Sri Lankan stocks at one-week high; foreign trade boosts turnover

Reuters: Sri Lankan shares gained on Friday to close at a one-week high with strong foreign trade in risky assets boosting turnover though analysts said the index could move sideways until the government's budget in mid-November.

The main stock index ended up 0.35 percent at 7,105.54, its highest close since Sept. 25.

Foreign investors accounted for 62.5 percent of turnover, though they were net sellers of 32.3 million rupees ($228,834.57) worth of shares. The net foreign outflow this year is 2.88 billion rupees.

"Some strong foreign interest has helped boost sentiment," Danushka Samarasinghe, research head at Softlogic stockbrokers said.

"But the market will be slow because investors are waiting for the government policies in the budget."

Blue-chip shares such as Ceylon Tobacco Company gained 1.50 percent, led the index gain.

Turnover was 1.35 billion rupees ($9.56 million), compared with this year's daily average of 1.12 billion. 

($1 = 141.1500 Sri Lankan rupees) 

(Reporting by Shihar Aneez and Ranga Sirilal)

Sri Lanka’s Renuka Foods to acquire Shaw Wallace Ceylon through a share swap

(LBO) – Sri Lanka’s Renuka Foods is to acquire Shaw Wallace Ceylon limited through a share swap agreement to save cost and improve operational efficiencies, the company said in a stock exchange filing.

A share swap is a tactic uses during an acquisition of a company paying shares rather than with cash.

Accordingly, Renuka Foods will acquire Shaw Wallace through the ordinary shares held by CJ Patel & Company (20.36%) and Eagle View Management (18.41%).

Renuka Foods will issue one ordinary voting share for every four ordinary voting shares of Shaw Wallace and will list them, subject to the necessary approvals.

Renuka Foods is to issue 28,188,306 shares at 30.45 rupees per share.

The issue price is at an 8.75 percent premium over current market price and is based on the Net Asset Value of the Company as at 30th June 2015, the company said.

Shaw Wallace Ceylon was also valued at its Net Asset Value for the purpose of this transaction.

Subsequent to the Share-Swap, Renuka Foods will own 98.94 percent of the voting shares of Shaw Wallace Ceylon directly and indirectly.

The acquisition of shares is expected to accommodate the Company’s consolidation drive as well as strengthen its net assets attributable to equity holders, the company said.

Fitch rates HNB Grameen Finance at 'A(lka)'

Fitch Ratings has assigned HNB Grameen Finance Limited (HGL) a national long-term rating of 'A(lka)' with a stable outlook.

HGL's rating reflects Fitch's expectation of support from its parent, Hatton National Bank. AA-(lka)/Stable.

This view is based on HNB's majority shareholding (51%), its involvement in the strategic direction of HGL through board representation, and the common HNB brand.

The two-notch differential reflects HGL's limited role in the group. HGL is mainly engaged in the provision of micro finance, which is not a significant product for HNB as it accounted for 2.7% of the bank's loan book at end-June 2015. Furthermore, there is limited operational and management integration of the entities.

HNB acquired 51% of HGL in November 2014 as part of a financial-sector consolidation programme. The bank rebranded the finance company and now has four seats on HGL's board, including the chairmanship.
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DFCC, DVB's tie-up heralds new DFCC Bank

DFCC Bank and DFCC Vardhana Bank have amalgamated to form DFCC Bank PLC, a Full-Service Bank.

The newly formed entity will offer a broad range of products and services including development banking, commercial banking and personal financial service facilities. The bank's new logo symbolizes its commitment to offer customers simplicity and convenience.

The synergies that will result from the merging of DFCC and DVB will strengthen and position the new DFCC BANK as a force to be reckoned with in the financial services sector.

Since the announcement of the amalgamation earlier this year, both banks have been going through a rapid integration process. The new, amalgamated bank will continue to serve a variety of clients ranging from individuals, professionals and entrepreneurs to SMEs and corporates, with the same level of service for which both DFCC and DVB have always been renowned. The combined entity will have around 1,500 employees with expertise in various disciplines, a combined asset base of Rs 210 billion (as at March 2015), and an island wide footprint, operating through 137 branches.

The new entity brings expertise in development and commercial banking, and customers will be able to depend on the experience and proven track record of both banks. At both domestic and international levels, DFCC has the experience and capabilities to provide customers with innovative and responsible financial solutions to cater to their every requirement.

"The two Banks share a common vision, mission and set of values, as well as a common ethos, and will draw synergies from the DFCC Group's complementary areas of business through its subsidiaries, associate company and joint venture, to provide value for customers,"a senior official said.

This amalgamation is in line with the national objectives that require Sri Lankan companies to enhance their vision in order to showcase the country's strength as an attractive investment destination and a vibrant economy.
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CB confirms 5 foreign banks to enter SL

• Recent developments in the country’s political and economic arena have created a surge of interest from foreign businesses: CB Governor
• Regulator plans to link up expatriates and investors 
• Foreign banks in SL expected to play greater role in economic activities

By Charumini de Silva
Sri Lanka’s banking watchdog, the Central Bank confirmed that five foreign banks will make an entry into the country’s financial industry in the near future.

“We have received five applications seeking approval to commence foreign banking operations in Sri Lanka,” Central Bank Governor Arjuna Mahendran told the Daily FT

He said that the recent developments took place in the country’s political and economic arena has created a surge of interest from foreign businesses that are eager to stake a claim in the frontier market.

Giving a tip-off on the banks that are likely to enter the country, he said: “The Japanese bank and the Chinese bank are among the biggest in the world.”

He went on to say that with the entrance of these banks to the country’s financial industry, it will truly open up many opportunities not only for Sri Lankans but also for investors living in those countries.

Noting that the regulator is trying to improve the country’s banking system and boost capital flows to local businesses, the Governor said: “We are looking for banks from other countries. We would like the banking institutions in those countries to, if they do not set up a branch in here, at least tie-up with our banks.”

Further clarifying his point Mahendran said it was a great opportunity for our banks to be linked up with expatriates living abroad as well.

“We have more than one million people living overseas, especially in countries like Japan, Canada, Australia and the Middle East. With the entrance of these foreign banks we could link up all our people based around the world via intermediaries of their international branch network to channel funds and expertise to several sectors of the economy.”

He asserted that they anticipate the banks’ continuous involvement in the financial sector and economic development in the country.

“Foreign banks in Sri Lanka are expected to play a greater role in economic activities and make a significant contribution to the economy,” the Governor noted.
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Sri Lankan stocks up; Block deals in Keells, Nations Trust Bank

Reuters: Sri Lankan shares recoverd on Thursday from a 11-week low hit in the previous session, with block deals in John Keells Holdings Plc and Nations Trust Bank boosting the day's turnover.

The main stock index ended up 0.42 percent at 7,080.48, edging up from its lowest close since July 15 hit on Wednesday.

Foreign investors were net buyers of 284.2 million rupees ($2.02 million) worth of shares on Thursday, but they have been net sellers of 2.88 billion rupees worth of shares so far this year.

"With the start of a new month we have seen improved buying levels. We have also seen some retailers coming in slowly," said Dimantha Mathew, a research manager at First Capital Equities (Pvt) Ltd.

"We expect the positive sentiment to continue."

Shares of Dialog Axiata Plc rose 1.83 percent while Commercial Leasing and Finance rose 5.00 percent.

Blue-chip shares such as John Keells rose 0.18 percent while Commercial Bank of Ceylon gained 0.5 percent.

Nations Trust Bank, which along with Keells accounted for 43.79 percent of the day's turnover, gained 0.82 percent

Turnover was 1.8 billion rupees, more than this year's daily average of 1.12 billion. 

($1 = 141.0000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

Fitch affirms Sri Lanka Insurance Corporation at IFS BB- rating

(LBO) – Fitch Ratings has affirmed Sri Lanka Insurance Corporation Limited’s Insurer Financial Strength rating (IFS) at ‘BB-‘ with a Stable Outlook.

The agency has also affirmed the National Insurer Financial Strength Rating and National Long-Term Rating at ‘AA(lka)’ with Stable Outlook.

KEY RATING DRIVERS

SLIC’s ratings reflect its well-established franchise and market position in Sri Lanka, 99.9% state ownership, and its importance to the government as the largest state-owned insurer.

SLIC’s profit retention dropped to 38% in 2014 (2013: 78%) due to higher dividends to the government. In 2014, total comprehensive income increased to LKR14.9bn (2013: LKR7.5bn) driven mainly by fair-value gains in available-for-sale financial assets (LKR11.2bn in 2014 and LKR2.8bn in 2013). Net profit in the non-life segment dropped to LKR1.65bn in 2014 (2013: 2.9bn) due to poor underwriting results. This stemmed mainly from a one-time increase in provisions for third-party motor claims.

SLIC’s total premiums fell to LKR20.7bn in 2014 from LKR21.35bn in 2013 with the gross written premiums (GWP) in both life and non-life declining slightly. The non-life business’s combined ratio deteriorated in 2014 due to higher reserving for third-party motor claims and the competitive environment.

SLIC has significant investments in non-core subsidiaries that have been made in line with government policy and a high proportion of equities in its investment portfolio, which weaken SLIC’s risk-based capital (RBC). The company is also exposed to high interest rate risk due to the asset and liability mismatches in the life business, which stem from the limited availability of long-term investments in the market. The company is in discussions with the regulator on separating its life and non-life businesses to comply with new regulatory requirements.

SLIC’s regulatory solvency ratio at end-June 2015 was 13.6x (end-2013:11.5x) for life and 3.4x (end-2013: 4.9x) for non-life. These ratios are well above the regulatory required ratio of 1x for each business and compare well against that of its peers. RBC, which takes into account the high exposure to equity investments, was 202% for non-life and 448% for life, well above the regulatory minimum of 120%. Fitch expects the RBC for both life and non-life to be maintained above 200% in the medium to long term.

SLIC has an asset base of over LKR150bn. The company is the market leader in non-life insurance in Sri Lanka, accounting for 22% of GWP in the market. In the life segment, the company is the second-largest, accounting for 18% of market GWP in 2014.

RATING SENSITIVITIES

An upgrade is unlikely in the near term, as SLIC’s IFS rating is at the same level as Sri Lanka’s Long-Term Local-Currency IDR (BB-/Stable). Conversely, if Sri Lanka’s rating is downgraded, SLIC’s Insurance Financial Strength rating is likely to be downgraded.

SLIC’s National Ratings may be upgraded if it is able to maintain sizeable market share, maintain its combined ratio well below 95% (2014: 103.7%) and significantly reduce its non-core investments.

The National and International ratings may be downgraded if there is:

– Significant weakening in SLIC’s market position,

– Deterioration in the non-life combined ratio to above 100% on a sustained basis,

– Weakening in SLIC’s importance to the government, increased pressure from the state for higher dividend payouts or a significant increase in non-core investments.