Brokers to come under scrutiny

By Arthur Wamanan

Financial analysts and experts have urged the necessity for a mechanism to keep a check on Registered Investment Advisors (RIAs) employed by stock brokering houses and market intermediaries in order to ascertain their standards, ethics and background information for the benefit of market investors and stakeholders.

Speaking to The Nation Gain, Chartered Financial Analyst and Director, Candor Equities, Ravi Abeysuriya stated that Sri Lanka needed a platform to regulate the RIA’s in Sri Lanka, for the benefit of those investing on stock market.

“The Securities Exchange Commissions of countries such as the USA have a website which provides details of stock brokering advisors, their qualifications, and information with regard to any investigations on them. Sri Lanka needs a mechanism like that,” he said.

When contacted, Deputy Director General, Securities and Exchange Commission of Sri Lanka, Dhammika Perera also admitted that there needed to be a mechanism to monitor the conduct of brokers. “We do have certain broker conduct rules and administrative sanctions. But they should be combined, strengthened and put in black and white,” he said.

“The stockbrokers are certified, but that is inadequate. They could play out clients while being in a firm and then move on to another firm. Such instances need to be monitored and addressed,” Perera said.

Accordingly, Sri Lanka has 29 stockbroker firms. “Therefore, it is not difficult to formulate a mechanism to do a background check on individuals attached to firms,” Perera added.

He added that there was no platform for the public and stakeholders to ascertain their performance, conduct and standards. “The industry too can formulate the mechanism as well,” he added.
Chairman, Colombo Stock Brokers Association (CSBA), Dihan Dedigama when contacted stated that the CSBA had an informal system which looked into the ethics and standards of brokers. “But we welcome any system that would improve the quality of our work,” Dedigama said.

Addressing a seminar titled ‘Stock Market: regulatory Frame Work and Investment Challenges’, organized by the Ceylon Chamber of Commerce (CCC) recently, Abeysuriya pointed out that the absence of such a mechanism was a drawback for current and potential investors as there was no system to provide information on their performance.

He further stated that Sri Lanka was among the lowest in terms of domestic stock market participation adding that the lack of trust on the capital market played a key role in the very low level of public participation.

He also stated that the perception that the market was manipulated and controlled by a ‘mafia’ also played a crucial role in their lack of trust on the system.

Abeysuriya in his presentation also spelt out key reasons contributing to the lack of public trust. Accordingly, the lack of ethical culture within firms was a key problem. In addition, market disruption, poor government enforcements and poor government regulations also play key factors in the lack of trust.

He suggested that factors such as transparency and open business practices, responsible actions to address the above mentioned issues, and ethical business practices along with voluntary code of ethics would instill confidence of the public on the market and increase their participation.

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SEC wants fresh laws creating auditors as whistleblower

The Securities and Exchange Commission (SEC) says they want audit firms to ‘blow the whistle’ as and when they come across ‘anything unusual’ in listed firms they audit.

“We want them to tell us if they notice anything unusual in the accounts. We want them to whistle-blow,” SEC Chairman Thilak Karunaratne told the Business Times when asked about his recent comments made at the certificate awarding ceremony of the Corporate Directors Program jointly conducted by the Institute of Chartered Accountants of Sri Lanka and the SEC recently.

He added that the SEC is planning on bringing fresh laws mandating auditors to bring any financial irregularities to the SEC and that similar laws are adopted in countries such as Malaysia. “We are exploring the possibility of placing a legal duty on audit firms carrying out audits of listed companies to report any irregularities or improper conduct they find in the financial statements of the company to the SEC”.

The Corporate Directors Programme is a distinct and timely initiative that is designed to enhance the knowledge and skills of directors in listed entities, he said, adding that knowledgeable and progressive leadership in these companies is important for the smooth functioning of the capital market. “It is under such conditions we at the SEC signed the MOU with ICASL in May 2014 to provide financial assistance for this programme.”

Inculcating good governance in a country would not be possible unless and until the essence of this ideology cascades down the line to all important segments inter alia the economy, he said, adding that this programme conducted jointly by ICASL and SEC will provide the knowledge and skills required in promoting good governance which in essence is corporate governance within the respective organisations of the participants.

“However, I must stress here that effective corporate governance is not merely complying with rules, but is about intellectual honesty and adhering to the true spirit to the essence of good governance.” He said that this type of responsibility imposed on auditors will assist the regulator to be more vigilant and take pre-emptive action to protect the interest of investors. “This would lead to increased credibility and greater transparency of both listed companies and audited reports particularly in the mind of potential investors. This is a legal requirement present in other jurisdictions such as Malaysia.”

Auditors being more accountable Thilak Karunaratne, Chairman of the SEC (Securities & Exchange Commission) has (as reported recently in the media) stated that the SEC is considering imposing an extra liability for the auditors of listed companies to report irregularities and improper conducts of listed companies they may come across during the audit, directly to SEC. The objective of this move is not to take action against listed companies for irregularities reported by the auditors. The aim is to give red signals to the investors to make informed investment decisions. As per the view of SEC officials this will improve the credibility and transparency of the financials of the listed companies. CSE investors hail this proposal. This could increase the risk of the auditors while it will enhance the profile of the auditors and importance of the audit function. Anyway this action will require rigorous legislative arrangements. Also the proposed report of the auditors (from 2016) will have a much detailed report. Dulika Vidanage Colombo

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CID questions SEC officials on Rs. 5 mln Tharunyata Hetak grant

By Duruthu Edirimuni Chandrasekera

Criminal Investigation Department (CID) recently summoned several officials attached to the Securities and Exchange (SEC) to record statements on the Rs. 5 million ‘grant’ by the regulator for a youth movement headed by former President’s son and politician, Namal Rajapaksa’s Tharunyata Hetak Fund some two years ago.

Senior CID sources told the Business Times one official was questioned for five and a half hours on this last week. At the time it was said that these funds were disbursed by the SEC for ‘awareness creation regarding capital markets’. SEC Deputy Director General Dhammika Perera was quoted as telling media in October 2013 that the funds were provided to Tharunyata Hetak due to the ‘penetration this movement has in the country’, the funds were provided to cover the costs for the organisation and for it to conduct awareness programmes on capital markets,” he has said. He has also said that a proposal in this regard was submitted by Tharunyata Hetak, to the SEC and that “after careful consideration of the proposal we decided to release the funds”.

“Former SEC Chairman Nalaka Godahewa and the former Commission members are also to be summoned before the CID to record statements,” a senior CID source said. Meanwhile, in a latest turn of events, one time powerful stock market investor Dilith Jayaweera was questioned by the Financial Crimes Investigation Division (FCID) over alleged share market malpractices involving Lanka Hospitals shares on Thursday, which sent shockwaves in the industry, sources said.

In what was inconceivable a few months ago actually happened and the FCID recorded a statement from him at a start of a probe in which several other high profile traders such as Mr. Jayaweera will also be called to record statements, they added.

The statement was on his share transactions in Lanka Hospitals just before a large parcel traded in 2011 when Singapore-based Fortis Global Healthcare Holdings (p) Ltd, owned by the founders of India’s Fortis Healthcare Ltd bought a minority stake in Sri Lanka’s Lanka Hospital Corp.
The privately-held company of Indian billionaire brothers Malvinder Mohan Singh and Shivinder Mohan Singh bought a 28.6 per cent in Lanka Hospitals, which runs a 350-bed hospital and is majority owned by the government-owned Sri Lanka Insurance Corporation. Former Defence Secretary Gotabaya Rajapaksa was chairman of the hospital company during the tenure of the previous government.

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Colombo Dockyard March quarter profit up 3-pct

COLOMBO (EconomyNext) – Sri Lankan ship builder Colombo Dockyard’s March 2015 quarter net profit rose three percent to 135 million rupees from a year ago despite a fall in sales as growth remained constrained by the global slump in shipping.

Earnings per share for the quarter were 1.87 rupees, according to a stock exchange filing of the yard, which is 51 percent owned by Japan’s Onomichi Dockyard Company Limited and in which state institutions have about 33 percent.

Colombo Dockyard sales fell 13 percent to 3.7 billion rupees in the quarter. Revenue from ship building, the yard’s biggest current source of revenue, fell during the quarter although gross profit rose.

Revenue and gross profit from ship repair were up slightly during the period.

The yard has been hit by the continuing downturn in shipping where an oversupply of ships has led to sharply lower freight rates and many lines making losses which forces them to put off new building orders and repair.

Sri Lanka’s Employees Provident Fund is the second biggest shareholder of Colombo Dockyard with a 16.3 percent stake and big stakes also held by the state-owned Sri Lanka Insurance Corporation’s General and Life funds, the Sri Lanka Ports Authority, Employees Trust Fund, and National Savings Bank.

Dipped Products records Rs. 1.7 b pre-tax profit in FY15

* DPL's glove making business saw turnover rise by 12% to Rs. 15 billion and pre-tax profit by 65% to Rs. 1.5 billion

Dipped Products Group (DPL), posted a turnover of Rs. 27.7 billion, a 20% increase for the financial year 2014/15 with a Profit Before Tax (PBT) of Rs. 1.7 billion up by 17%.

Hand Protection, the company’s glove making business contributed Rs. 15 billion to turnover, up 12% and a PBT of Rs. 1.5 billion, up 65% from the previous year.

The company’s plantation business reported Rs. 13.4 billion in turnover, up 28%. The plantation sector’s contribution includes the consolidation of an additional three months up to 31 March 2015. The sector posted Rs. 390 million Profit Before Tax, a drop of 48% from the previous year.

“DPL’s performance in the last financial year reflects our commitment to grow our global market share, and the increased efficiencies we have been able to achieve at our manufacturing facilities including the newly-established DPL Premier Gloves factory in the Biyagama Industrial Zone,” stated DPL Managing Director Dr. Mahesha Ranasoma.

The company’s overseas operations performed positively, with strong contribution from its Thailand production facility and ICOGUANTI, DPL’s marketing company in Italy despite being impacted by the weaker Euro during the latter part of the year.

Meanwhile, DPL’s community empowerment project, “Firstlight”, gathered admiration and support from its global customers, who are now stepping up to supporting the project’s expansion. The “Firstlight” project supports rural, small holder farmer families to grow and harvest rubber as a sustainable source of livelihood.

During the period, DPL also installed an innovative Reverse Osmosis (RO) system to reuse water from manufacturing processes at its Hanwella Rubber Products factory. The project will significantly reduce the factory’s water consumption and reinforce its commitment to sustainable water resource management practices.

DPL also invested in a new industrial glove manufacturing facility namely DPL Universal Gloves Ltd. during the financial year under review. In the meanwhile

DPL Premier Gloves commissioned two new manufacturing lines which will commence commercial operations during the new financial year.

Established in 1976, Dipped Products is one of the leading non-medical rubber glove manufacturers in the world, and accounts for 5% share of the global market. The company’s products now reach 68 countries. DPL is a subsidiary of the Hayleys Group.

The Board of Directors of Dipped Products PLC comprises Mohan Pandithage (Chairman), Dr. K.I.M. Ranasoma (Managing Director), Dhammika Perera, R.K. Witanachchi (Deputy Managing Director), F. Mohideen, K.A.L.S. Fernando, S.C. Ganegoda, M. Bottino, S. Rajapakse, N.A.R.R.S Nanayakkara and S.P. Peiris.
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Fitch Rates Central Finance's Senior Debt Final 'A+(lka)'

May 15, 2015 (LBO) – Sri Lanka Fitch Ratings has assigned Central Finance Company Plc's issue of senior secured redeemable debentures of up to 3 billion rupees, a final National Long-Term Rating of 'A+(lka)'

The Media Release reproduced below :-

The final rating is the same as the expected rating assigned on 8 April 2015, and follows the receipt of documents conforming to information already received.

The debenture will have a maturity of between three to five years, carry a fixed-rate coupon, and will be listed on the Colombo Stock Exchange. CF expects to use the proceeds to fund lending growth, reduce structural maturity mismatches and diversify the funding mix.

KEY RATING DRIVERS

The issue has been rated at the same level as CF's National Long-Term Rating. Fitch has not provided any rating uplift for the collateralisation as the secured notes' recovery prospects are considered to be average and comparable with those of the unsecured notes in a developing legal system.

CF's rating reflects its strong capitalisation, which is supported by robust profitability and high profit retention. Counterbalancing these strengths are the pressure on loan quality and its low provisioning levels compared with its peers'. The rating also captures CF's high margins, which are supported by the company's strength in raising funds at relatively low rates through the solid franchise developed over a long operating history.

RATING SENSITIVITIES

The rating on the issue will move in tandem with CF's National Long-Term Rating.

Sri Lanka vehicle registrations up 70-pct in April

COLOMBO (EconomyNext) – Sri Lanka's vehicle registrations rose 70-percent from a year earlier to 48,718 units in April 2015 but was down from a historic high of 66,839 reached in March, a research report showed.

Motor car registrations rose 166 percent from a year earlier to 5,107 units in April 2015 despite a plunging sales of hybrid cars after a tax hike in January, an analysis of Sri Lanka's vehicle registry data by JB Securities showed.

In April, 2,037 Indian-made Maruti Alto cars were registered, up from just 185 units a year earlier but down from 2,269 units in March.

Economic activity slows in April with a traditional holiday season falling in the second week.

There were also 338 units of Chinese made Micro branded cars were sold, up from 103 units a year earlier.

JB Securities said the waiting period for a Maruti vehicle was now 6 months.

Registrations of vans rose 700 percent from a year earlier to 927 units in April.

Three wheeler registrations rose 59 percent to 10,814, down from the 12,360 units registered in March, levels not seen since late 2011 when the Central Bank was injecting liquidity into the banking system though sterilized forex sales firing credit and creating a balance of payments crisis.

Lease rental on a 3-wheeler is around 15,000 rupees a month or 600 per working day and three wheelers are increasingly used as a personal vehicle rather than a taxi, JB Securities said.

Motor cycle registrations rose 61 percent from a year earlier to 27,561 units but were down from a peak of 42,331 reached in March.

About 64 percent of the motor cars were bought on credit, up from 51 percent a year earlier. The financing share of SUV's were 58 percent, up from 35 percent a year earlier.



About 90 percent of the three wheelers were bought on credit, the same as last year and 62 percent of motor cycles were bought on credit, slightly down from 62.9 percent a year earlier.