Sri Lankan stocks climb from 14-mth low, snap 10-session losing run

Reuters: Sri Lankan shares ended slightly firmer on Thursday, snapping a 10-session losing streak, as local investors bought battered beverage and telecom shares.

The Colombo stock index gained 0.18 percent to close at 6,229.06, edging higher from its lowest close since April 5, 2017 hit on Wednesday.

“Market is up on local buying, mostly its bargain-hunting by local investors as the market has dropped too low in very little time,” said Hussain Gani, deputy CEO at Softlogic Stockbrokers.

Turnover stood at 416.2 million rupees ($2.6 million), well below this year’s daily average of 948 million rupees.

Foreign investors sold equities net worth 34 million rupees, extending the year-to-date net foreign outflows to 861.6 million rupees of shares so far this year.

Shares of Ceylon Tobacco Co Plc rose 1.8 percent, while Sri Lanka Telecom Plc ended 3.8 percent higher. Distillers Co of Sri Lankan Plc gained 1.5 percent and Melstacorp Ltd ended 1.9 percent firmer.

Finance Minister Mangala Samaraweera on Tuesday said the country’s economy is likely to grow around 4.5 percent this year, below the central bank estimate of 5 percent in a sign political uncertainty is curbing a more robust recovery after a weak 2017.

The International Monetary Fund (IMF) on Wednesday said Sri Lanka’s economy remains vulnerable to adverse shocks because of sizable public debt and large refinancing needs. 

($1 = 159.2500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal; Editing by Amrutha Gayathri)

Sri Lanka Treasuries yields fall amid currency pressure

ECONOMYNEXT - Sri Lanka Treasuries yields eased at Wednesday's primary market auction with the benchmark 12-month yield falling 7 basis points to 9.37 percent, data from the state debt office showed.

Low benchmark yields encourage more speculation against the rupee, analysts say, intensifying problems.

The 3-month yield eased 2 basis points from a week earlier to 8.32 percent, and the 6-month yield also eased 2 basis points to 8.85 percent.

The state debt office offered and accepted Treasury bills worth 14 billion rupees.

Total bids amounted to 52.5 billion rupees.

Foreign investors exit Sri Lanka government bonds in 2018

LBO – Foreign investors have been dumping Sri Lanka government bonds in 2018, after being big net buyers in 2017.

Year to date, foreign investors have been net sellers of Rs22.5bn (US$140mn) of Sri Lanka government bonds. This is a reversal from 2017, where foreign investors were net buyers of Rs64.2bn (US$400mn) worth of government bonds.

Yields on local currency denominated debt have remained double digit as the currency (LKR) has started to depreciate, hitting record lows in recent days.

Governor Indrajit Coomaraswamy and the Monetary Board of Sri Lanka have maintained relatively tight monetary policy which has likely prevented a more rapid devaluation of the currency. The Central Bank also spent US$220mn defending the LKR in the month of May.

Foreign selling in government bonds, stocks, and devaluation of the LKR comes amid the backdrop of the largest YTD exodus from Asian emerging market stocks since 2008.

NDB Bank to raise Rs6.2bn in discounted rights issue

LBO – Colombo Stock Exchange (CSE) listed National Development Bank (NDB) announced a one for three rights issue to raise approximately Rs6.2bn.

The purpose of the rights issue as stated in the CSE announcement is to: “further strengthen the equity base of the bank and thereby improve capital adequacy, and to part finance the loan portfolio of the bank.”

The price of the issue is Rs105/share, which is a 44% discount to the Rs189 net asset value, and a 20% discount to the Rs132 market price of the shares.

Analysts say there may be a chance for subscribers to recieve over allotments as the rights of shares owned by controversial Perpetual Group companies may not be able to be exercised.

NDB Bank is Chaired by well known senior banker Ananda Atukorala. Its CEO is recently appointed Dimantha Seneviratne who came over from the CEO position of PABC Bank after the controversial exit of senior banker Rajendra Theagarajah from NDB.

Colombo Stock Exchange decides to delist Kalpitiya Beach Resort

LBO – Board of Directors of the Colombo Stock Exchange has decided to delist the securities of Kalpitiya Beach Resort subject to the approval of the Securities and Exchange Commission.

In an announcement, Colombo Stock Exchange said the decision to delist the company is based on the following reasons.

1. The shareholders of the Company have been issued with shares of Hikkaduwa Beach Resort pursuant to the Amalgamation
2. The company does not exist at present subsequent to the amalgamation since the Registrar of Companies has removed all particulars relating to the company from the Register
3. Trading of the securities of the Company has been suspended

The announcement further said that any person aggrieved by the aforesaid decision of them may appeal to the Securities and Exchange Commission within 14 days.

Fitch revises Siyapatha’s outlook to stable; affirms ‘A-(lka)’

Fitch Ratings Lanka has revised the outlook on Siyapatha Finance PLC (Siyapatha) to sable from negative and affirmed its National Long-Term Rating at ‘A-(lka)’.

The agency has also affirmed the National Long-Term Rating on Siyapatha’s senior unsecured debentures at ‘A-(lka)’ and subordinated debentures at ‘BBB+(lka)’. The rating action follows the revision of the Outlook on its parent Sampath Bank PLC’s ‘A+(lka)’ rating to stable from negative on June 13 2018.

Siyapatha’s rating reflects Fitch’s expectation that support for Siyapatha would be forthcoming from Sampath, which owns 100% of Siyapatha and is involved in the strategic direction of the subsidiary through board representation.

Siyapatha is rated two notches below its parent because of its limited role to the group’s core business and it is branded independently from its parent. Sampath’s leasing book accounted for just 7% of group loans at end-March 2018, of which half came from Siyapatha. Siyapatha is a small contributor to group profit, accounting for 5% of group 2017 pre-tax profit.

Siyapatha’s senior unsecured debentures are rated at the same level as Siyapatha’s National Long-Term Rating, as they constitute direct, unconditional, unsecured and unsubordinated obligations of the company.

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Mercantile Investments posts Rs 514 mn PAT

Mercantile Investments and Finance PLC displayed a strong financial performance posting impressive profits for the financial year ended March 31, 2018.

Based on the recently published annual report of the Company, pre-tax profits and post-tax profits stood note-worthily up at Rs. 879 million and Rs. 514 million respectively, reflecting 180.2% and 154.4% astounding growth rates compared to the last year’s moderate performance. Amid the industry slowdown, MI sustained steady core business revenue growth of 24%, enjoying improved core margins on the diverse lending product mix offered whilst efficiently managing the funding cost.

In keeping to the corporate sustainable growth strategy, total assets advanced to the Rs 40 billion mark, up by 7.6%. The vibrant credit products offered to the market enabled the Company to grow the loan book by 11.5% and to supersede the challenging business conditions and the constraints witnessed in the vehicle sales industry. The growth was driven by both the term based lending and the traditional lease financing which recorded 28% and 8% growths respectively for the financial year. With a 51% portfolio increase, micro finance lending played a key role in boosting yields and was a catalyst in self-empowering women to play a wider role in the economy.

Stemming from the previous year, few large accounts though adequately collateral backed continued to impact the asset quality, with the Non-Performing Lending Ratio (NPL) moving up to 7.58%. However, through close recovery monitoring, debt restructuring and recovery actions, impairment charges was curtailed and brought down by 32% compared to previous period.

Growing capital strength and the personalized service extended, paved the way for the company to broad-base the depositor base, which resulted in the total deposit base growing steady by 18% and reaching the Rs. 20 billion milestone for the first time. Having expanded the shareholder capital base to Rs. 8.7 billion by the close of the financial year, the Company maintained a solid 43.26% Capital Funds to Total Deposits Liability Ratio. MI’s financial strength was further fortified by the strong Tier 1 and Total Risk Weighted Capital Adequacy prudential ratios which stood significantly above the minimum regulatory limits and the industry average, at 16.24% and 17.36% respectively. This continued to be a hallmark in MI’s financial success story that spans over fifty years, driven by the unwavering commitment to business excellence and the sustainable growth focus. Mercantile Investments and Finance PLC is a Licensed Finance Company under the Finance Business Act No. 42 of 2011, listed on the DiriSavi Board of the Colombo Stock Exchange.
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Fitch Affirms Sierra Cables at ‘BB+(lka)’; Outlook Stable

Fitch Ratings has affirmed Sri Lanka-based cable manufacturer Sierra Cables PLC’s National Long-Term Rating at ‘BB+(lka)’ with a Stable Outlook.

The affirmation reflects our view that the rise in Sierra’s leverage is temporary and that the company will be able to deleverage in the next 12 months based on a sustained recovery in demand and profitability seen since the fourth quarter of the fiscal year ending March 2018 (FY18). Revenue increased by 30% in 4QFY18, compared with a 4% decline in 9MFY18, and EBITDA margin climbed to 12.2% from 5.9%.

Weaker profitability during most of FY18 was the main contributor to the company’s high leverage, as Sierra was unable to pass on higher raw material prices and local-currency depreciation to customers. However, it has priced-in some of the cost of inflation with support from stronger demand since the start of 2018.

We expect net leverage - defined as lease adjusted debt net of cash/operating EBITDAR, excluding cash flow from overseas operations - to fall below 3.5x by FY19, the level above which the rating could be downgraded (FY18: 4.4x).

However, an inability to make meaningful progress towards deleveraging in the next 12 months could result in negative rating action.

Sierra’s rating also reflects its modest market share in the domestic copper and aluminium cable market, which is counterbalanced by its exposure to cyclical end-markets, such as infrastructure and construction. It also factors in risks associated with investments in international markets, where the company has yet to establish itself.
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CDB Profit after tax up 39% to 1.4 Bn

The Citizens Development Business Finance PLC (CDB), recorded yet another 2017/18 milestone with its after tax profit blazing ahead to a 39% increase to Rs 1.4 Bn, from last two year’s back-to-back record of topping the Rs 1 billion mark.

CDB’s aggressive bottom line growth in 2017/18 was driven by a 37% surge in its top line, an upward trajectory to Rs 11.8 billion, from Rs 8.6 Bn in 2016/17. These revenue gains resulted in a 20% increase in net interest income, to Rs 3.5 billion, from Rs 2.9 billion in the previous year.

This is on the back of a remarkable lending portfolio growth of 38%. Demonstrating the quality of portfolio management, credit growth has been achieved while simultaneously controlling the non-performing credit risk. The Company closed the year by containing the Gross NPL ratio (Net of IIS) to 3.07%, from 3.08% in the previous financial year, and the Net NPL ratio (Net of IIS and provisions) slashed to 0.89%, from 1.05%.

The Company sustained a 30% growth in net operating income, which reached Rs 4.8 billion, from Rs 3.7 billion, with the operating profit margin continuing to improve from 16.27% to 16.63%.

The profit before tax also moved up by 37% to Rs 1.7 Bn.

Despite the rising cost structures experienced during 2017, CDB has successfully reduced its cost to income ratio from 58.28% one year ago, to 54.52%.

CDB closed the year by recording a stronger financial base, with total assets beefed up by 40% to Rs 75.5 Bn on the back of robust loan portfolio growth to Rs 59.4 Bn, from Rs 43.2 Bn, up 38%. Total equity increased by 15%, to Rs 7.2 Bn and the Company also grew its deposit base to Rs 44.7 Bn, which is a growth of 37% year-on-year. Return on average assets improved to 2.17% from 1.93%.

The earnings per share has moved up to Rs 25.80 from Rs 18.53, whilst the Return on Equity (after tax) has increased to 20.92% from 17.83% and Net Asset Value per share has augmented to Rs 131.71, from Rs 114.93.

The CDB’s 90.38% owned specialized leasing subsidiary UCL has performed well during the year under review, growing its balance sheet to Rs. 1.7 Bn from Rs. 693 Mn.
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