Sri Lankan shares end flat; Dunamis Capital nearly doubles in heavy trade

Reuters: Sri Lankan shares closed flat near a two-week closing low on Thursday in heavy trading led by Dunamis Capital Plc which nearly doubled in value, even as foreign investors continued to trim their equity exposure for a second straight day.

The Colombo stock index edged 0.03 percent higher to 6,060.68, settling near its lowest close since August 29. It had risen 0.6 percent last week in its third straight weekly gain.

Shares of investment company Dunamis Capital, up 90 percent, accounted for 85 percent of the day’s turnover of 1.69 billion rupees ($10.38 million), more than double this year’s daily average of 800 million rupees.

The company, in a disclosure to the bourse said insurance firm Janashckthi Plc purchased a 31.14 percent stake or 38.3 million shares in it at 36.60 rupees apiece.

“Investors are waiting for some kind of trigger. If the government can maintain policy consistency, we will be able to see positive sentiment,” said Prashan Fernando, CEO at Acuity Stockbrokers, adding that the day’s turnover got a boost from heavy activity in Dunamis Capital.

Investors have been raising concerns over consistency in the government’s policy after it changed some budget policies announced last year.

Analysts said foreign investors, who sold a net 41.9 million rupees worth of shares on Thursday, have been a worried lot after Nomura Holdings on Monday ranked Sri Lanka among seven emerging market economies that were at risk of an exchange rate crisis.

“The increase in fuel prices also weighed on the market,” traders said.

Sri Lankan fuel retailers raised gasoline and diesel prices for a third time in four months on Tuesday due to higher global oil prices and a weaker rupee.

Meanwhile, investors are also awaiting cues from the national budget which the government is set to unveil in November.

Shares of top mobile phone operator Dialog Axiata rose 1.6 percent while Asiri Hospital Holdings gained 2.2 percent.

($1 = 162.7500 Sri Lankan rupees) 

(Reporting by Shihar Aneez; Editing by Vyas Mohan)

Sri Lanka's 01-yr Treasury yield rises to 9.05-pct

ECONOMYNEXT - Sri Lanka's Treasury Bill yields recovered at an auction Wednesday with the 12-month bill yield up 08 percentage points to 9.05 percent, data from the state debt office showed.

The debt office, a unit of the central bank, accepted 12.5 billion rupees of 12-month bills, the same amount offered, having received bids worth 21 billion rupees.

The 3-month bill yield rose 07 basis points to 8.07 percent, with 4.0 billion rupees of bills, sold, the same amount offered.

Six-month bills were not offered.

Sri Lanka sells 4-year dollar bonds for 5.75-pct

ECONOMYNEXT - Sri Lanka has sold 77.85 million dollars of dollar denominated 'Sri Lanka Development Bonds' styled securities by auction, the state debt office said.

The debt office sold 54.4 million dollars of 1 year 9 month bonds for a fixed rate of 5.0 percent, after getting bids of 55.9 million dollars.

The debt office also sold 25.46 million dollars of 3-year 8-month bonds for 5.75 percent.

The settlement date is September 17, 2018. (Colombo/Sept11/2018)

Millennium to invest Rs5bn in Sri Lanka affordable housing, luxury apartment

ECONOMYNEXT - Sri Lanka's Millennium Housing Developers Plc, a publicly traded company said it was investing 5 billion rupees to develop luxury apartments and affordable housing to meet growing demand, despite fears of a bubble.

Sri Lanka's land and apartment prices started to rise rapidly from 2015, with the central bank printing money but interest rates have since risen, slowing the market.

However chronic currency depreciation from inconsistent central bank policy is killing consumer demand and purchasing power, which may be hitting a small recovery, critics say.

Millennium Housing said concerns have been raised about a property bubble bursting in 2020 -2022 by some.

"With demand for luxury apartments and condominiums going up and supply at times overtaking demand, the bubble certainly seems like a possibility," the firm said.

"However, supply of affordable housing is estimated to be below demand as yet."

There was a demand for housing from people migrating from rural to urban areas, particularly to Greater Colombo townships.

"This shift in the urban landscape is predominantly influenced by location and convenience factors related to employment and business proximities," Chairman HarshithDharmadasa said.

"At the higher end of the spectrum, investments by Sri Lankans who are living abroad are notable and will continue to surge if and when greater political stability is evident."

Dharmadasa noted that people were seen favouring smaller apartments.

"The propensity of demand for vertical properties offered by apartment complexes is particularly favoured due to the availability of multiple facilities and the perception of household security," he said.

Millennium Housing Development reported revenues of 1.7 billion rupees in the year to end March 2018, up 31 percent from a year ago. Profits grew 25 percent to 185.5 million rupees.

Earlier this year, Millennium completed its 64-unit The Heights – Edmonton and launched three new projects to be completed in two years.

Millennium Housing Development began as a developer of housing estates under its 'Millennium City' brand. It has developed 3,000 houses with a combined floor area of three million square feet across ten housing estate projects.

The company now has plans to build up to 400 houses at three new locations over the next two years.

Over the next few years, real estate growth is expected to be driven by increased demand for affordable residential and retail property by wealthy residents, and local and international corporates, the company said.

Nearly 55 percent of all tenants spend more than 30 percent of their income on housing, and about 30 percent of tenants paid more than half their income on rent.

High rents were affecting the incomes of every income group in Colombo.

"The demand for affordable housing is illustrated by the response to new housing lotteries," the firm said.

"Since 2015, our advertisements for apartments have attracted roughly 100 applications per housing unit," it said.

A key reason for Sri Lanka's unaffordable housing is excessively high cost of building materials kept high import duties to give profits to so-called oligarchs who have close connection to politicians and are opposing free trade for the poor. Steel for house building in particular is heavily taxed.

Sri Lankan companies facing higher borrowing costs: Moody’s

Higher interest rates have begun to pressure borrowers. (ICR - Interest Coverage Ratio)

ECONOMYNEXT – Sri Lankan companies face higher borrowing costs owing to a rise in benchmark interest rates, rating agency Moody's Investors Service said.

Banking sector asset risks will increase after excessive credit expansion in the last two years and a rise in borrowing costs, Moody’s said in a new report on Sri Lankan banks.

“Nonperforming loan (NPL) ratios have risen, and corporates are facing higher borrowing costs due to a rise in benchmark interest rates.”

Moody’s said corporates’ debt serviceability will be weakened by higher interest rates.

“Higher interest rates will hurt corporates’ repayment ability.”

Around 40% of corporates will have debt interest coverage ratios of less than 2 under a stressed scenario, the rating agency said, noting that higher interest rates have begun to pressure borrowers.

Sri Lanka's tourism arrivals up 4.9-pct in August

ECONOMYNEXT - Sri Lanka's tourist arrivals rose 4.9 percent from a year earlier to 200,359 in August 2018, helped by strong arrivals from Australia and UK, data from the state tourism promotion office showed.

During the eight months to August arrivals were up 12.5 percent to 1.582 million.

Visitors from Australia soared 38.3 percent to 8,239 with arrivals up to August reaching 79,113. Visitors from Australia had grown steeply since direct flights were launched to the country by state-run SriLankan Airlines.

UK visitors grew 7.8 percent to 23,643 with the total up to August reaching 173,478.

Dutch arrivals were up 8.5 percent to 5,697.

Arrivals from India, the largest market rose 2.9 percent to 31,220 with the total rising to 269,484.

Visitors from China grew by a marginal 0.2 percent to 26,558 with the total reaching 190,312.

Saudi Arabian tourists fell 25 percent to 6,517.

Further Sri Lanka interest rate cuts unlikely: Moody’s

ECONOMYNEXT – Sri Lanka’s central bank is unlikely to cut interest rates further to avoid triggering withdrawal of funds by foreign investors given rising rates in other economies, rating agency Moody's Investors Service said.

Credit expansion has decelerated following the previous monetary tightening cycle, Moody’s said in a new report on Sri Lankan banks.

“Following benign inflation, the central bank cut the standing lending facility rate by 25 basis points to 8.50% in April 2018,” said the report which maintained a negative outlook on the banking sector.

“However we do not expect further rate cuts, as rising external interest rates may threaten capital outflows.”

The Sri Lankan economy remains weak and asset quality is deteriorating, Moody's said in its report.

The government’s heavy debt burden and reliance on external borrowing will constrain public investment and elevates the risk of capital outflows, it said.

“The government’s debt affordability continues to be weak, and interest repayments eroded 40% of government revenue in 2017.”

Sri Lanka banking outlook negative, NPLs rise, but capital stable: Moody's

ECONOMYNEXT - Non-performing loans in Sri Lanka's banks rose to 3.0 percent of assets in March 2018 from 2.7 percent a year earlier, though the economy is expected to grow 4.1 percent in 2018 from 3.7 percent last year, Moody's Investors Service, a rating agency said.

"Credit growth was very high over the last two years, with the credit multiplier (credit growth/GDP growth) peaking at more than 2.5 times," Tengfu Li, a Moody's Analyst said in a statement.

"As loans disbursed over this period begin to mature, asset quality will deteriorate, and higher borrowing costs due to tighter monetary policy implemented earlier will add to the debt burden of corporates."

Sri Lanka's central bank printed money and released liquidity of over 500 billion rupees over 2015 and 2016 to drive credit to unsustainable levels and boost credit, and the economy slowed after the currency fell and rates were raised.

The rupee has continued to depreciate steadily including in 2017 when most other Asian currencies appreciated, killing real wages and domestic demand.

Moody's said higher interest rates may reduce the repayment ability of companies.

But with loan growth slowing internal capital generation would be enough to cover credit growth. Capital had also been raised to comply with Basel III standard.

The impact of higher loan loss provisions from a new accounting standard would be limited and banks capital ratios would be stable, the rating agency said.



Moody's assesses the operating environment as stable; asset risk as deteriorating; capital as stable; profitability and efficiency as stable; funding and liquidity as stable; and government support as deteriorating.

Moody's notes that capital has strengthened as the banks successfully raised capital and reduced cash dividends to comply with their Basel III requirements.

A high debt burden and contingent liabilities relating to state-owned enterprises will continue to limit the government's capacity to support the banks.

Sri Lanka's 01-yr Treasury yield down to 8.97-pct

ECONOMYNEXT - Sri Lanka's Treasury Bill yields eased further at an auction Wednesday with the 12-month bill yield down two percentage points to 8.97 percent, data from the state debt office showed.

The debt office, a unit of the central bank, accepted 07 billion rupees of 12-month bills, the same amount offered, having received bids worth 21 billion rupees.

The 3-month bill yield fell 03 basis points to 8.00 percent, with 4.0 billion rupees of bills, sold, the same amount offered.

Six-month bills were not offered.

Sri Lanka’s Cargills says supermarket, bank synergies yielding results

ECONOMYNEXT – Sri Lanka’s Cargills group has said its strategy of making its supermarket and banking businesses work together is yielding results with customer transactions growing between the two.

The group added 38 Cargills Food City supermarkets to its network last year, increasing its store count to 353 outlets and strengthening its position as the largest supermarket chain in the country.

Cargills Bank, started in 2014 has expanded its branch network to 17 but also has got regulatory approval to operate banking counters at all its Food City supermarkets islandwide, helping it keep costs low.

“Cargills Bank reported a commendable performance during the year, with robust growth in both lending and deposit portfolios,” group chairman Louis Page told shareholders in the latest annual report.

During the year, the bank launched a number of consumer products including both a debit and credit card.

“Synergies with Cargills Food City are now showing tangible results with transactions growth and encouraging consumer response to the added convenience of the service,” Page said.

The report said that in line with the focus of the group to use the synergies within the Cargills Group, transactions by Cargills Bank customers within ‘Cargills Food City’ reached Rs.4 billion in value in 2017.

Net finance costs of the sector rose 124% to Rs.283 million in 2017 amidst heavy investment in expansion of the ‘Cargills Food City‘ supermarket chain, the report said.

Cargills Bank saw total asset growth of 55% to Rs.32.5 billion in 2017 and deposit growth doubled to Rs.18.8 billion.

PVC pipe maker to focus on projects after Sri Lanka retail market losses

ECONOMYNEXT - Sierra Industries (Pvt) Ltd, a unit of publicly traded Sierra Cables Plc, which makes water pipes, says it is focusing on larger projects, after making losses in the retail market.

"As a strategic move, the company is now focusing on the institutional and project market instead of the competitive retail market," shareholders were told in the annual report.

"The company is in the process of the initialising the preliminary engagement work for the supply of PVC pipes and fittings to upcoming major projects."

Sierra Industries which manufactures uPVC (unplasticized Poly Vinyl Chloride) pipes, had won a 5.5 million dollar order to supply a foreign contractor in the Attanagalla Water Supply Project.

"While production has commenced, the delivery will take place only during the next financial year," Managing Director Shamindra Panditha told shareholders.

"The directors are of the view that the company would be able to generate sufficient revenue in the ensuing financial years, where by accumulated losses could be reduced gradually,” the annual report said, referring to the Attanagalla project.

Sierra Industries accounts said it is facing serious loss of capital and the auditors KPMG had also raised a going concern a with assets falling below liabilities.

Sierra Industries had accumulated losses of 276.2 million rupees up to end-March 2018. The firm started production in the 2013/2014 financial year.

As part of a restructuring process, a 119.6 million rupees owed to the parent had been converted to equity, while some payables had been converted to a loan term loan.