Vallibel Finance to issue ordinary shares by rights issue

Vallibel Finance PLC will issue 17,312,750 ordinary shares by way of a rights issue, which shall rank equal and pari passu with the existing ordinary shares five new ordinary shares for every 12 ordinary shares held as at the relevant date at a consideration of Rs 60 per share.

The current stated capital of the company is Rs.287,153,000, represented by 41,550,600 ordinary shares. The proceeds will be utilized to strengthen the tier I capital base of the company in keeping with the company’s expansion and maintaining the capital adequacy requirements as stipulated by the Central Bank of Sri Lanka. The Rights Issue is subject to the exchange approving in principle, the issue and listing of shares and the company obtaining the shareholders’ approval at a general meeting.

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Fitch affirms Richard Pieris & Company at ‘A(lka)’- outlook stable

Fitch Ratings has affirmed Sri Lanka-based conglomerate Richard Pieris & Company PLC’s (RICH) National Long-Term rating at ‘A(lka)’ with a stable outlook. Fitch has also affirmed the National rating on RICH’s outstanding senior unsecured debentures at ‘A (lka)’.

The affirmation of RICH’s ratings reflects our view that the improvement in the group’s adjusted net leverage was offset by the underperformance in its tyre business and some segments in the plastics sector over the last 18 months, and the risks around their recovery prospects over the medium term, limiting any positive rating action. RICH’s rating also reflects the group’s diversified cash flows, market leadership in several of its segments, and the company’s well-established operating history. Fitch Ratings also expects the company to increase capex in the next two years in a bid to expand production capacity in the retail, rubber and palm oil segments.

“We expect store expansion and a shift in consumer preference towards hypermarkets and supermarkets to lead to double-digit revenue growth for the company’s retail segment in the medium term.
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Sri Lanka's Janashakthi Insurance net down 27-pct in Dec, Rs11bn buyback

ECONOMYNEXT - Profits at Sri Lanka's Janashakthi Insurance, from life and general businesses, fell 27 percent to 623 million rupees in December 2017 quarter from a year earlier, amid higher benefits and claims, interim accounts showed.

The group reported earnings of 1.15 rupee a share for the quarter. For the year the December it reported earnings of 2.08 rupees per share, on total profits of 1.1 billion rupees, down from 1.64 billion rupees.

The firm has struck a deal to sell its general insurance unit to Allianz of Germany. The firm said it will buy back 3 shares out of every 5 held t 36.70 rupees to distribute 11.9 billion rupees to shareholders. The was selling at 31.00 rupees, down 20 cents in intra-day trading Monday.

In the quarter, gross written premium grew 6.5 percent to 4.0 billion rupees, and re-insurance rose 14 percent to 604 million rupees. Net premium grew 5 percent to 3.4 billion rupees.

Investment income grew 1.7 percent to 570 million rupees. Other income fell 24 percent to 239 million rupees.

Benefits and claims grew 4.1 percent to 1.8 billion rupees. With acquisition costs and 162 million charge to the life fund (292 million rupee gain last year), total benefits, claims and acquisition costs rose to 2.5 billion rupees from 1.9 billion rupees dragging down profits.

Sri Lanka's DSI to boost solid tyre sales, footware facing competition: Fitch

ECONOMYNEXT - Sri Lanka DSI Samson group, a rubber products group is planning to boost solid tyre sale as it faces domestic competition from small scale footware producers, Fitch Ratings confirming 'BBB+(lka)' rating said.

The outlook on the rating is stable.

Fitch said there is a recovery in domestic sales in the nine months to December, after revenues weakened in the year to March.

"The recovery was underpinned by the growth in domestic sales of school shoes and solid rubber tyre exports, which has helped to offset the decline in rubber slipper sales and pneumatic tyres sold to original equipment manufacturers (OEMs)," Fitch said.

"DSG's rating also factors in our expectation that the company's plans to grow its value-added footwear and solid tyre businesses over the medium term to diversify its product offering will help to counterbalance competitive pressures to an extent."

DSG's domestic tyre and tube volumes had fallen 7 percent in FY17 (13 percent growth in FY16) due to a slowdown in the demand for bicycle tyres and a reduction of the maximum loan-to-value (LTV) ratio on three-wheeler leases.

"We expect domestic sales of pneumatic tyres to the OEM three-wheeler market to remain under pressure over the medium term due to the tightening of three-wheeler financing regulations in 2017," Fitch said.

"However, DSG's exposure to the replacement market (65% of domestic pneumatic tyre volumes in FY17) mitigates this risk."

Sri Lanka has high import taxes on shoes and tyres which helps domestic producers to easily exploit consumers with high prices.

DSI is facing competition from a number of small producer as well as imports, Fitch said. But it had a strong brand and wide distribution network.

The full statement is reproduced below:

Fitch Affirms DSI Samson Group at 'BBB+(lka)'; Outlook Stable

Fitch Ratings-Colombo-27 February 2018: Fitch Ratings has affirmed Sri Lanka-based DSI Samson Group (Private) Limited's (DSG) National Long-Term Rating at 'BBB+(lka)'. The Outlook is Stable.

The rating affirmation reflects the moderate recovery in DSG's revenue and EBITDA in the nine months to 31 December 2017 following a weakening in the financial year ended 31 March 2017 (FY17).

The recovery was underpinned by the growth in domestic sales of school shoes and solid rubber tyre exports, which has helped to offset the decline in rubber slipper sales and pneumatic tyres sold to original equipment manufacturers (OEMs).

DSG's rating also factors in our expectation that the company's plans to grow its value-added footwear and solid tyre businesses over the medium term to diversify its product offering will help to counterbalance competitive pressures to an extent.

Fitch has tightened DSG's rating sensitivity on leverage (defined as lease-adjusted debt net of cash/operating EBITDAR) to 4.5x from 5.0x to capture the increased business risk from fiercer competition and slower domestic sales volumes in several of its key segments. We expect DSG's rating headroom to be limited over the medium term, with net leverage hovering only just below the 4.5x threshold at which Fitch would consider negative rating action.

DSG's 'BBB+(lka)' rating continues to reflect its leading positions in domestically sold pneumatic tyres to the replacement market and footwear, which are supported by its well-known brand and widespread distribution network. DSG's market share also benefits, to an extent, from high tariffs on imports of tyres and footwear.

KEY RATING DRIVERS

Pressure on Domestic Tyre Volumes: We expect domestic sales of pneumatic tyres to the OEM three-wheeler market to remain under pressure over the medium term due to the tightening of three-wheeler financing regulations in 2017. However, DSG's exposure to the replacement market (65% of domestic pneumatic tyre volumes in FY17) mitigates this risk.

DSG's domestic tyre and tube volumes declined by 7% in FY17 (13% growth in FY16) due to a slowdown in the demand for bicycle tyres and a reduction of the maximum loan-to-value (LTV) ratio on three-wheeler leases. In 2017, the regulator lowered the upper band of LTV ratios associated with three-wheeler leases to 25% from 70% to curb vehicle imports, which led to a 13% drop in DSG's three-wheeler segment volume.

Leverage to Remain High: We expect DSG's net leverage to hover just below 4.5x over the medium term, which is high for its rating, due to competitive pressure in some of its operating segments, while the company's bid to diversify its cash flows via exports and value-added footwear may take time to yield results.

DSG's leverage also weakened on high borrowings for capex and working capital investments in FY17. However, we expect capex to moderate from FY18 due to adequate production capacity and a recovery in EBITDA as a result of greater contribution from high-margin solid tyre exports and higher-value-added footwear.

EBITDA Margin Pressures: We expect DSG's EBITDA margin to remain at around 9% over the next two to three years due to escalating production costs caused by rising commodity prices and domestic currency depreciation. EBITDA margins have declined from 10.2% in FY16 and 13.3% in FY15 on rising input costs and competition. Fitch expects the price of natural and synthetic rubber, which is DSG's key production input, to increase in line with rising crude oil prices.

Growing price competition, particularly in the lower end of the rubber slipper segment, also means that the company is limited in its ability to fully pass on cost increases to its customers.

Leading Market Position: DSG is the market leader in the bicycle, motorcycle and three-wheeler tyre industry in Sri Lanka. The company also holds the leading market position in the footwear segment despite growing competition in the lower end of the market. Nevertheless, we expect the rising competition in the rubber slipper segment from small-scale domestic producers and certain importers who appear to be able to circumvent the current tariff structure to be a key long-term risk.

Limited Structural Subordination Risk: DSG is a holding company that depends on dividends paid by its subsidiaries to service its own obligations. Therefore, a substantial increase in leverage at its operating subsidiaries could increase the structural subordination of DSG's creditors. However, this risk is mitigated by DSG's strong control over operating subsidiaries that accounted for around 80% of consolidated EBITDA in FY17, which increases cash fungibility within the group.

Furthermore, the company indicates that there are no restrictions that would prevent its major operating subsidiaries from paying dividends to DSG and readily available cash at the holding company was more than sufficient to repay holding company borrowings as of FY17.

DERIVATION SUMMARY

DSG's sales are less vulnerable to economic downturns than those of its closest rated peers, Singer (Sri Lanka) PLC (A-(lka)/Stable) and Abans PLC (BBB+(lka)/Stable). However, DSG's slowing domestic footwear and tyre sales due to local market competition and the government's policy decisions are long-term risks, while Singer and Abans enjoy robust market positions in the sale of consumer durables domestically. Therefore, we believe Singer and Abans have stronger business risk profiles than DSG.

We rate Singer one-notch higher than DSG to reflect this strength, while Abans is rated at the same level as DSG because of its higher leverage.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Revenue to decline by 1.9% in FY18 and to recover modestly to grow at a low-single-digit rate, on average, over the next three years.

- EBITDA margins to moderate at 9.0% on average in the next two years.

- Capex to average at LKR1 billion per year for the next two years.

- Dividend payout to shareholders to remain at around 50% of holding company's dividend income.

RATING SENSITIVITIES

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

- Sustained improvement in DSG's adjusted net debt/EBITDAR to less than 3.0x (FY17: 4.4x) and gross adjusted debt/EBITDAR to less than 3.5x (FY17: 4.8x)

- The company's ability to execute its medium-term expansion plans and increase the contribution of its cash flows from exports

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

- Sustained weakening of net adjusted debt/EBITDAR to more than 4.5x and gross adjusted debt/EBITDAR to more than 5.0x

- A sustained weakening of fund flow from operations fixed-charge cover to less than 1.3x (FY17: 1.9x)

- A significant increase in the structural subordination of DSG's holding company creditors
LIQUIDITY

Tight Liquidity: DSG had LKR1.0 billion of unrestricted cash and LKR5.5 billion in unutilised credit facilities as at end-FY17, to meet LKR3.6 billion of contractual maturities falling due through FY18, with a further LKR5.1 billion of working capital facilities coming up for roll-over during the same period. This places the company in a tight liquidity position, but we expect this to be manageable given the company's track record of accessing domestic banks.

Sri Lanka sells Rs30bn in 12-month bills, yield up

ECONOMYNEXT - Sri Lanka's central bank sold 30-billion rupees of 12-month bills at the weekly auction Tuesday with the average yield rising 14 basis points to 9.59 percent, data from the state debt office showed.

The central bank offered 8.0 billion rupees of 3-month bills, 9.0 billion rupees of 6-month bills and 13.0 billion rupees of 12-month bills.

The central bank accepted the entire offered quantity from 12-month bills.

Market analysts say it is not the best practice to accept higher than offered volumes, though it is now known to the market that the debt office will change maturities, though not by how much. Market already knows that up to 10 percnet more than the total could be accepted.

The taking up of the entire volume in 12-month was unexpected though there is now genuine demand for bills at these ratesm dealers said. Such uncertainty has a premium, analysts say.

There are market participants who are looking for different maturities. However there was a gap between the 6 and 12 month bills.

In the secondary market 12-month bills were quoted at 9.60/60 percent immediately after the auction.

Dealers said there is buying interest from investors who bid for 3 and 6 month bills and could not find any.

Bond yields moved about 10 basis points after the auction and were quoted wide after the auction, dealers said.

There was buying interest from foreign investors, in the morning, dealers said. In the spot market the rupee marginally strenthened to 154.88/90 percent.

Sri Lankan stocks close almost unchanged amid selling by foreigners

Reuters: Sri Lankan shares closed almost unchanged on Tuesday amid selling by foreign investors and some concerns about political stability, dealers said.

Shares hit a more than three-week high last week after two key parties in the ruling coalition decided to remain in the ruling coalition, allaying fears of a government collapse.

President Maithripala Sirisena reshuffled his cabinet on Sunday, appointing his prime minister as the law and order minister, after the governing coalition suffered a series of defeats in local elections earlier this month.

“A foreign fund is exiting. While some foreigners who do not want to take the risk is exiting, other foreigners who are willing to take the risk are coming in, that’s why the market is holding on,” said Dimantha Mathew, head of research, First Capital Holdings.

The Colombo stock index ended 0.01 percent weaker at 6,559.42, its lowest close since Feb. 15. The index rose 0.18 percent last week.

Turnover stood at 2.2 billion rupees ($14.21 million) on Tuesday, more than two times of this year’s daily average of 970.9 million rupees.

Foreign investors sold a net 171.2 million rupees worth of shares, but they have been net buyers of 6.2 billion rupees worth of equities so far this year.

Shares of AIA Insurance Lanka Plc ended 8.6 percent weaker, while Nestle Lanka Plc ended down 1.83 percent. 

($1 = 154.8000 Sri Lankan rupees) 

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