IMF forecasts stable growth in Sri Lanka

The International Monetary Fund (IMF) yesterday predicted “broadly stable” growth for Sri Lanka in the next two years with improvement in GDP pinned at a 6% range.

Releasing the Asia Pacific Region’s Economic Outlook, the IMF projects Lankan economy to grow by 6.3% this year and 6.7% in 2014. The growth forecast for this year is 0.5 lower than that was predicted in IMF’s October 2012 World Economic Outlook. For 2014, it is 0.3 higher than the October 2012 assessment. The estimate of 6.3% for 2013 is far below Central Bank’s forecast of 7.5%.

  “In Sri Lanka, growth is expected to remain broadly stable, as continued macroeconomic stabilisation should restrain domestic demand, while export growth is projected to remain tepid,” the IMF said. Latest forecast also puts Sri Lanka’s growth above the average of South Asia, the GDP of which is estimated to grow by 5.7% in 2013 and 6.3% next year.

 Noting that 2012’s growth was 6.4%, the IMF said in Sri Lanka, tighter policies in early 2012 to rein in credit and import growth contributed to slowing activity last year.

 Commenting on South Asia, IMF’s Asia Pacific Economic Outlook said notwithstanding a modest growth recovery in India on a more favourable external demand environment, deep-rooted structural challenges are expected to exert a substantial drag on potential growth while keeping inflation at elevated levels by regional standards.

 In its report titled ‘Shifting risks, new foundations for growth’, the IMF also said growth in ASEAN economies is expected to remain robust, mainly on account of resilient domestic demand.

 The IMF said Asian countries have resorted to a broad range of macro-prudential measures, but in recent years most of them have focused on stability risks arising from overheating property markets.

In particular, LTV caps for mortgage loans and debt-to-income limits have been used (China, Hong SAR, Singapore), often together with other real estate lending restrictions and real estate taxes.

To address broader-based banking system risks, several economies have also imposed capital measures (Australia), tightened provisioning rules (India) and varied reserve requirements (China, India, Sri Lanka).

 A number of Asian economies have also resorted to capital flow management when they were faced with macroeconomic and financial stability risks in the face of surging capital inflows. Such measures, which have often overlapped with macro-prudential measures, have focused on limiting external borrowing by the corporate and banking sectors through restrictions on derivative positions (Korea) or interest rate caps (India).

 Other capital flow management policies have sought to reduce volatility by shifting the composition away from short-term flows, including by setting minimum holding periods for securities (e.g. central bank bills in the case of Indonesia since mid-2010) or discouraging inflows through withholding taxes on foreign holdings of government securities (Thailand and Korea, where they apply equally to residents). In some instances, measures were also taken to ease certain existing restrictions on outflows (China, Malaysia).

 The IMF also said building on the progress achieved over the past decade, fiscal policy can play a key role in laying the foundations for sustainable and inclusive growth in Asia.

 In many economies, public investment could help more to fill the considerable infrastructure gaps, especially in Indonesia, Nepal, the Philippines and Sri Lanka. At the same time, fiscal risks stem from investment spending conducted outside of the general government budget and from public-private partnerships in some economies; countering those risks requires that public spending management and fiscal transparency be enhanced, in particular, by fully reporting all forms of investment expenditure in the general government accounts.

 In most of Asia, public spending on education and health – typically about four percentage points of GDP lower than in peers in other regions and not offset by higher private spending – could be scaled up to enhance human capital and living conditions.

 Expenditures could also be better targeted to the poor, emphasised the IMF. Distortive food and energy subsidies, which impose a direct fiscal cost of more than 2% of GDP per year in China, Indonesia, Korea, Malaysia and South Asia, could be gradually phased out and replaced by targeted programs such as direct cash transfers.

 Further space for social spending and continued countercyclical fiscal policies could also be created by reducing complex and poorly targeted tax incentives. In a number of Asian economies, revenue administration could be enhanced by boosting the capacity of revenue agencies and strengthening their powers in accessing information and conducting audits.

 Some economies could also consider making their current revenue structure more growth-friendly by expanding the use of general consumption taxes and property taxes and reducing their reliance on corporate income taxation.

 The IMF report also noted that by contrast, government investment has been relatively low in 2011–12 in Indonesia, the Philippines and Sri Lanka despite significant infrastructure shortages.

 Commenting on the impact of higher oil prices, the IMF said according to some estimates, a $ 0.25 per litre rise in fuel prices could reduce household real income by about 4% in Bangladesh and 3% in Sri Lanka quoting an assessment by Arze del Granado, Coady, and Grillingham, 2012.

source - www.ft.lk

Nimal buys back into Pan Asia Bank

High net worth investor and chairman Nimal Perera has once again bought into Pan Asia Bank PLC, after divesting a near 2% stake in mid-April.

 As per disclosure filings to the CSE, Perera yesterday bought 1.1 million shares of Pan Asia Bank between Rs. 20 and Rs. 21 per share on top of around two million shares collected last week, bringing the total to three million shares.

On 16 April, Perera sold five million shares held under his personal name as part of providing a 15% stake for strategic investor Japan’s Bansei Securities Ltd., at Rs. 21 per share.  A foreign fund sold a 9.3% stake whilst Royal Ceramics also chipped in by divesting its six million shares.

Bansei Securities in total bought 44.25 million shares for Rs. 929 million as part of a strategic investment in Pan Asia Bank, in a move viewed as a boost for the financial services industry.

source - www.ft.lk

Weekly Foreign Holding and block Trade Update

source - CAL Research

Close to Rs. 1 bln investment to reinvent Liberty Plaza

Liberty Plaza is spending upto Rs 964 million to re-develop its mall, the first large-scale mall in Sri Lanka, creating a new experience.

 The owning company recently signed an agreement with the Board of Investment for this purpose, according to a company statement.

 Under the refurbishment/ revamping project of the existing Liberty Plaza, there will be two floors of retail extending to 20,000 sq. ft each. This proposed addition will be connected to the existing mall on the first and second levels. This development will also include an additional car park deck to cater for the future demand.

The existing office spaces in the second floor adjoining the new food court will be converted to retail space under the revamping project. This will bring in an additional retail space of 20,000 sq.ft to the existing retail space of Liberty Plaza. Further, a food court will be developed in the 2nd floor which will be operated by a third party, the statement said.

“The proposed face/ skin will wrap around the existing building with two prominent/ large state of the art LED screens. The company is currently looking at the option of having manual advertising holdings for the rest of the fa�ade on the R.A.De Mel Mawatha. With the proposed lighting the building will definitely have a new look like malls in Singapore/ Hong Kong. This will be the highlight of the whole development,” it said.

There will be a pedestrian pathway around Liberty Plaza with features like urban verandas and coffee shops. This development will be undertaken by Liberty Developers (Pvt) Ltd, a wholly owned subsidiary of Colombo Land & Development Company PLC. Construction began in February 2013 and will be completed within 12 months.

source - www.sundaytimes.lk / colomboland.com

Highest growth in profits last year from plantations sector in 2012

Highest growth was witnessed by the plantations sector last year, which saw its profits boosted by 375 per cent, a research report by NDB Stockbrokers (Pvt) Ltd says.

Excluding non-recurring items (items of income or expense that is not a normal item and which has a one-off effect and/or is unlikely to occur again), sector profits grew by 89 per cent on the back of the global reduction in tea production, improving tea auction prices and the depreciated rupee that resulted in higher prices for tea in rupee terms, the report said. It added that plantations such as Maskeliya, Talawakelle and Bogawanthalawa which have high exposure to high grown tea witnessed the highest growth due to record high auction prices. Furthermore these companies suffered the most from the wage hike in 2011, as tea is more labour sensitive than other crops, it noted.

Companies with higher exposure to rubber experienced lower returns amidst lower rubber prices due to reduced global demand. Profitability of plantations with exposure to tea should remain robust in this year’s first quarter given stable tea prices and favourable weather conditions, the report added.

“The impending wage hike in 2013 as well as market uncertainty created by the revisions to CESS on bulk tea exports could hamper profitability.”

Bank, finance and insurance sectors, the report said was the highest contributor to the earnings in absolute terms. “This sector recorded a profit growth of 29 per cent while the profit growth on a recurring basis 19 per cent,” it said, adding that food, beverage and tobacco sectors with 12 per cent and telecommunications with 8 per cent came in next in terms of contribution to earnings in absolute terms. Several companies made foreign exchange losses due to depreciation of the rupee, which however impacted banks positively, the report said further.

It said that companies with higher borrowings saw their profits slump as a result of increased finance cost owing to the high interest rate regime that prevailed during last year.

In the bank, finance and insurance sector, the report noted that Central Finance, DFCC, First Capital, LB Finance, LOLC, Lanka Ventures, People’s Merchant Finance, Vallibel Finance and People’s Leasing were reporting profits for the nine months ended 31st December. “The bank, finance and insurance sector recorded a profit growth of 29 per cent while the profit growth excluding non-recurring items was 19 per cent. The banking sector extended its performance during the last financial year to achieve a non recurring profit growth of 49 per cent (27 per cent on recurring basis),” the report said, explaining that this growth was attributable to the foreign exchange gains made during the first half of last financial year (by Commercial, Samath and HNB) and the Rs 5.9 billion capital gain that was made by NDB through the sale of its stake in Aviva NDB Insurance.

The net interest margins (NIM) of most banks also saw quarter on quarter improvement which resulted in a growth in net interest income (NII), it said. It added that credit growth was restrained in line with the credit ceiling of 18 per cent (or 23 per cent with foreign borrowing) that was imposed by the Central Bank. The insurance sector performed well with a profit growth of 26 per cent while the profitability of finance sector came down by 20 per cent on a recurring basis and a 3 per cent dip in profitability on a non recurring basis. The report predicted that the credit growth in the banking sector is likely to increase by 15 per cent to 20 per cent this year with the removal of the credit ceiling in December 2012 and we anticipate the banking sector to continue to post robust profits.

Beverage, food and tobacco sector recorded a profit growth of 18 per cent for the period while the growth excluding exceptional items was 12 per cent.

“Distilleries achieved a growth of 46 per cent on a non recurring basis although from a lower base while counters such as Lion Brewery, Bairaha Farms, Cargills and Ceylon Cold Stores saw their earnings dropping.” The report noted that this was partly due to increased costs from the rupee depreciation and energy price increases while lower demand conditions due to tighter disposable income levels affected volume growth.

Cargills Ceylon saw its profits drop due to higher finance costs stemming from fast-paced inorganic growth, it said, adding that higher profit growth through increased consumption in the medium term.

source - www.sundaytimes.lk

Net inflows top Rs. 7 b

Thanks to the deal on Pan Asia Bank, net foreign inflow to the Colombo Stock Exchange topped the Rs. 7 billion mark year-to-date.

 The investment by Japan’s Bansei Securities for a 15% stake amounted to Rs. 930 million, of which Rs. 581 million was foreign selling. Overall the market saw a net inflow of Rs. 638 million with foreign buying of Rs. 1.33 billion and selling of Rs. 696 million.

Foreign activity accounted for 84% of the day’s turnover of Rs. 1.57 billion, with continued buying seen on banking sector stocks such as HNB, Commercial and Sampath.

 Renewed foreign interest on banking sector stocks last week saw a net inflow of Rs. 650 million, bringing the year-to-date inflow to over Rs. 6 billion by Friday.

 Last year despite downturn and exit by locals, foreign inflows were an all-time high of Rs. 39 billion, reversing capital flight in the previous two years.

source - www.ft.lk

Japan’s Bansei buys 15% stake in Pan Asia Bank for Rs. 930 m

 

■  First key Japanese investment after President Rajapaksa’s visit to Tokyo in March to mark 60 years of bilateral relations

In a fresh boost to financial markets and reflecting growing foreign investor appetite, Japan’s Bansei Securities Ltd. yesterday acquired a 15% stake in Pan Asia Bank for Rs. 930 million.

 The stake amounting to 44.256 million shares was done at Rs. 21 each. Overall the bank saw 45.18 million of its shares traded hitting an intra-day high of Rs. 21.90 before closing Rs. 1.20 to Rs. 20.30. Pan Asia Bank’s net asset value is Rs. 14, up by 15% over 2011.

Bansei is a trading member of the Tokyo Stock Exchange and has had a working relationship with NWS Holdings Ltd., which structured the deal.

 Sellers included a foreign fund holding 27.68 million shares or 9.38% and Royal Ceramics Plc (six  million shares or 2%) as well as Pan Asia Bank Chairman Nimal Perera who divested his personal holding of five million shares as per the disclosure to the CSE.

 Business leader Dhammika Perera controls Pan Asia Bank with a 29% stake.

 NWH Holdings subsidiary New World Securities along with Acuity Stockbrokers figured on the buying and selling side of the transaction.

 A spokesman for NWS Holdings said the investment as well as entry into Sri Lanka by Bansei augured well for the financial services industry. Given the fact that Japanese investors control NWS Holdings, the latter has been actively promoting investments into Sri Lanka from Japan.

 Taking a cue from a suggestion of President and Finance Minister Mahinda Rajapaksa for stockbrokers to venture overseas and promote investments, New World Securities conducted two road shows in Tokyo in 2011 and 2012, whilst NWS Holdings has been attracting Japanese investments into the Sri Lankan bond market as well.

 NWS Chairman Takashi Igarashi also serves as a Director on the Pan Asia Bank Board.

 With the purchase of a strategic 15% stake, Bansei becomes one of the few foreign firms with an exposure to a commercial bank whilst Pan Asia Bank also becomes one of the select few to have a strategic foreign shareholder. The public float of Pan Asia Bank is 57%.

 PABC’s total assets in 2012 rose by 19% to Rs. 56 billion whilst liabilities saw an equal percentage growth to Rs. 52 billion of which deposits were worth Rs. 46.6 billion, up by 31% over 2011.
 Net loans and advances rose by 24% to Rs. 42 billion.

 Pan Asia Bank’s profit for 2012 was Rs. 860 million, up by 6% whilst pre-tax profit was Rs. 1.14 billion, down by 0.7%. Operating profit before VAT and taxes was Rs. 1.35 billion, same as in 2011.

 Gross income rose by 47% to Rs. 7.76 billion, interest income rose by 52$ to Rs. 6.77 billion whilst net interest income improved by 10% to Rs. 2.4 billion. Equity capital and reserve amounted to Rs. 4.2 billion, up by 15%. In terms of capital adequacy, Pan Asia Bank’s Tier 1 was 13.34%, down by 4% over 2011 whilst the minimum requirement is 5% and Tier 1 and 2 was 15.75% up by 10% over 2011 whilst the minimum requirement is 10%.

 Visioning itself to become the most customer preferred commercial bank in Sri Lanka, Pan Asia Bank has been in operation for 18 years with a comprehensive portfolio of corporate, retail and SME banking products and services. It also styles itself as one of the fastest growing banks in the industry. Last year it opened nine branches, bringing the total to 73.

 Pan Asia Bank Director and CEO T.C.A. Peiris has said in the 2012 Annual Report that although the bank recorded a modest growth in 2012 despite the challenging market conditions prevalent, its commitment to enhance shareholder wealth remained strong.

“Pan Asia Bank, while continuing on its aggressive branch network expansion, earned a healthy 22.8% return on investment for shareholders in a challenging macroeconomic context,” he added.

 The bank’s Board comprises Nimal Perera (Chairman), Eshana De Silva (Deputy Chairman), Anthony Page (Senior Director), Sunil Adhihetty, M.D.S. Goonatilleke, H.K. Seneviratne, Tharana Thoradeniya, Channa De Silva, G.A.R.D. Prasanna, T. Igarashi and T.C.A. Peiris (Director/CEO).

source - www.ft.lk

CSE Foreign Participation - Week ending 05-04-2013

                                                (click image to enlarge)

source - acuity research