Sri Lankan shares fall for third straight session; John Keells down

Reuters: Sri Lankan shares fell for a third straight session on Thursday, posting their lowest close in a month, dragged down by diversified stocks such as John Keells Holdings Plc as investor sentiment continued to remain low on concerns about rising interest rates.

The Colombo stock index ended down 0.1 percent at 6,088.80, its lowest since Feb. 6. It shed 0.6 percent last week in its second straight weekly decline.

Foreign investors were net buyers for the seventh straight session on Thursday, purchasing shares worth 63.6 million rupees ($420,495.87), and extending the year-to-date net foreign inflow to 1.95 billion rupees worth of equities.

Turnover was 875.6 million rupees, more than this year's daily average turnover of 689.7 million rupees.

"The market is mainly down because of John Keells. It is slowly coming down with rising rates and economic uncertainty," said Dimantha Mathew, head of research at First Capital Equities (Pvt) Ltd.

"Foreigners seem to be the only buyers at the moment."

Traders said there were concerns after the International Monetary Fund urged Sri Lanka's central bank to be ready to tighten monetary policy if credit growth or inflation does not abate.

Shares of John Keells Holdings fell 1.06 percent while Commercial Bank of Ceylon Plc, the country's biggest listed lender, declined 1.29 percent and Carson Cumberbatch Plc dropped 2.91 percent.

Sri Lanka Telecom Plc dropped 1.41 percent and Hatton National Bank Plc ended 1.16 percent weaker.

Yields on treasury bills have risen to a more than four-year high since October, while the central bank has kept key policy rates on hold. 

($1 = 151.2500 Sri Lankan rupees) 

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

Nimal Perera resigns as Royal Ceramic MD; Wants to Re-enter Stock Broking

By Ishara Gamage

Sri Lanka's outgoing Royal Ceramic PLC's (RCL) Managing Director and one-time high net worth investor Nimal Perera, a close confidante of business tycoon Dhammika Perera said that he will re-enter the stock broking business with an acquisition of the struggling existing stock brokerage.

After 13 years of continued services as a CEO/Managing Director of the Royal Ceramic PLC, Nimal Perera has resigned from the company on Tuesday (7th) to build his own business in stock broking, money broking, and manufacturing sector.

He said during his 13 year period, company's assets grew from Rs 500 million to present
Rs 5 billion levels and profitability also grew from Rs 40 million level to Rs 4 billion level.

"Now I'm 58 years old and there will be only a few more years to work before the retirement. So, I decided to build my own businesses with my two sons who were nearing completion of their overseas higher education," he told Ceylon FT.

He said he will soon acquire the existing stock brokerage and money brokerage and plans to enter a suitable manufacturing business.

In 2013 March Perera was first reported as entering the stock broking industry again together with RCL through a deal to buy 51 % control of New World Securities Ltd (NWS). He bought a 32 per cent stake under his personal account whilst RCL purchased a 19 %.

Perera continues to hold the Mercantile Produce Brokers Ltd (MPB) which he bought through his investment arm Don Wilbert Capital for Rs 200 million in 2014.

Nimal Perera last year sold his controlling shareholding of Kalamazoo Systems PLC, a provider of printing solutions for Rs 36 million.

www.ceylontoday.lk

Sri Lanka 03-month Treasury Bill yield reaches 9.47-pct

ECONOMYNEXT – Sri Lankan Treasury Bill yields rose across the board at Wednesday’s auction with the 03-month bill yield rising 09 basis points to 9.47%, the debt office of the central bank said.

The yield on the 06-month bill rose 12 bp to 10.39% at the auction while the 01-year bill yield rose 08 bp 10.74%, a statement said.

The debt office got bids worth Rs49 billion and accepted bids of Rs14.4 billion.

Pan Asia Bank completes Rs 2Bn rights issue

Sri Lanka’s Pan Asia Banking Corporation said they were successful in completing a rights issue to raise up to 2.06 billion rupees.

In December 2016 the bank announced the issue of 147.5 million shares at one new share for every two shares held at an issue price of 14 rupees.

The banks was required to increase it core capital to 7.5 billion rupees by 31st March 2017 to adhere to a new Central Bank rule, the company said in a stock exchange filling.

“At present the banks core capital stands at 8.76 billion rupees after a capital infusion.”

Sri Lanka'B+' rating confirmed by S&P; negative outlook unchanged

ECONOMYNEXT - Standard and Poor's has confirmed a 'B+' rating on Sri Lanka, keeping a 'negative' outlook unchanged, despite improvement is tax revenues, as policy making remained weak amid government infighting.

"The gaps we observe in Sri Lanka's policymaking capacity partly reflect the political uncertainty associated with deeply-rooted factionalism within the government," S & P said.

"We believe this hinders responsiveness and predictability in policymaking and weighs particularly on business confidence, investment plans, and overall growth prospects."

Sri Lanka 'B+/B' Ratings Affirmed; Outlook Remains Negative

OVERVIEW

• The Sri Lankan government's reform efforts and the IMF lending program have led to nascent improvements in the country's fiscal profile.
• We are therefore affirming our 'B+/B' sovereign credit ratings on Sri Lanka.
• The outlook remains negative, however, given Sri Lanka's weak external profile, in particular, its low net reserve levels, and the vulnerability of public finances to any exchange rate shocks.

RATING ACTION

On March 7, 2017, S&P Global Ratings affirmed its 'B+' long-term and 'B' short-term sovereign credit ratings on the Democratic Socialist Republic of Sri Lanka. The outlook on the long-term rating remains negative. We also left our transfer and convertibility risk assessment on Sri Lanka unchanged at 'B+'.

RATIONALE

Over the past year, Sri Lanka's fiscal position has improved as a result of government-led reforms and IMF technical and funding assistance. However, high external debt, and low reserves continue to make Sri Lanka vulnerable to external shocks, in our opinion. Other rating constraints on Sri Lanka include the high general government net debt burden (at 74.9% of GDP in 2016).

Nevertheless, the average maturity of the general government debt profile at approximately seven years is unusually long compared with other emerging market peers'.

With GDP per capita estimated at US$3,911 (2016), Sri Lanka's level of prosperity is low. The authorities, moreover, continue to face significant challenges in effectively addressing structural imbalances due to institutional constraints and a fragmented political landscape. These rating constraints weigh against Sri Lanka's sound growth potential, which speaks to strengths in the garment, tourism, and business process outsourcing sectors.

During 2017-2020, we expect fiscal consolidation to reduce borrowing further.

We project annual growth in general government debt to average 4.4% of GDP for 2017-2020, versus an average of 7.0% annually from 2014-2016. In view of Sri Lanka's robust nominal GDP growth, we project net general government debt to decline to 65% of GDP through 2020, assuming currency stability versus the dollar (and hence a degree of real exchange rate appreciation).

At the same time, we expect only slow progress in reducing debt-servicing costs, which we estimate to account for more than 37% of government revenue in 2017. This is the third-highest ratio among all 131 sovereigns that S&P Global Ratings currently rates, trailing only Lebanon and Egypt(see "Sovereign Risk Indicators," published Dec. 14, 2016; a free interactive version is available at spratings.com/sri).

There are risks to our baseline expectation of declining public debt as a percentage of GDP. In particular, an estimated 43% of Sri Lanka's high stock of central government debt is denominated in foreign currency. That means any significant exchange rate depreciation would again put public debt on a rising trajectory.

We consider exchange rate stability will, therefore, remain a major priority for Sri Lanka's policymakers and its central bank, limiting monetary flexibility. If all of Sri Lanka's public debt were denominated in its own currency, this would not be a rating constraint.

Sri Lanka's external liquidity position has stabilized over the past year, and should be bolstered by support from the IMF. However, Sri Lanka's external metrics are still beset by the following weaknesses:

• We estimate Sri Lanka's usable international reserves were US$3.0 billion as of January 2017, which represents less than two months' coverage of current account payments. These reserves include drawings on currency-swap facilities of US$700 million with the Reserve Bank of India (RBI), introduced in March 2016.

• We forecast the trade deficit to amount to 9.3% of GDP in 2017, a slight improvement from an estimated 10.0% in 2016. While the regulatory regime has been re-calibrated to discourage overwhelming demand for vehicle imports, strong domestic consumption and a robust investment outlook will keep Sri Lanka's structural trade deficit in place.

• Our projection of net current transfers--mostly workers' remittances, of which more than half come from the Gulf states--suggests much slower growth than in previous years, in line with broad weakness in the source countries' economies.

• Short-term capital outflows remain a risk given Sri Lanka's tenuous net international investment position, and continued uncertainty surrounding U.S. monetary and economic policy.

We expect external liquidity (measured by gross external financing needs as a percentage of current account receipts [CAR] plus usable reserves) to average 123% over 2017-2020, compared with 116% in 2015-2016. We also forecast that the country's external debt (net of official reserves and financial sector external assets) will average 160% of CAR from 2017-2020, a notable deterioration from 136% in 2015.

Securing external liquidity support from the IMF has eased the aforementioned external pressures for the time being. We believe the attendant risks could be further mitigated by allowing the Sri Lankan rupee to float more freely.

Although the Central Bank of Sri Lanka (CBSL) has increasingly spoken in favor of a freely floating rupee in recent months, this has yet to manifest in substantially higher reserves. One structural factor in favor of Sri Lanka's external stability is its low banking sector external borrowings.

The gaps we observe in Sri Lanka's policymaking capacity partly reflect the political uncertainty associated with deeply-rooted factionalism within the government. We believe this hinders responsiveness and predictability in policymaking and weighs particularly on business confidence, investment plans, and overall growth prospects.

Elsewhere, we believe that the CBSL's ability to sustain economic growth while attenuating economic or financial shocks continues to improve. Although the CBSL is not independent of other policymaking institutions, the central bank is building a record of credibility, shown in reducing inflation through the use of market-based instruments to conduct monetary policy, as well as the planned introduction of an inflation-targeting regime.

Sri Lanka's growth outlook continues to be underpinned by government investment (including rebuilding the war-torn northern districts), rising tourist arrivals, and moderate inflation, which we expect to remain in the single digits.

We expect Sri Lanka's growth prospects to remain favorable. We believe the country will most likely maintain growth in real per capita GDP of 4.5% per year over 2017-2020 (equivalent to 5.2% real GDP growth). Stronger growth, in our view, would require improved institutional settings and a pick-up in export markets.

Combining our view of Sri Lanka's state-owned enterprises and its small financial system (banks' loans to the private sector account for only about a third of GDP), we view the government's contingent liabilities as limited.

OUTLOOK

The negative outlook indicates that we could lower our rating on Sri Lanka in the next 12 months if (1) we see signs of a reversal in reform momentum,

(2) currency pressure leads to substantial increases in public debt,

(3) reserve levels decline further, or

(3) contingent liabilities from state-owned enterprises worsen the general government's financial position.

We may revise the outlook back to stable if Sri Lanka's external and fiscal indicators continue to improve, or if we conclude that the nascent strengthening of Sri Lanka's institutions and governance practices is on a more sustainable footing.

Nimal Perera resigns from key firms controlled by Dhammika Perera

ECONOMYNEXT - Nimal Perera, a prominent figure in the Vallibel group of business tycoon Dhammika Perera has resigned suddenly from several key companies in the group.

Royal Ceramics said Perera had resigned as managing director from March 07.

He also resigned from the boards of Hayleys Plc, Haycarb, Amaya Leisure, The Kingsbury, and Talawakelle Plantations.

Nimal Perera had been associated with Dhammika Perera and Royal Ceramics for several years.

Dhammika Perera and controls over 20 publicly traded firms in Sri Lanka.

Sri Lanka brush maker Beira group IPO oversubscribed

ECONOMYNEXT - Sri Lanka's BPPL Holdings, a brush exporter also known as Beira Group, said its initial public offer of 30.68 million ordinary shares at Rs12 each was oversubscribed and closed on the opening day Tuesday.

A stock exchange filing said it got applications for over Rs368.2 million.

Hirdramani Investment Holdings (Pvt) Ltd, which owns a 23.4 percent stake, sold down 30.6 million shares (10 percent stake) to raise Rs368.2 million.

B P P L Holdings Ltd. has got approval from the Colombo Stock Exchange to list on the Diri Savi second board.