Major shareholders of Hemas to dilute their holdings

Hemas Holdings PLC (HHL) has summoned an extraordinary meeting on April 10 to obtain shareholder approval for a rights issue of approx. 57.25 million new shares at Rs. 72 per share which the directors consider "fair and reasonable" to the company and all existing shareholders.

The rights issue seeks to infuse approx. Rs. 4.12 billion zero cost equity capital into the company to fund strategic investment opportunities in the health care and fast moving consumer goods (FMCG) segments of the group, a circular to shareholders said.

"The directors believe that the funds to be committed would bring in significant long term returns to the group and further establish HHL’s leading position in these sectors," the circular said.

The major shareholders of the company, comprising members of the Esufally family have informed the board that they have received "strong expressions of interest" from reputed international institutional and domestic investors that they would like to become shareholders of the company or increase their existing shareholdings.

"In order to accommodate this demand, the major shareholders of HHL have decided not to subscribe for their rights in order to enable the aforesaid parties to become shareholders or increase their shareholding," the circular said.

The effect of this non-subscription would result in the major shareholders’ stake in the company will reduce from 71.26% to 64.14%, it said, disclosing that the major shareholders will divest their rights on the trading floor of the CSE.

The circular set out the closing price of the HHL share as well as its highs and lows as at Dec. 14 (2014) and Jan. and Feb. 15, 2015, indicating that the Rs. 72 rights issue price is a discount to the market price.

HHL closed yesterday at Rs. 75 on the CSE.

Sri Lanka investors warned to be more vigilant of ESOPs

COLOMBO (EconomyNext) - Sri Lankan investors should be more vigilant about Employee Stock Ownership Plans (ESOP) given by listed firms as some might be too narrow in scope, a forum for minority shareholders was told.

Naomal Goonewardena, a Partner at Nithya Partners, a law firm, said that in recent years the
regulatory environment for listed firms has improved with better protection for minority interests.

But minority shareholders themselves should exercise greater vigilance over the companies they invest in, he told a forum for retail investors on minority shareholder rights held by the Colombo Stock Exchange in association with the Institute of Chartered Accountants of Sri Lanka and The Chartered Financial Analysts Society of Sri Lanka.

The issue of shares can significantly dilute certain minority shareholders if the majority has unfettered discretion in their issue, Goonewardena said.

But the new company law has introduced the right of pre-emption, an important safeguard which ensures that if new shares are issued, shareholders are entitled to be offered to buy them, which he described as "the first step in protecting shareholder rights in general."

But he also warned in the case of some Employee Stock Ownership Plans there could be abuse.

"I'm amazed a lot more ESOPs are not challenged by minority shareholders, given their narrow scope," Goonewardena said. "Sometimes just 10 people in the organisation get the benefit."

This can result in the organisation itself not performing well "but I never see shareholders objecting," he said.

ESOPs are matters minority shareholders should be more "proactive on", he added.

ESOPs in public firms are meant to motivate employees by giving them a stake in the company, to perform better so that the company does better.

They are usually tied to performance indicators such as meeting or exceeding profit targets and returns on capital.

ESOPs also provide tax benefits to the sponsoring company or selling shareholder and participants but can also dilute the stock of existing owners.

Sri Lanka Kalpitiya Beach ordered to call EMG, explain use of IPO funds

COLOMBO (EconomyNext) - Sri Lanka's capital markets regulator has ordered Kalpitiya Beach Resort to call an extraordinary general meeting of shareholders to explain what it will do with 283.5 million rupees raised from the public to build a hotel.

The Securities and Exchange Commission said in a statement it took the decision at its commission meeting of March 10 given the "inordinate delay" in Kalpitiya Beach Resort building a hotel in Kalpitiya out of funds raised at a Initial Public Offer.

The SEC said it noted with "grave concern" that Kalpitiya Beach Resorts, in which Dilith Jayaweera and Varuni Amunugama are executive directors, has not built the resort within the stipulated time frame as stated in the IPO.

Disclosures made by the firm and reasons given for the delay "no longer justifies prolonging construction further," the SEC said.

The SEC ordered the Kalpitiya Beach Resorts board to call for an EGM by May 10 to tell shareholders of the "true financial position" of the company and to pass a resolution on an alternative course of action with regards to the money raised from the public.

It also ordered the firm to produce a report from the company auditor with supporting documents so shareholders can make an "informed decision" and vote on the resolution.

The Securities and Exchange Commission said the company had raised 283.5 million rupees in the IPO in November 2011 to part finance building Citrus Kalpitiya, a resort hotel.

Construction was to have been started by December 2011 and completed within 24-30 months with commercial operations of the hotel scheduled to start in early 2015.

Sri Lanka 'super gains' tax to be applied to groups, individual firms

COLOMBO (EconomyNext) - Sri Lanka's 'super gains tax', a 25 percent additional income tax will apply to individual entities and consolidated accounts of groups of companies, according to proposed to tax laws approved by the cabinet of ministers.

The tax will apply to any person or company who has a taxable income of more than 2.0 billion rupees in taxable income based on audited financial statements in the tax year starting April 2013.

It will also apply to groups of companies, where aggregate before income tax profits of the holding company and all subsidiaries exceeds 2.0 billion rupees or where the profits of each subsidiary and the holding company in that group of companies exceeds the threshold.

Subsidiary companies are companies where a holding company either directly or indirectly has more than 50 percent of the voting shares.

The tax shall be charged on every subsidiary and the holding company of a group of companies.

Board of Investment companies approved under section 17 of its law will have to pay the levy under taxable income coming after the expiration of exemptions and in the case of other companies, the residual assessable tax.

No specific mention has been made of foreign subsidiaries.

The tax has to be paid in three equal instalments by the 15th of May, July and September 2015.

The 'super gains tax' was one of the new taxes proposed in a revised budget in January 29, where salaries of state workers were raised by over 40 percent.

The controversial tax has come under fire for undermining rule of law and predictability by being applied retrospectively and for creating a precedent for the elected ruling class to tax unarmed citizens in ad hoc ways in the future to fulfil election promises.

However in financing the spending needs of the elected ruling class, analysts say taxes are better than printing money, which depreciates the rupee and generates inflation.

Income taxes only destroys a specific amount of investible capital generated by a citizen during a specified period, and directs them to consumption spending of rulers.

But currency depreciation destroys all past savings that can be invested to generate jobs and value, including the savings of weak and old citizen who can no longer work as well as current and future real value of salaries of wage earners.

Sri Lankan shares edge up in thin trade; rates direction awaited

(Reuters) - Sri Lankan shares ended slightly firmer on Friday, led by large caps, but volumes remained thin as investors awaited cues on interest rates, stockbrokers said

The main stock index ended 0.11 percent, or 7.88 points, up at 7,054.58, further moving away from its lowest close since Feb. 2 hit on Wednesday. It had lost 3.74 percent in the last 13 sessions through Wednesday.

Analysts expect the index to gain on hope that interest rates might gradually come down after yields in t-bills fell between 31 basis points and 44 at a weekly auction on Wednesday. The yields spiked between 112 basis points and 124 in the two previous weekly auctions.

"There was no reaction for the declining interest rates. Investors are still not confident enough and they are not selling or buying, but looking for direction," said Dimantha Mathew, research manager at First Capital Equities (Pvt) Ltd.

The day's turnover stood at 370.4 million rupees ($2.79 million), well below this year's daily average of 1.24 billion rupees.

Foreign investors were net buyers of 63.1 million rupees worth of shares, extending the year-to-date foreign inflow to 3.36 billion rupees.

The central bank on Wednesday said the low interest rate environment is expected to continue benefiting from lower inflation while keeping the policy rates steady.

Shares in Ceylon Tobacco Co Plc rose 3.83 percent, while Commercial Leasing and Finance Co Plc gained 4.88 percent.

Infrastructure firm Access Engineering fell 10 percent a day after Sri Lanka's new government cancelled an $85 million airport runway project awarded by the previous government. 

($1 = 132.9000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)

Thilak renews calls for investor association to protect minority shareholder rights

By Channa Fernandopulle

Securities and Exchange Commission (SEC) Chairman Thilak Karunaratne restated his call for the formation of legally-empowered investor association that emulates examples in Malaysia and Thailand.

Speaking during the first in a series of seminars organised by the Colombo Stock Exchange (CSE) aimed at educating minority shareholders on their rights, Karunaratne noted that minority shareholders face numerous problems in today’s market, the most challenging being the prohibitively expensive cost of litigation.

“We get a lot of complaints from minority shareholders but there is very little that we can do however if you follow the examples of other jurisdictions, they have formed investor associations to look after the interests of investors, particularly minority shareholders.

“Lawyers would say that they have the right to take their case to Court and fight it out there but that is one of the costliest exercises in this country therefore even when minority shareholder rights are violated and they have a legitimate complain, they are still reluctant to go to Court and that is why the formation of such an association has become so important,” Karunaratne explained.

He went on to cite the examples of Malaysia and Thailand which formed strong investor associations through the joint efforts and funding of capital market stakeholders and their regulator.

“When the Malaysian capital market was deregulated they used the money realised there and worked with the regulator to form an investor association to look after the interests of all investors, particularly minority shareholders.

“These associations are quite powerful and can even go to Court on their own if a shareholder makes a complaint. If they feel the complaint has merit then they will take up the case at their own expense and fight it on behalf of the shareholder and this is what is needed here,” he stated.

Karunaratne further stated that he had previously attempted to create such an association in Sri Lanka during his previous tenure as SEC Chairman prior to his controversial removal last in August 2012 but which failed due to interference from powerful majority investors.

“During my previous tenure in office as the Chairman of the SEC we started doing this, in fact we drew up a constitution also held discussions with the CSE at that time but somehow after my departure it did not happen. Thereafter, the Sunday Times Business section also initiated something on similar lines and I gave all my support and even handed over a draft constitution for the association also, but there again it was sabotaged by the majority investors.

“They got into the association, they prevented it from being formed and I must say that very clearly: they did not allow it to be formed. Now again we’re trying to form this investor association and this time hopefully we’ll succeed and that will help to look after the rights of minority shareholders,” he asserted.
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Kabir Hashim outlines 6 focus areas to develop capital market

By Charumini de Silva
Minister of Investment Promotion, Highways and Higher Education Kabir Hashim this week outlined six areas the capital market must focus on for future development and asserted that Sri Lanka needs a strategised plan to attract Foreign Direct Investments (FDIs).

“There is a clear need to restructure our investment policies, while having consistent policies to win the trust of investors,” he told the inauguration of the 3rd Capital Market Conference 2015 under the title ‘Consolidation, Innovation and Initiative’ organised by the UTO EduConsult.

The Minister’s six areas of focus were increase listing of companies, market awareness and education, attracting foreign investors, developing new products, corporate debt market and developing unit trust market. Despite admitting that it was challenging, Hashim stressed that it was nevertheless possible.

He went on to say that despite the change in political leadership, the country should have a ‘national policy’ to attract FDIs, which would support capital growth of the economy.

“Attracting FDIs is not easy. We need to have the right balance of investments and confidence to compete in a global market. Thus, it is crucial to have consistent policies to ensure adequate foreign capital flowing into the country,” Minister Hashim added.

He highlighted that the lack of market liquidity had been a negative factor in attracting foreign investors to the capital market.

“Between March 2012 and March 2015, only nine additional companies have listed on the Colombo Stock Exchange (CSE). Many of these companies are Colombo-centric and it is important that we reach out for private companies outside Colombo to encourage listing in the CSE, while looking at attracting State-Owned Enterprises (SOEs) to get listed, which would enhance capital, transparency and good governance,” he noted.

The Minister emphasised that inclusive development was paramount for Sri Lanka and added that although the Government encouraged FDIs with special concessions, they would support and protect local enterprises.
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