Sri Lanka rupee, stocks rise after IMF statement

Reuters: ** Sri Lanka’s rupee and shares closed firmer on Thursday, a day after the International Monetary Fund (IMF) said it would resume discussions with the island nation for further disbursal of part of a $1.5 billion loan. 

** After a meeting with Sri Lanka’s Finance Minister Mangala Samaraweera, the global lender said the discussions would resume in February, after a political crisis led to talks being delayed by three months. 

** The rupee ended at 181.60/75 per dollar on Thursday, compared with 182.30/40 in the previous session, with a foreign bank selling dollars, market sources said. On Jan.3, the rupee fell to an all-time low of 183.00 against the dollar. 

** The rupee fell 19 percent in 2018, making it one of the worst-performing currencies in Asia, according to Refinitiv data, due to heavy foreign outflows. 

** Central Bank Governor Indrajit Coomaraswamy on Thursday said the sharp depreciation was a powerful “pro-growth inducement” for the country’s exports. 

** The rupee has declined about 5 percent since a political crisis started in October. That crisis had dented investor sentiment and delayed Sri Lanka’s borrowing plans. 

** A series of credit rating downgrades have made it harder for Sri Lanka to borrow as it faces record high repayments of $5.9 billion this year, with $2.6 billion of it due in the first three months. 

** Sri Lanka will receive a loan of $1 billion from Bank of China before the end of the March quarter, the chief of the central bank said on Thursday, to help the country meet repayments in the coming months. 

** The central bank on Jan.9 said that the Reserve Bank of India (RBI) had agreed to provide $400 million to it under a regional swap facility and it had also requested a further bilateral swap arrangements of $1 billion. 

** The Colombo Stock Index ended 0.26 percent firmer at 5,989.12 on Thursday. The benchmark index lost 5 percent in 2018. 

** Turnover was 341.7 million rupees, less than half of last year’s daily average of 834 million rupees. 

** Foreign investors sold a net 7.2 million rupees worth of shares on Thursday. They have been net sellers of 15.3 billion rupees worth of stocks since a political crisis began on Oct. 26. The bond market saw outflows of 77.9 billion rupees between Oct. 25 and Jan. 9, the latest central bank data showed. 

** Foreign investors pulled a net 22.8 billion rupees out of stocks last year, while they net sold 159.8 billion rupees from government securities from January through Dec. 26, bourse and central bank showed data. 

** Sri Lanka President Maithripala Sirisena appointed a cabinet of ministers from his rival party on Dec. 21 after he was forced to reinstate Ranil Wickremesinghe as prime minister, 51 days after he was sacked. 

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

JKH buyback fully subscribed, Rs11bn worth of shares to be repurchased at 160

LBO – Shareholders have tendered approximately one hundred million shares of John Keells Holdings (JKH) into the company’s latest buyback offer.

The company will purchase approximately seventy million of the shares tendered at a price of Rs160/share, constituting 5% of the total outstanding shares of the company. JKH will expend Rs11 billion in order to complete the repurchase.

The buyback offer was made amid a flagging share price which had dropped to a multiyear low of Rs126/share, a price significantly below the current book value of over Rs150/share.

After the buyback issue was announced, the stock traded as high as Rs160, before dropping down to today’s price of Rs152/share after the tender offer was closed.

The stock traded a healthy 5 million shares in today’s trading session. Today’s trading day saw net foreign selling in the market of Rs600mn, most of which was likely in shares of JKH.

Local buyers of JKH have been the Captian family and Harry Jayawardena who together likely own well over 25% of the company. There has been repeated speculation that JKH has become a takeover target with market participants awaiting the company’s corporate earnings release to see how much the above mentioned parties have increased their stakes.

JKH as of January 1st has effected the most significant management change in decades with Krishan Balendra (45) taking over as Chairman/CEO and Gihan Cooray (42) as Deputy Chairman/CFO. The company is the largest corporate in Sri Lanka and by far the most important company listed on the Colombo Stock Exchange (CSE).

The market capitalisation of JKH sits at close to US$1.2bn, so In order to acquire a controlling 50.1% stake in JKH, a shareholder would have to own a stake worth close to US$600mn. It is unclear if any of Sri Lanka’s leading investors have the financial firepower to make a serious takeover play.

Sri Lanka’s 01-year Treasury yield falls to 10.75-pct

ECONOMYNEXT – Sri Lanka’s one-year Treasury Bill yield fell 10 basis points to 10.75 percent at Wednesday’s auction, according to data from the public debt department of the central bank.

The 06-month bill yield fell 07 basis points to 9.87 percent while 03-month bills were not offered.

The public debt department accepted 16 billion rupees of 01-year bills, the same amount offered, having got bids worth 50 billion rupees.

It also accepted 10 billion rupees of 06-month bills, the same amount offered, having got bids of 19 billion rupees.

Sri Lankan stocks seen offering opportunities despite risks

ECONOMYNEXT – Sri Lanka’s stock market offer “pockets of opportunities” for investors despite risks generated by local political and economic conditions, Asia Securities stock brokers said in its 2019 equity market outlook.

The stock brokerage firm is recommending that clients take positions in stocks with specific growth opportunities in the current environment.

“Asia Securities Research expects the Sri Lankan stock market to offer pockets of opportunities for investors, in the year ahead, despite expectations that 2019 will in general be a challenging year for equities,” the report said.

It noted that the Colombo Stock Exchange’s All Share Price Index (ASPI) currently trades at 8.5x trailing price-to-earnings (P/E) multiple, down from 10.1x at the beginning of 2018.

“Furthermore, the ASPI is trading at a 20% discount to the overall MSCI Emerging Markets (EM) index, which is the largest discount seen in the last five years,” Asia Securities said.

The local “idiosyncratic risks” - largely political and to some extent macroeconomic - led to 9.6 billion rupees (about 50 million US dollars) of foreign fund outflows from the stock market compared to 28.5 billion rupees in inflows in 2017 resulting in the dip in valuations.

Although the outlook for emerging markets has improved, the report said it is likely that Sri Lanka will not see a significant benefit from this trend in the short run, as the local conditions will keep foreign investors on the sidelines.

The main risks include delayed budget reading that creates uncertainty about fiscal measures, and debt maturities of 5.9 billion dollars exacerbated by credit rating downgrade and the resultant pick up in refinance costs.

The uneasy alliance between President Maithripala Sirisena and the government led by Ranil Wickremesinghe, raising concerns on continuing policy divergence, is also among he largest residual risks factored in by investors.

Sirisena triggered a political crisis, and credit rating downgrades, late last year when he sacked Wickremesinghe and replaced him with former president Mahinda Rajapaksa, a decision overturned by Sri Lanka’s supreme court.

Asia Securities said that, given the current high interest rate environment, local high net worth and retail investors may favor fixed income assets and take a wait-and-see approach toward equities.

But they said the market is expected to pick up in the second half of the year as macro-economic conditions improve.

These include re-engaging with funding partners such as the IMF and making progress on other funding lines currently in the pipeline while managing the 1.5 billion dollar sovereign bond repayments in January and April.

Presenting the budget with streamlined fiscal policy, while continuing the reforms agenda, are key development eagerly watched by investors, Asia Securities said.

It also expects a pickup in agriculture and related household income, to translate to better consumer demand, while continued low oil prices and better hydro power generation lead to an improved current account balance. Lower currency depreciation should also strengthen reserves.