Thursday, May 31, 2012

Sanasa Dev. Bank debuts on CSE today; IFC buys 3.57% stake for Rs. 99 m

Sanasa Development Bank Ltd. (SDBL) will debut today on the Main Board, enhancing the already well-represented banks, finance and insurance sector of the Colombo Stock Exchange.

SDBL will be the 34th Main Board listed firm in the sector and the 58th overall inclusive of Diri Savi Board firms within the financial services sector. In the broader market, SDBL will be the 281st listed company.

 The listing of 25.17 million shares is following an introduction. The reference price of SDB share is Rs. 125.

 Prior to the listing the World Bank’s private sector investment arm, International Finance Corporation (IFC) has acquired a 3.57% stake amounting to 900,000 shares for Rs. 99 million.

 Analysts are of the view that IFC’s confidence in SDBL augurs well for the new entrant, apart from its own unique strengths.

Sanasa Insurance Company owns a 4.17% stake and People’s Leasing Company holds 3.97%.

Several regional Sanasa trust companies are among other major shareholders whilst there are 63,290 shareholders comprising of SANASA societies which collectively hold a 77% stake in SBDL.

 In 2011, SDBL posted an after tax profit of Rs. 345 million, up from Rs. 323 million in the previous year and a mere Rs. 54 million five years ago. Its asset base is Rs. 21.17 billion, up from Rs. 17.5 billion in 2010 and Rs. 8.5 billion in 2007. Liabilities amounted to Rs. 18.1 billion, up from Rs. 15.3 billion in 2010 and Rs. 7.7 billion five years ago.

 As at 29 February 2012, SDBL had a customer base of approximately 788,000 account holders and its public deposits base amounted to approximately Rs. 16.1 billion. Its loans and advances amounted to Rs. 14.8 billion as at end 2011, up from Rs. 11.1 billion in 2011 and Rs. 5.3 billion in 2007.

 SDBL has 47 branches and 41 extension branches situated islandwide. More than 8,400 credit societies also function as virtual branches of SDB, attracting customers to its ranks.

 It also currently enjoys credit rating of ‘BB+(lka)’ with a stable outlook from Fitch Rating Lanka Limited and long and short term financial institution ratings of ‘BBB’ and ‘P3’ respectively with a stable outlook from RAM Ratings.

 SDBL was established in 1997 as the main credit institution for the SANASA movement, which was formed in 1978. The SANASA movement has grown to include 8,424 SANASA primary societies and 35 SANASA district unions. It is present in all provinces of Sri Lanka. The functionality of the movement has also expanded from providing basic credit facilities to include insurance, education and training, construction and even travel arrangements.

 SANASA societies collectively hold a majority stake in SDBL. It is a unique financial institution when compared to other institutions in Sri Lanka due to its heritage linked to co-operative movement with the aim of fostering sustainable economic development through the provision of credit to the rural poor.

 Other unique features of SDBL include provision of technical assistance programs, entrepreneurship skill development, collective business enterprises and information technology assistance to the Community. These features have expanded SDBL’s focus from simply profits to a broader goal of overall betterment of communities.

 Over the past 14 years, SDBL has become an integral part of pioneering microfinance industry in the country. SDBL has been able to partner effectively with the vast network of SANASA primary societies as well as fraternal members of SANASA movement to reach the masses that remained excluded from mainstream development to improve income as well as develop sustainable livelihoods and sustainable communities.

source -

Bourse lifts from 22-month low on bargain hunting

Reuters: The stock market rose on Wednesday for the first time in eight sessions as investors snapped up discount shares after month-end settlements and margin calls.

The main index rose 0.79 per cent, or 37.90 points, to 4,851.16, up from its lowest close since 20 July 2010.

“There has been some bargain hunting,” said one stockbroker, speaking on condition of anonymity. “It seems the month end settlements are over and (we have) seen some buying coming in.”

The bourse had lost 7.8 per cent in seven consecutive sessions until Wednesday, as mostly retail investors unloaded their stakes as a result of concerns about new regulatory measures, uncertainty over the rupee currency, rising interest rates, and slowing economic growth.
 Last week, the Securities and Exchange Commission (SEC) issued a rule barring brokers from selling shares for six months from the day of buying, a move which triggered selling.
 Foreign investors sold a net Rs. 110.4 million worth of shares on Wednesday, but they have been net buyers of Rs. 22.5 billion so far this year. Turnover was Rs. 673.7 million.
 The market is one of the worst performers in Asia, having fallen 19.91 per cent since the start of the year.

 The rupee fell to 132.40/60 against the dollar on Wednesday, its lowest since 25 April, from Tuesday’s close of 132.00/10 on importer demand for dollars in light trade.
source -

Aitken Spence profits up by 46%, Dividends by 40%

With a stellar performance from its tourism sector, Aitken Spence PLC has reported its highest-ever profit before tax of Rs. 5.5 billion for 2011/12.

 The company posted a consolidated profit after tax of Rs. 4.7 billion for the year financial year ended 31 March 2012, Aitken Spence said in a statement.

 The blue chip showed a net profit attributable to the shareholders of Rs. 3.7 billion, a remarkable 46.2 per cent increase from last year, while revenue grew by 22 per cent to Rs. 30.7 billion.  During the year Aitken Spence realised a gain of Rs. 655 million with the strategic decision to sell the company’s stake in Colombo International Container Terminals Ltd.

Aitken Spence reported an exceptional growth in earnings per share of 46.3 per cent to Rs. 9.14 and announced a dividend of Rs. 1.40 per share which is an increase of 40 per cent over the previous year.

 The Group’s fourth quarter net profit attributable to shareholders surged by 92.8 per cent to Rs. 1.76 billion while profit after tax swelled to Rs. 2.14 billion, a 73.5 per cent increase over the corresponding period in the previous year. Net revenue for the final quarter rose by 39.1 per cent to Rs. 9.65 billion.

 Aitken Spence Deputy Chairman and Managing Director, J M S Brito said, “The hallmarks of our success and sustainability have been our ability to harness the right business opportunities; our capacity and agility to reposition, realign and reinvent ourselves to capitalize on market realities; and the business acumen and instincts of our team of well-honed professionals whose bold decisions have paved the way for the stable and solid results.”

The Tourism sector of Aitken Spence achieved a record Rs. 2.6 billion profit from operations. This was an outstanding 65.3 per cent improvement in performance in comparison to the previous year.

Revenue from the Tourism sector grew by 13 per cent to Rs. 11.3 billion. The Tourism sector contributed nearly 50 per cent of the Group’s profit from operations in the financial year 2011/12, regaining is position as the number one contributor.

 The highest contributor towards the sector’s growth was the Group’s resort properties in the Maldives. The results followed a strategic revision of our operations in the Maldives, taking into account the present market realities and trends. The Group’s six resorts compete in different market segments, but are collectively positioned in the 4 star and 5 star categories, which has seen a heavy demand in a market studded with up market resorts.

 The Sri Lankan hotels recorded operating profits on par with 2010/11, due solely to closures of several key properties for refurbishment. Heritance Tea Factory performed exceptionally well during the year, while Heritance Ahungalla also returned a satisfactory performance. Heritance Ayurveda Maha Gedara opened its doors during the year as an authentic Ayurveda resort and has been well accepted by the market. The Dambulla wing of Heritance Kandalama was closed for six months for construction of a conference hall and refurbishment of guest rooms. The conference hall is expected to be completed by July 2012. The Sands by Aitken Spence, the Kalutara resort acquired in 2010, opened in May 2012 following an extensive refurbishment. A further 90 rooms will be added to the property by end 2013. In a first for Sri Lanka, The Sands will operate as an all inclusive hotel with dine around concept, offering three dining options to guests.

 With the tourism industry shifting towards a more sustainable business model by making itself greener and more socially responsible, Aitken Spence hotels are proud to have been at the forefront of promoting sustainable tourism, long before its hype in the industry. This year the various properties were rewarded for this commitment by receiving a plethora of awards. To name a few, The Heritance Tea Factory was the only hotel to win a PATA Grand Award in the ‘Heritage and Culture’ category, while the Group’s hotels swept the boards at the National Energy Efficiency Awards 2011, winning Gold (Heritance Kandalama), Silver (Heritance Tea Factory) and Bronze (Heritance Ahungalla) in the Large Scale Hotel Sector category.

 The sector’s Indian operations continue on a management model and further expansion is envisaged. The hotels in the Oman segment turned around, recording satisfactory growth.

 The destination management segment of the Group enjoyed its best year on record, strengthening its leadership position with a substantial growth year on year by enabling to achieve a healthy mix of tourists from the traditionally strong European sector as well as from new generating markets such as India, Middle East and Eastern Europe.

 The Cargo Logistics sector of the Group recorded its best performance to date achieving a profit from

 operations of Rs. 846.8 million, which was a 40.7% growth over the previous year. This profitability was generated from a revenue that grew by 13.9% over the previous year to Rs. 4.7 billion.

 The maritime segment of the sector enjoyed exceptional growth in profitability despite the immense competitive pressure faced by the global maritime industry.

 The logistics segment of the Cargo Logistics sector which handles the land based logistics continued its fine performance, marking the sixth year of continuous growth and quadrupling earnings during that period. The largest player in Sri Lanka offering a full spectrum of logistics services, the segment continued to invest further in building capacity. The freight forwarding segment experienced the ripple effects of tough global conditions, as the slowdown in the European and the US economies continued throughout 2011.

 The Strategic Investments sector recorded a net revenue of Rs. 14 billion for the financial year, a growth of 30.3 per cent compared to the previous year. Its net profit from operations rose by 17.7 per cent to Rs. 1.1 billion. The sector includes the Group’s Power, Printing, Plantations and Garments segments.

 The power segment continued to achieve a positive performance during the year, whilst moving forward with its initiatives for the generation of renewable energy in Sri Lanka and taking its first steps to venture overseas to set up and operate power generation plants in the region. These positive results were achieved despite the significant impact the closure the segment’s main power plant in Embilipitiya in the beginning of the year due to a technical failure which was subsequently corrected by the equipment supplier. The power generation companies of Aitken Spence leads the industry in environmental, health & safety and quality standards.

 The printing segment enjoyed a satisfactory year, regaining market share in the packaging industry and enhancing capacities to position itself as a preferred print partner for high quality products for local and export markets. Operations have begun at the newly constructed state-of-the-art green factory complex in Mawaramandiya.

 The Services sector of the Group recorded a net revenue of Rs. 1.7 billion during the year 2011/12, achieving a 13.3% growth over the previous year, while the Sector’s net profit from operations rose by 23.5 per cent to Rs. 977.6 million.

  “Extensive efforts were undertaken during 2011/12 for capacity building on sustainability with the Group committing over 60,000 man hours towards capacity building on sustainability topics and  implementation of the strategy”, added J M S Brito, Deputy Chairman and Managing Director of Aitken Spence PLC.

 During the financial year, Aitken Spence invested in over Rs. 30 million in community investments including a contribution of Rs. 15 million for the Gemi Diriya Sanitation and Water Project which benefited about 350 families within the immediate vicinity of the Embilipitiya power plant. The company also commissioned a road development project in close vicinity of its container yard at a cost of about Rs. 8 million. Ninety per cent of the Group’s sustainability committee members, who are responsible for the execution of sustainability driven strategies at subsidiary level, have been trained since the Human Rights at the Workplace programme was introduced in 2010 to the Group.

Majority of which received their training during the 2011/12 financial year.

source -

Wednesday, May 30, 2012

Sri Lankan stocks up 1.07 percent

May 30, 2012 (LBO) – Sri Lankan share prices recovered on Wednesday, after nearly a week of sustained selling, with buying interest in selected blue-chip counters, brokers said.

 The broader All Share Price index gained 1.07 percent or 51.86 points to close at 4,865.12, while the more liquid 25-stock Milanka Price Index added 14.66 points or 0.33 percent to end at 4,327.97.

 Nearly half of Wednesday’s turnover of 673.9 million rupees came from conglomerate John Keells Holdings PLC, according to Colombo Stock Exchange figures.

Market heavyweight JKH, with investments in transport, leisure and food, closed down 2.80 rupees at 185.00 rupees. Over 2.1 million shares worth 391.3 million rupees changed hands during the day.

Three-large blocks of JKH shares of 271,000, 430,275 and 1 million parcels crossed the trading floor at 185.00 rupees a share each.

A separate block of 158,943 JKH shares was also sold at 187.80 rupees.

Central Finance PLC, one of the country’s largest finance houses, closed up 7.70 rupees to 131.00 rupees on trades of 554,718.

Brokers said two blocks of Central Finance of 275,000 share each, crossed the floor at a pre-agreed price of 135.00 rupees each.
Citrus Leisure PLC, which owns a few beach front properties, fell 1.70 rupees to 21.30 rupees on trades of 1.7 million shares.

source -

Results Update -Mar 2012 -30 05 2012

source - CAL Research

Market snapshot - 30 05 2012

source - CAL Research

Tuesday, May 29, 2012

Market snapshot - 29 05 2012

source - CAL Research

Sri Lankan stocks fall three-percent

May 29, 2012 (LBO) – Sri Lankan stock prices continued to slide, falling nearly three-percent as investor worried about the new trading rules, brokers said.

 Colombo’s main All Share Price Index was down 2.46 percent on Tuesday, or 121.75 points to close at 4,813.26. The liquid Milanka Price Index fell 2.22 percent or 98.93 points to end at 4,342.63, according to Colombo Stock Exchange figures.

 Tuesday’s turnover ended at 534.27 million rupees, largely driven by trades in market heavyweights, John Keells Holdings and Commercial Bank.

Conglomerate John Keells Holdings PLC fell 3.30 rupees to 188.00 rupees on trades of 794,652.

Commercial Bank, which also runs a successful banking operation in Bangladesh, fell 90-cents to 104.00 rupees on trades of 646,148 shares.

 Pan Asia Power closed flat at 2.10 rupees on 5.9 million shares.

The Colombo Stock Exchange said state-run Sanasa Development Bank Limited will list 25.17 million shares on the main board from May 31, by way of an introduction.

Sanasa’s top three shareholders are: SANASA Insurance Company Limited (4.17 percent), People’s Leasing Company PLC (3.97 percent) and the International Finance Corporation (3.57 percent).

source -

Results Update -Mar 2012 -29 05 2012

source - CAL Research

Weekly foreign holding update - 25 05 2012

source - CAL Research

Results Update -Mar 2012 -28 05 2012

source - CAL Research

TJL - March 2012 Earnings Review

TJL's March 2012 recurring profit came in at LKR 780mn 12% above CAL's LKR 699mn forecast on a higher than expected EBIT margin of 6.7% (vs CAL's 5.8%).

However, the full impact of the margin increase did not flow down to the bottom-line due to a higher than expected finance charge of LKR 167mn (vs CAL's LKR 88mn) consisting mainly of a non-recurrent currency translational loss.

We are encouraged by TJL's margin improvement and continued commitment to a minimum 33% dividend payout. CAL re-iterates a strong BUY on a potential combined return of c.42% based on a c.35% price upside and a c.7% dividend yield on the back of FY13E EPS of LKR 1.5.

source - CAL Research

Sunday, May 27, 2012

Results Update -Mar 2012 -25 05 2012

source - CAL Research

JKH Earnings Note - 25 May 2012 - HOLD

Current Price (LKR)
FY13E Target Price (LKR)
Profit to Equity Holders
Recurring Profit
Recurring EPS (LKR)
Recurring EPS Growth (%)
Recurring PER (x)
Reported EPS
Reported PER (x)

CAL's revenue estimates for FY12E are in-line with JKH's actuals. We are revising our FY13E top-line by +LKR 900mn, resulting in a recurring EPS of LKR 10.2 (previous LKR 9.5). Top-line growth is attributed to the benefit of the LKR depreciation on the Leisure and Transport segments. Despite the positive revisions, higher COE's due to higher interest rates brings CAL's previous FY13E price target of LKR 206 down to LKR 170. The revision also takes into account the higher expenses related to increases in fuel and electricity costs (c.15% and c.10% respectively).

ANALYST VIEW: In the absence of significant positive news stemming from a casino JV or other major project, the current 15% premium may be warranted due to JKH's liquidity. Trading on a recurring PER of 19x on FY13E, the share is a hold for longer-term investors looking for an upside on concept value (+LKR 56 on FY13E price target; +c.29% from current price of LKR 197). HOLD
 source - Research

Commercial Bank reports robust deposit growth in 1Q 2012

The Commercial Bank has reported robust growth in deposits in the first quarter of 2012 in addition to growth in interest income on loans and advances, and gains in foreign exchange income.

In a statement, the bank said post tax profits grew 38 % to Rs 2.8 billion in the 3-month period ending March 31, 2012.

Interest Income gained by 27 % to Rs 11 billion, mainly as a result of the interest income on loans and advances growing by 42 % to Rs 9 billion. “These results reflect a continuation of the momentum achieved in 2011, even under challenging market conditions,” Commercial Bank’s Managing Director and CEO Ravi Dias was quoted as saying in the statement. “Loan growth was steady in the quarter reviewed, and the challenge for the rest of the year would be to maintain the cost of funds.”

Total deposits of the bank stood at Rs. 351 billion as at 31st March 2012, reflecting a growth of 10 % from Rs.318 billion as at 31st December 2011. Gross loans and advances of the bank too increased and stood at nearly Rs. 309 billion. Total assets of the bank reached Rs. 475 billion.

Commercial Bank’s Chief Financial Officer Nandika Buddhipala said non-interest income (commissions, investment income, foreign exchange and other income) grew sharply by 130% to Rs 3 billion mainly due to gains from the depreciation of the Sri Lanka Rupee against the US Dollar.

source -

Conglomerate Hayleys reports best year ever in group history

Sri Lanka’s Hayleys Group has announced its best-ever year earnings in the history of the 134 year old conglomerate, tripling net profit in FY 2011-12. With its Agriculture, Hand Protection, Purification and Transportation sectors turning in particularly strong performances, the group improved turnover to Rs 62.5 billion, growing by Rs 8.1 billion or 15 % over the 12 months ending 31st March 2012, the organisation said in a media statement.

Post-tax profit grew by 238 % to Rs 3.8 billion. While capital gains of Rs 2.3 billion contributed substantially to these results, profit before tax from operations excluding capital gains reflected a growth of 23 %. Profit attributable to equity holders of the company increased from Rs 677 million in 2010-11 to Rs 2.5 billion in the year under review.

Hayleys Chairman Mohan Pandithage said most sectors made positive contributions to the group’s earnings in the concluded financial year. “It is satisfying to note that our performance is a reflection of a number of strategic actions taken in recent years,” he said, adding: “A fundamental change that was implemented in 2009 was the policy that Hayleys will focus on investments in which we have ownership and management control, and exit passive stakes. This was done to exercise more control over our income streams, and this approach is now reaping rewards.”

He said in the core business areas, the group has mastered the business, grown organically and become leaders on the national as well as the global stage. While noting that the group has taken strong positions in industries that have strong future growth potential based on long term economic and socio-political trends, Mr Pandithage said at the same time, the management is well aware that with a paradigm shift in the Sri Lankan economy since 2009, there are new growth areas in the economy that the Group ought to have exposure to.

“It is well established that the leisure sector will be a major growth area in Sri Lanka in the next decade,” he said, pointing out that the exposure of Hayleys to the leisure sector is holistic, ranging from hotel ownership, management, travel agency and tour operations. The Hayleys Group employs more than 30,000 people, and accounts for 3.13 % of the country’s export income.

source -

Thursday, May 24, 2012

Sri Lanka to issue rules, exposure limits on equity holdings by state funds: Treasury secy

May 24, 2012 (LBO) - Sri Lanka's finance ministry will issue a circular to set up investment committees at state entities to make equity purchases through a defined process with exposure limits, Treasury Secretary P B Jayasundera said.

 "A new circular on investment committees will be issued," Jayasundera told reporters after releasing the finance ministry's annual report Thursday.

 "There will be a process where the committee will be protected from interference (angili nogaseemater krama vedayak)"

His comments came after the sale of stock in a troubled finance company whose liabilities exceed its assets by 3.7 billion rupees by December 2012 at over 60 percent above market price to state-run National Savings Bank.

Several purchases of stock by the Employees Provident Fund, including investments in Laugfs Gas and Nawaloka Hospitals have been controversial.

Jayasundera said there were Treasury nominees in many state entities but they did not necessarily have expertise in stock purchases.

"There are people who know better in these institutions. Also government entities have to depend on market participants to make investments," he said.
 "If there is a defined process it will protect everyone. These institutions also have to set exposure limits."

Jayasundera said there was a justification for long term contractual savings institutions, including the EPF to invest in stocks. Some state entities had also rushed into stock when interest rates fell to improve returns, he said.

Jayasundera said all except one director of National Savings Bank had resigned and Sri Lanka's post master general was acting as chairman until the appointment of a new board.

Thought the finance ministry representative to the board had also resigned, it was not clear whether he was actually attended the meeting when the decision to buy The Finance stock was made. Only four directors were needed for a quorum officials said.
Senior career officers of the bank had been unhappy at the deal, according to reports.

Jayasundera said a committee had been appointed to probe the deal.

In Sri Lanka resignations over financial scandals are rare.

The country does not have an independent civil service to ensure rule of law or justice as the institution of permanent secretary was broken by successive constitutions in 1971 and 1978 paving the way to arbitrary rule.

But Jayasundera said there was no interference by ruling politicians on this matter. NSB halted the deal after Jayasundera intervened.

Jayasundera said he had told the board to stick to the bank's core business.

source -

Sri Lanka stocks down 0.57 percent

May 24, 2012 (LBO) – Sri Lanka’s tiny bourse extended losses on Thursday on sustained selling pressure, despite buying interest in selected counters, brokers said.

 The broader All Share Price Index lost 28.99 points or 0.57 percent to end at 5,019.12, while the liquid Milanka Price Index fell 22.83 points or 0.49 percent to close at 4,545.68, according to Colombo Stock Exchange figures.

 Thursday’s turnover was a modest 296.5 million rupees, official data showed.

Turnover was dominated by market heavyweight John Keells Holdings PLC, which closed up 90 cents to 197.00 rupees. A total of 606,065 JKH shares changed hands on Thursday.
 Brokers said a parcel of 600,000 JKH shares crossed the floor at 198.00 rupees during early trade.

Lanka IOC, a unit of Indian Oil Corporation, was up 1.00 rupee to 17.50 rupees on trades of 1.12 million shares.
Ceylon Leather fell 30-cents to 75.00 rupees on trades of 126,254 shares.

source -

Sri Lanka’s SEC suspends Taprobane Securities chief

May 24, 2012 (LBO) – Sri Lanka’s securities watchdog has suspended the chief executive of Taprobane Securities Private Limited, pending a probe related to a controversial share transaction between a stat bank and a troubled finance company.

 In a directive to the chairman and board of directors of Taprobane Securities on May 23, the Securities and Exchange Commission asked the CEO/Managing Director Dinal Wijemanne be suspended immediately.

 It also asked the board to ensure Wijemanne does not operate in any other capacity for an behalf of Taprobane Securities, until the investigations are completed.

Wijemanne has been embroiled in the sale of The Finance Company Limited shares to state-run National Savings Bank at a steep premium.

The state bank bought 13 percent stock of the loss-making finance company from a consortium of buyers including Wijemanne. Taprobane Securities acted as the broker for the buyer and the seller.

The savings bank failed to honour the payments, after its unions petitioned the president and the treasury chief. The deal was later aborted on the directives of the president.

The SEC last week allowed the transfer of shares to take place off-the trading floor and imposed stiff regulations on stockbrokers, the NSB and the sale of future large parcels.

Full statement below:

SEC Media Release – 24th May 2012

 Notice of Directive issued on the Chairman and Board of Directors of Taprobane Securities (Pvt) Ltd to suspend the CEO/Managing Director of the Company from functioning in that capacity or in any other capacity for and on behalf of the Company pending the conclusion of investigations by the SEC.

The Securities and Exchange Commission of Sri Lanka (SEC) issued a Directive dated 23rd May 2012 to the Chairman and Board of Directors of Taprobane Securites (Pvt) Ltd to suspend with immediate effect Mr. Dinal Wijemanne CEO/ Managing Director of Taprobane Securites (Pvt) Ltd from functioning in that capacity or in any other capacity for and on behalf of the above said Company pending the conclusion of the investigations by the SEC.

This decision was taken by the Commission at its 301st Meeting held on 22nd May 2012 inter alia as a necessary interim measure conducive to the continuation of investigations launched by the SEC into the activities of the role played by the Stockbroker - Taprobane Securities (Pvt) Ltd and its CEO/Managing Director Mr. Dinal Wijemanne in respect of the transaction of The Finance PLC shares by National Savings Bank (NSB) through the Stockbroker firm Taprobane Securities (Pvt) Ltd on 27thApril 2012.

source -

Sri Lanka’s National Development Bank outlook cut to negative

May 24, 2012 (LBO)- Fitch Ratings agency on Thursday cut Sri Lanka’s National Development Bank’s credit outlook to negative, from stable, but its underlying rating was confirmed at 'AA(lka)'.

 NDB's subordinated debentures were also confirmed at 'AA-(lka)'.

Fitch said the cut reflects NDB's increased risk profile in terms of its decreasing capitalisation alongside aggressive loan expansion and potential pressure on its asset quality and profitability through portfolio seasoning and higher credit costs.

“A sustained deterioration of NDB's profile in terms of these credit metrics could result in a rating downgrade, while its ability to stem such deterioration could revise the outlook back to stable,” Fitch said.

Notwithstanding the deterioration, the ratings continue to reflect NDB's strong credit metrics in terms of its capitalisation, asset quality, and profitability.

Full statement below:

Fitch Revises National Development Bank's Outlook to Negative; Affirms at 'AA(lka)'

Fitch Ratings-Colombo/Mumbai/Singapore-24 May 2012: Fitch Ratings has revised National Development Bank PLC's (NDB) Outlook to Negative from Stable. Its National Long-Term rating has been affirmed at 'AA(lka)'. Fitch has also affirmed NDB's subordinated debentures at 'AA-(lka)'.

The Outlook revision reflects NDB's increased risk profile in terms of its decreasing capitalisation alongside aggressive loan expansion and potential pressure on its asset quality and profitability through portfolio seasoning and higher credit costs.

Thus, a sustained deterioration of NDB's profile in terms of these credit metrics could result in a rating downgrade, while its ability to stem such deterioration could revise the Outlook back to Stable.

 Notwithstanding the deterioration, the ratings continue to reflect NDB's strong credit metrics in terms of its capitalisation, asset quality, and profitability.

 NDB's strong loan expansion of 41.8% in 2011 (28.8% in 2010) led to a decline in its equity/assets to 12.7% from 14.7%.

 Fitch expects lending momentum to remain high alongside its expanding operations, as part of the repositioning of the bank to target the mass market.

 Pre-provisioning return on assets stood at 3.60% (annualised) in Q112 (3.10% (adjusted for gains) in 2011).

However, Fitch believes that NDB's profitability could be pressured by higher credit costs following a strong increase in lending and higher operating costs alongside its expanding operations.

NDB's gross non-performing loan (NPL) ratio remained among the lowest in the sector at 1.3% at Q112.

 However, Fitch believes that the bank's high loan growth and the shift in its loan book composition towards mid-sized corporates and SMEs among others could test its credit risk management.

 Specific provision coverage also remained high in a local context at 74% of NPLs at Q112 (2011: 78%; 2010: 96%).

The agency notes that the bank's historically high specific loan loss reserves have decreased with the release of discretionary specific provisions leading to a weakened provision buffer to absorb a potential increase in credit costs.

 Fitch notes that the share of deposit funding continued to increase (57% at end-2011, 55% at end-2010) supported by deposit growth of 35% yoy.

 However, the share of low-cost current and savings accounts (CASA) remained low (23%) relative to peers that have more mature franchises.

The agency believes that the NDB's ability to secure a stable CASA and thereby cushion its net interest margins (4.2% in 2011) from the rising interest rates is essential to sustain its long-term profitability in view of the intensified competition for deposits and continued strong credit growth.

 NDB was established in 1979 as a specialised bank and transformed into a commercial bank in 2005.

 NDB accounted for 3.9% of banking sector assets at end-2011 and operates through 62 branches.

source -

Wednesday, May 23, 2012

Sri Lanka's John Keells Holdings March net up 65-pct

May 23, 2012 (LBO) - Profits at Sri Lanka's John Keells group rose 61 percent to 4.0 billion rupees in the March 2012 quarter from a year earlier, helped by a 1.4 billion rupees fair value gain on property, interim accounts showed.

 The group reported earnings of 4.80 rupees per share for the quarter. The stock closed at 196.0 rupees down 6.10 rupees Wednesday.

 In the year to March 2012 JKH reported earnings of 11.62 rupees per share on profits of 9.77 billion rupees, up 19 percent.

In the March quarter gross profits rose 34 percent to 5.7 billion rupees and other operating income rose 42 percent to 1.5 billion rupees. The cash rich JKH group has 24 billion rupees in short term investments.
In the March quarter profits from the transportation sector which includes a port terminal rose to 1.01 billion rupees from 932 million rupees a year earlier.

Leisure profits rose to 1.55 billion rupees from 1.22 billion rupees, property to 461 million rupees from 223 million and consumer and retail to 1.2 billion rupees from 42 million helped by fair value gains.

Financial services profits rose to 101 million rupees from 28 million and information technology returned to a 28.5 million rupee profit in the quarter from a 16.8 million loss a year earlier.

Unspecified other business lost 335 million rupees, compared to a profit of 85 million rupees.

source -

FW: Market snapshot - 23 05 2012

source -  CAL Research

Sri Lankan stocks fall two percent

May 23, 2012 (LBO) – Sri Lanka’s tiny bourse extended its losses on Wednesday falling just over two-percent despite investor interest in selected blue chip counters, brokers said.

 The 280-stock tracker All Share Price Index fell 2.08 percent or 107.50 points to close at 5,048.11, while the 25-stock Milanka Price Index dipped1.88 percent or 88.00 points to end at 4,568.51,
according to Colombo Stock Exchange figures.

 Turnover was 817.95 million rupees, with foreign buying at 529.76 million rupees over sales of 398.49 million rupees, the exchange said.

Wednesday’s trading was dominated by conglomerate John Keells Holdings PLC, which fell 6.10 rupees to 196.50 rupees on 1.9 million shares.

A block of 657,912 JKH shares crossed the floor at 200.00 rupees during early trade.

 DFCC Bank gained 3.00 rupees to 120.90 rupees on trades of 1.2 million shares.

Two blocks of DFCC shares --of 780,000 and 220,000 -- crossed the floor at 120.00 rupees during mid-day trading.

Commercial Bank PLC was flat at 105.00 rupees on trades of 308,696 shares.

source -

Tuesday, May 22, 2012

Market snapshot - 22 05 2012

source - CAL Research

Sri Lanka’s Blue Diamonds settles court dispute with ex-deputy chairman

May 22, 2012 (LBO) – Sri Lanka’s Blue Diamonds Jewellery Worldwide PLC said it has settled a long-running legal case with its former deputy chairman, Daya Senanayake for 12 million rupees.
 Senanayake had earlier sought legal redress in 2000, after claiming he was illegally removed from his post as deputy chairman.

 “Mr. Senanayake has been appointed ‘Chairman Emeritus’ of Blue Diamonds Jewellery Worldwide PLC by the board of directors of the company,” the firm said in a stock exchange filing on Tuesday.

“This position does not involve any representations on the board of directors of Blue Diamonds nor any financial commitment on the part of Blue Diamonds,” the statement said.

The company has also agreed with Senanayake to dispense with the litigation between both parties which amounted to over two billion rupees.

 Senanayake has also agreed not to make any claims against the current Blue Diamonds directors.

A founder deputy chairman and managing director of Blue Diamonds since 1990, Senanayake fell out with Ceylinco Group and its chairman Lalith Kotelawala over an energy investment, in Energen International Limited.
source -

Sri Lanka regulator tightens broker trading, settlement rules

May 22, 2012 (LBO) - Sri Lanka's securities watchdog has tightened short term trading by workers and directors of broking firms and also passed strictures on future trading by a state bank, following a controversial stock purchase on which payment was stopped.

 SEC said market intermediaries will not be allowed to engage in trade below six months, crossing will be limited to 20 percent above market price and state-run National Savings Bank will have to present a board resolution before placing large purchase orders.

 The rules come in the wake of sale of stock to NSB at 60 percent above market price on which payment was stopped after a controversy erupted.
SEC said enforcement will also be tightened.

The full statement is reproduced below

SEC Takes Interim Measures to Mitigate Settlement Risk

At the 301st Commission Meeting of the Securities and Exchange Commission of Sri Lanka (SEC) held today (22nd May 2012), the Commission deliberated at length the transaction of The Finance PLC shares by National Savings Bank (NSB) through the stockbroker firm Taprobane Securities (Pvt) Ltd.

In the aftermath of this transaction, the Commission explored the ways and means of enhancing the smooth functioning of the payment and settlement cycle of the Capital Market of Sri Lanka. The SEC is of the view that the Settlement Risk which currently exists between T (Trade Day) and T+3 (Settlement Day) will be fully eliminated only after Central Counter Party (CCP) is in place.

Therefore the SEC will intensify its efforts to implement the CCP for all transactions at the Colombo Stock Exchange (CSE) to eliminate this risk of settlement failure.

 Having considered and discussed the above stated aspects, the Commission has decided to implement the following interim remedies until CCP settlement regime is in place. Further steps may be taken as appropriate in the coming weeks.

1. General Rule Changes
• Prohibit employees and Directors of all market intermediaries to trade (buy shares and sell within six months of buying) except in the case of IPO purchases. Investments (over 6 months) are allowed.

• Crossings transactions to have 20% upper limit unless exceptionally allowed by the CSE on a case by case basis. Clarification in this regard to be communicated to the CSE.

• Current 15% margin before trade execution to be strictly enforced including for NSB.

• To have a more robust enforcement mechanism with clearly defined punitive measures for violations of rules by stockbroker firms, CEO’s, Directors and investment advisors. Clarification in this regard to be communicated to the Market shortly.

2. On future transactions where NSB is a party
• All large (defined as transactions with a total value of Rs. 20 Mn and over) NSB orders to have a certified Board Resolution.

• NSB to use a third party custodian bank.
A separate communiqué will follow on the interim actions to be taken on the other parties of this transaction.

source -

Sri Lanka’s HNB retains AA(lka) rating; weak loan portfolio in the Maldives

May 22, 2012 (LBO) – Sri Lanka’s Hatton National Bank PLC retained its AA-(lka) rating from Ftich Ratings, but the risk evaluator warned the bank’s ratings was constrained by exposure to weak lending to the Maldives.

One of Sri Lanka’s biggest privately-held banks, HNB retained its stable outlook, while Fitch also affirmed the lender’s sub-ordinated debentures at A+(lka).

 “The ratings are, however, constrained by the bank's exposure to weak credits in Maldives, lower loan loss reserve coverage and a rising loan/deposit ratio,” Fitch said Tuesday.

“Sustained improvement of these three factors would lead to a rating upgrade. Conversely, a sustained deterioration in HNB's capitalisation and asset quality relative to 'AA(lka)' peers would result in a rating downgrade,” the risk evaluator said.

Fitch Ratings Lanka has affirmed Hatton National Bank PLC's (HNB) National Long-Term rating at 'AA-(lka)'. The Outlook is Stable.

 The agency has also affirmed HNB's subordinated debentures at 'A+(lka)'.

The ratings reflect HNB's sound financial profile, supported by its strong capitalisation levels, asset quality and profitability among local commercial banks.

The ratings are, however, constrained by the bank's exposure to weak credits in Maldives, lower loan loss reserve coverage and a rising loan/deposit ratio.

Therefore, a sustained improvement of these three factors would lead to a rating upgrade.

Conversely, a sustained deterioration in HNB's capitalisation and asset quality relative to 'AA(lka)' peers would result in a rating downgrade.

Fitch notes that regulatory Tier I and capital adequacy ratios improved to 12.9% and 14.8%, respectively, at end-2011 (end-2010: 11.0% and 12.7%) due to the LKR6.1bn Tier I and LKR2bn Tier II capital raised in 2011.

Nevertheless, the low loan loss reserve cover of 31% (including general provisions coverage was 41%), amid high loan growth and associated risks with a fast growing emerging market economy, warrant a higher overall capital buffer.

HNB's return on assets has stayed above 1.6% in the last three years, supported by its high exposure to retail and SME segments.

This has benefited its high net interest margins (above 5% in the last five years), despite a relatively high cost-income ratio (60% in 2011).

 While the bank's increasing focus towards SME and retail loans has also diversified its domestic loan book composition, the SME sector is more vulnerable to economic cycles and sudden shocks, and may expose the bank to potential higher credit costs in future.

 Although reported gross non-performing loan ratio fell to 3.92% at end-2011 (2010: 4.51%), the specific low loan loss reserve cover, vulnerability of domestic loan-book to global economic slowdown, growing SME book, and exposure to Maldivian resort projects (23% of equity at end-2011) mean downside risks from asset quality remain.

 Fitch also notes that the bank's loan/deposit ratio increased to 90% at end-2011 (2010: 86%), amid high loan growth of 27% in 2011 (2010: 19%).

 Therefore, the management may be challenged to reduce the loan/deposit ratio to manageable levels, amid increased competition for deposits and continued high loan growth.

 HNB is a licensed commercial bank, accounting for 9% of banking assets at end-2011.

 It is the fourth-largest bank in the country, and defined as a systemically important bank by the Central Bank of Sri Lanka.

 The Government of Sri Lanka and entities related to the Stassen Group held 27.6% and 18.4%, respectively, of voting equity at end-2011.

source -

Sri Lankan shares slip one percent on Tuesday

May 22, 2012 (LBO) – Sri Lankan shares prices slipped one percent on Tuesday, despite selective buying in blue chip counters, brokers said.

 The 280-stock All Share Price Index lost 52.11 points to close at 5,155.61 while the 25-stock Milanka Price Index fell 13.99 points or 0.29 percent to 4,656.51, according to Colombo Stock Exchange figures.

 Turnover was 296.3 million rupees of which foreign buying accounted for 119.5 million rupees and foreign selling 13.0 million rupees.

The Carson Group owned Lion Brewery PLC was the toast of the day, gaining 3.50 rupees to close at 220.00 rupees. Lion, which dominates Sri Lanka’s beer market, saw 251,200 shares change hands.

 During early trade, a parcel of 125.000 Lion shares crossed the floor at 225.0 rupees (up 8.50 rupees).

Hatton National Bank’s non-voting shares gained 1.30 rupees to 99.50 rupees on trades of 323,124 shares.

Commercial Bank of Ceylon PLC, closed flat at 105.00 rupees on 243,816 shares.

source -

Monday, May 21, 2012

Sri Lanka stocks dip on Monday

May 21, 2012 (LBO) – Sri Lanka’s stock market dipped Monday in the absence of buying support, though a crossing in conglomerate John Keells Holdings, brokers said.

 Colombo’s benchmark All Share Price index lost 0.27 percent or 14.37 points to close at 5,207.72, while the 25-stock liquid Milanka Price Index shed 0.49 percent or 23.09 points to close at4,670.50.

 Monday’s turnover was a modest 192.0 million rupees, according to Colombo Stock Exchange figures.

John Keells, the biggest stock in terms of market capitalisation, dominated turnover on trades of 235,051. The counter closed up 1.30 rupees to 202.20 rupees.

Commercial Bank PLC, one of the country’s most profitable stocks, closed flat at 105.00 rupees on trades of 140,437 shares.

Royal Ceramics PLC, fell 1.40 rupees to 103.10 rupees on trades of 120,000 shares.

 Shares of The Finance PLC fell 1.00 rupee to 25.00 rupees. The company is in the news after state-run National Savings Bank agreed to return over seven million shares it bought in April, to its original owners.

NSB, the country’s biggest savings bank, also dominated news on Monday, that its Chairman Pradeep Kariyawasam had resigned following the aborted The Finance share purchase.

source -

Market snapshot - 21 05 2012

source - CAL Research

Sunday, May 20, 2012

NSB Chairman, directors must step down - BT Poll

Kariyawasam defies unions 

A quick poll on Thursday by the Business Times (BT) on the crisis at the National Savings Bank (NSB) vis-à-vis a tainted stock market transaction, found near-unanimity in the call for the removal of bank chairman Pradeepa Kariyawasam and its directors.

The poll which drew more than 400 respondents, from different professional and civil society segments, also saw 100 % of the respondents saying the authorities "had failed in their obligation to the public on the right to know and information about the affairs of a state bank."

The BT, as the crisis at the country's main savings bank grew following a refusal by Mr Kariyawasam to step down which resulted in a wildcat strike by unions, on Thursday sent out the email questionnaire asking: (1) Should the transaction be reversed? (2) Are the SEC and CSE slow in their response? (3) Should the SEC cancel the multi-million rupee (Rs 390 million) deal? (4) Failure on the part of the authorities to issue a statement on the crisis? (5) Failure to inform the public on the status of the bank? And, (6) Should the NSB chairman and board of directors be sacked? The response was tremendous and comments poured in during a 3-hour period. Though the poll closed on Thursday (3 pm), comments and responses continued to flow in on Friday reflecting public concern and a plea to be heard.

On the 6th question about sacking the NSB chairman and directors, 91 % of respondents endorsed this view.The only question where the response was somewhat mixed (with 'ayes' totaling 59 %) was 'should the SEC cancel the deal'. Many of the brokers and investors were not in favour saying this would erode confidence in the market but were more in favour of a reverse transaction through the market, while others said there is no provision to cancel the deal.

Respondents were also critical of the SEC and CSE with 91 % agreeing that the two institutions were slow (and are yet to even make an official statement - apart from comments made by the SEC chairman) in their response to a deal that has turned sour. The transaction has been roundly condemned and NSB unions have been flexing their muscles bracing for tougher action if Mr Kariyawasam remains in office.
"The NSB has seriously betrayed the trust and confidence of its (claimed) 16 million depositors. I withdrew my child's savings account years ago when I saw the rot set in. In this competitive banking environment, we do have a choice. There is NO comparative advantage in banking with NSB," one respondent wrote.

Another agreed that a statement should have been issued by the Government or the Central Bank. "The statement issued by the NSB (through a small Page 1 advertisement on Sunday) was pathetic to say the least. It conveyed a serious lack of governance and transparency, not to mention the lack, also, of a clear strategic direction as to why the bank contemplated this purchase," this respondent noted, adding "the explanation was worse than the crime!"

He said this is no ordinary state bank as a large proportion of the Sri Lankan population has reposed their trust in the bank by depositing, in some cases, all their savings. "The public is entitled to reciprocity for this trust by way of exemplary governance procedures, checks and balances. From what has been stated in the media with respect to this transaction, the NSB does not seem to have such governance procedures and controls and this is an affront to the trust that the public has placed in this institution," he added.

Public rights activist Nihal Sri Ameresekere, who has also raised the issue in a case before the Supreme Court, said the SEC and CSE comprising of Government-appointed persons appear to be subserviently lukewarm. "The direction to act as per the statute and regulations must necessarily come from the very top i.e. the Minister of Finance and the Secretary, against whom and others, disregarding Supreme Court findings he questionably did not enforce the law, amply demonstrating scant respect for the rule of law," he added.

source -