on. But this isn’t happening. It’s important to point out the benefits of holding onto a stock for a longer term. Now is the time to do so,” he stressed.

Another expert acknowledged this saying that the biggest issue right now is lack of local institutional investors in the CSE. “It’s partly due to the bond scam which has put these institutions in a fix,” he said explaining that now local superannuation funds are at a bigger dilemma to invest in the CSE owing to this latest turn of events.

In addition to the probes that are ongoing, they’re hesitant to invest due to fear of being hauled in front of commissions and courts should the government change, he added. The Employee Provident Fund (EPF) and Employees’ Trust Fund (ETF) are currently being probed following the bad blood during the pump and dump in the CSE three years ago, and also owing to the recent bond scam.

The CSE has lobbied the Treasury to get the Central Bank to lure both agencies to restart their investments.

The two mandatory and state-managed superannuation funds dominate the pensions industry and about 92 per cent of these funds are invested in government securities. Only 6.5 per cent of the Rs. 3.1 trillion market capitalisation of the CSE is owned by institutional institutions such as EPF, ETF, insurance companies and unit trusts.

www.sundaytimes.lk

CSE gears to weed out bad eggs on its boards

By Duruthu Edirimuni Chandrasekera

At least 20 per cent of Sri Lanka’s listed companies at the Colombo bourse have run afoul of regulations pertaining to the prescribed minimum percentage of shares held by the public.

Figures as at September 2017 show that 59 listed companies are non-compliant with the minimum public float rule of the Colombo Stock Exchange (CSE). Since then in the past few months, more companies have said that they are not compliant with these rules.

Of the figures as at September, between 30 to 40 firms are likely to exit the exchange through this mechanism which is meant to weed out bad eggs, officials say.

“There’re 44 main board companies and 15 on the Diri Savi Board (pertaining to violating this rule). They issued announcements with regard to their non compliance as it’s now a requirement to issue them till June this year when the enforcement rules kick in,” an official told the Business Times.

The CSE has 295 companies representing 20 business sectors as at September 30, 2017 with a market capitalization of Rs. 2,919 billion.

Earlier when a company listed on the CSE, there was a minimum stake (10 per cent) that it has to part with, but it wasn’t mandatory to maintain this amount. To maintain a certain percentage which corresponds to a certain number of minimum shareholders was introduced in 2016.

By end June, the non-compliant firms will be transferred to a ‘watch list’ according to Section 7 of the CSE’s listing rules and remain there for a further six months. In the instance they are unable to rectify the situation, they will be delisted, one official said. “This enforcement policy has been introduced following the grant of a period of over three years since the initial introduction of minimum public holding as a continuous listing requirement in 2013 and a further grace period of six months,” he said.

Some listed firms such as TAL Lanka Hotels Plc have said in their announcement that they were compelled to engage in a financial restructure due to adverse market conditions in the hospitality industry till the financial year 2001/02.

www.sundaytimes.lk

Sri Lanka’s USD500mn development bond oversubscribed

LBO - The issue of Sri Lanka development bonds amounting to 500 million US dollars has been oversubscribed with close to 527 million US dollars of bids received from investors.

The Central Bank has received 129.27 million dollars of bids for the two year bond and the bank has accepted 93.15 million at a floating rate of six month LIBOR plus 305.39 basis points.

The bank has also received 127.59 million dollars of bids for the three year bond and the bank has accepted 114.59 million at a floating rate of six month LIBOR plus 365.18 basis points.

117.66 million dollars of bids has been received for the four year bond and the bank has accepted 113.66 million at a floating rate of six month LIBOR plus 378.13 basis points.

The Central Bank has received 152.22 million dollars of bids for the five year bond and the bank has accepted 149.17 million at a floating rate of six month LIBOR plus 404.81 basis points.

The issue was open for subscription from 11 to 18 January 2018. It has a settlement date of 22 January 2018.

Development bonds or the treasury bonds denominated in US dollars are issued by the Public Debt Department of the Central Bank and subject to the applicable tax laws in Sri Lanka.

Selected Licensed Commercial Banks & Primary Dealers are the designated agents to purchase these bonds.

Earlier this month, Sri Lanka’s cabinet of ministers granted approval to raise up to 3 billion US dollars from development bonds in this year for loan repayments and financing of development projects.

Sri Lanka’s Hemas buys Atlas Axillia for Rs5.7bn

ECONOMYNEXT – Sri Lanka’s Hemas Holdings has bought acquired 75.1% of Atlas Axillia Co (Pvt) Ltd, a leading school and office brand, for Rs. 5.7 billion.

The existing shareholders of Atlas will retain a stake of 24.9% in the company, a stock exchange filing said.

Atlas Axillia Co., formerly known as Ceylon Pencil Company (Pvt) Ltd., will become the third largest business in the Hemas Group and will operate independently as a subsidiary of Hemas Holdings PLC.

Hemas said the entire proceeds from the April 2015 Rights issue of Rs. 4.1 billion to be invested in FMCG and Healthcare businesses have now been used with the acquisition of Atlas Axillia.

A-Sec Capital (Pvt) Ltd, the investment banking affiliate of Asia Securities (Pvt) Ltd, acted as arranger and sole advisor to the seller on the deal.

During the first quarter of 2017, Hemas allocated Rs. 1.45 billion for the construction of the new Morison PLC pharmaceutical plant.

Steven Enderby, Group Chief Executive Officer of Hemas Holdings, said Hemas Holdings is expanding its presence in the Sri Lankan consumer market by acquiring one of the most respected local brands with market leading positions for its notebooks, pens, pencils and colour products.

“Today’s consumers seek out premium, innovative and design-oriented products and Atlas has demonstrated its ability to do this repeatedly, resulting in its unique position as the most loved school and office brand,” said Enderby.

“Consumer stationery is a new and exciting category for Hemas with significant potential and we will bring the best of our consumer-focussed mindset to deliver superior value to Atlas’ many customers across the island.”

Hemas said it aims to continue to drive Atlas’ track record of sales growth; and strengthen its market leading position, highly effective lean manufacturing and enviable dividend track record.

“The group will cross-fertilise brand and marketing insights between the business and its Home and Personal care portfolio as well as deliver route to market excellence through our two significant island wide sales and distribution networks. In addition, Hemas will look to reduce funding costs and enhance talent attraction and development at Atlas.”

Nirmal Madanayake, Managing Director of Atlas Axillia Co. said Atlas Axillia is growing and were were keen to take the organisation “to the next level”.

“We went through a rigorous process to find the right partner, and we saw a great business and cultural fit with Hemas,” he said.

Atlas Axillia Co. was founded in 1959 by the Madanayake Family.

The brand “Atlas” has been voted Sri Lanka’s most loved brand 2017.

The company is the market leader in school stationery and notebooks, pens, pencils and colour products, with products retailed in over 70,000 outlets across Sri Lanka.

Atlas Axillia brands include “Atlas”, “Zebra X”, “Homerun” and “Innov8”.

The Company employs 1,300 people and operates two production facilities in Peliyagoda and Kerawalapitiya.

Sri Lankan shares snap 7-session losing streak

Reuters: Sri Lankan shares snapped a seven-session streak of declines on Friday, recovering from a near three-week closing low hit in the previous session, as investors picked up battered blue-chip and banking shares.

However, foreign investors, who have been net buyers of 2.7 billion rupees worth shares so far this year, sold equities worth net 62.1 million rupees ($403,640) on Friday.

They bought equities worth 18.5 billion rupees last year and 633.5 million rupees in 2016.

The Colombo Stock index ended 0.52 percent higher at 6,443.50. In the previous session, it closed at its lowest since Dec. 29.

The bourse shed 2 percent in the past seven sessions, and dropped 0.47 percent for the week recording its second straight weekly fall.

“Today we are seeing a lot of foreign activities, but the local investors are buying blue-chip shares,” said Dimantha Mathew, head of research, First Capital Holdings.

“It looks like local, mainly high net worth investors, are eager to buy now,” he added.

Turnover stood at 1.7 billion rupees, nearly twice of last year’s daily average of 915.3 million rupees.

After the market close, diversified company Hemas Holdings Plc said it will take over 75.1 percent of leading stationery manufacturer Atlas Axillia Co (Pvt) Ltd for 5.7 billion rupees.

Shares in conglomerate John Keells Holdings Plc ended 2.5 percent higher, while Hemas Holdings closed 2.5 percent up, and Sri Lanka Telecom Plc ended 2.5 percent higher.

($1 = 153.8500 Sri Lankan rupees) 

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

Sri Lanka bond commission raises red flag over EPF stock market scams

ECONOMYNEXT - A presidential commission of inquiry into Sri Lanka's largest securities fraud involving rigged bond auctions in 2015 and 2016 had drawn a red flag over alleged frauds in the stock purchases by central bank managed Employees Provident Fund from 2010.

The commission said transactions of the EPF retirement fund on the stock exchange from 2010 onwards should be examined, and consideration should also be given to probe the losses of the central bank itself around the period.

The commission said there were allegations in the public domain that the EPF engaged in large scale deals in companies such as the Piramal Glass Ceylon, Galadari Hotels (Lanka) Plc, Laugfs Gas Plc, Ceylon Grain Elevators and Brown and Company, whose prices then crashed.

"Transactions raised the inference of "pumping and dumping" and "market manipulations," the commission report noted.

"There were allegations that, the EPF knowingly acquired Shares which resulted in the EPF incurring substantial losses.

"However, the CBSL is not seen to have taken any substantive action, at that time, to investigate or to clear the air with regard to these allegations even though the trail of the Transactions entered into by EPF was publicly known since these Transactions took place on the Colombo Stock Exchange."

The commission said the "politicization" of the central bank during the last administration and lack of corrective action laid the foundation for the bond frauds committed in 2015 and 2016.

Saman Kumara and Udayaseelan, EFP dealers involved in buying bonds from Perpetual Treasuries in 2015 and 2016, were officers of the fund management division of the EPF during 2010-2012, the commission said.

Perpetual Asset Management (Pvt) Ltd, Perpetual Capital (Pvt) Ltd, were companies that were active in the stock market before 2012, according to evidence given by Perpetual Treasuries Chief Executive Kasun Palisena.

The commission also called for a forensic probe on direct placements of bonds between 2008 and 2015. The commission said the monetary board of the Central Bank had given approval to directly place bond at captive sources - such as the EPF and state banks.

But they had also been placed at primary dealers, apparently with the tacit approval of the monetary board.

There have been allegations that the placement had occurred at questionable rates, even to companies as well as foreign investors.

Sri Lanka calls managers to sell up to US$2bn in sovereign bonds

ECONOMYNEXT - Sri Lanka has called proposals from banks and investment houses to sell up to 2.0 billion US dollars in sovereign bonds in 2018.

The bonds could be sold in single or multiple tranches, the Central Bank said.

Proposals have to be submitted by January 23.

Central Bank Governor Indrajit Coomaraswamy said he would prefer to go to market early in 2018 before the US Fed raised interest rates further.

Rating agencies had upgraded Sri Lanka's sovereign rating on the back of lower budget deficit and higher tax revenues though economic growth slowed as the country recovered from a money printing bout in 2015/2016 as well as a drought.

But data showed that in the third quarter of 2017, job losses in farming and been more than made up for by job gains in industry and services.

Dialog Axiata raises stake in Sri Lankan e-learning firm

ECONOMYNEXT – Sri Lankan mobile phone operator Dialog Axiata has increased its stake in e-learning firm Headstart (Private) Limited to just over 50% by converting bonds to equity.

Headstart creates e-learning programs and owns the digital education portal Guru.lk, a stock exchange filing said.

Dialog said its fully-owned subsidiary Digital Holdings Lanka (Private) Limited now controls 50.59% of Headstart.

The conversion of bonds which raised its stake in Headstart was effected on 1 January 2018.

Sri Lankan shares extend fall on foreign selling

Reuters: Sri Lankan shares fell for a seventh straight session on Thursday and closed at their lowest in nearly three weeks, as foreign investors turned net sellers for the first time in 14 sessions while local players stayed on the sidelines.

Foreign investors, who have been net buyers of 2.7 billion rupees worth shares so far this year, sold equities worth net 279.5 million rupees ($1.82 million) on Thursday, especially banks and blue chips.

They net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

The Colombo Stock Index ended 0.45 percent weaker at 6,410.11, its lowest close since Dec. 29. It has shed 2 percent in the past seven sessions.

“Market came down on some foreign selling. But turnover was pushed up by foreign trade,” said Atchuthan Srirangan, a senior research analyst with First Capital Holdings PLC.

Turnover stood at 1.3 billion rupees, higher than last year’s daily average of 915.3 million rupees.

Shares in Commercial Bank of Ceylon Plc dropped 2.8 percent, Hemas Holdings Plc declined 4.1 percent, and Ceylon Cold Stores Plc fell 2.1 percent. 

($1 = 153.8000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Sri Lanka 01-year Treasury yield rises to 8.85-pct

ECONOMYNEXT – Sri Lanka’s one-year Treasury Bill yield rose 05 basis points to 8.85% at an auction Wednesday, reversing a falling trend in recent weeks, the central bank’s public debt department said.

The yield on the 06-month bill fell 09 basis points to 7.97% from 8.06% at the last auction, while the 03-month bill was not offered, a statement said.

The public debt department got bids worth Rs51 billion and accepted bids of Rs21.5 billion, the exact amount offered.

Sri Lankan shares extend declines, foreign buying curbs fall

Reuters: Sri Lankan shares ended down for a sixth consecutive session on Wednesday, hitting their lowest close in more than two weeks, as retail investors sold blue chips, but foreign buying in the island nation’s risky assets capped further decline.

The Colombo Stock Index ended 0.13 percent weaker at 6,439.34, its lowest close since Jan. 2. It has shed 1.6 percent in the past six sessions.

“Things were a bit slower and the trend is continuing,” said Dimantha Mathew, head of research, First Capital Holdings.

“Market is coming towards a correction rather than profit-taking as the latter lasted far more than expected. However, foreigners are still on the buying side.”

Foreign investors bought shares worth net 146.2 million rupees ($949,968) on Wednesday, extending the net foreign inflow so far this year to 3 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

Turnover stood at 491.1 million rupees on Wednesday, less than last year’s daily average of 915.3 million rupees.

Shares in Hemas Holdings Plc ended 1.8 percent lower, Sri Lanka Telecom Plc closed 1.4 percent down, and Overseas Realty Plc closed 2.9 percent lower.

($1 = 153.9000 Sri Lankan rupees)

 

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

Sri Lankan shares extend fall to 2-week closing low

Reuters: Sri Lankan shares fell for a fifth straight session on Tuesday and closed at their lowest in two weeks, as local retail investors booked profits in blue chips ahead of a long-delayed local election next month.

The Colombo Stock Index ended 0.4 percent weaker at 6,447.61, its lowest close since Jan. 2. It has shed 1.4 percent in the past five sessions.

“The market is coming down on profit-taking by local retailers in blue chips before the next rally after the election,” said Dimantha Mathew, head of research, First Capital Holdings.

“The good sign is that foreign buying continues, it looks like foreign investors are returning back to the Sri Lankan market.”

Foreign investors bought shares worth net 539.3 million rupees ($3.51 million) on Tuesday, extending the net foreign inflow so far this year to 2.87 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

Turnover stood at 884.6 million rupees on Tuesday, less than last year’s daily average of 915.3 million rupees.

Shares in Hatton National Bank Plc fell 1.2 percent, Commercial Bank of Ceylon Plc dropped 1.1 percent, and Nestle Lanka Plc slipped 1.1 percent.

Sri Lanka’s stock, bond, and foreign exchange markets were closed on Monday for a holiday. 

($1 = 153.8500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

Ashok Leyland Sri Lanka unit December net profit up 81-pct

ECONOMYNEXT – The Sri Lankan unit of Ashok Leyland has reported a sharp rise in net profit for the December 2017 quarter, up 81% to Rs125 million from a year ago, with sales of buses increasing noticeably in recent months.

Interim results filed with the stock exchange showed total sales of the firm, a big supplier to the state-run Sri Lanka Transport Board, rose 59% to Rs4.3 billion during the period.

Earnings per share for the December 2017 quarter were Rs34.54 up from Rs19.03 a year ago.

EPS for the nine months to December 2017 were Rs95.85.

According to JB Securities, Sri Lanka’s new registrations of buses had risen sharply in recent months.

The number of buses registered during November 2017 were 402 units, slightly down from 416 units in October but significantly up from 217 units 12 months ago.

“There is a discernable increase in Lanka Ashok Leyland buses during the past 3 months. Finance share was 91.5% indicative that volumes are NOT being driven by institutional purchases,” the brokerage said in a report on vehicle registrations in November.

Jetwing Symphony, Lanka Energy Fund gives CSE ‘dream start’

By Duruthu Edirimuni Chandrasekera

The Jetwing Symphony Ltd and Lanka Energy Fund (LVL) Initial Public Offering (IPO) issues presented the Colombo Stock Exchange (CSE) with a ‘dream start’ for this year, CSE CEO Rajeeva Bandaranaike says.

He said this at the opening of trading of LVL on Tuesday at the CSE. This company, art of HNB Group with thermal and renewable energy projects in Sri Lanka, Bangladesh and Nepal, saw its trading open on Tuesday.

“Both indices are up, turnover is high, there’s net foreign purchases reaching Rs. 2 billion within the first 5 days and two new listings – all in the first week in this new year. It’s a ‘dream start’ for this year,” Mr. Bandaranaike said.

Explaining the success of their IPO, Sumith Arangala, CEO LVL noted that their sector, strategy, distribution policy, pricing and large free float contributed.

The opening price was Rs. 10.50 (up by Rs.0.5) and was trading at Rs.10 as at 9.35 am, 5 minutes after trading started. A total of 182,561 shares traded between Rs.10 and Rs. 10.50 at this time.

The company, which operates five hydropower plants through joint ventures with a combined capacity of 17 Mega Watt (MW) and two wind power projects with a combined capacity of 15.6 MW offered 120 million shares valued at Rs.10 per share, raising Rs. 1.2 billion in the IPO last month. It received bids for 142.1 million shares and was closed on opening day of 14 December 2017 itself.

Bangladesh will be their destination for thermal power and Nepal and East Africa for hydro, Mr. Arangala said. He told the Business Times that they are excited about Nepal as it has 40,000 MW capacity. “The potential is immense in Nepal.” He said that they own two 50 MW thermal power plants in Bangladesh and is to set up another 100 MW thermal power plant within this year.

The company’s 2Q18 net profit (NP) was down by 12 per cent year on year (YoY) to Rs. 153 million. Its 2Q18 profit after tax was flat YoY (amid higher interest costs), but bottomline was affected by higher minority interest.

www.sundaytimes.lk

Sri Lankan shares hit over 1-week closing low; blue chips see selling

Reuters: Sri Lankan shares fell for a fourth straight session on Friday to hit a more than one-week closing low on profit-booking in blue chip stocks.

The Colombo Stock Index ended 0.35 percent weaker at 6,473.62, its lowest close since Jan. 4.

Turnover stood at 968.3 million rupees ($6.29 million) on Friday, more than last year’s daily average of 915.3 million rupees.

Foreign investors net bought shares worth 77.4 million rupees on Friday, extending the net foreign inflow in this year to 2.33 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

“Market is consolidating with some profit-taking in blue chip shares. Continued foreign buying is a positive sign,” said Hussain Gani, Deputy CEO at Softlogic Stockbrokers.

Shares in conglomerate John Keells Holdings Plc ended 2.7 percent down, while biggest listed lender Commercial Bank of Ceylon Plc dropped 0.5 percent and Hatton National Bank Plc ended 0.8 percent weaker.

“Investors will wait and see how the local elections will be.”

Sri Lanka will hold a long-delayed local government election on Feb. 10.

The bourse hit a near two-month high on Monday as declining interest rates and expectations of higher economic growth boosted investor appetite for risky assets.

Treasury bill rates fell between March and December last year, mainly driven by foreign buying in treasury bonds, resulting in a decline in interest rates.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, against an anticipated four-year low of less than 4 percent last year, central bank governor Indrajit Coomaraswamy said last week.

Sri Lanka’s stock, bond, and foreign exchange markets are closed on Monday for a holiday and normal trading will resume on Tuesday. 

($1 = 153.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)

Sri Lankan shares fall on profit-taking; foreign buying continues

Reuters: Sri Lankan shares ended marginally weaker on Thursday as recent gainers witnessed profit-booking, while foreign buying in the island nation’s risky assets curbed losses.

The Colombo Stock Index ended 0.1 percent lower at 6,495.02.

Turnover stood at 531.9 million rupees ($3.46 million) on Thursday, less than last year’s daily average of 915.3 million rupees.

Foreign investors net bought shares worth 23.9 million rupees on Thursday, extending the net foreign inflow in this year to 2.24 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

“There was bit of profit-taking in stocks which gained last few days. Activity has come down as investors are waiting to see the direction,” said Dimantha Mathew, head of research, First Capital Holdings.

The bourse hit a near two-month high on Monday as declining interest rates and expectations of higher economic growth boosted investor appetite for risky assets.

Shares in Sri Lanka Telecom Plc ended 2.4 percent weaker while conglomerate John Keells Holdings Plc ended 0.9 percent down.

Access Engineering Company Plc, which on Wednesday said its net profit for financial year 2017/18 will see a rise of more than 10 percent, ended 0.9 percent higher.

Treasury bill rates fell between March and December last year, mainly driven by foreign buying in treasury bonds, resulting in a decline in interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, against an anticipated four-year low of less than 4 percent last year, central bank governor Indrajit Coomaraswamy said last week. 

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)

Sri Lanka's Capital Alliance group exits tea broking firm

ECONOMYNEXT - An 81 percent stake of listed Ceylon Tea Brokers Plc was sold on the Colombo Stock Exchange with its parent Capital Alliance Holdings, exiting, brokers said.

On Monday 92.7 million shares traded at 4.30 rupees.

Market sources said the stock was bought by existing directors of the firm.

Capital Alliance is a financial group which has interests in stock and bond trading and wealth management.

Sri Lanka’s LVL Energy Sept quarter net profit down 12-pct

ECONOMYNEXT - Sri Lanka’s LVL Energy Fund, which debuted on the Colombo bourse Tuesday, reported group net profit fell 12% to Rs153 million in the September 2017 quarter from a year ago.

Interim accounts filed with the stock exchange showed a sharp increase in finance costs and payout for minority interest during the period.

Quarter earnings per share of the firm fell to 33 cents from 38 cents the year before. Sales rose to Rs127 million from Rs107 million.

EPS for the six months to September 2017 were 63 cents with net profit at Rs291 million

LVL Energy Fund raised Rs1.2 billion with an initial public offering of a 20.6% stake at Rs10 a share.

The share closed at Rs10 Wednesday, down 10 cents.

Sri Lanka 06-month Treasury yield fall 18bp

ECONOMYNEXT – Sri Lanka’s six-month Treasury Bill yield fell 18 basis points to 8.06% at an auction Wednesday from 8.24% at the last auction, the central bank’s public debt department said.

One year bill yield fell 10 basis points to 8.80% while the 03-month bill was not offered, a statement said.

The public debt department got bids worth almost Rs82 billion and accepted bids of Rs22.5 billion, the exact amount offered.

Sri Lankan shares end down on profit-taking

Reuters: Sri Lankan shares ended weaker on Wednesday as investors sold blue chips such as Ceylon Tobacco Co, but foreign investors’ appetite for risky assets limited the downslide.

The Colombo Stock Index ended 0.4 percent weaker at 6,502.96.

Turnover stood at 376 million rupees ($2.45 million) on Wednesday, well below last year’s daily average of 915.3 million rupees.

Foreign investors, which accounted for more than 65 percent of the day’s buying, net bought shares worth 18.2 million rupees on Wednesday, extending the net foreign inflow in this year to 2.23 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

“Market is consolidating with some profit-taking,” said Dimantha Mathew, head of research, First Capital Holdings.

“We don’t see a big run at the moment. It won’t come down drastically but the market will consolidate at these levels before the next move.”

Analysts expect the market to settle at 6,600 levels.

Ceylon Tobacco Company Plc ended 3.3 percent down, while Hatton National Bank Plc closed 0.8 percent lower.

Treasury bill rates fell between March and December last year, mainly driven by foreign buying in treasury bonds, resulting in a decline in interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, against an anticipated four-year low of less than 4 percent last year, central bank governor Indrajit Coomaraswamy said last week.

($1 = 153.7500 Sri Lankan rupees) 

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

Sri Lankan shares slip from near 7-week high on profit-taking

Reuters: Sri Lankan shares ended lower on Tuesday, slipping from a near seven-week high hit in the previous session, as investors booked profits in blue chip stocks, while foreign traders continued buying the island nation’s risky assets.

The Colombo Stock Index ended 0.2 percent weaker at 6,527.14. The bourse rose 2.3 percent last week, in its second straight weekly gain.

Turnover stood at 546.8 million rupees ($3.56 million) on Tuesday, less than last year’s daily average of 915.3 million rupees.

Foreign investors net bought shares worth 205.5 million rupees on Tuesday, extending the net foreign inflow in this year to 2.2 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

“It’s a small pullback due to some kind of profit-taking,” said Atchuthan Srirangan, senior research analyst, First Capital Holdings PLC.

“There was selling in John Keells. Investors will wait to see whether the selling will continue or will the market absorb the pressure.”

Analysts expect the market to settle at 6,600 levels.

Shares in leading fixed line telephone operator Sri Lanka Telecom Plc ended 4.8 percent down, while conglomerate John Keells Holdings Plc closed 0.7 percent lower.

Treasury bill rates fell 188 basis points to 216 basis points between March and end-December 2017, mainly driven by foreign buying in treasury bonds, resulting in declining market interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, against an anticipated four-year low of less than 4 percent last year, central bank governor Indrajit Coomaraswamy said on Wednesday.

The central bank kept its benchmark interest rates unchanged in December, saying inflation and private sector credit growth have cooled to manageable levels as policy makers focus on supporting a slowing economy.

($1 = 153.7000 Sri Lankan rupees) 

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

Sri Lankan shares climb to near 7-week high; Keells leads

Reuters: Sri Lankan shares rose on Monday to a near seven-week high as blue chip shares such as John Keells Holdings Plc gained, while foreign investors continued to buy the island nation’s risky assets.

The Colombo Stock Index ended 0.4 percent firmer at 6,540.51, its highest close since Nov. 10.

The bourse rose 2.3 percent last week, in its second straight weekly gain.

Foreign buying accounted for 61.2 percent of the day’s turnover of 1.7 billion rupees.

Foreign investors net bought shares worth 33.9 million Sri Lankan rupees ($220,559.53) on Monday, extending the net foreign inflow in this year to 2.0 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

“The buying interest is continuing as investors are quite bullish,” said Dimantha Mathew, head of research at First Capital Holdings.

“There was a lot of foreign trading and investors are buying blue chip shares like John Keells. We expect the market to settle at 6,600 levels and there could be some profit-taking at those levels.”

Shares in conglomerate John Keells Holdings Plc rose 3.1 percent, Nestle Lanka Plc gained 3.5 percent and Lion Brewery Plc climbed 4.6 percent.

Analysts said the positive trend will continue due to declining market interest rates.

Treasury bill rates fell 188 basis points to 216 basis points between March and end-December 2017, mainly driven by foreign buying in treasury bonds, resulting in declining market interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, against an anticipated four-year low of less than 4 percent last year, central bank Governor Indrajit Coomaraswamy said on Wednesday.

The central bank kept its benchmark interest rates unchanged last week, saying inflation and private sector credit growth have cooled to manageable levels as policy makers focus on supporting a slowing economy. 

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)

Fitch downgrades Sunshine Holdings to ‘A-(lka)’ - Outlook is Stable.

Fitch Ratings has downgraded Sri Lanka-based Sunshine Holdings PLC’s National Long-Term Rating to ‘A-(lka)’ from ‘A(lka)’. The Outlook is Stable.

The downgrade reflects Fitch’s expectations that Sunshine’s net leverage - defined as lease-adjusted debt net of cash/operating EBITDAR, including proportionate consolidation of Estate Management Services (Private) Limited (EMSPL), the holding company for the agriculture and consumer goods segments - will remain higher than the level commensurate with a higher rating over the next three years.

The higher leverage is due to the substantial increase in debt following Sunshine’s acquisition of an additional stake in EMSPL from Tata Global Beverages for Rs. 2.9 billion on December 28, 2017.

The acquisition will increase Sunshine’s ownership of EMSPL to 60.0%, from 33.2%, and improve the fungibility of group cash flow. We expect operating cash flow from the group’s palm-oil segment, a part of EMSPL, to improve in the medium-term, but this is unlikely to be sufficient to offset the higher debt.

Key rating drivers

Higher Financial Risk: Sunshine’s financial profile has weakened, as the acquisition has added LKR2.7 billion of additional debt. Fitch expects net leverage to increase to 2.5x in the financial year ending March 2018 (FY18), then modestly recover to around 2.3x through FY21, buoyed by a rising EBITDA contribution from the palm-oil business. We also believe Sunshine’s structural subordination risk is heightened, as the holding company borrowed Rs.1.4 billion for the share purchase, while its cash flow is dependent on dividend payments from subsidiaries.

However, this is mitigated by Sunshine’s increased control of EMSPL and better group fungibility of operating cash flow.

Increasing cash flow volatility: The EMSPL acquisition increases Sunshine’s exposure to the agriculture business, which generates more volatile cash flow relative to Sunshine’s comparatively defensive healthcare segment. We also believe that the long-term viability of Sunshine’s tea-plantation segment is inhibited by unstable export demand, lower productivity and an escalating cost structure.

However, this is mitigated by the rising cash flow contribution from the company’s profitable palm-oil business, which contributed 71% of agri-segment EBITDA in FY17.

Palm oil supports profitability: We expect the palm-oil segment to be a key contributor to higher operating cash flow in the medium term, based on our forecast for global palm-oil prices to average USD665/tonne in 2018 and USD675/tonne from 2019.

Sunshine is Sri Lanka’s largest palm-oil producer, accounting for more than half of domestic output, and is well-positioned to benefit from rising local demand, increased near-term capacity and the government’s protectionist import tariffs. Palm oil is the largest contributor to Sunshine’s profitability, accounting for 36% of group proportionate EBITDA in FY17 (FY16: 24%).

The government cut import taxes on edible oil by around 20% in November 2017 to make up for lower domestic supply volume due to adverse weather conditions.

This is likely to cause a slight short-term dip in Sunshine’s palm-oil margins, but we expect margins to recover in the medium-term as taxes revert to historical levels with improvements in supply.

Margin pressure in branded tea: The EBITDA margin of Sunshine’s branded-tea segment weakened by 660bp to 8.9% in FY17, due to higher tea prices in the Colombo Tea Auction over the previous 12-14 months. Intense price competition, particularly in the lower -end of the market, also limits Sunshine’s ability to fully pass on cost increases to customers. Nevertheless, we expect tea costs to moderate with easing supply-side pressure, which should benefit the segment’s margin.

Sunshine’s strategy to tap the higher-growth hotel, restaurant and catering industries should also support the segment’s top-line and profitability growth.

Long-term benefits from investments: Fitch expects capacity expansion in Sunshine’s power and dairy segments to stabilise cash flow in the long term by reducing the contribution share from the volatile tea and palm-oil businesses.

We estimate the EBITDA contribution from the power and dairy segments to exceed Rs. 190 million by FYE19, once the increased capacity goes into operation.
www.sundayobserver.lk

Jetwing to start building Kandy hotel

Jetwing Symphony Ltd which opened trading at the Colombo Stock Exchange (CSE) on Friday following its Initial Public Offering last month is set to start building a boutique hotel in Kandy, officials said.

“We aim to start by end of 1Q or early 2Q,” Hiran Cooray, Chairman, Jetwing Symphony Ltd told media at the opening of trading.

This is the CSE’s first listing of the New Year 2018.

The company’s Rs. 750 million IPO with 50.22 million shares will be utilised to complete Jetwing Symphony’s projects in the pipeline and also settle debt payments, he said.

Jetwing Symphony is the investment arm of the Jetwing leisure and travel group.

www.sundaytimes.lk

Central Bank lifts regulatory leniency on small finance companies

By Bandula Sirimanna

The Central Bank (CB)’s action to stop its regulatory leniency from this year on troubled, small licensed finance companies without minimum capital has jolted those small lenders who are struggling to survive amidst stiff competition.

This move is aimed at protecting the public trust in the financial system with the introduction of a new mechanism to oversee the finance companies through early warnings and faster resolution, CB Governor Dr. Indrajit Coomaraswamy said in Colombo this week.

The ‘Enforcement Division’ of the Central Bank has been converted into a full-fledged department with effect from January 1 to carry out duties relating to enforcement and resolution issues pertaining to financial institutions.

The objective is to combat the pervasion of prohibited schemes and other unauthorised financial undertakings, while also curbing violations related to exchange management.

Assistance of the CID officers will also be sought to carry out investigations against errant finance companies, he disclosed.

The Board of Directors and the senior management of these institutions are also equally responsible for the operations of the institutions, he said adding that the CB will consider implementing the legal provisions against the errant senior management, if warranted, in the interest of depositors.

The minimum core capital requirement has been revised upwards from Rs. 400 million to Rs. 1 billion by January 2018, followed by Rs 1.5 billion in 2019 and Rs. 2 billion by 2020.

The CB may order to halt the taking of new deposits by small finance companies which fail to fulfill the Rs.1 billion capital requirement this year.

The strengthening of the capital position will improve the resilience of existing institutions while encouraging only the more financially efficient and effective companies to remain in the sector, he said.

However several heads of finance companies told the Business Times that the tightening of rules on capital adequacy and strict surveillance and stringent enforcement methods would have a big impact on their financial management and could even trigger the closure of some of the smaller companies.

This type of policing is not necessary to monitor finance companies; they said adding that it is not easy to raise the core capital up to Rs.1 billion this year under the present stagnate economic climate.

Presenting the annual Road Map for 2018, Dr. Coomaraswamy told a large gathering of top government officials, heads of financial institutions and CB officers that the rapid growth and broad outreach of the non bank finance sector necessitate proactive supervision and regulatory guidance.

While several regulations have been introduced to strengthen these institutions, some licensed finance companies have shown signs of stress, while the rapid expansion of certain others has been curtailed due to their lack of compliance with regulatory requirements.

This reiterates the need for continued strengthening of the existing regulatory framework of NBFIs to ensure the soundness of the sector and contain its spillover effects on the whole system, he pointed out.

Initiatives are already underway to resolve such weaknesses through mergers and recapitalisation of such finance companies through strategic investors.

There are also ongoing discussions on the encouragement of licenced finance companies to obtain credit ratings and list themselves on the Colombo Stock Exchange (CSE). This will, in turn, ensure financial stability and operational excellence while creating healthy competition.

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Krishan takes over as deputy chairman JKH

Krishan Balendra has been appointed Deputy Chairman of John Keells Holdings (JKH) with effect from January 1, taking over from Ajit Gunewardena who retired last month after a long career at the company.

In an announcement on Tuesday, the company said Mr. Balendra will assume office as company chairman on January 2019 on the retirement of Susantha Ratnayake, long-standing chairman of JKH, on December 31, 2018.

Gihan Cooray has been appointed group finance director and will take over as Deputy Chairman on January 2019. These appointments were earlier reported by the Business Times in its December 10 issue. The smooth transition of power and management has been planned over the years, company sources said.

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Tourist arrivals reach 2.1 mln in 2017

Sri Lanka ended 2017 at 2.1 million arrivals, marginally higher than 2016 but below an earlier target of 2.5 million tourist arrivals for reasons including flash-floods, outbreak of dengue and the partial 3-month closure of the main international airport.

Arrivals in January to November 2017 reached 1.87 million, a marginal 2.5 per cent rise from 1.82 million in the same 2016 period. Arrivals last month reached 244,536 against 224,791 visitors recorded in December 2016.

The latest figures are available in the Sri Lanka Tourism new-look, user-friendly website which was launched recently. The website also has a new feature, a Chinese-language segment, catering to Sri Lanka’s soon-to-be second largest source market.

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Treasury to meet SEC, brokers to hasten demutualisation

By Duruthu Edirimuni Chandrasekera

Treasury officials will meet the Securities and Exchange Commission and stockbroker representatives next week to discuss fast-tracking demutualisation (the process through which a member-owned company becomes shareholder-owned) of the Colombo Stock Exchange (CSE), top Treasury officials said.

This process has been progressing slowly for a while owing to dissent between the SEC and brokers over the percentage that the latter should own after demutualisation, Treasury officials said. “The stockbrokers want more than 60 per cent in CSE (which is what the SEC is willing to part with) and argue that they deserve more as they started the CSE more than three decades ago without any assistance. But the regulator is adamant that 60 is the number. Each broker will get a maximum of 5 per cent if they agree to the 60 per cent,” one official said.

Demutualisation has been discussed for nearly a decade, Treasury officials say noting that it’s about time something actually happened.

The SEC Bill is to be presented to Parliament on January 25 and if passed will expedite demutualisation and establish a central counterparty clearing and settlement mechanism, provide for the development of new capital market products, and enhance investor protection.

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Sri Lankan shares climb to near 2-month closing high

Reuters: Sri Lankan shares rose on Friday, closing the first week of the new year on a firm note, on the back of heavy foreign buying in blue chips.

The Colombo Stock Index ended 0.85 percent firmer at 6,514.73, its highest close since Nov. 11.

It rose 2.3 percent this week, in its second consecutive weekly rise.

Foreign investors net bought shares worth 357.1 million rupees ($2.33 million) on Friday, extending the net foreign inflow in this year to 1.96 billion rupees.

They had net bought 18.5 billion rupees worth equities in 2017 and 633.5 million rupees in 2016.

Turnover stood at 1.4 billion rupees on Friday, more than last year’s daily average of 915.3 million rupees.

Shares in conglomerate John Keells Holdings Plc rose 2.6 percent, Dialog Axiata Plc gained 3.1 percent and Melstacorp Ltd climbed 3.1 percent.

There was continued buying interest with an added interest in blue chips, said Dimantha Mathew, head of research at First Capital Holdings.

“There is renewed interest from foreign investors which is a good sign,” said Mathew, adding that he expected the positive trend to continue due to declining market interest rates.

Treasury bill rates fell 188 basis points to 216 basis points between March and end-December 2017, mainly driven by foreign investors buying treasury bonds, resulting in declining market interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, bouncing back from an anticipated four-year low of less than 4 percent last year, central bank Governor Indrajit Coomaraswamy said on Wednesday.

The central bank kept its benchmark interest rates unchanged last week, saying inflation and private sector credit growth have cooled to a manageable level as policy makers focus on supporting a slowing economy. 

($1 = 153.4500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

DFCC Bank to raise Rs 7 bn via debenture issue

DFCC Bank PLC has decided to raise Rs 7 billion via a debenture issue.

Accordingly, the bank will issue 50 million Basel III compliant, subordinated, listed, rated, unsecured, redeemable debentures with a non - viability conversion option, each at an issue price (par value) of Rs. 100 with a term of up to 7 years (“Debentures”), with an option to issue a further 20 million of said debentures in the event of an over-subscription, subject to obtaining all necessary regulatory and other approvals.

DFCC Bank PLC is a fully-fledged Commercial Bank that offers an array of seamless retail banking solutions. This includes Savings and Deposit products that give customers unmatched value and unique benefits.

The Bank has been rapidly growing its footprint across the country with a network of 138 service points and 95 fully fledged branches.

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Renuka Capital acquires shares of ONAL

Renuka Capital PLC, acquired by way of a crossing transaction on the Colombo Stock Exchange, 2,143,035 ordinary shares of On’ally Holdings PLC (“ONAL”) at a price of Rs. 48 per share representing 12.245% of the voting rights in ONAL.

Renuka Capital PLC therefore now owns a total of 6,175,790 shares in ONAL representing 35.29% of the voting rights of ONAL.

Pursuant thereto, a mandatory offer at a price of Rs. 48 per share will be made by Renuka Capital to the remaining shareholders of ONAL in terms of Rule 31(1) (a) of the Company Takeovers and Mergers Code 1995 as amended in 2003, to acquire the ordinary shares held by such shareholders in ONAL.

Accordingly, in compliance with the provisions of the Code, Renuka Capital will make a detailed announcement on the mandatory offer in terms of Rule 8(1) read together with Rule 9 of the Code shortly.
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Sri Lankan shares edge down amid high turnover

Reuters: Sri Lankan shares ended slightly weaker on Thursday amid heavy buying by foreign investors, but traders said sentiment was likely to remain positive after the central bank kept key policy rates unchanged last week.

The Colombo Stock Index ended 0.06 percent weaker at 6,459.66, snapping an eight-session win streak.

Shares in Ceylon Tobacco Company Plc fell 1.3 percent, while DFCC Bank Plc dropped 2.9 percent.

Losses were, however, capped by gains in Melstacorp Ltd , which climbed 1.9 percent, and conglomerate John Keells Holdings Plc, which rose 0.3 percent.

“Small volume of selling in CTC dragged the market down,” said Dimantha Mathew, head of research at First Capital Holdings.

“The positive trend due to declining market interest rates will continue.”

Turnover stood at 1.5 billion rupees ($9.77 million), more than last year’s daily average of 915.3 million rupees.

Foreign investors net bought shares worth 1.3 billion rupees on Thursday. Foreign investors net bought 18.5 billion rupees worth equities in 2017, and 633.5 million rupees worth stocks in 2016.

The index rose 2.26 percent in 2017, posting its first annual increase in three years. It fell 9.7 percent in 2016.

Since March 2017, treasury bill rates have fallen between 188 and 216 basis points though end-December, mainly driven by foreign investors buying treasury bonds, resulting in declining market interest rates.

The country’s 2018 economic growth trajectory is likely to help boost market sentiment, analysts said.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, bouncing back from an anticipated four-year low of less than 4 percent last year, central bank Governor Indrajit Coomaraswamy said on Wednesday. 

($1 = 153.6000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

FC Research forecasts steady phase for banking sector

First Capital Research (FC Research) expects the banking sector to have a steady phase during 2018E-20E with stable credit growth, improving GDP growth supporting lower Non Performing loans and lower interest rate volatility leading to stable NIMs, it said in a statement issued yesterday.

First Capital Research expects the banking sector universe to provide 25% average return over a one-year period exceeding the expected market return.

Credit growth to stabilize at 16%-18%: FC Research expects private sector credit growth to slow down to remain stable at 16% during 2018E gradually increasing to 18% through 2019E-2020E on improving GDP growth backed by progressing external sector performance levels and lower impairment due to better credit quality resultant to more business-related credit compared to consumer credit.

Interest rate stability to be mirrored in spreads: First Capital Research expects the banking sector interest spreads to stabilize in 2017E and thereon backed by the implementation of Inflation Targeting Framework, improved government revenue streams, increased foreign inflows into government securities market, introduction of Liability Management Bill to stabilize the interest rate and rate of inflation while the flexible exchange rate policy further supports it.

BASEL III Capital requirements satisfied:

Core and total capital adequacy ratios were maintained at 12.2% and 15% where the regulatory minimums were 5% and 10% respectively. Larger banks in the sector have already taken necessary steps to raise capital thus meeting the BASEL III capital requirement. This move ensures more stability and paves way for the industry to be more resilient and better poised for future growth.
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Sri Lanka 06-month Treasury yield falls to 8.24-pct

ECONOMYNEXT – Sri Lanka’s six-month Treasury Bill yield fell 06 basis points to 8.24% at an auction Wednesday from 8.30% at the last auction, the central bank’s public debt department said.

One year bill yield remained at 8.90% while the 03-month bill was not offered, a statement said.

The public debt department got bids worth Rs57 billion and accepted bids of Rs23.5 billion, the exact amount offered.

Sri Lankan shares rise on banks, diversified stocks

Reuters: Sri Lankan shares rose for an eighth straight session to hit a six-week closing high on Wednesday, as investors picked up banks and diversified shares, with sentiment expected to remain positive after the central bank kept key policy rates unchanged last week.

The Colombo Stock Index ended 0.81 percent firmer at 6,463.50, its highest closing level since Nov. 22.

Shares in conglomerate John Keells Holdings Plc gained 3.7 percent, while Lanka ORIX leasing Company Plc rose 4.8 percent.

“The positive trend which started last few days of 2017 is continuing, with investors continuing to buy value stocks,” said Dimantha Mathew, head of research at First Capital Holdings.

“Declining market interest rates is a big positive factor.”

Turnover stood at 638.3 million rupees ($4.15 million), less than last year’s daily average of 915.3 million rupees.

Foreign investors net bought shares worth 190.95 million rupees on Wednesday. Foreign investors net bought 18.5 billion rupees worth equities in 2017, and 633.5 million rupees worth of stocks in 2016.

The index has risen 2.26 percent in 2017, posting the first annual increase in three years, after falling 9.7 percent in 2016.

Since March 2017, treasury bill rates have fallen between 188 and 216 basis points though end-December, mainly driven by foreign investors buying treasury bonds, resulting in declining market interest rates.

Analysts also said the 2018 economic growth trajectory would help boost market sentiment.

Sri Lanka’s economic growth in 2018 is forecast at 5-5.5 percent, bouncing back from an anticipated four-year low of less than 4 percent last year, central bank Governor Indrajit Coomaraswamy said on Wednesday. 

($1 = 153.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Capital market wish list for the New Year

By Duruthu Edirimuni Chandrasekara

Yet again we are in the dawn of another New Year. The Sri Lankan capital market’s wish list for Santa is long. So what’s in store for us?

The good news is that the new Santa, the Finance Minister Mangala Samaraweera has pointed out the importance of building a vibrant capital market to provide lower cost funding to the economic activity of the country in the 2018 Budget. For this purpose, it has been proposed that the two state banks, Bank of Ceylon and People’s Bank, evaluate options of tapping international capital markets without diluting the controlling ownership of the Government as done by state banks in several countries, including India and China. This is the number one wish for next year.

The Securities and Exchange Commission Bill will replace the Securities and Exchange Commission of Sri Lanka (SEC) Act, No. 36 of 1987, and it is expected to be presented in Parliament on January 24. “The previous Act is 30-years old, weak and is limited in its scope over listed securities and few market intermediaries. The SEC could take action against wrongdoers only through criminal proceedings and has not changed with the times compared to the rest of the world. If the new bill is passed it will lead to major reforms in the capital market,” Ravi Abeysuriya, immediate past president – Colombo Stock Brokers Association told the Business Times.

It is aimed at regulating market institutions, public offers of securities, market intermediaries, deal with market misconduct, and create a fair, efficient and transparent securities market in keeping with international standards.

“The bill will facilitate the establishment and regulation of demutualised exchanges, clearing house, central depository, issue and trading of listed and unlisted securities, protection of client’s assets, etc and also provides for directors and chief executive officer of a listed public company to comply with the fit and proper criteria,” Mr. Abeysuriya added.

In this law, auditors of listed public companies are expected to report any issue that “may adversely affect the financial position of the listed public company to a material extent” immediately to the audit committee “and if no remedial measure is taken within two weeks thereof refer the matter to the board of directors”.

Market sentiment

This year recorded an all-time high foreign investor interest with a net foreign inflow of Rs. 17.7 billion as of Boxing Day this year compared to a net foreign outflow of about Rs.2 billion for same period last year.

Mr. Abeysuriya added that the Sri Lanka market continues to trade at a discount compared to the regional peers and offers a great opportunity for investors — with a market P/E that is at 10.6 compared to say Vietnam 18.5 and Bangladesh 23 and a majority of listed companies trading below book value Sri Lanka is attractively priced.

“Attractive market valuation, encouraging performance among listed entities, dividend payments and capital gains tax exemptions offered to share transactions and low depreciation of the rupee are some of the reasons for the foreign interest.”


Work at the Cinnamon Life project which will create a buzz in the stock market once completed. Pic by Indika Handuwala

But the same cannot be said about the local investor sentiment. “We have not yet seen local institutional, high net worth and retail investor interest in the market. EPF, ETF, NSB, SLIC not active due to ongoing investigations,” he added.

Mr. Abeysuriya added that what needs to change from tomorrow is the smaller size and lower liquidity in the local equity market. “Solving this ‘size and liquidity’ issues is imperative to unlock the potential of the Sri Lanka capital market and requires very bold and visionary supply and demand side reforms by the Government.”

Sri Lanka could easily attract a significant amount of foreign funds and increase the depth and breadth of CSE if Sri Lanka is included in the MSCI Emerging market Index, which is tracked by investors managing US$9.5 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.

For Sri Lanka to be included in the MSCI Emerging Market Index, it must have, among other requirements, at least three firms with a full market capitalisation of $1 billion and $516 million of listed stock. So the mantra should be to list SOEs. “Listed SOEs will be able to raise more funds by way of both additional equity and debt offerings to the public and further reduce the budgetary burden of the Government,” Mr. Abeysuriya added.

The efficiency at which the institutions in the financial system mobilise savings, allocate funds to finance productive investments, monitor the operations of the entities and transform risk will largely govern the economic performance of Sri Lanka. Mr. Abeysuriya stressed that there’s an urgent need to establish a Financial Sector Oversight Committee (FSOC) to coordinate and implement financial sector reforms in Sri Lanka to deliver what has been promised in the Government’s Economic Policy Statement – Vision 2025.

“The objective of FSOC should be to fast-track the implementation of financial sector reforms by inter-regulatory coordination with the key stakeholders including the Ministry of National Policies and Economic Affairs (MoNPaEA), Ministry of Finance, Ministry of Public Enterprise Development, SEC, Insurance Board, Colombo Stock Exchange (CSE) and the Central Bank by submitting proposals to the Cabinet Committee on Economic Affairs for approval through MoNPaEA. To assist the FSOC in the implementation, a ministry-level Central Project Coordination Unit (CPCU) should be formed which will be housed at MoNPaEA,” he said.

The stock broking industry is facing a precarious financial situation today with dwindling turnover, mounting costs and heavy losses, with little or no hope of a turnaround. Stock broking companies are facing a multitude of financial problems, which may not only undermine the orderly workings of the industry but also the sustainability of the stock brokerage industry. The issuance of seven new stock broker licenses since 2010, in addition to the six trading member licenses issued previously, further exacerbated the industry situation.

To address this situation, the SEC needs to offer a package of incentives to promote amalgamation and consolidation among stock broking companies in keeping with industry consolidation incentives offered by countries such as Malaysia and India, according to Mr. Abeysuriya. “In order to revitalise the market activity, brokerage companies that satisfy good governance standards and fit and proper criteria of directors as per SEC should be allowed to adopt the universal brokerage model and allowed to offer discount brokerage for on-line only transactions using funded accounts i.e. direct debit of client’s bank or Money Market account.”

The SEC should allocate a portion of the Cess fund for the Colombo Stock Brokers Association to promote the securities and investment industry and the establishment of a sound industry structure, promote education and training in all aspects of the securities and investment industry so as to upgrade the expertise and professionalism of members and to implement a self-regulatory mechanism, institute by-laws and regulations for members in accordance with constitution and take such action as may be necessary to enforce member discipline, similar to industry associations of countries such as Australia and Singapore, he added.

Interest rates down

Next year will see banking interest rates adjust downwards in 1H2018 similar to 4Q2017 to be in line with the dip in yields of Government Securities which is generally a positive sign for equity market as investors may look at alternative investment opportunities for bank FDs, analysts say.

“As long as bank FDs remain at or above 13 per cent-15 per cent is likely to be considered an attractive safe return for most investors diverting funds into fixed income instruments which were the cast throughout 2017,” Dimantha Mathew Head of Research First Capital Holdings PLC said.

He added that with the dip in government securities yields bank interest rates would follow a similar course supported by the expected reduction in the ceiling of the interest rates on FDs for finance companies by December 31. “Ceiling rates for one year which is currently at 13.55per cent is expected to come down by at least 130-140 basis points to about 12.2 per cent. These rates is primarily for finance companies and bank interest rates we believe are likely to trickle down and hover around 10-11 per cent during 1H2018 and be maintained around the same level during 2H2018 as well.”

With equity markets having higher risk premium which is around 8 per cent to the risk free rate, it currently provides an expected return of around 16 per cent-17 per cent down from around 20 per cent-21 per cent about six months ago, he added.

“However, the current tight monetary policy has slowed down the economy significantly reducing earnings growth for most companies. This situation is expected to ease off towards 2H2018. Therefore it is likely to have slightly better earnings performance in 2018/19 compared to the weak performance we are currently seeing in 2017/18. We believe overall market earnings are likely to grow by a modest 5 per cent-7 per cent during 2018/19 supported by a recovery in economic performance in the 2H2018. This is likely to accelerate to 10 to 12 per cent towards 2019/20 backed by further improvement in economic health of the country and also easing of the monetary policy with more stability in the system.”

Market returns are likely to be slow but stay positive in the 1H2018 due to attractive valuations prevailing in the economy and is likely to improve in the 2H2018 supported by expectations of a better economic outlook and earnings performance, analysts say. “We expect overall market returns are likely to be 10 to 12 per cent above the expected earnings performance with some re-rating with an expected better earnings outlook in the future. In terms of the ASPI index it is only likely to reach 7000 (+650 points) towards end of 2018. Market returns are likely to accelerate towards 2019 to about 15 per cent with the actual earnings performance and renewed investor confidence. Index is likely reach 8000 level (+1000 points) towards 2019. These targets however are highly dependent on the current stable outlook and reform agenda continuing during 2018 as well,” Mr. Mathews added.

Analysts say that the key sectors that are likely to outperform the market and expected provide high returns are the banking sector, building materials sector and apparel sector while the energy sector also may turnaround depending on the implementation of the pricing formulas.

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