Sri Lankan shares fall to 3-1/2-month closing low, blue chips drag

Reuters: Sri Lankan shares fell for an eighth straight session on Tuesday, posting their lowest close in nearly 3-1/2 months, with blue chips such as John Keells Holdings Plc leading the decline while selling by foreign investors also weighed on the market.

The Colombo stock index fell 0.66 percent, or 43.30 points, to 6,524.13, its lowest close since April 26. It fell 1.5 percent last week in its third straight weekly drop.

"The market continued to come down on blue chips in low turnover," said Dimantha Mathew, head of research at First Capital Holdings.

"We find it mainly due to the negative sentiment after the earnings with the economic slowdown."

Foreign investors, who have been net buyers of 26.5 billion rupees of equities so far this year, net sold shares worth 29.1 million rupees (about $189,886) on Tuesday.

Turnover stood at 350.4 million rupees, less than half of this year's daily average of around 893.3 million rupees.

Shares of conglomerate John Keells dropped 2.8 percent, Nestle Lanka Plc dropped 1.6 percent, Caltex Lubricant Lanka Plc ended 3.6 percent weaker and Dialog Axiata Plc declined 0.9 percent.

Analysts, however, expect equities to gain due to a fall in the yields of government bonds.

Sri Lanka's central bank held policy rates steady on Thursday, and said tightening measures taken in the past are helping cool inflation and credit growth. Short-term treasury-bond yields fell between 41 basis points (bps) and 55 bps at a weekly auction last week, while the yields on a 59-month bond dropped by 99 bps, while that on a 118-month bond fell by 78 bps.

Sri Lanka's stock and foreign exchange markets were closed on Monday for a Buddhist religious holiday. 

($1 = 153.2500 Sri Lankan rupees) 

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

Sri Lanka's Haycarb profits down on high coconut shell prices

ECONOMYNEXT - Activated carbon maker Haycarb Plc, said high coconut shell prices in Sri Lanka, Thailand and Indonesia was shrinking profits and talks were on with customers to raise prices.

There were shortfalls in supplies in Indonesia.

Profits in the June 2017 quarter fell 28 percent to 107 million rupees, interim accounts filed with the Colombo Stock Exchange showed.

The group reported earnings of 2.62 rupees per share for the quarter. The stock closed at 164.90 rupees this week.

Haycarb said revenues rose 12 percent to 3.29 billion rupees this week, and expenses rose 21 percent to 2.65 billion rupees but gross profit fell 15 percent to 641 million rupees.

Net finance income fell 70 percent to 133 million rupees with finance costs falling from 89 million rupees to 59 million.

"Shortages and price increases in coconut shell based charcoal supplies are expected to continue through the current financial year in all the key coconut producing countries in Asia," Managing Director Mr. Rajitha Kariyawasan said in a statement.

"The challenge in passing its full cost impact to end customers is a major concern to maintain activated carbon business’ expected margins through the year.

"The Company is in the process of reviewing its prices to pass on a fair part of this impact to its customers after extensive discussions."

Kariyawasan said the group's environmental engineering arm Puritas (Pvt.) Ltd is growing with greater emphasis on environmental sustainability worldwide and was positive on the medium to long term outlook of its activated carbon and water treatment systems businesses.

Abans Finance grows PBT by 51%

Abans Finance, a member of the Abans Group, has registered a pre-tax profit of Rs. 197.4 million for the period ended 31st March 2017, compared to Rs. 130.5 million recorded in the corresponding year of 2016, achieving a YoY growth of 51.29%. The post-tax profit of the company for the period under review has also improved by 48.2%, from Rs. 90.1 million in 2016 to Rs. 133.6 million in 2017.

The Abans Group consists of a large diversified set of companies and divisions overlooking the sales and financing of consumer durables/household appliances, motor vehicles, environmental services, logistics, hospitality and finance.Abans Finance has also enhanced its stated capital from Rs. 382.3 mn to Rs. 844 mn during 2016/17 and further to Rs. 1,121.4 mn during the current financial year of 2018.

Ironwood Investment Holding (Pvt) Limited has invested in Abans Finance and currently holds 41.89% Equity of the Company with the conclusion of the Mandatory Offer closed in July 2017. Ironwood is a private equity firm that successfully raised a Sri Lanka-focused Private Equity fund of up to USD 30 mn. in long term (8 year) capital commitments.

The company has continued to increase its profitability amidst external challenges such as increasing interest rates and slowdown in consumption. The increase in profitability was mainly due to favourable growth in net interest income.
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LB Finance crosses Rs 100 Bn mark in Assets

LB Finance accomplished a stellar performance overall for the year ended March 31, 2017. Total assets crossed the Rs. 100 Bn milestone to reach Rs. 102.8 Bn as at March 31, 2017, a growth of 21.6% over the previous year. The Company has been able to record compounded annual growth rates (CAGR) of 19.2%, 17.3% and 19.6% respectively in total assets, customer deposits and loans & advances over the past five years.

Profit before tax on financial services grew by 17% reaching Rs. 6.9 Bn for the financial year 2016/17, the highest recorded among all the players in the Non-Banking Financial Institutions (NBFI) Sector for the year.

Correspondingly, profit before income tax too grew to Rs. 5.9 Bn, the highest ever recorded in the Company’s history, albeit at a lower rate of 10% year on year due to an increase in the VAT rate. Profit after tax was recorded at Rs. 3.9 Bn with a growth of 5%.

Profitability in terms of Return on Assets and Return on Equity were recorded at satisfactory levels of 4.2% and 34.1% respectively for the year.

This is a commendable achievement given the challenging external environment during the year characterized by, amongst others, tight liquidity, rising interest rates, change in import duties on vehicles, restrictions on lending imposed by the regulator and lacklustre investor confidence.

Commenting on the performance, Sumith Adhihetty, Managing Director of LB Finance stated, “In a year filled with many challenges, we proved our resilience by successfully maintaining our growth momentum and meeting the challenges posed by the external environment and asserted our dominance in the industry.

The financial stability we have demonstrated is a testament to the trust placed in us by our valued stakeholders for the last 46 years.”

LB Finance recorded a strong, above industry average total capital adequacy ratio of 17.1% as at March 31, 2017 against the minimum regulatory requirement of 10%. Further, A- (lka) rating from Fitch Ratings Lanka Ltd. with a stable outlook denotes expectations of low default risk and strong capacity for payment of financial commitments.

In its endeavors to enhance shareholders’ value, LB Finance is committed to the highest standards of business ethics, corporate governance and risk management. Acknowledging the commitment to transparency, accountability and good governance in financial reporting, CA Sri Lanka bestowed many awards for the Company’s Annual Report 2015/16 including the overall special Gold award for Integrated Reporting Best Disclosure on Capital Management at its 52nd Annual Report Awards. The report also won Bronze at the CMA Excellence in Integrated Reporting Awards.

Taking up the challenge to offer a widely differentiated approach in its offering of products and services, LB Finance leveraged technology to capitalize on digital channels and platforms that empower and free employees to better focus their energies on serving the financial needs of its customers - including a whole new generation that demands a personalized approach.

Established in 1971, LB Finance succeeded in building an unmatched reputation as one of Sri Lanka’s most trusted financial institutions as evident from the total deposit base of over Rs. 60 Bn, one of the largest in the NBFI sector.

Licensed by the Central Bank of Sri Lanka under the Finance Business Act No. 42 of 2011 and listed on the Main Board of the Colombo Stock Exchange, LB Finance offers a variety of financial services including Leasing, Factoring, Hire Purchasing, Micro Finance, Mortgage Loans, Gold Loans, Currency Exchange service and Western Union Money Transfer service through an island-wide network of 154 branches and Gold Loan Centres, affording unparalleled convenience to the customer.

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Sri Lanka tourist arrivals down 1.8-pct in July

ECONOMYENXT - Sri Lanka's tourist arrivals fell 1.8 percent from a year earlier to 205,482 in July 2017 with visitors from China, Maldives and Russia down, and anaemic growth from other generating markets.

After surging 17.5 percent in April, with the re-opening of a partially closed airport, arrivals fell 2.5 percent in May and grew only 4.5 percent in June.

In the first seven months of the year, arrivals have grown only 3.6 percent to 1.17 million visitors. Sri Lanka's tourist authorities were targeting 2.5 million arrivals for 2017, almost a 25 percent increase.

Chinese arrivals fell 7.1 percent to 28,445 in July after also falling in June 13 percent. In the first seven months total arrivals were down 0.2 percent to 163,189.

Visitors from Japan grew 10.8 percent to 4,025, Philippines grew 14.4 percent to 1,207 but Malaysia fell 32 percent to 1,628.

Visitors from India, grew 4.8 percent to 29,006, with arrivals up to July up just 0.7 percent to 201,900.

Western European visitors grew 3.9 percent to 80,896 with arrivals from UK down 1.6 percent to 23,553, Germany down 1.2 percent 10,835. French visitors rose 4 percent to 11,390 and Dutch visitors rose 22.9 percent to 11,990.

List SOEs to elevate Sri Lanka to Morgan Stanley index

Sri Lanka could attract nearly US$ 4 billion by getting the Colombo Stock Exchange (CSE) reclassified into one of the world’s most popular emerging markets equity indices, the Morgan Stanley Capital International (MSCI) Emerging Markets Index, industry analysts say.

And this can be easily done through going public with some State Owned Enterprises (SOE). In fact analysts said that some international funds are eagerly awaiting SOE to go public.

What’s the deal?

So to meet MSCI Emerging Markets Index classification criteria, at least three companies listed in CSE should have a full market cap of Rs. 1,269 million and listed stock market cap of $635 million and security liquidity of 15 per cent Annualised Traded Value Ratio (ATVR) calculated as the median value of shares traded daily in relation to the market capitalisation of the stock.

Now Sri Lanka is in the MSCI Frontier Markets (FM) Asia Index which captures large and midcap representation across three Asian Market countries. The index includes 22 constituents covering about 85 per cent of the free float-adjusted market capitalisation in each country in terms of country weightage among the constituents. What we need to aspire and work towards is to get into the next level which is the Emerging Markets status. This is what Pakistan did.

Pakistan stocks have a potential weight of 0.2 per cent in the MSCI Emerging Markets Index, Financial Minister of Pakistan Ishaq Dar had said in a statement. MSCI’s decision to elevate Pakistan to Emerging Markets status was as part of its semi-annual Index Review in May 2017. The subsequent removal of Pakistani constituents from the Frontier Markets (FM) Asia Index resulted in Sri Lanka improving its weightage to 11.12 per cent and the inclusion of Commercial Bank and Ceylon Tobacco. The index rebalance has also increased the number of constituents from Vietnam and Bangladesh 17.43 per cent.

Analysts say that getting into this higher index would be seen as a ‘better invest in CSE’ option for investors. “The CSE will be in the radar screens of better and bigger investors,” an analyst said.

MSCI Emerging Markets Index is tracked by investors managing $ 3.9 trillion of assets. “When Sri Lanka is in the index, MSCI Emerging Market Index tracker funds will be required to invest in Sri Lanka as they need to replicate the index,” Ravi Abeysuriya, President Colombo Stock Brokers Association told the Business Times.

Assuming Sri Lanka attracts a mere 0.1 per cent of the assets following MSCI Emerging Market Index, Sri Lanka will have $ 3.9 billion of portfolio investors investing in the CSE, he said. “This will increase the current stock market capitalisation as a percentage of GDP of Sri Lanka to 27 per cent from 22 per cent,” Mr. Abeysuriya said.

He said the government should persuade a large SOE or private company to list in the CSE that fully meets the MSCI Emerging Markets Index classification criteria. “Now the criteria calls for a full market cap of $1,269 million and listed stock market cap of $ 635 million and security liquidity of 15 per cent ATVR,” Mr. Abeysuriya noted. Ray Abeywardena, Chairman CSE agreed saying that there should be a holistic approach by all stakeholders for the CSE to get to a better notch at MSCI. “Those who track the MSCI will be attracted to the CSE more,” he added.

Analysts noted that in this respect, the CSE is reviving the ‘All Or Nothing Board’, a mechanism that is used on a buy or sell a (large) parcel in its entirety at an open auction. This board instructs a broker to execute the order or sell/buy the parcel wholly or to do nothing. So now the ball is on the government’s court.

Representations have been made to the Government to explore the potential of invigorating the capital market through the listing of SOEs with compelling investment propositions by the CSE and the Securities and Exchange Commission (SEC) last year as well as this year. SEC has said that entry by SOEs into the capital market involves less dependence on state financing whilst enhancing governance standards. “The CSE is encouraged to engage with private sector corporates in order to facilitate their efforts to tap the capital market to fulfill funding requirements,” an SEC official told the Business Times.

Rajeeva Bandaranaike, CEO CSE told the Business Times that the exchange is working in its own capacity to get into the MSCI. “We are ‘ticking boxes’ as we go along,” he said noting that this entails enhancing of infrastructure, capitalisation etc.

PPPs before CSE
The Public Enterprise Ministry is more than struggling to ‘restructure’ (before going public with them) certain SOEs. It received Cabinet approval for a number of restructuring efforts for state plantation companies namely Janatha Estate Development Board (JEDB), Sri Lanka State Plantations Corporation (SLSPC), Elkaduwa, Chilaw and Kurunegala plantations. At present they are more concerned about Private-Public Partnerships (PPP). The Ministry got approval by the Cabinet to go public with the Grand Hyatt Colombo and the Colombo Hilton which the state owns, sources said. But analysts say that political will must be stronger than all approvals. “Then the CSE will ‘fly’,” another analyst said.

In a progressive move, the Ceylon Chamber of Commerce’s National Agenda Committee on Infrastructure presented a set of recommendations on speeding PPP to the Minister of Finance and Media Mangala Samaraweera recently, and highlighted the need for a robust institutional and operational set up for the new PPP agency last month. The chamber in a statement said that this committee’s latest set of recommendations focused on developing guidelines to ensure efficient collaboration between the PPP unit and line ministries; prioritisation of projects through developing a robust project pipeline; ensuring a fair, transparent and well managed procurement process; as well as implementing an effective communication strategy were, well received by Mr. Samaraweera.
Analysts noted that this is a ‘start’, but at least some of these entities should go public this year.
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Colombo Stock Exchange (CSE) plans stricter enforcement rules on disclosures

The Colombo Stock Exchange is planning some enforcement rules pertaining to their ‘Continuous Listing Requirements’ to take ‘errant bad boys’ to task, officials said.

There have been some issues in terms of Section 7.8 of the Listing Rules of the CSE, which specify immediate disclosure pertaining to a firm’s share dealing. The CSE has found instances where these disclosures aren’t immediate and has had ‘one-to-ones’ with certain offenders who complied after many ‘calls’ warning them to meet with the rules, officials said.

The most recent incident was a disclosure dealing in relevant dealings in shares at Anilana Hotels and Properties PLC which the company disclosed early last month, but was far from an immediate disclosure. There were 17 sales of shares of Anilana Hotels and Properties PLC by Investors Access Equities (Pvt) Ltd that were disclosed on July 7, but they happened from May 12 to June 23.

The dealings were by Asanga Chandana Seneviratne, Managing Director of Anilana Hotels and Properties PLC. All shares were sold at Rs. 1.30 barring a parcel of 5,000 shares at Rs. 1.40 on May 18.

In another instance, the date of transaction was November 10, 2016 but the particular incident was disclosed to the CSE only on February 8 this year, and CSE had warned the particular firm. Adam Investments PLC had disclosed two transactions on June 1 while the transactions were in January this year.

This was a clear breach of CSE rules. The CSE will be scrutinising firms in future pertaining to such instances and the new regulations will deter offenders from delayed disclosures, officials added, declining to state what these new rules are.

Public companies are required to disclose meaningful financial and other information to the public as it provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell or hold a particular security. Only through the steady flow of timely, complete, and exact information can people make sound investment decisions, officials said.

Earlier the Securities and Exchange Commission had directed the exchange to amend the listing rules on disclosure requirements in relation to related party transactions of listed firms in September 2010. This was after a Business Times story that same month highlighting this issue pertaining to listed firm directors’ disclosures.

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