Sri Lankan rupee hits record low on political woes

Reuters: ** The Sri Lankan rupee dropped 0.51 percent to a record low on Wednesday, dented by political uncertainty. Stocks slipped from a nearly six-week closing high hit in the previous session as foreign investors exited after President Maithripala Sirisena sacked the prime minister.

** The rupee dropped to a record low of 175.65 per dollar on Wednesday, surpassing the previous record low of 174.75 hit in the previous session. 

** The rupee ended at 175.60/176.00 per dollar on Wednesday, compared with previous close of 174.60/80. The rupee dropped 1.5 percent since the political crisis unfolded. 

** The rupee weakened 3.7 percent in October after a 4.7 percent drop in September against the dollar. It dropped 14.3 percent so far this year.

** Sri Lankan opposition leader Mahinda Rajapaksa was appointed prime minister last week after President Sirisena dismissed the incumbent in a surprise move that threatens political turmoil in the South Asian country. As president, the pro-China Rajapaksa ushered in billions of dollars of investment from Beijing to help rebuild the country following the end of a 26-year-long civil war against Tamil separatists in 2009. 

** The Colombo stock index ended 0.18 percent weaker at 5,953.47, slipping from its highest close since Sept. 19 hit on Tuesday. The bourse shed 3.6 percent last month, and slipped 6.5 percent so far this year.

** Analysts said retail investors, who have stayed away from the market during a number of investigations against market manipulation that allegedly occurred under the previous government, actively bargain-hunted after the president’s announcement. 

** Data from the central bank showed that foreign investors sold government securities worth a net 3.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year. 

** Stock market turnover was 1.4 billion Sri Lankan rupees ($7.99 million) on Wednesday, more than this year’s daily average of 789.2 million rupees. 

** Foreign investors were net sellers of shares worth 139.4 million rupees on Wednesday, extending the year-to-date net foreign outflow to 12.8 billion rupees worth of equities.

($1 = 175.3000 Sri Lankan rupees) 

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

Sri Lankan rupee hits record low as political turmoil mounts

Reuters: ** The Sri Lankan rupee slumped to a record low on Tuesday as escalating political turmoil sparked buying of U.S. dollars by importers. Stocks climbed for a third straight session to hit a nearly six-week closing high on retail investor buying, but foreign investors exited after President Maithripala Sirisena sacked the prime minister unexpectedly and swore in the ex-president.

** The rupee dropped to a record low of 174.75 per dollar on Tuesday, surpassing the previous record low of 174.30 hit on Monday.

** The rupee ended at 174.60/80 per dollar on Tuesday, compared with previous close of 173.75/90. 

** The rupee weakened 3 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 13.5 percent so far this year.

** Sri Lankan opposition leader Mahinda Rajapaksa was appointed prime minister on Friday after President Sirisena dismissed the incumbent in a surprise move that threatens political turmoil in the South Asian country. As president, the pro-China Rajapaksa ushered in billions of dollars of investment from Beijing to help rebuild the country following the end of a 26-year-long civil war against Tamil separatists in 2009. 

** The Colombo stock index ended 0.34 percent firmer at 5,964.32, its highest close since Sept. 19. The bourse shed 3.6 percent last month, and slipped 6.4 percent so far this year.

** Analysts said retail investors, who have stayed away from the market during a number of investigations against market manipulation that allegedly occurred under the previous government, actively bargain-hunted after the president’s announcement. 

** Data from the central bank showed that foreign investors sold government securities worth a net 3.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year. 

** Stock market turnover was 981.4 million rupees ($5.64 million) on Tuesday, more than this year’s daily average of 786.4 million rupees. 

** Foreign investors were net sellers of shares worth 155.3 million rupees on Tuesday, extending the year-to-date net foreign outflow to 12.7 billion rupees worth of equities.

($1 = 174.1000 Sri Lankan rupees) 

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

Sri Lankan rupee hits record low amid political crisis; stocks at 6-week high

Reuters: ** The Sri Lankan rupee slumped to a record low on Monday as growing political turmoil sparked buying of U.S. dollars by importers. Stocks hit a nearly six-week closing high on retail investor buying, but foreign investors exited after President Maithripala Sirisena sacked the prime minister unexpectedly and swore in the ex-president.

** The rupee dropped to a record low of 174.30 per dollar on Monday, surpassing the earlier record of 173.08 hit on Friday. 

** The rupee ended at 173.75/90 per dollar on Monday, compared with its previous close of 173.05/20. 

** The rupee weakened 2.8 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 13.2 percent so far this year.

** Sri Lankan opposition leader Mahinda Rajapaksa was appointed prime minister on Friday after President Maithripala Sirisena dismissed the incumbent in a surprise move that threatens political turmoil in the South Asian country. As president, the pro-China Rajapaksa ushered in billions of dollars of investment from Beijing to help rebuild the country following the end of a 26-year-long civil war against Tamil separatists in 2009. 

** The Colombo stock index ended up 1.9 percent at 5,944.18, its highest close since Sept. 19. It shed 3.6 percent last month and has lost 6.7 percent so far this year.


** Analysts said retail investors, who have stayed away from the market during a number of investigations against market manipulation that allegedly occurred under the previous government, actively bargain-hunted after the president’s announcement. 

 ** Data from the central bank showed foreign investors sold government securities worth a net 3.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year. 

** Stock market turnover was 4.2 billion rupees ($24.18 million) on Monday, more than five times this year’s daily average of 785.4 million rupees. 

** Foreign investors were net sellers of shares worth 3.1 billion rupees on Monday, worst outflow since March 28 and extending the year-to-date net foreign outflow to 12.5 billion rupees worth of equities.

** Shares in Distillers Company of Sri Lanka Plc ended 5.9 percent higher. Commercial Bank of Ceylon Plc closed up 3.4 percent, Hemas Holdings Plc closed 7.1 percent higher and conglomerate John Keells Holdings Plc ended 1.3 percent higher. 

($1 = 173.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez: editing by Sherry Jacob-Phillips, Larry King)

Sri Lankan rupee hits record low; stocks at 2-week closing high

Reuters : ** The Sri Lankan rupee touched a record low on Friday as banks and importers purchased U.S. dollar, while stocks climbed 1.1 percent to a two-week closing high but foreign investors’ exit from the island nation’s risky assets weighed on sentiment.

** The rupee dropped to an all-time low of 173.08 per dollar on Friday, surpassing its previous record low of 173.00 hit on Tuesday. 

** The rupee ended at 173.05/20 per dollar on Friday, compared with its previous close of 172.80/90. 

** The rupee weakened 2.1 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.52 percent so far this year.

** The Colombo stock index ended 1.1 percent firmer at 5,831.96, its highest close since Oct. 11. It shed 3.6 percent last month, and lost 8.4 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 1.6 billion rupees ($9.27 million) on Friday, more than double of this year’s daily average of 768.2 million rupees.

** Foreign investors were net sellers of shares worth 48.3 million rupees on Friday, extending the year-to-date net foreign outflow to 9.5 billion rupees worth of equities.

** Shares in conglomerate John Keells Holdings Plc ended 3.4 percent higher, while Hatton National Bank Plc closed up 1.6 percent, Sampath Bank Plc ended 4.2 percent firmer and the biggest listed lender Commercial Bank Plc ended 2.3 percent up.

($1 = 172.6000 Sri Lankan rupees) 

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

Sri Lankan rupee closes near record low; stocks steady

Reuters: ** The Sri Lankan rupee closed on Thursday near a record low hit earlier this week as banks and importers purchased the dollar, while stocks closed flat with higher turnover.

** The rupee ended at 172.80/90 per dollar on Thursday, compared with its previous close of 172.60/70.

** The rupee dropped to an all-time low of 173.00 per dollar on Tuesday, surpassing its previous low of 172.50 hit on Monday.

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 2.1 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.45 percent so far this year.

** The Colombo stock index ended 0.03 percent weaker at 5,768.54. It shed 3.6 percent last month, and lost 9.4 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 1.26 billion rupees ($7.30 million) on Thursday, more than this year’s daily average of 764.6 million rupees.

** Foreign investors were net sellers of shares worth 277.5 million rupees on Thursday, extending the year-to-date net foreign outflow to 9.4 billion rupees worth of equities.

($1 = 172.5000 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lankan rupee hits record low; stocks edge higher

Reuters: ** The Sri Lankan rupee hit an all-time low for a third straight session on Tuesday as banks and importers purchased the U.S. dollar despite the central bank’s intervention to prevent the fall, while stocks edged higher.

** The rupee dropped to an all-time low of 173.00 per dollar, surpassing its previous low of 172.50 hit on Monday, mainly due to importer demand for the greenback, market sources said.

** The rupee ended at 172.60/70 per dollar, compared with its previous close of 172.40/60. The central bank intervened to prevent further fall after it hit 173.00, market sources said. Central bank officials were not immediately available for comment. 

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 2 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.4 percent so far this year.

** The Colombo stock index ended 0.08 percent firmer at 5,770.52, further moving away from its lowest close since Nov. 28, 2013 hit on Friday. It shed 3.6 percent last month, and lost 9.4 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 201 million rupees ($1.17 million) on Tuesday, nearly a quarter of this year’s daily average of 761.1 million rupees.

** Foreign investors were net sellers of shares worth 59.3 million rupees on Tuesday, extending the year-to-date net foreign outflow to 9.1 billion rupees worth of equities.

($1 = 172.4000 Sri Lankan rupees) 

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

Sri Lankan rupee at record low; stocks up from near 5-yr closing trough

Reuters: ** The Sri Lankan rupee hit a record low on Monday as banks and importers purchased the U.S. dollar, while stocks edge up from their nearly five-year closing low hit in the previous session.

** The rupee dropped 0.4 percent to an all-time low of 172.50 per dollar, surpassing its previous low of 171.80 hit on Friday, mainly due to importer demand for the greenback, market sources said.

** The rupee ended at 172.40/60 per dollar, compared with its previous close of 171.60/80.

** Sri Lanka has selected China Development Bank for an eight-year $1 billion syndicated loan, the South Asian country’s central bank said.

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 2 percent so far this month after a 4.7 percent drop in September against the dollar. It dropped 12.4 percent so far this year.

** The Colombo stock index ended 0.09 percent firmer at 5,766.00, edging up from its lowest close since Nov. 28, 2013 hit on Friday. It shed 3.6 percent last month, and lost 9.6 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 5.3 billion rupees ($30.7 million) in the week ended Oct. 17. Sri Lanka has seen a net outflow of 85.9 billion rupees in securities so far this year.

** Stock market turnover was 214.1 million rupees ($1.24 million) on Monday, less than a third of this year’s daily average of 765 million rupees.

** Foreign investors were net sellers of 59.3 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 9.1 billion rupees worth of equities.

($1 = 172.4000 Sri Lankan rupees) 

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

Sri Lanka's Lion Brewery regrets leaving Indian market

ECONOMYNEXT - Sri Lanka's Lion Brewery regrets leaving the Indian beer market to focus on its home market, a senior company official said, noting that many local firms are reluctant to risk venturing overseas and fear foreign competition.

Suresh Shah, Executive Director of the Lion Brewery (Ceylon) Ltd., said they understood the risks and complexities of the Indian market when they entered, but withdrew to give priority to investments to grow the home market, recovering after the ethnic war.

The Carson Cumberbatch controlled Lion Brewery withdrew from the Indian beer market in May 2011 having ventured into it in partnership with Carlsberg South Asia Pte Limited. It sold its stake to Carlsberg for 2.1 billion rupees.

“We know it is tough to do business in our region,” Shah told a World Bank forum to launch its new report on regional trade in South Asia which highlights the lack of intra-regional trade and investment.

“We understood the complexity of doing business in India. If we wanted the rewards of a very large market we had to face it. You go in knowing the risks and challenges,” Shah said.

Shah said they went into India knowing the alcohol business in India was extremely complex, more than elsewhere, and would take lot of money to succeed.

“Unfortunately, entering the Indian market involved a lot of cash upfront. We needed to expand capacity in Sri Lanka. So we took the call that we had to first protect the home market. That’s why we got out of it. We will regret it.”

Venturing into overseas markets required taking risks and staying power which many Sri Lankan firms appeared reluctant to do, Shah said.

He noted how global multinationals went into the big Chinese market although the Chinese governing system was very different to their own and markets also complex.

“Everyone who wanted to be big on a global scale are all in China,” Shah said. “A lot of them made losses and are still making losses.

“Nevertheless, they take that risk wanting to be known as global players. A lot of it is also in the mindset.”

Asked if it was apathy on the part of Sri Lanka’s private sector that so few had ventured overseas, Shah replied: “Of course it is. When you can make 100 rupees in Sri Lanka versus making 25 rupees somewhere else, 100 rupees is easy for the making here.

”If you want to take your business overseas you’ve got to be competitive and productive. Many Sri Lankan businesses are unfortunately neither productive nor competitive because we don’t face competition. Sri Lankan businesses need to be competitive for which we need to open our markets. We need to liberalise.”

Sri Lanka’s Nations Trust Bank gets US$50mn from Dutch lender

ECONOMYNEXT – Sri Lanka’s Nations Trust Bank (NTB) has for a syndicated loan of 50 million US dollars from FMO, a Dutch development agency, to support its business banking activities, mainly loans to small and medium enterprises.

A statement said FMO was able to blend tranches from commercial lenders and themselves to offer an overall facility with a five-year tenor that resulted in a maturity profile aligned well with the NTB’s needs.

“This syndicated transaction is FMO’s first repeat deal for Nations Trust Bank, following a subordinated loan which was provided eight years earlier to further the bank’s ambitious growth strategy,” it said.

Renuka Fernando, NTB Chief Executive Officer, said loan not only provided stable longer term funding to the bank but also opened doors to broad base funding options by establishing relationships with other commercial lenders some of whom are new to the Sri Lankan market.

The statement said the syndicated loan also enabled NTB to reach out to financiers such as Standard Chartered Bank, Abu Dhabi Commercial Bank, First Commercial Bank (Taiwan) and Atlantic Forfaitierungs, most of whom are lending to it for the first time.

FMO is known as Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. in Dutch or the Netherlands Development Finance Company.

Hayleys buys balance 9.47-stake in Singer Sri Lanka

ECONOMYNEXT - Hayleys Plc, has bought a remaining 9.47 percent stake in consumer durables retailer Singer Sri Lanka Plc, for 1,671 million rupees.

In September 2017, Hayleys bought control from Singer Sri Lanka for 10.8 billion rupees, in what was the largest trade in the Colombo Stock Exchange.

Hayleys, and its units Carbotels and Volanka bought a 61.73 percent stake at the time also for 47 rupees a share.

Retail Holdings NV, the previous parent had the option of selling remaining shares within the next 12 to 15 months.

Sri Lanka's rupee, which has an unstable soft-peg to the US dollar has fallen since then.

EPF needs governance overhaul, proxy advisor, to invest in Sri Lanka stock market

By a Member of the EPF

ECONOMYNEXT - Sri Lanka's Employees Provident Fund, a retirement fund of private sector workers managed by the state is about to re-enter the stock market, ending several years of inactivity after it came under fire for being a dumping ground for both stocks and bonds.

The EPF bought stocks at the height of a stock market bubble which peaked around 2011, earning the doubtful accolade of being the buyer of last resort in the stock market.

In 2015 and 2016 EPF dealers were involved in a bond fraud where they stayed away from direct auctions and bought bonds at higher prices from a company connected the then-Central Bank Governor's son-in-law.

Unlike 2011, stock valuations have hit rock bottom in 2018. This is without doubt a good time to enter the stock market.

But does the fund have the necessary skills and most importantly a robust governance structure to protect the interest of the EPF members? The answer is no, particularly on governance!

Mired in Conflicts

The EPF’s fund management is undertaken by the Central Bank under its Monetary Board, which is chaired by a Governor and several members including from the Treasury and private sector.

The members of the Monetary Board itself are riddled with multiple conflicts of interest. The Monetary Board is headed by the Governor, who amongst other things is responsible to raise money for the government by issuing Treasury bills and bonds.

In this role his objective is to raise money at the lowest possible interest cost to the government. EPF is one of, if not the largest, investor in government securities. The Treasury secretary itself is a member of the Monetary Board.

The EPF members' objective is to maximize the return on their funds.

How is this conflict managed by the Governor of the Central Bank? We can expect some ethical behavior from the incumbent Governor, but what will happen after he goes?

Other members are drawn from the private sector. The expansion of the Monetary Board from an earlier three members was supposed to reduce the concentration of power, bring in a private sector perspective and also bring balance by moderating the role of the Treasury.

But has this happened? There are concerns that non-ex-officio member have come with their own baggage adding further conflicts of interest to an already murky pot.

The current poor level of transparency of EPF’s activities is completely unacceptable. The EPF does not publish quarterly accounts in a timely manner, which can be accessed by members in the same way detailed annual reports are prepared by the large banks and financial institutions.

Only the 2016 annual report has been published in the EPF web site as of today.

The EPF does not hold annual meetings, where members could question the management and the Board (in this case the Monetary Board).

Way forward - A member’s suggestion on EPF reform

The way forward would be to re-organise the EPF in a way similar to pension funds in developed countries. It is understood that the Ministry of Labor has sought the assistance of the Asian Development Bank, to reform the EPF and a White Paper has been prepared.

However, this is not been shared with the EPF members despite requests made under the RTI Act to the Ministry of Labour & Trade Union Relations.

Why is the secrecy?

The secrecy could raise suspicions that interested persons are again trying to mis-use the EPF with elections close at hand. Already the Perpetual scam, where even government ministers have got housing benefits has created a negative perception among members and trade unions.

Competition - with transparency

A small portion of the EPF funds should be carved out and given to professional fund management firms to be managed under a transparent process under a proper investment mandate and a fund management agreement.

The fund managers should report their performance every month to ensure competition and transparency, similar to the current practice in the Unit Trust industry, where the performance is reported on a daily basis.

The performance of the professional fund managers can be used as a benchmark and bring in competition and professionalism into the current fund management process at the EPF.

Member Communications

The EPF should publish quarterly financial statements like any other listed company in Sri Lanka and have annual meeting for members.

Most global investment funds publish their holdings every month. A large international which bought rupee bonds for example use to publish their holdings every month. It is ironic that the EPF does not.

EPF should also publish their holdings of stocks every month, so that members can monitor changes. Unlisted stocks should be published separately.

This can be done for bonds.

Governance

The governance needs to be overhauled.

A separate Board should be established for the EPF, consisting of a majority of independent Directors representing the members rather than the interests of the Government of Sri Lanka.

The Directors should not have multiple conflicts of interest similar to the current situation.

Given recent developments, seeing person who are seen as friends of politicians being appointed as members of the monetary board does not inspire confidence.

Quite apart from being the Board responsible for EPF, it is not best practice for the central bank either.

A Presidential Commission of inquiry has already suggested that the Governor be appointed by the Constitutional Council.

The EPF Governing Board could also go through a similar process.

Proxy Advisors and EPF’s voting rights

In the past, the voting rights on the shares held by EPF have been used to appoint family and friends of the political leaders' as director of investee companies.

There has been not much difference under the current regime which came promising good governance.

The global best practice is for Pension Funds to use their voting rights based on the independent professional advice from proxy advisors.

Unfortunately, there are no such companies in Sri Lanka. But there are such companies in India already.

Institutional Investor Advisory Services India Limited (IIAS) is a proxy advisory firm, which provides Indian market with independent opinions, research and data on corporate governance issues as well as voting recommendations on shareholder resolutions.

Its shareholders include Axis Bank, Fitch Group Inc, HDFC, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Tata Investment Corporation, UTI Asset Management Company Limited and Yes Bank. It is a registered research entity at the Securities and Exchange Board of India.

It provides voting recommendations for over 600 companies where there are large institutional holdings.

The EPF can get the services of a proxy advisor from India or some other country. Assistance could be sought from outside the country to set up a unit in Sri Lanka, the same way Fitch (then CBR) was set up in Sri Lanka to start ratging.

Such firms may help other institutional funds as well.

Conclusion

Fundamentally, EPF should invest in the equity market provide growth for its members, in fact it should have a larger proportion of the assets invested in the market, similar to the portfolio mix of pensions funds in other markets.

In some developed markets public pension funds also invest heavily in real estate. A study by Willis Towers Watson, actuaries found that equity forms more than 30 percent of assets of pension funds in major markets.

Graph

The EPF should be one of the largest shareholders in the country so that workers can have a share in the companies that drive growth

However, first has to put the policies, procedures, people and get the governance right. By improving transparency and publication of investments, an automatic check will be made against fraud and bad decisions.

In the current context, where the EPF membership does not have confidence in the management of the fund, the EPF needs to get its house in order, particularly governance, before embarking on yet another potentially disastrous adventure of investing in the stock market and bond trading.

Failure to do so will end up with the consequences being borne by the EPF members, who will see their retirement savings evaporate overnight.

As always the decision makers will escape scot-free without being held accountable, and will share in the spoils.

Sri Lanka new car registrations down 40-pct in September

ECONOMYNXT - Sri Lanka's new car registrations fell 40 percent to 4,990 units in September from a month earlier, and motor cycle registrations were down 25 percent to 23,914 units, amid import and credit controls, an analysis of vehicle registry data shows.

JB Securities, a Colombo-based brokerage, said overall vehicle registration were down 25 percent to 34,293 units in August and there were unsold vehicles with importers.

"There are yet a lot of inventory of unsold cars in yards or on the water thus one will not see a dramatic fall in registrations in the next 3-4 months until it is sold," the brokerage said in a note to clients.

"There are noticeable volumes in premium small engine cars due to a relatively lower rate of excise duty – these are entry level models."

Sri Lanka has cracked down on imports of cars amid policy errors by the central bank in liquidity management which has de-stabilized a soft peg with the US dollar.

Sri Lanka operates a highly unstable foreign reserve collecting soft-peg with the US dollar, involving a de facto external anchor with a shifting convertibility undertaking.

The regime suddenly shifts to a floating rate with a domestic anchor made up of a wide near-double-digit inflation target with unsterilized excess liquidity collected during the pegging period intact, sending the rupee sliding down forcing currency defence.

Money is then injected to sterilize the interventions and rates down, below the ceiling policy rate of 8.50 percent.

Term money is also injected at rates below the Sri Lanka Interbank Offered Rate for the tenor, which tends to keep swap rates down. Higher forward rates will encourage exporters to sell, analysts say.

Dollar for dollar, car imports tend to bring the highest revenues for the government. Falling car imports also hurt state revenues, forcing more borrowings and higher interest rates, which may require more money to be printed to keep rates down.

Sri Lanka bond yields edge down, rupee marginally weaker

ECNOMYNEXT - Sri Lanka's bond yields were lower Friday, and the rupee was slightly weaker in forex markets, dealers said.

The spot US dollar was quoted at around 171.55/75 to the US dollar in by mid-day, slightly lower from 171.30/50 levels a day earlier.

A 3-year 2021 bond was quoted around 10.75/80 Friday, up from Thursday's closing of 10.90/11.00 percent, dealers said.

A 5 year bond maturing in 2023 was quoted at 11.38/42 percent, down from 11.48/52 percent levels a day earlier.

Stock were down 0.12 percent by 12.45 hours Friday with the Colombo All Share Index at 5,771.6 points.

Sri Lanka Softlogic Holdings Plc upgraded to [SL] BBB+

ECONOMYNEXT - ICRA Lanka Lanka Limited, a rating agency said it had upgraded the credit of Sri Lanka's Softlogic Holdings Plc, to [SL] BBB+ from [SL] BBB with a stable outlook.

A rating watch had been removed.

ICRA said Softlogic had raised 3.1 billion rupees from a stock placement and another 3.9 billion rupees through a cash call on existing shareholders which had reduced leverage.

The full statement is reproduced below.

ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service has upgraded the issuer rating of Softlogic Holdings PLC (SHL/” the company”) to [SL] BBB+ (pronounced SL triple B plus) from [SL]BBB (pronounced SL triple B) and rating watch with developing implications has been removed. The outlook on the long term rating is ‘Stable’.

Rationale

The rating upgrade considers the improvement in capital structure of SHL subsequent to fund raising of LKR 3.1 billion during FY18 through a private placement and LKR 3.9 billion through a rights issue during Q1 FY2019, which resulted in the standalone gearing1 moderating from 2.3x as on March 31, 2017 to 1.4x as on March 31, 2018 and 0.9x as on June 30, 2018.

ICRA Lanka also takes note of the restructuring undertaken by the group of its retail operations, with the creation of a retail holding company under which fund raising for expansion purposes are envisaged.

The rating takes into account SHL’s position as the primary holding company of one of Sri Lanka’s leading conglomerates with several group entities holding leading market positions in sectors such as healthcare, financial services and retail. The group’s revenue had grown at a CAGR of 21% in the five years upto FY2018, aided by organic growth as well as several acquisitions.

ICRA Lanka also takes note of the experienced and competent management team at the holding company level and at various group companies; and SHL’s strong relationship with large financial institutions, proven access to capital markets, and liquid investment portfolio of LKR 1.6 Bn (at standalone company level), besides the company’s access to undrawn sanction lines of ~LKR 3.1 billion which provides comfort on the overall liquidity position.

The rating also factors in the substantial market buffer over the book value of SHL’s investments in quoted subsidiaries, however the comfort is mitigated to an extent due to a large portion of investments being pledged for funding facilities.

However, the rating is constrained by SHL’s high repayment obligations in the near to medium term and primary dependence on dividend income from subsidiaries, exposing it to risk of cash flow/dividend volatility from key sectors such as healthcare, retail and financial services and may require refinancing to meet its obligations.

Further, ICRA Lanka notes that the group has followed aggressive debt funded capex and acquisitions in the past and has high capex plans under the retail entity in the medium term.

This has resulted in the consolidated group having a stretched capital structure and coverage indicators, although with the recent fund raising the gearing has witnessed some moderation, though it remains at elevated levels. SHL has also periodically raised debt for acquisitions as well as to provide support to group entities for acquisitions, capex or for cashflow shortfalls, putting pressure on the capital structure.

Going forward, the ability of the group to raise capital at subsidiary level to meet capex requirements and improve profitability/divest loss making subsidiaries, such that there is limited funds requirement from SHL and loans extended by SHL to subsidiaries are gradually repaid, will be pivotal for improvement in the credit profile of SHL.

Outlook: Stable
ICRA Lanka expects SHL to get dividends from group entities, which have leading market positions in healthcare, financial services and retail segments and also benefit from flexibility enjoyed with lenders for any refinancing requirements, if needed.

ICRA Lanka expects gradual improvement in the capital structure of SHL. The outlook may be revised to ‘positive’ in case of better than expected dividends and repayment of debt to SHL from group entities, backed by improved financial performance or fund raising; leading to improvement in capital structure and coverage indicators of SHL, in conjunction with a resumption in Sri Lanka’s stalling macroeconomic position.

Conversely, in case of a significant weakening in the profitability levels of group entities leading to lower dividend payment and additional debt support requirement from SHL, resulting in stretched gearing and coverage indicators; the outlook may be revised to negative.

Key rating drivers

Credit strengths

Leading market position of group entities in several diverse sectors: Softlogic group is a conglomerate in Sri Lanka and has leading presence across several sectors such as healthcare (Asiri group), financial services (Softlogic Life Insurance and Softlogic Finance) and retail (Softlogic retail and Odel PLC). ICRA Lanka takes note of the long term growth potential of these segments, although they remain vulnerable to forex volatility, interest rate movements and changes in government policies.

Apart from the core sectors, the group also has presence in several other sectors including leisure, restaurants and automobile dealerships. The main source of income of SHL is dividends and payment for other services from group entities. The group has witnessed revenue growth at a CAGR of 21.1% during the five years upto FY2018, with topline of LKR 66 billion driven by organic growth as well as debt funded acquisitions.

Successful fund raising resulted in some improvement in capital structure: During FY2018, SHL had raised LKR 3.1 billion through a private placement and subsequently, it raised an additional LKR 3.9 billion through a rights issue during Q1 FY2019. This has resulted in moderation in gearing2 of SHL from 2.3x as on March 31, 2017 to 1.4x as on March 31, 2018 to 0.9x as on June 30, 2018.

ICRA Lanka also takes note of the restructuring of the retail segment, with the creation of a new retail holding entity under SHL, which will hold all retail companies. The management plans to fund the future capex requirements of the segment at subsidiary level and to repay some of the debt extended by SHL.

Experienced and professional management team: The promoter/group chairman who is one of the company’s founders is actively involved in business operations and provides strategic guidance to the group, while each of the core sectors is led by a professional management team.

Over the last few years, the group has inducted experienced industry professionals under key business segments, which is a positive.

Credit challenges

High repayment obligation of SHL in medium term; may need refinancing; SHL has availed loans to fund acquisitions as well as to extend support to group entities for debt funded acquisitions. This had previously put pressure on the capital structure, although same has witnessed some moderation in the recent period due to capital raised.

Nonetheless, SHL (standalone company) has high repayment obligations in the range of LKR 2.8 -3.0 billion per annum over next three years and is vulnerable to volatility in dividends/service income from group entities, which are its main income stream and in case of shortfall may need refinancing. However, the risk is partly mitigated by healthy financial flexibility enjoyed by the group with lenders as witnessed in the past.

Stretched capital structure and coverage indicators at group level; The group has been following rapid debt funded capex and acquisitions in the last few years leading to a stretched capital structure and coverage indicators.

The gearing3 of the consolidated entity was 3.2x (adjusted gearing4 4.5x) as on March 31, 2017 which moderated to 2.6x (adjusted gearing 3.4x) as on March 31, 2018 and 2.2x (adjusted gearing 2.7x) as on June 30, 2018, subsequent to fund raising.

With aggressive capex plans in the medium term, the capital structure and coverage indicators are expected to witness some pressure and any improvement will be dependent on the group’s ability to raise equity capital, improve profitability of its core operations and the ability to stabilize new projects. Further, any additional support requirements from SHL, may have an adverse impact on SHL’s credit profile.

Performance susceptible to broader economic cycle and changes in government policies; The group’s financial performance remains susceptible to the broader economic cycle, interest rate movements, forex volatility and changes in government policies.

Analytical approach: For arriving at the ratings, ICRA has applied its ratings methodologies as indicated below.

Company Profile:

Softlogic Holdings PLC (SHL /“the Company”) was founded in 1991 and was listed on the Colombo Stock Exchange in June 2011. The Company acts as the primary holding company for the Softlogic Group of entities with businesses across healthcare, financial services, retail, information and communication technology (ICT), leisure/hotels and automobile dealerships. The Group had a top line of LKR 66 Bn (LKR 59 Bn in FY2017) during FY2018 and has market leading positions in segments such as healthcare, financial services and retail. SHL was founded by the prominent Sri Lankan entrepreneur Mr. Ashok Pathirage, who has the controlling stake of the company.

On a consolidated basis, for the year ended March 31, 2018, SHL reported a PAT of LKR 2,278 Mn on a revenue of LKR 66,019 Mn vis-à-vis a PAT of LKR 920 Mn on a revenue of LKR 58,882 Mn during the previous fiscal. On a standalone basis, for the year ended March 31, 2018, SHL reported a PAT of LKR 3,699 Mn (inclusive of capital gains) on revenue of LKR 1,543 Mn vis-à-vis a PAT of LKR 1,025 Mn (inclusive of capital gains) on a revenue of LKR 1,972 Mn during the previous period fiscal.

Sri Lanka's Chemanex Plc, to exit closed export unit

ECONOMYNEXT - Sri Lanka's Chemanex Plc, said it was selling a 70 percent stak in an export unit for 20 million rupees to the other shareholders.

Chemanex said the unit, Cal Exports Lanka (Pvt) Ltd, will reduce its capital and from 42 million rupees to 18.7 million and return 9.2421 rupees per share on 2.52 million shares.

The firm was set up to manufacture industrial powder and adhesives.

The firm had said earlier, it was closing the business as it was found to be unviable.

Sri Lankan rupee hits record low, stocks settle near 5-yr closing trough

Reuters: ** The Sri Lankan rupee fell to a record low of 171.80 per dollar on Friday as banks and importers bought the U.S. dollar, while stocks slid to a near five-year closing low in dull trade.

** The rupee dropped to an all-time low of 171.80 per dollar, surpassing its previous low of 171.60 hit on Oct. 10, due to foreign selling in government securities and importer demand for the greenback, market sources said.

** The rupee ended at 171.60/80 per dollar, compared with its previous close of 171.30/45.

** The Central Bank on Wednesday said it has secured a 1 billion dollar eight-year loan from China Development Bank.

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities.

** The rupee has weakened 1.2 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.5 percent so far this year.

** The Colombo stock index fell 0.30 percent to 5,761.09 points, its lowest close since Nov. 28, 2013. It shed 3.6 percent last month and is down 9.6 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 6.3 billion rupees ($37.04 million) in the week ended October 10. Sri Lanka has seen a net outflow of 80.6 billion rupees in securities so far this year.

** Stock market turnover was 204.2 million rupees ($887,200) on Thursday, nearly a quarter of this year’s daily average of 767.8 million rupees.

** Foreign investors were net sellers of 8.1 million rupees worth of shares on Friday, extending the year-to-date net foreign outflow to 9 billion rupees worth of equities. 

($1 = 171.1 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Angus MacSwan)

Sri Lankan rupee ends weaker near record low; stocks steady

Reuters: ** The Sri Lankan rupee ended weaker on Thursday, near its record low, as banks and importers bought the U.S. dollar, while stocks ended largely unchanged near a five-year closing low hit earlier in the week.

** The Central Bank on Wednesday said it has secured a 1 billion dollar eight-year loan from China Development Bank.

** The rupee ended at 171.30/45 per dollar, compared with its previous close of 171.00/15. 

** The rupee had fallen to an all-time low of 171.60 per dollar on Oct. 10 due to foreign selling in government securities and importer demand for greenback. 

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged despite heavy pressure on the rupee and foreign outflows from government securities. 

** The rupee has weakened 1.2 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.5 percent so far this year.

** The Colombo stock index edged up 0.03 percent to 5,778.37 points, hovering near its lowest close since Dec. 3, 2013 hit on Monday. It fell 3.6 percent last month and is down 9.3 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 6.3 billion rupees ($37.04 million) in the week ended October 10. Sri Lanka has seen a net outflow of 80.6 billion rupees in securities so far this year.

** Stock market turnover was 151.8 million rupees ($887,200) on Thursday, one fifth of this year’s daily average of 770.8 million rupees and the lowest since Sept. 6.

** Foreign investors were net sellers of 46.5 million rupees worth of shares on Thursday, extending the year-to-date net foreign outflow to 9 billion rupees worth of equities.

($1 = 171.1000 Sri Lankan rupees) 

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

Sri Lankan rupee ends weaker; stocks slip to near 5-yr closing low

Reuters: ** The Sri Lankan rupee ended weaker on Wednesday as banks and importers bought the U.S. dollar while stocks edged lower to end near a five-year closing low.

** The Central Bank on Wednesday said it has secured a 1 billion dollar eight-years loan from China Development Bank.

** The rupee ended at 171.00/15 per dollar, compared with its previous close of 170.90/171.10. 

** The rupee had fallen to an all-time low of 171.60 per dollar on Oct. 10 due to foreign selling in government securities and exporter greenback sales. 

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The rupee has weakened 1.1 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.3 percent so far this year.

** The Colombo stock index fell 0.33 percent to 5,776.75 points, ending near its lowest close since Dec. 3, 2013 hit on Monday. It fell 3.6 percent last month and is down 9.3 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 6.3 billion rupees ($37.04 million) in the week ended October 10. Sri Lanka has seen a net outflow of 80.6 billion rupees in securities so far this year.

** Stock market turnover was 448.3 million rupees ($2.62 million) on Wednesday, well below this year’s daily average of 774 million rupees.

** Foreign investors were net sellers of 110.4 million rupees worth of shares on Wednesday, extending the year-to-date net foreign outflow to 8.95 billion rupees worth of equities. 

($1 = 170.8000 Sri Lankan rupees) 

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

Sri Lankan rupee ends weaker; stocks edge up from near 5-yr low

Reuters: ** The Sri Lankan rupee ended 0.2 percent weaker on Tuesday as banks and importers bought the dollar while stocks ended a five-session losing streak, pulling away from previous session’s near five-year closing low.

** The rupee ended at 170.90/171.10 per dollar, compared with its previous close of 170.60/75. 

** The rupee had fallen to an all-time low of 171.60 per dollar on Wednesday, surpassing the previous trough of 171.00 hit on Tuesday, due to foreign selling in government securities and exporter greenback sales, market sources said. 

** The central bank surprised financial markets on October 2 by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The central bank said on October 2 it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars in the market so far this year to defend the currency.

** The rupee has weakened 1.01 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.3 percent so far this year.

** The Colombo stock index rose 0.37 percent to 5,796.02, edging up from its lowest close since Dec. 3, 2013 hit on Monday. It fell 3.6 percent last month and is down 9.0 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 6.3 billion rupees ($37.04 million) in the week ended October 10. Sri Lanka has seen a net outflow of 80.6 billion rupees in securities so far this year.

** Stock market turnover was 1.6 billion Sri Lankan rupees ($9.37 million) on Tuesday, more than twice this year’s daily average of 775.7 million rupees.

** Foreign investors were net sellers of 499.9 million rupees worth of shares on Tuesday, extending the year-to-date net foreign outflow to 8.8 billion rupees worth of equities. 

($1 = 170.7000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Vyas Mohan)

Sri Lankan rupee ends weaker; stocks hit near 5-yr low on foreign selling

Reuters : ** The Sri Lankan rupee ended 0.7 percent weaker on Monday as banks and importers bought the dollar and as stocks declined for a fifth straight session, hitting a near five-year closing low on continued foreign fund outflow.

** The rupee ended at 170.60/75 per dollar, compared with the previous close of 169.40/70.

** The rupee fell to an all-time low of 171.60 per dollar on Wednesday, surpassing the previous low of 171.00 hit on Tuesday, due to foreign selling in government securities and exporter greenback sales, market sources said.

** The central bank surprised financial markets on October 2 by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities.

** The central bank said on October 2 it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars in the market so far this year to defend the currency.

** The rupee has weakened 0.7 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 10.9 percent so far this year.

** The Colombo stock index fell 0.7 percent to 5,774.37, its lowest close since Dec. 3, 2013. It fell 3.6 percent last month and is down 9.3 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 6.3 billion rupees ($37.04 million) in the week ended October 10. Sri Lanka has seen a net outflow of 80.6 billion rupees in securities so far this year.

** Stock market turnover was 1.99 billion rupees ($11.70 million) on Monday, its highest since August 7 and more than twice this year’s daily average of 771.5 million rupees.

** Foreign investors were net sellers of 1.7 billion rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 8.3 billion rupees worth of equities.

** Shares in Hatton National Bank Plc ended 3.8 percent weaker while Lion Brewery Plc fell 4.8 percent, Carson Cumberbatch Plc lost 5.0 percent, Sampath Bank Plc closed 2.7 percent lower and conglomerate John Keells Holdings shed 1.6 percent.

($1 = 170.1000 Sri Lankan rupees)

(Reporting by Ranga Sirilal; Editing by Vyas Mohan)

Sri Lankan rupee rises on exporter dollar sales; stocks extend falls

Reuters: ** The Sri Lankan rupee strengthened 0.5 percent on Friday, as inward remittances and exporters dollar sales surpassed mild importer demand for the greenback, while stocks declined for a fourth straight session and posted their lowest close in more than one week.

** The rupee ended at 169.40/70 per dollar, compared with the previous close of 171.20/40. 

** The rupee fell to an all-time low of 171.60 per dollar on Wednesday, surpassing the previous low of 171.00 hit on Tuesday due to foreign selling in government securities and exporter greenback sales, market sources said. 

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The central bank said on Oct. 2 it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars in the market so far this year to defend the currency.

** The rupee has weakened 0.3 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 10.5 percent so far this year.

** The Colombo stock index fell 0.4 percent to 5,815.03, its lowest close since Oct. 3. It fell 3.6 percent last month and is down 8.7 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 1.8 billion rupees ($10.58 million) in the week ended Oct. 3. Sri Lanka has seen a net outflow of 74.3 billion rupees in securities so far this year.

** Stock market turnover was 408.9 million rupees ($2.41 million) on Friday, more than half of this year’s daily average of 765 million rupees.

** Foreign investors were net sellers of 311.5 million rupees worth of shares on Friday, extending the year to date net foreign outflow to 6.6 billion rupees worth of equities. 

($1 = 169.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

Sri Lanka's Ashok Leyland unit net down 72-pct as truck sales fall

ECONOMYNEXT - Profits at listed Lanka Ashok Leyland Plc, which distributes India's Ashok Leyland trucks in Sri Lanka fell 72 percent from a year earlier to 24.4 million rupees in the September 2018 quarter on falling vehicle sales, interim results showed.

The company reported earnings of 24.4 rupees a share in the quarter. For the six months to September 2019, the company reported earnings per share of 21.35 rupees as earnings fell 65 percent from a year earlier to 77.3 million rupees.

The stock last traded at 818.10 rupees a share.

Revenues fell 42 percent from a year earlier to 2.3 billion rupees and cost of sales fell 44 percent to 2.0 billion rupees and gross profit fell 19 percent to 247.7 million rupees, in the quarter, interim accounts filed with the stock exchange showed.

The company says it has a 60 percent market share in Sri Lanka's commercial vehicle market for busses and trucks. It also imports spare parts and diesel generators.

In the September 2019 quarter, vehicle sales fell 42 percent from a year ago to 2.3 billion rupees while diesel generator sales declined 42 percent to 3.8 million rupees.

Spare parts sales had increased 13 percent to 34.5 million rupees while income from vehicle hires surged 169 percent to 20.2 million rupees.

Administration expenses grew 4 percent to 121 million rupees and selling and distribution costs fell 79 percent to 7.2 million rupees.

Net finance cost in the September quarter was 64 million rupees grew sharply from an income 1.5 million rupees a year earlier.

The company's short term borrowings had fallen 54 percent to 1.3 billion rupees as it inventory.

The firm had earned earlier that a Euro 4 standard (super diesel) for engines of imported vehicle that started in July 2018 would hurt operating costs of truck owners.

Sri Lanka makes second forced bond sale, yields up

ECONOMYNEXT - Sri Lanka has made the second coercive bond sale with gilt dealers being forced to 5-year bonds based on a cut-off decided by the authorities during a 40 billion rupee bond sale.

Sri Lanka has sold 20 billion rupees of bond maturing on 15 July 2023 at an average yield of 11.69 percent of which about 4.0 billion rupees were estimated to have been forced on buyers at the weighted average yield.

The bond was quoted in the secondary market at yields around 11.85/95 percent generating losses for holders. The cut-off is estimated to have been around 12.00 percent, market sources said.

A 15 October 2021 bond forced on buyers at 10.03 percent at the last auction is now trading around 11.50/75 percent with holders now in losses.

Sri Lanka's interest rates have been rising amid a liquidity shortage generated by a maturing central bank swap and interventions made after the exchange rate came under pressure from excess liquidity and low rates.

Critics say the coercive bond sales are a point of vulnerability both to the financial system and the economy in general, especially when the exchange rate is under pressure.

An offer of 20-billion rupees of 14-year 3-month bond maturing on 15 January 2033 was fully take up at a weighted average yield of 11.90 percent. It was quoted around 11.70/95 percent.

The longer term yield curve is flat in the belief that interest rate spike is temporary with some insurance firms in particular willing to buy the bonds.

Rates could come down after credibility returns to the exchange rate peg, market analysts say. 

Sri Lanka 3-month Treasuries yield rises 72bp at auction

ECONOMYNEXT - Sri Lanka' 3-month Treasury bill yields rose 72 basis points to 9.28 percent at Wednesday's auction after a sharp 49 basis point rise at the last auction, data from the state debt office showed.

The 12-month yield rose 68 basis points to 10.19 percent, after rising 46 basis points to 9.51 percent at the last sale.

Six month bills were not offered.

The debt office, which is a unit of the central bank, offered and accepted 4.0 billion rupees of 3-month bills after getting bids of 6.5 billion rupees.

It offered and accepted 07 billion rupees of 01-year bills after getting bids of 10.8 billion rupees.

Sri Lanka’s power utility retains 'AAA(lka)' rating, no tariff hike seen

ECONOMYNEXT - Fitch Ratings said it has confirmed the Sri Lankan state power utility’s long-term rating at 'AAA(lka)' with a stable outlook on the strength of government support with no tariff hike expected despite heavy losses, ahead of elections.

A statement said Ceylon Electricity Board's (CEB’s) rating is equalised with that of the Sri Lankan sovereign (B+/Stable), reflecting strong linkages with the parent, in line with Fitch's Parent and Subsidiary Rating Linkage criteria.

Fitch views CEB's standalone credit profile as much weaker than its support-driven rating and believes providing a notch-specific standalone credit view of CEB is meaningless due to poor margin visibility and the need for continued state support to sustain operations.

“We do not expect the government to increase electricity tariffs in the foreseeable future to levels that adequately cover CEB's generation, distribution and transmission costs,” Fitch Ratings said.

“The government faces elections in the next 24 months, and amid rising living costs due to higher fuel costs and local-currency depreciation, we do not expect the government to raise electricity tariffs or implement a cost-reflective pricing formula.”

The full statement follows:

Fitch Ratings-Colombo-09 October 2018: Fitch Ratings has affirmed Sri Lanka-based Ceylon Electricity Board's (CEB) National Long-Term Rating at 'AAA(lka)' with a Stable Outlook.
CEB's rating is equalised with that of the Sri Lankan sovereign (B+/Stable), reflecting strong linkages with the parent, in line with Fitch's Parent and Subsidiary Rating Linkage criteria. The equalisation takes into consideration CEB's strategic importance to Sri Lanka in ensuring power security and supply of affordable electricity to the public as the monopoly electricity transmitter and distributor in the country. CEB also accounts for around 70% of the power generation in the country.

KEY RATING DRIVERS

Strong Linkages with State: Fitch assesses the linkages between CEB and the state as strong, reflecting high ownership and management control, explicit guarantees and financial support through equity infusions and debt funding. The government also implicitly guarantees CEB's project loans (about 80% of outstanding debt), which are extended by bilateral and multilateral agencies and routed through the government for development of power infrastructure. CEB provides electricity at subsidised rates, fulfilling an essential service for the government. CEB has almost full network connectivity and accounted for more than 70% of Sri Lanka's generation capacity at end-2017.

We do not expect CEB's linkages with its parent to weaken in the medium term as the government's need to provide electricity at subsidised rates can be carried out only by a state entity such as CEB, as private companies would not be willing to incur losses. Fitch views CEB's standalone credit profile as much weaker than its support-driven rating and believes providing a notch-specific standalone credit view of CEB is meaningless due to poor margin visibility and the need for continued state support to sustain operations.

Tariff Increases Unlikely: We do not expect the government to increase electricity tariffs in the foreseeable future to levels that adequately cover CEB's generation, distribution and transmission costs. The government sets tariffs based on its socio-economic objectives and has not revised tariffs for almost three years despite rising generation costs. CEB's average cost of supplying a unit of electricity to customers in 2017 was around 20% higher than the average tariff. The government faces elections in the next 24 months, and amid rising living costs due to higher fuel costs and local-currency depreciation, we do not expect the government to raise electricity tariffs or implement a cost-reflective pricing formula.

Rising Generation Costs: We expect generation costs to remain high in the next couple of years amid rising oil prices and volatile contribution from low-cost hydropower. We expect the share of hydropower in the generation mix to remain below historical levels due to declining load factors and very little new capacity additions. We expect CEB to turn to high- cost oil-based sources to meet the shortfall.

In addition, CEB and independent power producers have been compelled to purchase fuel at market prices since mid-2018, after the government introduced a pricing formula, compared with subsidised prices offered previously. We do not expect the LNG projects proposed under CEB's generation expansion plan for 2018-2037 to contribute significantly to the generation mix in the next 2-3 years.

Weak Balance Sheet: CEB's balance sheet continues to weaken due to persistent losses and significant investments. It is unable to recover operating costs under the current tariff structure, and has to borrow to sustain its day-to-day operations. Further CEB, as government's main investment arm in the power sector, is likely to have large capex to improve country's power generation and transmission and distribution network. As such we do not expect CEB's balance sheet to recover in the medium term unless the government reduces its debt by converting some of it to equity.

DERIVATION SUMMARY

Fitch has rated CEB at the same level as the sovereign due to the strong linkages with its parent. The rating is not derived from its standalone credit profile and thus is not comparable with industry peers.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer
- Electricity consumption in Sri Lanka to increase by 5% per annum over 2018-2021
- No material electricity tariff increases in the next two years
- Generation mix to broadly remain at 30% coal, 30% fuel, 30% hydropower and 10% other.
- Capex of LKR120 billion in 2018 and to moderate to LKR60 billion per annum from 2019, mainly for generation, transmission and distribution

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating Action

- There is no scope for an upgrade as CEB is at the highest rating on the Sri Lankan national ratings scale

Developments that May, Individually or Collectively, Lead to Negative Rating Action
- A significant weakening of the strong linkages between the sovereign and CEB.

LIQUIDITY

Tight but Manageable Liquidity Position: As at end-2017 CEB had LKR54.0 billion of unrestricted cash and unutilised credit facilities to meet LKR20.1 billion of debt falling due in the next 12 months. We do not expect free cash flow to turn positive in 2018 amid continued operating losses and capex of around LKR120 billion. However we believe the government will step in and provide liquidity support if required, as it has in the past.

Sri Lanka tourist arrivals up 2.8-pct in September

ECONOMYNEXT - Tourist arrivals to Sri Lanka during September 2018 grew 2.8 percent to 149,087 from a year ago, led by Indian visitors, the tourism office said.

China was the second largest source market, followed by the United Kingdom.

Up to end-September 2018, tourist arrivals had grown 11.6 percent to 1.73 million from the same period a year ago.

A statement said India, China, United Kingdom, Australia and Germany were Sri Lanka’s top five international tourist generating markets in September this year.

“India was the largest source of tourist traffic to Sri Lanka with 22% of the total traffic received in September 2018. China accounted for 13% of the total traffic, while United Kingdom, Australia and Germany accounted for 9%, 6% and 6%.”

Sri Lanka's Richard Pieris Finance gets BBB+(lka) credit rating: Fitch

ECONOMYNEXT - Fitch Ratings said it has assigned Sri Lanka's Richard Pieris Finance Ltd. a BBB+(lka) long-term credit rating with a stable outlook on weak underwriting standards and risk controls, and limited synergies with listed parent Richard Pieris and Company Plc.

Richard Peiris and Company (RICH) has businesses in retail with its Arpico supermarket chain, plantations, tyre manufacture, furniture, and rubber and plastic. The share was trading 10 cents lower at 10 rupees on Thursday.

"RICH's ability to support Richard Pieris Finance is reflected in its rating, which is underpinned by its standalone strength. However, its relatively large size means that any required support could be considerable relative to the ability of the parent to provide it," Fitch said in a statement Thursday.

The finance company has a 'heightened' risk appetite, the ratings agency said.

"This is evident in its weak underwriting standards and risk controls.

"As a result, Richard Pieris Finance's gross non-performing loans ratio was at 9.5 percent end-March 2018, well above the industry average of 5.8 percent," Fitch said.

Fitch Ratings' statement in full:

Fitch Ratings Lanka Limited has assigned Richard Pieris Finance Limited (RPF) a National Long-Term Rating of 'BBB+(lka)'. The Outlook is Stable.

-Key rating drivers: National rating-

The rating on RPF is driven by institutional support from its parent, Richard Pieris & Company PLC (RICH, A(lka)/Stable). This reflects Fitch's belief that RICH has high propensity to support RPF, if needed. Our assessment takes into account the parent's 98% effective control of RPF and their common brand name.

RICH's ability to support RPF is reflected in its rating, which is underpinned by its standalone strength. However, the relatively large size of RPF means that any required support could be considerable relative to the ability of the parent to provide it. RPF's total assets and equity accounted for 24% and 15.6% of RICH's group assets and equity respectively, at end-March 2018.

RPF is rated two notches below its parent because of its limited contribution to the group's core businesses. Despite its relative size, RPF's synergies with its parent are limited as the subsidiary's role in facilitating group's core business is low. Furthermore, RPF's integration with the group is low as the subsidiary exercises considerable management and operational independence.

RPF's standalone rating is weaker than its support-driven rating mainly due to its heightened risk appetite, which is evident in its weak underwriting standards and risk controls. As a result, RPF's reported gross NPL ratio was at 9.5% at end-March 2018, well above the industry average of 5.8%. RPF's loan-loss coverage ratio decreased sharply by end-March 2018.

RPF is likely to need additional capital in the medium term in order to meet the enhanced total capital ratio requirement of 12.5% by 1 July 2021 and its loan growth expectations. RPF's capital levels are currently satisfactory, with both Tier I and total capital ratios at 16.8% at end-March 2018, which is above the regulatory minimum of 5% and 10% respectively.

RPF is likely to rely on wholesale funding in the medium term to support its future expansion, although the company started soliciting deposits in the financial year ended 31 March 2018 (FY18).

-Rating sensitivities: National rating-

Weakening links with the parent, including declining parental control or importance to the group, or a downgrade of RICH's National Long-Term Rating, could trigger a rating downgrade on RPF.

Fitch believes a rating upgrade will depend on an upgrade of RICH or a significant increase in RPF's role and/or strategic importance to its parent.

Sri Lankan rupee edges up; stocks down for third session

Reuters: ** The Sri Lankan rupee ended slightly higher on Thursday, easing from a record low hit in the previous session, as exporters dollar sales surpassed importer demand for the greenback in dull trade, while stocks ended weaker for a third straight session to hit a one-week low.

** The rupee ended at 171.20/40 per dollar, compared with the previous close of 171.30/50. 

** The rupee fell to an all-time low of 171.60 per dollar on Wednesday, surpassing the previous low of 171.00 hit on Tuesday amid foreign selling in government securities and exporter greenback sales, market sources said. 

** The central bank surprised financial markets on Oct. 2 by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The central bank said on Oct. 2 it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars in the market so far this year to defend the currency.

** The rupee has weakened 1.24 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.54 percent so far this year, recording its sharpest fall since 2001.

** The Colombo stock index ended 0.57 percent down at 5,838.48, its lowest close since Oct. 4 and slipping further away from its highest close since Sept. 20 hit on Monday. The index fell to its lowest close since Dec. 13, 2013 on Tuesday. It fell 3.6 percent last month and is down 8.3 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 1.8 billion rupees ($10.58 million) in the week ended Oct. 3. Sri Lanka has seen a net outflow of 74.3 billion rupees in securities so far this year.

** Stock market turnover was 301.8 million rupees ($1.76 million) on Thursday, less than half of this year’s daily average of 766.9 million rupees.

** Foreign investors were net sellers of 50.2 million rupees worth of shares on Thursday extending the year to date net foreign outflow to 6.3 billion rupees worth of equities. 

($1 = 171.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

Sri Lankan rupee hits fresh low for 6th straight session; stocks down

Reuters: ** The Sri Lankan rupee hit a record low for a sixth straight session on Wednesday as importers and foreign banks bought the dollar amid outflows from government securities, while stocks ended weaker for a second straight session.

** The rupee fell to an all-time low of 171.60 per dollar, surpassing the previous low of 171.00 hit on Tuesday amid foreign selling in government securities and exporter greenback sales, dollar sales by states banks capped the fall, market sources said. 

** The central bank surprised financial markets on Oct.2 by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The central bank said on Oct.2 it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars to the market so far this year to defend the currency.

** The rupee ended at 171.30/50 per dollar, compared with the previous close of 171.00/20.

** The rupee has weakened 1.18 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.47 percent so far this year, recording its sharpest fall since 2001.

** The Colombo stock index ended 0.14 percent down at 5,872.02, slipping further away from its highest close since Sept. 20 hit on Monday. The index fell to its lowest close since Dec. 13, 2013 on Tuesday. It fell 3.6 percent last month and is down 7.8 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 1.8 billion rupees ($10.58 million) in the week ended Oct. 3. Sri Lanka has seen a net outflow of 74.3 billion rupees in securities so far this year.

** Stock market turnover was 230.5 million rupees ($1.35 million) on Wednesday, a third of this year’s daily average of 769.4 million rupees.

** Foreign investors were net buyers in sixteen sessions. They bought a net 15.9 million rupees worth of shares on Wednesday, but have been net sellers of 6.3 billion rupees worth of equities so far this year. 

($1 = 171.0000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Vyas Mohan)

Sri Lankan rupee hits fresh low for 5th straight session; stocks down

Reuters: ** The Sri Lankan rupee hit a record low for a fifth straight session on Tuesday on strong dollar demand from importers and foreign banks amid outflows from government securities, while stocks snapped a four-day winning streak and ended marginally weaker.

** The rupee fell to an all-time low of 171.00 per dollar, surpassing the previous low of 170.75 hit on Monday, on importer demand for the greenback and foreign selling in government securities and exporter greenback sales, market sources said.

** The central bank said on Oct.2 it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars to the market so far this year to defend the currency.

** The rupee ended at 171.00/20 per dollar, compared with the previous close of 170.50/80.

** The rupee has weakened 1.12 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.41 percent so far this year, recording its sharpest fall since 2001.

** The Colombo stock index ended 0.47 percent down at 5,880.38, slipping from its highest close since Sept. 20 hit on Monday. The index fell to its lowest close since Dec. 13, 2013 on Tuesday. It fell 3.6 percent last month and is down 7.7 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 1.8 billion rupees ($10.58 million) in the week ended Oct. 3. Sri Lanka has seen a net outflow of 74.3 billion rupees in securities so far this year.

** Stock market turnover was 350.5 million Sri Lankan rupees ($2.05 million) on Tuesday, half of this year's daily average of 772.3 million rupees.

** Foreign investors sold a net 111.8 million rupees worth of shares on Tuesday, extending the year-to-date net foreign outflow to 6.3 billion rupees worth of equities.

($1 = 170.9000 Sri Lankan rupees)

Sri Lanka rupee hits record low for 4th session; stocks gain

Reuters: ** The Sri Lankan rupee hit a record low for a fourth straight session on Monday due to dollar demand from importers and foreign banks amid outflows from government securities, while stocks rose for a fourth consecutive session to a more than two-week closing high.

** The rupee fell to an all-time low of 170.75 per dollar, surpassing the previous low of 170.40 hit on Friday, on importer demand for the greenback and foreign selling in government securities and exporter greenback sales, market sources said. 

** The central bank surprised financial markets on Tuesday by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The central bank said on Tuesday it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars to the market so far this year to defend the currency.

** The rupee ended at 170.50/80 per dollar, compared with the previous close of 170.25/30.

** The rupee has weakened 0.89 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 11.15 percent so far this year, recoding its highest fall since 2001.

** The Colombo stock index ended 0.41 percent firmer at 5,908.06, its highest close since Sept. 20 and further moving away from its lowest close since Dec. 13, 2013 hit on Tuesday. It fell 3.6 percent last month and is down 7.2 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 1.8 billion rupees ($10.58 million) in the week ended Oct. 3. Sri Lanka has seen a net outflow of 74.3 billion rupees in securities so far this year.

** Stock market turnover was 265 million Sri Lankan rupees ($1.55 million) on Monday, a third of this year’s daily average of 774.6 million rupees.

** Foreign investors sold a net 30.4 million rupees worth of shares on Monday, extending the year-to-date net foreign outflow to 6.2 billion rupees worth of equities. 

($1 = 170.5000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Sunil Nair)

Sri Lanka rupee hits record low on importer dollar demand; stocks gain further

Reuters:  ** The Sri Lankan rupee hit a record low for a third straight session on Friday due to dollar demand from importers and foreign banks amid outflows from government securities, while stocks rose for a third consecutive session to a more than one-week closing high.

** The rupee fell to its all-time low of 170.40 per dollar, surpassing the previous low of 170.10 hit on Thursday, on importer demand for the greenback and foreign selling in government securities, market sources said. 

** The central bank surprised financial markets on Tuesday by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. 

** The central bank said on Tuesday it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars to the market so far this year to defend the currency.

** The rupee ended at 170.25/30 per dollar, compared with the previous close of 170.05/20.

** The rupee has weakened 0.5 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 10.69 percent so far this year.

** The Colombo stock index ended 0.83 percent firmer at 5,883.77, its highest close since Sept. 26 and further moving away from its lowest close since Dec. 13, 2013 hit on Tuesday. It fell 3.6 percent last month and is down 8.2 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 1.8 billion rupees ($10.58 million) in the week ended Oct. 3. Sri Lanka has seen a net outflow of 74.3 billion rupees in securities so far this year.

** Stock market turnover was 350.6 million rupees ($2.06 million) on Friday, less than half of this year’s daily average of 779.7 million rupees.

** Foreign investors sold a net 30.2 million rupees worth of shares on Friday, extending the year-to-date net foreign outflow to 6.1 billion rupees worth of equities. 

** Shares in Lanka ORIX Leasing Company Plc rose 5.5 percent, while Distilleries Company of Sri Lanka Plc closed 2.4 percent firmer. 

($1 = 170.2000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Sri Lanka rupee hits record low on importer dollar demand; stocks extend gains

Reuters: ** The Sri Lankan rupee hit a record low for a second straight session on Thursday due to dollar demand from importers and foreign banks amid outflows from government securities, while stocks rose for a second consecutive session.

** The rupee fell to its all-time low of 170.10 per dollar, surpassing the previous low of 169.90 hit on Wednesday, on importer demand for the greenback and foreign selling in government securities, market sources said. ** The central bank surprised financial markets on Tuesday by leaving its key policy rates unchanged, despite heavy pressure on the rupee and foreign outflows from government securities. ** The central bank said on Tuesday it purchased 4 million dollars from the market in the previous day, but it has sold a net 184 million dollars to the market so far this year to defend the currency.

** The rupee ended at 170.05/20 per dollar, compared with the previous close of 169.80/90.

** The rupee has weakened 0.5 percent so far this month after a 4.7 percent drop in September against the dollar. It has declined 10.69 percent so far this year.

** The Colombo stock index ended 0.37 percent firmer at 5,835.60, further moving away from its lowest close since Dec. 13, 2013 hit on Tuesday. It fell 3.6 percent last month and is down 8.4 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 10.2 billion rupees ($60.36 million) in the week ended Sept. 26, the highest since the week to Dec. 6. Sri Lanka has seen a net outflow of 72.5 billion rupees in securities so far this year.

** Stock market turnover was 319 million rupees ($1.88 million) on Thursday, less than half of this year’s daily average of 779.7 million rupees.

** Foreign investors sold a net 97.3 million rupees worth of shares on Thursday, extending the year-to-date net foreign outflow to 6.1 billion rupees worth of equities. 

($1 = 169.8000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Subhranshu Sahu)

Sri Lanka rupee hit all time low; stocks recover from near 6-yr closing low

Reuters: ** The Sri Lankan rupee hit a fresh low on Wednesday due to dollar demand from importers and foreign banks amid outflows from government securities, while stocks ended marginally firmer erasing early losses.

** On Wednesday, the rupee touched its all-time low of 169.90 per dollar surpassing its previous low of 169.40 hit on Friday on importer demand for the greenback and foreign selling in government securities, market sources said. ** Sri Lanka’s central bank surprised financial markets on Tuesday by leaving its key policy rates unchanged, despite heavy pressure on the rupee currency and foreign outflows from government securities. ** The central bank on Tuesday said it purchased 4 million dollars from the market on the previous day, but it has sold a net 184 million dollars to the market so far this year to defend the currency.

** The rupee ended at 169.80/90 per dollar, compared with the previous close of 169.20/45.

** The rupee weakened 0.4 percent so far this month after it fell 4.7 percent in September against the dollar and 1.2 percent drop in the previous month. It has declined 10.63 percent so far this year.

** The Colombo stock index ended 0.1 percent firmer at 5,813.83 erasing early losses to edge up from its lowest close since Dec. 13, 2013 hit on Tuesday. The bourse fell 3.6 percent last month and is down 8.7 percent so far this year.

** Data from the central bank showed foreign investors sold government securities worth a net 10.2 billion rupees ($60.36 million) in the week ended Sept. 26, the highest since the week to Dec. 6. Sri Lanka has seen a net outflow of 72.5 billion rupees in securities so far this year.

** Stock market turnover was 788.3 million rupees ($4.65 million) on Wednesday, inline with this year’s daily average of 782.3 million rupees.

** Foreign investors sold a net 1.5 million rupees worth of shares on Wednesday, extending the year-to-date net foreign outflow to 6.01 billion rupees worth of equities. 

($1 = 169.6000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Vyas Mohan)