Sri Lankan stocks fall to 3-wk closing low on rising market interest rates

(Reuters) - Sri Lankan stocks fell to a three-week closing low on Tuesday and marked their third straight session of losses due to a rise in market interest rates.

The central bank raised yields on treasury bills between 86 basis points and 91 basis points at a weekly auction on Tuesday. It scrapped a lower repo penalty rate of 5 percent from Monday, five months after it adopted the measure to boost credit growth.

The main stock index ended 0.13 percent, or 9.48 points, down at 7,234.92, its lowest close since Feb. 9.

"There'll be a slight slowdown in the market temporally with the rise in interest rates," said Dimantha Mathew, manager, research, at First Capital Equities (pvt) Ltd.

Shares of Selinsing Plc fell 20.13 percent, while Dialog Axiata Plc dropped 1.69 percent.

Market heavyweight John Keells Holdings Plc ended 0.29 percent up and accounted for 54.8 percent of the day's turnover.

Day's turnover was 1.81 billion rupees ($13.62 million), more than this year's daily average of 1.39 billion rupees.

Foreign investors were net buyers of 234.9 million rupees worth of shares, extending the year-to-date foreign inflow to 1.8 billion rupees. 

($1 = 132.9000 Sri Lankan rupees) 

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

Removal of the 5 per cent Special Standing Deposit Facility Rate

In September 2014, the Central Bank rationalised the access to the Standing Deposit Facility (SDF) of the Central Bank with a view to encourage commercial banks to utilise the substantially high amount of excess liquidity prevailing in the market to enhance credit flows to the private sector at reasonable interest rates. Consequent to the rationalisation of the SDF, overnight interest rates fell below the policy rate corridor, and the special SDF rate of 5 per cent became the effective floor for overnight money market rates. This has resulted in a faster downward adjustment in market interest rates during the last few months as most market interest rates reached historically low levels in nominal terms. 

Benefiting from lower interest rates and higher demand for bank funds, credit to the private sector revived after a setback recorded particularly in the early part of 2014. Accordingly, private sector credit growth picked up towards the latter part of 2014 recording an increase of Rs. 223.9 billion in 2014 while it increased by Rs. 76 billion during the month of December 2014 recording the highest monthly increase. By end 2014, on a year-on-year basis, private sector credit grew by 8.8 per cent. 

Given the signs of sustained increase in credit flows to the private sector, the view of the Central Bank was that restrictions placed on the access to the SDF is no longer required. Accordingly, the 5 per cent SDF rate was withdrawn with effect from 2 March 2015. The Central Bank is also of the view that removal of the special SDF rate of 5 per cent would help to stabilise overnight interest rates within the policy rate corridor of the Central Bank.

CBSL

SLT Group 2014 PBT up 12% to Rs. 8.2 b

Sri Lanka Telecom PLC (SLT) said yesterday the Group continued to maintain its overall growth momentum during 2014.

Group revenue for the year was up by 8% to Rs. 65 b. All the segments of the Group comprising Fixed, Mobile and Others positively contributed to this increase.

Owing largely to price escalations coupled with the impact of an out of court settlement on civil litigation in relation to the import of the IPTV system in 2007/2008, operating cost of the Group increased by 12% to Rs. 46.3 b during 2014, compared to the year before.

The Group profit before tax of 2014 increased by 12% year on year to Rs. 8.2 b. Refund received from the Telecommunication Development Charge (TDC) of Rs. 1.2 b during the year against Rs. 0.6 b of the previous year that has also contributed to this bottom line growth. Group profit after tax of 2014 was Rs. 6 b up by 11% year on year. During the year the Group invested Rs. 20.2 b in its infrastructure.

The holding company, Sri Lanka Telecom PLC reported Rs. 38.9 b revenue during 2014 with 6% year-on-year growth. Despite the threats on voice-related revenue, wholesale, enterprise, data and IPTV related revenues have demonstrated positive upward trends. 

Continuous investments in new technologies and infrastructure have largely contributed in revenue growth.

During the year under review alone the company has invested Rs. 16.4 b in infrastructure and technologies. Operational costs of the company have increased by 10% during the year, resulting from the same reasons given above to Rs. 29.5 b as compared to the year before. The company profit before tax dipped by 3% to Rs. 4.8 b, from the year before. 

Impact of the above mentioned litigation, amounting to Rs. 673 m, has largely negated the profits.

SLT Group Chairman P.G. Kumarasinghe Sirisena, while praising the Group results, stated that he, together with other Board members including those who have been appointed recently, would drive the company towards its strategic objectives aimed at supporting digital Sri Lanka by capturing new opportunities and rising above prevailing challenges.

He expressed confidence on the well-educated professional workforce and strong market presence coupled with diversified infrastructure in enhancing the value of stakeholders. 

He also acknowledged all the individuals who have contributed to bring the company to an outstanding level and emphasised on the fact that the company has achieved this success while also ensuring the highest standards of social responsibility towards Sri Lanka, as the national communication service provider of the country.

SLT Group Chief Executive Officer Lalith De Silva was very optimistic on the company performance, despite the onetime charge of Rs. 673 m for an out-of-court settlement that impacted, negating the results.

“We have taken every effort to fulfil our infrastructure requirements, not only by replacing the existing ones, but also by introducing new broadband technologies such as LTE and carrier grade Wi-Fi and FTTH. Phase 5 of the i-Sri Lanka program was completed enabling the entire network for broadband. The existing IPTV system was replaced by a new system offering the experience of the latest technologies to the customers. The national backbone network was completed not only for the use of SLT but also for the use of all the service providers and enterprises in Sri Lanka. The company itself is transforming to a modern IT environment, to serve the customers efficiently and effectively. Further, our state-of-the-art AKAZA cloud solution will definitely empower the enterprises to focus on strategic directives of their core businesses. Hence, the company is well equipped to take leadership in the nation’s journey towards an ICT-enabled Sri Lanka while enhancing the value of shareholders,” he said.

Mobitel rings Rs. 30 b revenue, Rs. 2.8 b profit
Mobitel continued its growth momentum recording a double digit revenue growth of 11% for financial year 2014. In absolute terms, Mobitel crossed the Rs. 30 b milestone to record a sales turnover of Rs. 30.60 b in 2014 compared to Rs. 27.48 b in 2013, an increase of Rs. 3.12 b.

For the fourth quarter of 2014 Mobitel reported a revenue of Rs. 7.92 b which is an increase by 13% compared to the fourth quarter of 2013.

Although voice market in Sri Lanka has almost reached saturation, growth in voice revenue segment continued in 2014 as well. Mobitel’s continuous commitment and investments towards scaling and upgrading its network infrastructure have resulted in better customer experience which in turn boosts revenues for the company. Considerable investment in latest and timely upgrades in broadband technologies such as 3G and 4G paid off during the year with a notable increase in broadband revenues compared to 2013.

A growth trend similar to that of revenue continues across the company’s profitability indicators with EBITDA growing by 8% recording Rs. 9.8 b and EBIT growing by 12% recording Rs. 4 b. The strong growth in in EBITDA and EBIT can be attributed to prudent cost management initiatives coupled with measures to enhance productivity.

For year 2014 Mobitel reported an after tax profit of Rs. 2.8 b as against Rs. 2.4 b in financial year 2013, recording a 15% improvement. The growth in profits was achieved despite one-off write-off on Mobitel network assets amounting to Rs. 601.8 m. If not for this write off, Mobitel performance in relation to all key profitability indicators would have reflected a higher growth. The increase in profitability is also attributable to optimum asset utilisation, increased productivity and relatively stable macro environment that prevailed during 2014.
www.ft.lk

Sri Lankan stocks end weaker on higher interest rates

(Reuters) - Sri Lankan stocks closed lower amid thin trade on Monday on rising interest rates after the central bank scrapped a lower repo penalty and priced a 30-year treasury bond at a higher rate on Friday.

The central bank on Friday removed a lower repo penalty rate of 5 percent starting Monday, five months after it adopted the measure to boost credit growth.

The bank accepted over 10 billion rupees at a weighted average yield of 11.73 percent at an auction of 30-year t-bonds on Friday after it originally planned to borrow only 1 billion rupees. Dealers said the yield was at least 200 basis points higher than what the market had expected.

The main stock index ended 0.78 percent lower, or 56.89 points down, at 7,244.40, its lowest close since Feb. 9.

"Investors are slightly worried and the retailers are keeping out of the market," said Dimantha Mathew, manager, research at First Capital Equities (pvt) Ltd.

"The market will be stagnant until Wednesday's (t-bill) auction, which will show the direction on interest rates."

Shares of Ceylon Tobacco Company Plc fell 1.03 percent, while Dialog Axiata Plc dropped 1.67 percent.

Turnover was 642.3 million rupees ($4.83 million), its lowest since Feb. 16 and well below this year's daily average of 1.38 billion rupees.

Foreign investors were net buyers of 54.9 million rupees worth of shares on Monday, extending the year-to-date foreign inflow to 1.57 billion rupees. 

($1 = 132.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

China says Sri Lanka loans made 'based on consensus'

(Reuters) - China's loans to Sri Lanka were made based on consensus through talks between the two countries and at Sri Lanka's request, the Chinese Foreign Ministry said on Monday, after Sri Lanka's foreign minister expressed concern about the loans.

The minister, speaking in Beijing over the weekend, said Sri Lanka's finance minister would visit Beijing to discuss the roughly $5 billion owed to China.

Chinese Foreign Ministry spokeswoman Hua Chunying said the loans were made on the principle of mutual benefit and would help promote development in Sri Lanka.

"The loans are extended at the request of Sri Lanka and based on consensus through consultations," she told a daily news briefing.

"The loan arrangements are for the whole nation and people and have played a positive role in the economic and social development of Sri Lanka," Hua added.

New Sri Lankan President Maithripala Sirisena has unnerved China with his re-examination of certain projects that China has invested in, including a $1.5 billion (973.14 million pounds) "port city" in the capital Colombo.

India, which lost out to China in infrastructure development on the Indian Ocean island, was particularly concerned about the security threat posed by Chinese ownership of land, aggravated by the docking of Chinese submarines in Colombo last year.

India had grown increasingly wary of former president Mahinda Rajapaksa's pursuit of closer ties with China, which became a key supporter of the island's economy after its 26-year civil war ended in 2009.

(Reporting by Michael Martina; Writing by Ben Blanchard; Editing by Mike Collet-White)

Fitch Affirms Sri Lanka Telecom at 'BB-'/'AAA(lka)'/Stable

(The following statement was released by the rating agency) 

SINGAPORE/COLOMBO/SYDNEY, March 02 (Fitch) 
Fitch Ratings has affirmed Sri Lanka Telecom PLC's (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-'. The agency also affirmed SLT's National Long-Term Rating at 'AAA(lka)'. The Outlook is Stable. 

KEY RATING DRIVERS 
Tax Changes are Credit Negative: We believe that the Sri Lankan government's interim budget plan to impose significant recurring and one-off taxes will cause a decline in SLT's 2015 operating EBITDAR margin to 26% (2014: 30%) and its funds flow from operation (FFO)-adjusted net leverage to deteriorate to 1.8x (2014: 1.3x). SLT is likely to pay around LKR3.5bn-4bn in additional taxes. However, SLT's ratings will remain unaffected as headroom is sufficient. The interim budget introduced a one-off super gains tax of 25% on profits and a one-off tax of LKR250m on each mobile operator. It also shifted the burden of a recurring telecom levy of 25% on prepaid revenue on telcos from consumers; operators can no longer pass these taxes onto consumers given retail pricing changes require approval from the telecom regulator. The budget proposals, once enacted, will be effective from 1 April 2015. Acquisition Risk: We think that SLT's plan to do a debt-funded acquisition of a smaller operator in 2015 has the potential to threaten its National Long-Term Rating, although probably not its IDRs. Any rating action would depend on the acquisition price and forecast financial profile of the combined entity. We believe that the taxation changes will hasten industry consolidation as the number of telcos may be reduced to three from five. Two smaller loss-making operators including Hutchison Lanka and Bharti Airtel Limited's (BBB-/Stable) Sri Lanka subsidiary, Airtel Lanka, may exit the industry. Reduced Ratings Headroom: SLT's 'BB-' IDRs have sufficient ratings headroom to accommodate a debt-funded acquisition of a smaller operator as long as FFO-adjusted net leverage remains below 2.5x. The ratings are underpinned by its market leading position in fixed-line and second-largest position in the mobile market, along with its ownership of a country-wide optical fibre network. Negative FCF to Continue: We forecast that SLT will have negative free cash flows (FCF) in 2015-18 given lower EBITDA due to new recurring taxes and a large capex plan. SLT will continue to invest about 25%-28% of revenue in capex each year to expand its optical fibre infrastructure and 3G/4G mobile networks. Dividends would likely remain similar to the historical levels at LKR1.5bn. Profitability to Decline: Fitch expects SLT's 2015 revenue to rise by high single-digits driven by mobile data and fixed-broadband services, which will more than offset declines in fixed-voice and international revenue. Voice usage is likely to grow as subscribers save 25% of their telecom spend as a result of the shift of the telecom levy to telcos. Fitch forecasts that operating EBITDAR margin will also fall, apart from tax changes, due to a change in the revenue mix as low-margin data services replace relatively higher-margin voice and text revenue. 

KEY ASSUMPTIONS 
Fitch's key assumptions within our rating case for the issuer include: - The tax changes proposed in the budget in February 2015 are ratified by the parliament and effectively come in force starting 1 April 2015. - Revenue to rise by high single-digits, driven by higher voice usage on telecom levy savings and fast-growing data services. - Operating EBITDAR margin to decline by 400bp-450bp due to higher recurring taxes and a change in revenue mix as a low-margin data revenue replaces more profitable voice and international service revenue. - Capex/revenue to remain high around 25%-28% as SLT expands it fibre and 3G/4G networks. 

RATING SENSITIVITIES 
Negative: Future developments that may individually, or collectively, lead to negative rating action include: -A downgrade in the rating on the Sri Lanka sovereign (BB-/Stable) will result in a corresponding action on SLT's IDRs as the government directly and indirectly holds a majority stake in SLT. -FFO-adjusted net leverage increasing to above 2.5x (2014: 1.3x) on a sustained basis would lead to a downgrade of SLT's Foreign-Currency IDR. -A debt-funded acquisition of a smaller operator may threaten SLT's National Long-Term Rating depending on the acquisition price and the financial profile of the combined entity. Positive: Future developments that may individually or collectively lead to a positive rating action include: -An upgrade in the rating on the Sri Lanka sovereign is likely to lead to a corresponding upgrade in SLT's IDRs. -As the ratings are currently constrained by government ownership, the weakening of links with the sovereign may result in SLT's Local-Currency IDR being upgraded above Sri Lanka's Local-Currency IDR. However, SLT's Foreign-Currency IDR will remain constrained by the Country Ceiling of 'BB-'. 

Contacts: Primary Analyst Nitin Soni Director +65 6796 7235 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-03/04/05 Suntec Tower Four Singapore 038986 Secondary Analyst Kanishka de Silva Analyst + 94 11 254 1900 Committee Chairperson Steve Durose Managing Director + 61 2 8256 0307 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com; Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria, "Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 and "National Scale Ratings Criteria", dated 30 October 2013, are available atwww.fitchratings.com Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkagehere National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Rates National Development Bank's Senior Debentures 'AA-(lka)(EXP)'

(The following statement was released by the rating agency) 

COLOMBO/HONG KONG, March 02 

(Fitch) Fitch Ratings Lanka has assigned National Development Bank PLC's (NDB; AA-(lka)/Stable) proposed senior debentures of up to LKR7.5bn an expected National Long-Term Rating of 'AA-(lka)(EXP)'. The debentures, which will have a tenor of five years and carry fixed coupons, will be listed on the Colombo Stock Exchange. Fitch expects NDB to use the proceeds to refinance maturing multilateral funding. The final rating is subject to the receipt of final documentation conforming to information already received. 

KEY RATING DRIVERS 
The proposed debentures are rated at the same level as NDB's National Long-Term Rating in accordance with Fitch's criteria as they constitute unsecured and unsubordinated obligations of the bank. The issuer rating is driven by the bank's intrinsic financial strength. It captures NDB's long and stable operating history and its developing franchise as a commercial bank. NDB has continued to sustain better asset quality than its peers. However, Fitch expects NDB's asset quality to weaken alongside the seasoning of the loan book, as is already evident in an uptick in its reported gross NPL ratio to 2.5% at end-2014 from 2.4% at end-2013. Its loan composition is likely to remain stable, dominated by corporate banking at 48%, with retail banking and SMEs accounting for 36% and project finance accounting for a further 14% at end-2014. Capitalisation has deteriorated towards levels of its commercial bank peers as NDB's 27.7% loan growth in 2014 materially exceeded the average 13.7% growth for the banking sector. As a result, NDB's Fitch core capital ratio declined to 13.7% at end-2014 (2013: 15.2%). It also resulted in a high loans/deposits ratio of 119% at end-2014, with the bank relying on funding from multilateral agencies (16% of funding at end-2014). NDB's ratio of current and savings accounts to total deposits has remained low at 24% at end-2014. 

RATING SENSITIVITIES 
The rating on the proposed debentures will move in tandem with NDB's National Long-Term Ratings. Fitch believes that NDB's capitalisation and its rating would come under pressure if the bank sustains its growth momentum, in the absence of other mitigating factors. The consolidation of NDB's franchise alongside its ability to sustain strong credit metrics could result in an upgrade of NDB's ratings. NDB's merger discussions with DFCC Bank PLC (B+/Stable/AA-(lka)) appear to have slowed as the authorities' stance following the change in presidency earlier this year remains unclear. Fitch is of the view that synergies from such an amalgamation would be credit neutral for both banks in the short to medium term. 

A full list of NDB's ratings follows: 
Long-Term Foreign- and Local-Currency IDRs: 'B+'; Stable Outlook Short-Term Foreign-Currency IDR: 'B' Viability Rating: 'b+' Support Rating : '4' Support Rating Floor: 'B' National Long-Term Rating: 'AA-(lka)'; Stable Outlook Outstanding subordinated debentures: 'A+(lka)' Proposed senior debentures: 'AA-(lka)(EXP)' 

For more details on NDB's ratings and credit profile, see the full rating report dated 22 August 2014, available at www.fitchratings.com. 

Contacts: Primary Analyst Rukshana Thalgodapitiya Vice President +94 1 1254 1900 Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Center Colombo 01, Sri Lanka Secondary Analyst Jeewanthi Malagala Analyst +94 1 1254 1900 Committee Chairperson Sabine Bauer Senior Director +852 2263 9966 Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. 

NDB has a 1.79% equity stake in Fitch Ratings Lanka Ltd. No shareholder other than Fitch, Inc. is involved in the day-to-day rating operations of, or credit reviews undertaken by, Fitch Ratings Lanka Ltd. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(lka)' for National ratings in Sri Lanka. Specific letter grades are not therefore internationally comparable. Additional information is available on www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "National Scale Ratings Criteria", dated 30 October 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, and "Evaluating Corporate Governance", dated 12 December 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here National Scale Ratings Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Evaluating Corporate Governance here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.