Sri Lanka economy grew 5.2 pct in first nine months : CB

Key points from Central Bank press conference:

-Sri Lanka’s SRR is lower than many countries, we believed it was appropriate to adjust upwards partly to curtail credit growth: CB Governor
-We didn’t think it was appropriate to increase interest rates, which higher than inflation offering real returns: CB Governor
-Will have to review interest rates if Fed raises interest rates by March: CB Governor
-Depending on how inflation performs, we will have to look at interest policy: CB Governor
-Dormant banks accounts will not be taken over, normal procedure is accounts dormant for 10 years will still be available to the owners who claim it.
-Primary Dealer capital requirement increased to 1 billion from 300 million after discussions with them, which all companies meet.
-No knowledge of private placements of bonds by Central Bank, all bonds going through auctions: CB Governor
-Bank of Ceylon will get bonds of 50 billion, where government directly issued to CPC or SriLankan, this may be such a case.
-Visit of George Soros will put Sri Lanka in limelight and a positive step for foreign investment

Dec 31, 2015 (LBO) -Sri Lanka’s economy grew 5.2 percent during the first nine months of the year compared with 2.4 percent growth during the same period last year, the Central Bank said on Thursday.

Strong credit growth to the private sector seeping out as consumption imports was, however, a concern amidst rising inflation, Central Bank Governor Arjuna Mahendran said at the media briefing.

“Our reserves are comfortable at this point. We have over four and a half months of imports. Admittedly some of it is borrowed, but the country is in no dire need of emergency funding of any sort,” he said.

Foreign governments including China was willing to provide concessional funding, and these options are being explored, he said.

“There is no need to speculate on the IMF coming to the rescue. We are trying to ensure to the international community of investors that Sri Lanka’s economy is on a stable course.”

Informal consultations with the IMF were going on and discussions with a mission would take place in February, he added.

Foreign direct investment would come in at around 800 million dollars, with improper accounting for foreign investment inflating figures in the past.

 

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Sri Lanka govt in informal consultation with IMF: CB Governor

Dec 31, 2015 (LBO) – Sri Lanka’s Central Bank Governor Arjuna Mahendran said that they are examining the possibilities of an International Monetary Fund (IMF) loan facility next year.

“Yes we are examining the possibilities and the government are in informal consultation with the IMF,” Mahendran said. “A team is due here for regular discussions in February 2016.”

However, he added that at the moment the islands reserves sufficient.

“Our reserves are quite comfortable and we have four and a half months of imports and the country is in no dire need of emergency funding.”

The Governor made these comments at a press conference held at the Central Bank, Thursday.

 

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Sri Lanka Economic Forum with Soros, Stiglitz next month

Dec 31, 2015 (LBO) – Sri Lanka’s government will host its Sri Lanka Economic Forum next month with business magnate and philanthropist George Soros and nobel laureate Joseph Stiglitz as guest speakers.

The conference, an initiative of Prime Minister Ranil Wickremesinghe, will bring together development specialists to advise the various arms of government on its development program.

The Harvard University’s Center for International Development will take a lead role in the conference to be held on January 7th and 8th, a media release said.

The centre has identified macroeconomic and fiscal stability, structural transformation and competitiveness, urbanization and development, and regional development and social inclusion as key areas for the government to focus on.

 

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Sri Lanka's CSE removes share transaction levy

Dec 31, 2015 (LBO) – Sri Lanka’s Colombo stock exchange’s share transaction levy of 0.3 percent  will be removed with effect from 1 January 2016, a statement said.

“The proposal was announced in the government’s 2016 budget presented to parliament in November aimed at encouraging share market trading,” a stock exchange filling said.

Under the new fee structure, total transaction fees on equities up to 50 million rupees would be 0.82 per cent while the fees for trades over 50 million rupees would be 0.31 percent, it said.

 

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Sri Lanka's Sanasa Development Bank debenture issue oversubscribed

Dec 30, 2015 (LBO) – Sri Lanka’s Sanasa Development Bank said that its listed debenture issue has drawn subscriptions worth over 4 billion rupees and successfully completing both tranches.

“We have received applications for over 4 billion rupees and accordingly the total issue has been oversubscribed,”
the Bank said in a stock exchange filling.

“The issue was closed yesterday as per prospectus and applications received until 4.30 p.m. Tuesday.”

The bank offered 20 million rated, guaranteed, redeemable debentures at 100 rupees each with an option to issue up to a further 20 million debentures in the event of an over subscription of the original amount.

 

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Sri Lanka T-bill yields up

Dec 30, 2015 (LBO) – Sri Lankan Treasury Bill yields were up at Wednesday’s auction with one-year yields up 19 basis points to 7.30 percent, a statement said.

Three month bills were up 7 basis points to 6.45 percent at the auction and the six month bill yields rose 14 basis points to 6.83 percent.

The Central Bank said that bids worth 43.1 billion rupees for the 7.4 billion rupees of bills offered.

 

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Sri Lanka foreign reserves rise to USD7.3 bln in Nov

Dec 29, 2015 (LBO) – Sri Lanka’s official foreign reserves increased to 7,295 million dollars at the end of November this year, up from 6,480 million dollars at the end of October after a sovereign bond issue, according to figures released by the Central Bank.

This included 6,463 million dollars in foreign reserves and 756 million dollars in gold.

Sri Lanka raised 1.5 billion dollars in a 10-year sovereign bond issue in late October and may go to international markets to raise up to 1.5 billion dollars next year for budgetary financing, a central bank official told Lanka Business Online.

Finance Minister told Parliament earlier this month that the country has a strong balance of payments environment and rejected reports of a gloomy outlook for 2016.

“There is no issue with the balance of payments. Our problem is with the trade balance. Our exports have decreased and imports increased,” Karunanayake said.

 

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Dollar gains limited in 2016, fund managers look elsewhere

Dec 29, 2015 (LBO) – US Dollar gains are expected to be limited next year compared with the strengthening seen over the last two years after a well-expected tightening of interest rates by the US Fed this month.

The dollar rallied 10 percent to 1.09 per euro this year from 1.2 per euro at the beginning of the year. This is a gain from 1.35 per euro at the beginning of 2014.

The currency will appreciate about 5 percent to 1.05 per euro by the third quarter of 2016 due to the well-expected Fed liftoff, analysts said.

Money managers say they will be looking elsewhere for returns after chasing the U.S. dollar’s gains in the past three years.

The Dollar Index has extended 2014 gains, up near-9 percent against a basket of major world currencies. Some individual currency trades, like USD/Brazil Real, have netted currency investors huge returns, a CNBC report said.

The performance was only beaten by the digital currency bitcoin up 40 percent this year to 428 dollars.

The dollar’s gains are already losing steam in parts of Asia, with the Indonesian rupiah rallying 7.3 percent in the fourth quarter, the Malaysian ringgit 2.5 percent and the Singapore dollar 0.9 percent, according to a Bloomberg report.

 

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Rs50 bln in bonds likely privately placed by Sri Lanka Central Bank

Dec 29, 2015 (LBO) – Sri Lanka’s Central Bank may have privately placed 50 billion rupees in bonds with state funds this month making an exception to its policy to rely solely on primary auctions, sources said.

The central bank issued 744 billion rupees in treasury bonds through auctions this year compared with just 31.7 billion rupees worth of bonds last year changing a policy to directly place a majority of treasury bonds with captive sources such as pension funds.

“From the government securities outstanding on the 23rd, for the 15 December 2020 bond, it seems 50 billion rupees was not auctioned but privately placed. The question is whether this is a change in the stated policy,” a source said.

Sri Lanka’s government had around 1.4 trillion rupees of bills and bonds maturing this year needed to help bridge an annual budget deficit, which widened due to revenue shortfalls.

A senior Central Bank official declined to comment on this private placement.

 

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Turnaround in int'l tech IPOs possible in 2016

Dec 28, 2015 (LBO) – Four technology startups with billion-dollar-plus valuations are getting ready for initial public offerings in early 2016, following one of the slowest technology IPO years on record, a report said.

This could mean a better outlook for technology IPOs next year.

Although market conditions could alter their plans, Nutanix, Okta, Twilio and Coupa Software are in various stages of preparing to go public.

Their performance could signal whether investors are once again willing to pay premium prices for startup IPOs, the Seeking Alpha blog reported.

Tech and Internet companies that went public in the U.S. raised 9.5 billion dollars in 2015, down from 40.8 billion dollars in 2014. The number of IPOs in the sector dropped by more than half to 29 from 62, according to Dealogic.

 

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Sri Lanka labour force 9 mn, unemployment 5 pct in 3Q: Census Dept

Dec 23, 2015 (LBO) – Sri Lanka’s labour force is about nine million in the third quarter of 2015, of which 64.5 percent are males and 35.5 percent are females, the Department of Census and Statistics said.

The Department has released employment, unemployment and labour force statistics based on a sample of about 6,250 housing units covering the whole country.

The working age for Sri Lanka is defined as age 15 years and above and the labour force is defined as the economically active population who are in working age.

Labour force population expressed as a percentage of the working age population is the labour force participation rate which is 53.8 percent (74.7% for males and 35.7% for females) for the 3rd quarter.

Persons, who worked at least one hour during the reference period, as paid employees, employers, own account workers or contributing family workers are also said to be employed.

The estimated employed population is about 8.5 million for the quarter, of which, about 45.5 percent engaged in Services sector, 27.2 percent in Industries sector and 27.4 percent in Agriculture sector.

Highest employment share is in service sector and this is true for both male and female, while the lowest shares are for industry sector.

The survey also reveals that about 67 percent of the employed population works more than 40 hours per week.

During the quarter persons who did not work, looking for work and ready to accept a job given a work opportunity within next two weeks are said to be unemployed.

The proportion of unemployed population to the total labour force is unemployment rate. The estimated unemployment rate for the third quarter is 5.0 percent.

The youth (age 15-24) unemployment rate for 3rd quarter is 22.9 percent (20.3% for males and 26.8% for females).

The results also reveal that unemployment is higher among educated persons who have G.C.E (A/L) and above and the rates for male and female are 6 percent and 14.1 percent respectively.

 

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Sri Lanka's economic goals can be achieved through addressing brain drain: Eran

Dec 23, 2015 (LBO) – Sri Lanka’s deputy Minister of State Enterprise Development said that internationally exposed management skills of local expatriates are the need of the hour if the island nation is to achieve its expected economic targets in the near future.

“Everyone only talks of capital and technology but in my experience it is management that is needed more; management which has been exposed internationally.” Eran Wickramaratne, deputy Minister, State Enterprise Development said.

“Nearly 300,000 nationals leave for greener pastures every year and seven percent of them are professionals,”

However, he says with the introduction of dual citizenship and the simplification of the tax system we hope that we can make them come back.

The Minister was speaking to an audience of expats and recent returnees at the Work-In-Sri Lanka (WISL) conference 2015 in Colombo, Tuesday.

“We need the country’s educated professionals to steer the ship,” Wickramaratne said.

“If the economy does not deliver, the political changes will unravel and we have some tough decisions to make in the future.”

A key factor that helped countries such as Singapore transform from poor countries to well-performing nations was that they ensured education and qualifications were primary criteria for C level jobs and important government positions.

“We need internationally exposed management to make it a Singapore,” the Minister stressed.

 

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Sri Lanka Finlay's get regulator nod for delisting

Dec 22, 2015 (LBO) – Finlay’s Sri Lanka unit, a blender and packager of tea exports has received the approval of the Securities and Exchange Commission to delist its ordinary shares from the Colombo Stock Exchange, a statement said..

“The offer documents on the exit offer to be made by James Finlay Ltd. of London and then will be sent to the rest of the shareholders in due course,” the company said in a stock exchange filling.

In an earlier statement the Company said that has made arrangements for James Finlay Ltd. of Swire House, London to buy shares from shareholders at 302 rupees a share.

 

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Colombo Port will have trouble providing welfare facilities to employees: Minister

Dec 21, 2015 (LBO) – Sri Lanka’s Minister of Port and Shipping Arjuna Ranatunga had yesterday revealed that even though the annual income is 29 billion rupees, the Authority will have difficulties when providing welfare facilities to its employees.

“Colombo port receives 29 billion rupees of annual income. However there is a significant portion from the earnings has to be allocated to cover the debt loans of Hambantota port.  So we are in big trouble when providing welfare facilities to the employees who are working at Colombo port.” Arjuna Ranatunga, Minister of Port and Shipping had said.

However, Ranatunga said that he would further discuss the matter with  the President, Prime Minister and the Finance Minister in order to take actions to reduce the debt payments of Hmbantota port.

Speaking at the celebration of achieving five million containers arriving at the Colombo port the minister said they are planning to bring the port among the world’s top 20 ports by the end of 2016.

Ranatunga said that the set targets could be able to achieved by finishing the constructions of Eastern terminal of the Colombo port.

“Our target is to increase the container arrivals in the Colombo port by 10 percent by the end of next year. However if we could able to complete the constructions of Eastern terminal, we could boost the amount up to 25 percent.” Ranatunga said.

Minister further went on to say that the set targets were achieved while facing lots of barriers with the available facilities at the Colombo port.

“Though we are still continuing operations using old equipment and machines, the production capacity per hour has been increased from 19 containers to 29 containers. We achieved all those targets by getting the valuable support from our team,” Minister added.

 

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Sri Lanka inflation accelerates to 4.8-pct in November

Dec 21, 2015 (LBO) – Sri Lanka’s consumer prices rose 4.8 percent in the 12-months to November from a year earlier, from the 3.0 percent a month earlier, data from the state statistics office showed.

Year on year inflation of Food Group has increased from 2.3 percent in October 2015 to 4.6 percent in November while Non-food Group also increased by 3.5 percent to 4.9 percent during this period.

The Department of Census and Statistics commenced releasing this new price index called ‘National Consumer Price Index’ from last month.

The national consumer basket includes 407 items which represent the consumption expenditure of all households in Sri Lanka and the base year is 2013.

However, the Department has been releasing Colombo Consumer Price Index from June 2011, covering only the urban areas of Colombo district.

 

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Sri Lanka cannot expect IMF to come and sort out problems: Razeen Sally

Dec 18, 2015 (LBO) – Sri Lanka might need IMF funds as money flow tightens in the future with global economic complexity but the government cannot expect a bail out by the IMF after acting irresponsibly, Professor Razeen Sally said in a forum held Thursday.

“There is a lot of talk, as in the past, about going to the IMF to get another standby loan,” Sally said.

“This may be unavoidable sometime during the course of next year, especially as money tightens and as global interest rates rise,” he said.

“The Sri Lankan culture of acting irresponsibly in terms of the nations finance ministry and expecting to be bailed out by the IMF, so the cycle can continue, is very damaging.”

He said the international institutes play their part in this and in another words there is too much aid money in prospects for Sri Lanka.

“In other words there is simply too much money in prospect for Sri Lanka from the IMF and other organisations and it prevents the sinner from repenting and it is an excuse to continue sinning,” Sally said.

“Consider the previous IMF standby agreement, which was clearly political, it was given under easy conditions, the Government pretended it was reforming and the IMF pretended this was so. But it postponed the problem,” he said.

“The main message is that the problem has to be resolved at home,”

“You cannot expect the IMF to come and sort out Sri Lanka’s problems. Given the message sent out by the last Budget it probably makes it more difficult as the Government clearly lacks credibility in the eyes of the IMF, the Ministry of Finance in particular.”

Sally added that Sri Lanka may face lot of challenges due to the global economic scenario.

“Economies that have high exposure to external debt, that have widening current account and fiscal deficits, that have weak currencies, are most vulnerable to a climate where international money is becoming more expensive. Sri Lanka is affected in many different ways,” he explained.

“It will benefit from lower fuel prices but at the same time other commodity prices have also weakened, non-oil commodity prices have fallen by about 17 percent and that has affected the plantation industry. So the currency is good from the export side but not so when it comes to foreign debt, especially when denominated in dollars,”

However a worsening economic climate is the familiar story for Sri Lanka, Sally said.

“So worsening global economic climate is a familiar story for Sri Lanka given very unbalanced macroeconomic policies and the changes are that this climate is going to be considerately worsen next year as interest rates continues to rise in the United States and other parts of the world,” he said.

“Debt funded growth spree based on consumption and imports and public investment is no longer tenable, and the argument or the fiscal consolidation to put it in the technical term but in playing language the repair for the finances is more urgent than ever,”

“Now I am repeating a familiar story here. But it is a story that has not been registered with the present government as well as the previous government.”

 

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Motor car registrations high at 10,054 in November: JB Securities

Dec 18, 2015 (LBO) – Vehicle registration momentum continued into the month of November due to the pre-Nov 20 budget surge and relaxation of LTV rule, JB Securities said in a research note.

Total motor cars registrations recorded 10,054 units in Nov slightly down from 10,349 units in Oct but significantly higher than 2,419 units recorded 12 months ago.

Brand new car registrations recorded 6,682 units in Nov, the second highest number on record slightly higher than 6,225 units recorded in Oct but lower than the all-time record set in Sept of 9,427 units, the figure 12 months ago was 672 units showing a YoY growth of almost 1,000%. Almost 95% of the total are from small cars, i.e. less than 1,000cc, mainly Marutis accounting for 5,578 units (Alto – 5,105, Celerio – 459) followed by Panda Micro with 543 units. Hyundai recorded 176 mainly from Eon – this is a stylish looking car and I expect its segment share to go up in future.

Pre-owned car registrations recorded 3,372 units in Nov a drop from 4,124 units in Oct but higher than 1,747 units recorded 12 months ago. Financing share was at 65% indicative that the relaxation of the LTV rule drove volumes although they are down from the highs set in Sep of 5,117 units.

Premium segment recorded 77 units (30 brand new units and 47 preowned units) down from 101 units in Oct but up from 61 units 12 months ago. Mercedes accounted for 16 brand new units (C-class 9, E-class 4 and S-class 2) and 23 preowned units (C-class 5, E-class 8 and S-class 2) followed by BMW accounting for 7 brand new units (5-series 7) and 19 pre-owned units (5-series 6).

Electric cars recorded 494 units in Nov slightly down from 528 units in Oct but significantly up from 9 units 12 months ago. Nissan Leaf accounted for 470 units followed by 9 units of BMW I3, Mercedes B class 9 and 1 Tesla unit).

SUVs recorded 787 units in Nov slightly down from 797 units recorded in Oct and significantly down from 1,369 units recorded 12 months ago. Mitsubishi is the market leader with 235 units (Outlander – 167 units, Montero – 58) followed by Nissan with 166 units (all of them Xtrail hybrids) and Toyota with 134 units (Prado – 107, Harrier – 24). A notable decline is Honda Vezel, 12 months ago 1,293 units were registered which has now dropped to 83 units. A noteworthy observation is that of the 787 units registered last month 418 units are hybrids of which 399 are preowned. In the non-hybrid category volumes are mainly agent imported diesel Mitsubishi Monteros (permit vehicles) and preowned Toyota Prados. Financing share was 55.1% in line with levels recorded in the last few months.

Hybrid registrations recorded 3,240 units in Nov down from 3,970 units recorded in Oct but higher than 2,864 units recorded 12 months ago. Motor cars accounted for 2,790 units of which Suzuki accounted for 1,174 units (Wagon R – 1,102) followed by Toyota accounting for 979 units (Aqua – 456, Axio – 343, Prado – 167) and Honda with 578 units (Fit – 360). Financing share for motor cars was at 64.8% a level consistent with prior months.

Van registrations recorded 799 units in Nov down from 1,113 units in Oct but significantly up from 186 unit 12 months ago. Preowned vans account for 689 units, Mini vans account for 338 units (Suzuki – 239) with the balance 461 units being normal vans (Toyota 290). Hybrid vans are a very small component accounting for 32 units. Financing share was 76.7% similar to previous months.

3-wheelers hit an all-time record recording 13,593 units in Nov beating the prior record set in Sept of 12,406 units and significantly up from 8,142 units in Oct, the figure was 6,917 units 12 months ago. Bajaj maintained its brand share of 88% followed by TVS with 6.7% and Piaggio with 5.3%. Financing share was a high 90.1%.

2-wheeler registrations recorded 30,981 units in Nov slightly down from 31,425 units in Oct but down from election fuelled volumes 12 months ago of 38,539 units. Hero is the market leader claiming a share of 36.5% followed by Bajaj with 24.4%, Honda with 19.9% and TVS with 10.5%. Bajaj was the market leader for many years accounting for 50% but the lack of a scooter in their line up (Bajaj exited the scooter market in 2009) is hurting them. The scooter segment now accounts for 50% of the market – Hero – 9,243, Honda’s Dio – 4,841 and TVS Wego – 1,160. Financing share was 48.5% in line with levels recorded in previous months.

Pickup truck registrations recorded 460 units in Nov slightly up from 416 units in Oct and significantly up from 261 units 12 months ago. Tata accounted for 57% of the market followed by Mitsubishi with 21.3% and Toyota with 14.6%. Financing share was a high 85.9%.

Mini truck registrations recorded 1,766 units in Nov significantly up from 1,154 units in Oct and 1,022 units 12 months ago. Tata maintained its segment share recording 57.7% followed by Mahindra with 38.3%. Financing share was a high 92.8%.

Lite truck registrations recorded 741 units in Nov significantly up from 586 units in Oct and 250 units 12 months ago. Mahindra is the market leader commanding a share of 63.7% followed by Chinese brand DFSK with 17.3% share. Financing share was a high 92.3%.

Medium truck registrations recorded 182 units in Nov slightly lower than 178 units recorded in Oct and 173 units recorded 12 months ago. The market leader is Isuzu with a segment share of 40.7% followed by Mitisubishi with 16.5%. Financing share was 73.1% in line with previous months.

Heavy truck registrations recorded 118 units in Nov slightly down from 131 units recorded in Oct and 127 units recorded 12 months ago. Tata is the market leader claiming a share of 46.9% followed by Ashok Leyland with a share of 40.7%. A noteworthy observation is that tipper units have fallen to a trickle this year with the slowdown in public infrastructure projects. Financing share was a high 94.1%.

Bus registrations recorded 243 units in Nov up from 200 units in Oct but significantly down from election fuelled registations of 506 units recorded 12 months ago. Financing share was 95.1%.

 

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US Fed raises rates by 25 bp, first hike since 2006

Dec 17, 2015 (LBO) – The US Federal Reserve has raised interest rates by 25 basis points, its first increase since 2006.

Fed Chair Janet Yellen said the move would be followed by “gradual” tightening as officials watch for signs of higher inflation.

The target for the Fed funds rate was unanimously set at 0.25 percent to 0.5 percent, up from zero to 0.25 percent, with officials indicating four quarter-point increases were likely in the next year.

U.S. stocks rallied with the S&P 500 index closing up 1.45 percent, the Dow Jones Industrial Average up 1.28 percent and Nasdaq up 1.45 percent.

Asian stocks rose in response with Nikkei up 2.1 percent and Hang Seng up 2.01 percent at 1.35 GMT. The dollar was higher at 1.0859 against the euro.

In a statement, the committee said: “The committee judges that there has been considerable improvements in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective.”

“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”

The committee added that: “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

The Hong Kong Monetary Authority raised its rates by 25 basis points, matching the Fed, raising its base rate to 0.75 percent.

In the past interest-rate increases from the Federal Reserve have been buy signals for emerging-market assets tied to stronger U.S. growth.

Opinion remains divided on the impact on emerging markets with some analysts expecting an emerging markets sell off to continue, while ABN AMRO said recently that the US rate hike has largely been priced in to emerging markets.

The FOMC statement can be viewed here

 

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We are not dictated by IMF policy: Finance Minister

Dec 17, 2015 (LBO) – Sri Lanka’s Finance Minister told Parliament Wednesday that the country has a strong balance of payments environment and rejected reports of a gloomy outlook for 2016.

“There is no issue with the balance of payments. Our problem is with the trade balance. Our exports have decreased and imports increased,” Finance Minister Ravi Karunanayake said.

“But the imports are for capital nature. So it is not such a dangerous thing. The balance of payments is strong. As of this moment we are not dictated by IMF policy,” he said.

The balance of payments is estimated to have recorded an overall deficit of 2,316 million US dollars during the first three quarters of 2015 in comparison to a surplus of 1,996 million US dollars recorded a year earlier.

Finance Minister further stated that the currency devaluation process has nothing to do with the dictates of the IMF.

“We have not taken a single step or anything in that nature. Only thing is that we have to be realistic to the external threats that are there.” Karunanayake said.

 

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"If required by MR, able to sell Mihin Air for one rupee" - Eran

Dec 17, 2015 (LBO) – Sri Lanka’s Deputy Minister of Public Enterprise Development Eran Wickramaratne proposed that if required by former President Mahinda Rajapaksa, the incumbent government is able to sell ‘Mihin Air’ over to him for a rupee.

“Losses incurred by Mihin Air at present stands at Rs. 1600 million,” Wickramaratne said in a statement.

“Mihin’s balance sheets are all minus. However if Mahinda Rajapaksa requires it, we will sell Mihin Air over to him for one Rupee. We will privatize Mihin Air for one Rupee,” he said.

“How are we to avert this calamity & preserve institutions such as ‘Sri Lankan Air Lines’? It is with the utmost responsibility that I say that this government is in possession of strategic mechanisms to safe guard public entities against such financial catastrophes.”

Wickramaratne expressed this during the Select Committee stage of the 2016 budget.

“In 1979 ‘Air Ceylon’ was decommissioned &‘Air Lanka’ was established. Subsequently in 1998 ‘Air Lanka’ was privatized by the then SLFP lead government,” Wickramaratne said.

“40 percent of its shares were sold to ‘Emirates’ for 70 million dollars. This was done through a 10 year strategic agreement based on a requirement of the then government. We are in no way against this move. It was this very same government which sold plots of land adjacent to the sacred site of ‘Somawathie’ to foreign institutions,” he said.

“They even went the extra mile by selling the paper factory. These decisions may have been correct or wrong given the day’s context. However in 2008, the 10 year strategic agreement expired. Emirates declined to extend the agreement any further.”

Wickramaratne said the losses incurred by ‘Sri Lankan Air Lines’ at present stands at 12800 million rupees.

“Only Rs. 900 billion has been allocated for 30% of the family units, who depend on the Samurdhi grant of this country. Juxtaposed against this scenario the losses incurred by one public entity exceed nearly 15 times this amount” Wickramaratne added.

Speaking further in line, Wickramaratne stressed that when constructing homes at the cost of one million per unit, the government is able to construct 100,000 housing units.

He added that if the cost of a housing unit was to be notched down to 50,000 rupees, the government would be able to construct 200,000 housing units.

Highlighting these facts Deputy Minister Eran Wickramaratne questioned whether it was reasonable to justify the operation of one single public entity at the cost of debilitating the country’s factual development.

 

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Sri Lanka requests India to extend USD 1.5bn swap facility by one year

Dec 17, 2015 (LBO) – Sri Lanka’s Finance Ministry has requested India to extend the existing 1.5 billion US dollars swap facility by one year, the finance minister told Parliament Thursday.

“I spoke to Indian Finance Minister Arun Jaitley and requested to extend the USD 1.5 bn facility by another year,” Finance Minister Ravi Karunanayake said.

“Because India is doing a devaluation. But With yesterday’s FED rate hike the uncertainty will be cleared,” he said.

The reserve bank of India and the central bank of Sri Lanka entered into a currency swap agreement of 1.5 billion US dollars in March this year at the sidelines of Indian Prime Minister Narendra Modi’s vist to Sri Lanka.

“From that amount, we already paid 500 million US dollars to India in November. The balance amount should be paid in March next year,” Karunanayake said.

Minister Karunanayake revealed that foreign reserves are currently at 6,100 million US dollars.

“By December 2015, this reserve has increased to 6,000 million US dollars, around 400 million US dollars decrease against the last year. We had to pay a bullet payment of 1,500 million US dollars by last November. This 6,100 million US dollars amount is with that amount.”

In a bullet payment, a lump sum is paid for the entire loan amount at maturity.

Finance Minister in his budget speech stated that the government expects the official reserves of the country will increase to 10 billion US dollars by end June 2016.

Finance Minister further stated that around 750 million US dollars have so far being received as foreign remittances from other countries.

“We are seeing an in-flight of dollars coming after the budget owing to the fact that we have wanted foreign remittances to come in,” he said.

“We are encouraging them to bring their deposits to our country which is encouraging about 2 percent return on the remittances and we see a positive trend taking place.”

 

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Turkey to provide USD350mn for development projects in Sri Lanka

Dec 17, 2015 (LBO) – Finance Ministry is to enter into an agreement with Turkey that will enable Sri Lanka to have 350 million US dollars from Turk Exim Bank to implement development projects in Sri Lanka.

The cabinet has approved a proposal to sign this MOU with the intention of strengthening the financial relationship with Turkey, which is an active member and the present Chairmen of G-20.

Meanwhile the cabinet nod has been given to examine the possibility of obtaining loan facilities for the construction of the road section from Kadawatha to Kossinna from EXIM bank of China.

Cabinet has also approved a proposal to improve access roads to the southern expressway and to purchase special vehicles for operations in expressway using the balance funds of the Southern Transport Development Project which is about two billion rupees.

The above project was funded by the EXIM bank of China.

 

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S&P Dow Jones announces changes in S&P Sri Lanka 20 index

Dec 16, 2015 (LBO) – S&P Dow Jones Indices has announced the changes in S&P Sri Lanka 20 index constituents effective from December 21, 2015, the Colombo Stock Exchange said.

Accordingly, Bukit Darah, Carson Cumberbatch, Lion Brewery Ceylon and Sri Lanka Telecom will be removed from the S&P Sri Lanka 20 index as they no longer qualify for index inclusion.

Replacements will be Asiri Hospital Holdings, Ceylinco Insurance, Ceylon Cold Stores and Hemas Holdings.

The index includes the largest 20 stocks, by total market capitalization, listed on the CSE that meet minimum size, liquidity and financial viability thresholds.

The constituents are weighted by float-adjusted market capitalization, subject to a single stock cap of 15 percent, which is employed to reduce single stock concentration.

The S&P Sri Lanka 20 has been designed in accordance with international practices and standards.

“All stocks are classified according to the Global Industry Classification Standard which was co-developed by S&P Dow Jones Indices and MCSI and is widely used by market participants throughout the world.” the CSE said.

To be eligible for inclusion, a stock must have a minimum float-adjusted market capitalization of 500 million Sri Lankan rupees, a six-month average daily value traded of 1 million rupees, have been traded at least 10 days of each month for the three months prior to the rebalancing reference date, and have positive net income over the 12 months prior to the rebalancing reference date.

Effective from December 21, 2015 the stocks in the S&P Sri Lanka 20 in alphabetical order are as follows.

1. Access Engineering Ltd
2. Aitken Spence PLC
3. Asiri Hospital Holdings PLC
4. Cargills (Ceylon) PLC
5. Ceylinco Insurance PLC
6. Ceylon Cold Stores PLC
7. Ceylon Tobacco Company PLC
8. Chevron Lubricants Lanka PLC
9. Commercial Bank of Ceylon PLC
10. DFCC Bank PLC
11. Dialog Axiata PLC
12. Distilleries Company of Sri Lanka PLC
13. Hatton National Bank PLC
14. Hemas Holdings PLC
15. John Keells Holdings PLC
16. Lanka Orix Leasing Company PLC
17. National Development Bank PLC
18. Nestle Lanka PLC
19. People’s Leasing & Finance PLC
20. Sampath Bank PLC

 

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Fed liftoff largely priced in by emerging markets: ABN AMRO

Dec 15, 2015 (LBO) – A first rate hike by the U.S. Fed in nearly a decade expected this week is largely priced-in and emerging markets may have already seen most of the adjustment to Fed hikes, ABN AMRO said in a research report.

“Fed message is likely to be relatively soothing, as we expect Fed to show a slightly more cautious path of rate hikes compared to September,” the report said.

After following near-zero interest rates, the U.S. Fed is expected to hike interest rates on Wednesday after a two-day FOMC meeting, with a 74 percent chance based on market data.

Funding conditions for emerging markets have tightened more abruptly than during the ‘taper tantrum’ of 2013 when treasury yields rose, the report said.

“In fact, because the rate liftoff was preceded by financial market turbulence, we think that the worst of the adjutment for emerging markets has already taken place.”

“This means that, there may be some bouts of volatility after the rate hike, we expect them to be short-lived. Particularly, we expect the path of rate hikes will be gradual,” it said.

Although some emerging markets have taken pre-emptive measures, including raising policy rates, economies with weaker fundamentals including Brazil and South Africa will feel a larger impact from the tightening, the report said.

Analysts say oil prices falling to near 11-year lows will affect net exporters of oil, especially Malaysia, in the Asian region although net importers will benefit from lower prices. Brent crude was at 37.83 dollars per barrel on Tuesday.

The full ABN AMRO report is below:

http://www.lankabusinessonline.com/wp-content/uploads/2015/12/151214-US-rate-hike.pdf

 

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USD 1.6 bn worth FDI expected from 66 projects, 45 expansions: BOI

Dec 15, 2015 (LBO) – Sri Lanka’s Board of Investment says they are expecting 1.6 billion US dollars worth foreign direct investments through 66 new projects and 45 expansions of existing projects.

“As a result of the introduction of new procedures aimed at improving facilitation, the BOI succeeded in attracting a number of important projects in key sectors of investment,” the BOI said.

The investment promotion bureau said once these investments are realized a total of 66 new projects and 45 expansions of existing projects will be operational, resulting in 1.6 billion US dollars FDI generating 16,075 new employment opportunities.

As per the BOI data has signed three agreements with Dialog for a total investment of 175 million US dollars.

The board has also signed an agreement with Senok Automobile to assemble Volkswagen automobiles in Sri Lanka which they said worth 26.5 million US dollars.

Another project signed in 2015 was the revival of Kantale Sugar as a result of an agreement signed with M G Sugar Lanka, a 30 year project agreement run on Built, Operated and Transfer basis between the Government (51%) and the foreign investor (49%).

“The investment is from Singapore and will result in creating 1,220 new job opportunities. The estimated value of the investment is 100 million dollars,” the BOI said.

Other projects entered into in 2015 include Airport Express Air & Rail which will result in the building of an urban township development project that will link Colombo to Katunayake. This is a full foreign investment with participation from Malaysia, Portugal and Denmark.

The BOI also inked a deal to set up a joint venture between Sri Lankan and Chinese companies to build a 176 roomed tourist hotel in Panadura for an estimated value of 20 million US dollars.

The board has also signed an agreement with enterprises in sectors such as Hub operation activities to undertake offshore business and entrepot trading which one of the new investment segments that Sri Lanka is actively promoting.

Laugfs Pharmaceutical has signed an agreement with BOI to manufacture pharmaceuticals with the estimated value of the project is 30.5 million US dollars.

There are several other mixed development construction projects signed with BOI, the investment promotion bureau said.

 

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Sri Lanka GDP grows 4.8-pct in 2015 third quarter: Census Dept.

Dec 15, 2015 (LBO) – Sri Lanka’s gross domestic product expanded 4.82 percent in the third quarter of 2015 from a year earlier, the state statistics office said.

The statistics office said agriculture grew 6.9 percent, industries by 6.2 percent and services by 3.4 percent.

The economic growth rate of the country for the first three quarters has been estimated as 5.2 percent.

 

 

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Special economic zones, a driving force for increased trade in Asia: ADB

Dec 14, 2015 (LBO) – Special economic zones (SEZs) can be a driving force for increased trade, investment, and economic reform in Asia as it experiences a slowdown in trade, provided the right business environments and policies are put in place, a new Asian Development Bank (ADB) report said.

“The expansion in the number of SEZs from about 500 in 1995 to over 4,300 in 2015 shows the strong and rising interest to this form of policy experiment, though the success record is somewhat mixed,” Shang-Jin Wei, chief economist said.

“If designed right, SEZs can become drivers for increased trade, foreign direct investment (FDI), and better economic policymaking and reforms. Moreover, as countries develop, areas with SEZs can be transformed from mere manufacturing sites to hubs for innovation and modern services.”

The report says that the number of SEZs in an economy is positively related to overall export performance in Asia.

“In developing Asia, countries with SEZs attract significantly more FDI, with the existence of SEZs corresponding to 82 percent greater FDI levels.”

However, the report says that there have also been failures, with a lack of strategic focus and regulatory and governance gaps undermining performance in some cases.

“SEZs that have done well have been able to diversify their production bases away from assembly of imported inputs, and increase sales of their own branded merchandise in domestic and global markets by building closer ties with the domestic economy.”

Putting in place fiscal incentives for initial investments and ensuring an adequate supply of labor, strategic locations, transport connectivity, and dependable judicial systems and institutions, such as independent governing authorities and enabling legal frameworks, are all key ingredients of successful zones, the report adds.

“For zones to become a major driver of development they must be made an integral part of a government’s national development strategy and industrial policy while also it requires the fostering of business enabling environments which encourage firms to move up the industrial value chain and to explore growing opportunities in logistics, information and communications technology, and other areas of high technology, knowledge and innovation.”

Data in the report shows that Asia’s income elasticity of trade declined from 2.69 before the global financial crisis to 1.30 afterwards and the value of Asia’s intermediate goods trade almost 60 percent of total trade contracted 2.6 percent in 2014.

 

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"I Paid A Bribe" anti-corruption website launched in Sri Lanka

Dec 11, 2015 (LBO) – Sri Lanka’s government and I Paid A Bribe Sri Lanka has launched a “first of its kind” anti-corruption website www.ipaidabribe.lk to crowd source reports on corruption.

President Maithripala Sirisena and Chairman of the Commission to Investiate Allegations of Bribery or Corruption (CIABOC), Dilrukshi Dias Wickramasinghe, were present at the launch at the UN anti-corruption day event in Colombo.

“The motto of the new Sri Lankan Government this year was fight against corruption and to usher in good governance. We are in the 85th position on Corruption Perception Index, and initiatives like I Paid A Bribe will help in improving our rating,” Asanga Abeyagoonasekera, chairman of Diri Saviya Foundation, which introduced I Paid A Bribe (IPAB), said.

The site, available to the public in Sinhalese, Tamil and English, will help CIABOC fight corruption and media can report on these incidents, officials said.

Since the launch in several countries such as India, Pakistan and Greece, the site has helped to identify corruption in government sector, police departments and other institutions. The site will quantify the data and the public will be able to see the most corrupt district, department or police station etc.

As of July 2015, IPAB has partnered with non-profits and transparency organisations in 25 countries to create similar IPaidabribe.com sites and has initiated an international coalition named – Crowdsourcing Against Corruption Coalition.

The site can be accessed here: www.ipaidabribe.lk

 

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Sri Lanka * market update * Asian markets mixed, Brent 39.47; CTHR traded

CTHR : 3.66 mn shares traded on CSE 12:48:55 – Rs140.00 – 1,974,964 shares; 12:48:37 – Rs140.00 – 1,686,445 shares. Now flat at 135. (Dec 11, 1.31 p.m).

The 31 percent slide in Brent crude prices this year is hurting Asia’s only major net exporter of oil Malaysia which gets 22 percent of government revenue from oil-related sources. (Dec 11, 11.05 a.m).

Asian shares mixed with Hang Seng down 0.72 percent and Nikkei up 97 percent, Brent crude at 39.47 dollars per barrel. ASPI up 0.14 percent (Dec 11, 11.00 a.m).

 

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Sri Lanka female labor force participation could boost productivity: Kvintradze

Dec 11, 2015 (LBO) – Sri Lanka needs labor market reforms including boosting of female labor force participation rate, a senior International Monetary Fund official said.

“If you look at labour force participation across the globe and especially in Sri Lanka you see there is a huge opportunity to boost labour force participation,” Eteri Kvintradze Resident Representative, IMF said.

“And an important dimension to that is the female labour force.”

She was speaking at the LBR LBO Debrief – “Business Climate Outlook of 2016” held in Colombo.

According to data, women represent approximately 51.7 percent of the total estimated population of 21 million in Sri Lanka but only 33.4 percent contributes to the national economy, from 8.5 million of economically active population in the country.

Kvintradze says that Sri Lanka stands out because it has very high education attainment levels but female participation in the labour force is low.

“When you compare India’s education attainment level it is much lower than that of Sri Lanka,” she said.

“So there is an opportunity there – your educated labour force is not able to utilize its full productivity level and there could also be added significant gains if there was more labour force participation opportunities for women.”

This is in spite of the fact that in most university courses, including management, law and liberal arts, the numbers of women outnumber men and large proportions of women attend management and accounts training programmes offered by private educational institutes.

In Sri Lanka at the undergraduate level the share of females is at 60 percent but this is not reflected in the employment levels or the labour force. The employment to population ratio is only 30 percent females and labour force participation is around 30 – 35 percent and the unemployment rate in females is 6.6 percent compared to 3.2 percent in males, data shows.

“Actually according to IMF calculations if there are more women contributing to the island’s productivity then Sri Lanka’s Gross Domestic Product (GDP) can increase by 20 percent,” Kvintradze said.

A recent labour force survey in Sri Lanka shows that the highest percentage of women are in the service sector accounting for 39.5 percent of the labour force, while women in agriculture and industry account for 35.3 percent and 25.1 percent, respectively.

 

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IMF concludes fourth post-program monitoring

Dec 10, 2015 (LBO) – The International Monetary Fund concluded its fourth Post-Program Monitoring with Sri Lanka, noting a more challenging external environment, macro-financial imbalances and less room available for monetary easing.

“Recent economic developments reflect a more challenging external environment as well as a sharpening of macro-financial imbalances that began to emerge late in 2014,” a statement said.

During the first half of 2015, Sri Lanka’s growth picked up to 5.6 percent from 4.5 percent in 2014, according to the IMF.

Headline inflation fell to negative 0.3 percent in September before rising to 1.7 percent in October, while core inflation, excluding fresh food, transport, and energy prices, rose since the beginning of 2015, reaching 4.4 percent in October.

According to preliminary data, the government fiscal deficit in the first half of 2015 was 3.7 percent of GDP. Although tax revenue collection picked up, it was not to the extent assumed in the 2015 budget.

The central government balance, or budget deficit, is seen at 5.7 percent of GDP this year.

Commenting on the outlook for interest rates, the fund said there was little prospect of further easing.

“With the recent acceleration in private sector credit growth and rising core inflation, there is now little scope for further monetary easing.”

“Most factors—including the deterioration in the balance of payments and pressures on the rupee—suggest that the CBSL should be prepared to tighten monetary policy in the coming months, albeit at a gradual pace.”

The financial sector remains relatively stable, and the authorities are taking measures to tackle remaining vulnerabilities in the nonbank financial sector, the report added.

Prime Minister Ranil Wickremesinghe told Parliament recently that Sri Lanka will consider a support facility from the IMF due to the difficult external economic environment, as a prudential measure.

The statement is available here:

http://www.imf.org/external/np/sec/pr/2015/pr15553.htm

 

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Sri Lanka currency adjustments terrible: Nishan de Mel

Dec 10, 2015 (LBO) – Sri Lanka’s currency adjustments which are poorly timed affect business planning and confidence of international community while having other effects, a senior researcher said.

Nishan de Mel, head of research at Verite said that in Sri Lanka, the strength of rupee is incorrectly tied up with economic virility.

“We know that politically in Sri Lankan society the way in which the economic ideas have been percolated says that the value of your currency is a sign of your virility,” he said.

“Economic virility and the strength of currency are somehow brought together mistakenly,” De Mel said.

He was speaking at the LBR LBO Debrief conference held in Colombo on Tuesday.

De Mel said the currency stayed flat for over 8 months before it suddenly increased in September after the general elections, a sign of a failure to gradually adjust the currency.

“Before the election it was not possible to allow the currency to adjust. But you pent up all that suppressed pressure and let it go suddenly,” he said.

“It is of course terrible in terms of business planning and confidence of international community when your currency adjustments are not smooth.”

De Mel however said the currency adjustment problem is not only a political issue but also an issue of poor volatility management by Central Bank.

“There is no problem in the currency adjusting if you manage it in a way that the adjustment of a currency off sets the interest rate that Sri Lanka has over the US dollar,” De Mel said.

“The problem is when you are depreciating the currency at 1 percent a month then everybody is trying to clear out when these volatile depreciations are going to take place.”

He said the role of Central Bank’s professional management of a currency is really to manage a much smoother path of currency depreciation that doesn’t create incentives of capital flight.

“But from the 1990s onwards, the Central Bank has been really quite poor at that. Many people thought just because the currency has been a strong or stable against the US dollar; that’s great,”

“But it’s not great because it just means that it is going to jump up one day and everybody is going to have speculative issues around when that’s going to happen.” De Mel further said.

 

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Sri Lanka well placed with end of war, new infrastructure: IMF's Kvintradze

Dec 09, 2015 (LBO) – With the end of a war and recently built infrastructure, Sri Lanka businesses are well placed to benefit from new opportunities, Eteri Kvintradze, the resident representative of the IMF, said.

Despite external vulnerabilities and concerns about fiscal consolidation, Sri Lanka can be competitive in the South Asia region, Kvintradze said.

She was speaking at the the LBR LBO Debrief: Business Climate Outlook of 2016 full-day conference held in Colombo on Tuesday.

“Sri Lanka could position itself very competitively compared to the region, because if you look at South Asia I don’t think anybody has combination of relative peace and this infrastructure.”

“The transition from war to peace was accompanied with significant infrastructure scale up. Probably 15 years worth of infrastructure was constructed in five years,” she said.

The private sector can now utilize these two dimensions: peace which comes with longer term expectations, and new infrastructure which opens opportunities for businesses.

Although a slowdown in China, declines in commodity prices and the prospect of tightening monetary policy define the current business climate, India is a bright spot and Asia will see higher growth than other regions in the world.

“India is doing quite well, and South Asia is more insulated from China’s impact because there isn’t a strong linkage with supply chains to China.”

“We are projecting Sri Lanka’s growth rate at 5.5 percent growth which is higher than the regional average.”

Prime Minister Ranil Wickremesinghe recently said Sri Lanka may seek an IMF facility next year as a prudential measure given uncertainties tied to the global economy.

The balance of payments is estimated to have recorded a deficit of 2.3 billion dollars during the first three quarters of 2015 in comparison with a surplus of 1.9 billion dollars a year earlier, according to central bank data.

According to Kvintradze, one of the Sri Lanka’s vulnerabilities is the external sector due to relatively low reserve coverage and the annual current account deficit.

“When oil prices declined it should have brought significant savings to Sri Lanka’s current account. It could have been 1-1.5 billion dollars, which is significant in the overall reserve position.”

“However, most of those savings have not materialized. The main reason was significant fiscal expansion through increases in salaries which leaked out through non-oil imports.”

The other worry is fiscal consolidation, Kvintradze said.

Sri Lanka has one of the lowest corporate income tax productivity rates in the region.

As a result, government projections for revenue increases next year look overly ambitious, given tax proposals outlined in the government budget. Analysts at the conference said the budget deficit target could likely only be met through cuts in capital expenditure.

Adjustments to the external environment are likely to come from both the exchange rate, and interest rates, they said.

 

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Sri Lanka has borrowings of USD1.5 bln in pipeline for next year

Dec 09, 2015 (LBO) – Sri Lanka may go to international markets to raise up to 1.5 billion dollars next year for budgetary financing, in line with the amount raised this year, a central bank official said.

Sri Lanka raised 1.5 billion dollars in a 10-year sovereign bond issue in October with a coupon of 6.85 percent for budgetary financing and to increase foreign reserves.

This was Sri Lanka’s ninth US Dollar benchmark as well as the largest offering in the international bond market since 2007.

After ending a war with Tamil Tiger separatists in 2009, the island has increasingly gone to international markets for its borrowing program.

This is also due to less opportunities for concessional borrowing tied to rising per capita incomes.

 

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Sri Lanka * market update * Chacra buys CIC shares, Com bank start money transfer operations in Italy

Si Lanka’s Commercial Bank announced that they would commence money transfer operation in Italy, a stock exchange filling said. The statement said that the operation will be carried out through an authorized payment institution in Italy. “The regulatory approvals from both countries has been received.” ( Dec 09, 2015 11.30 a.m) 

The Colombo Stock Exchange said in a statement that Chacra Capital Holdings bought 3.3 million shares of CIC (voting) and 1.5 million Non-voting shares on Tuesday. “Three shareholders of Chacra are Directors of CIC,” the statement said. ( Dec 09, 2015 10.30 a.m) 

 

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Oil prices drop to near 7-year low after OPEC meeting

Nov 08, 2015 (LBO) – Crude oil prices fell six percent to a near seven-year low after OPEC showed no signs of addressing a supply glut following a meeting on Friday.

Brent crude was at 40.95 dollars per barrel, rebounding 0.54 percent on Tuesday.

A stronger dollar, on the likelihood of a US rate hike, also added to the lower oil prices this week.

At the meeting, OPEC oil ministers dropped any reference to a price ceiling highlighting disagreement among members on how to accomodate future Iranian output after sanctions are lifted.

U.S. shale oil output is expected to fall for a ninth consecutive month in January, the U.S. Energy Information Administration said on Monday, but this doesn’t significantly affect oversupply conditions, analysts said.

 

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Sri Lanka stocks close down 0.1-pct

Dec 08, 2015 (LBO) – Sri Lankan stocks closed down at 0.14 percent with losses in Ceylon Tobacco Company and Distilleries Company, brokers said.

The Colombo benchmark All Share Price Index closed down 9.54 points at 6,849.09 down 0.14 percent. S&P SL20 closed 20.77 points higher at 3,653.70 up 0.57 percent.

Turnover was at 982 million rupees, lower than the daily average of 1.1 billion rupees with 60 stocks closing positive against 84 negative.

The main index showed losses in Ceylon Tobacco Company closing at 980.00 rupees, down 19.10 rupees and Distilleries Company closing at 260.00 rupees, down 5.00 rupees.

Sri Lanka Telecom closed at 46.10 rupees, down 0.40 rupees and Commercial Bank closed at 140.50 rupees, down 0.20 rupees.

John Keells Holdings closed at 179.50 rupees, down 0.20 rupees.

The day’s performance was dominated by CIC voting and non-voting shares and both counters witnessed gains and accounted for 52 percent of the market turnover. CIC voting closed 10 percent higher at 110.00 rupees while CIC non-voting closed 16 percent higher at 89.00 rupees.

Active trading was seen in Ceylon Grain Elevators 90.70 rupees up 2.6 percent and Access Engineering 22.50 rupees, up 0.50 percent.

Foreign investor was net buyers today with a net inflow of 13 million rupees and foreign participation was mild at 15 percent.

Top net inflows were seen in John Keells Holdings 62 million rupees, Hatton National Bank 14 million rupees and Lion Brewery 13 million rupees while top net outflow was seen in Commercial Bank 60 million rupees.

 

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Sri Lanka's tea exports continue decline

Dce 08, 2015 (LBO) – Sri Lanka’s tea exports continued to decline in September 2015 severely affected by lower demand from main tea buyers in Russia and the Middle East reflecting declines in both export volume and export prices.

Tea exports recorded a drop of 20.4 percent in September this year compared to the corresponding month in 2014, official data showed.

The average export price of tea decreased to 4.32 US dollars per kilogram compared to 5.01 US dollars per kilogram recorded in September 2014.

Official data shows Sri Lanka exported 106.3 million US dollar worth tea in September 2015 compared to the 133.6 million US dollar tea exports in the same month last year.

For the first nine months from January to September 2015, tea exports declined 17.2 percent to 1007.5 million US dollars compared to 1216.7 million US dollars in the same period of 2014.

Sri Lanka’s government plans to purchase quality tea from the tea auction for the price of 430 rupees per kilogram to artificially raise the tea prices until the price reaches the limit of 450 rupees and the market stabilizes.

However analysts argue Sri Lanka’s government intervention into the Colombo tea auction will be detrimental to the sector as it will make Sri Lankan tea less competitive in a global market that is over-supplied.

The government allocated 1.0 billion rupees to purchase tea at the Colombo auction, a decision which has yet to be implemented.

The last time the government intervened to prop up tea prices was in 2008.

Delivering the budget speech 2016, Sri Lanka’s Finance Minister Ravi Karunanayake said that the country plans to liberalize the tea industry through allowing tea to be imported into the country within a regulatory framework and a committee would be set up to study this process.

“Tea has remained a key export of our country but the value addition is not as significant to the extent expected,” Karunanayake said.

“Sri Lanka being one of the main tea producers of the world has lost ground on value addition to centers like Dubai,”

He added that Sri Lanka should move towards being a tea blending country but strict labeling requirements will be made mandatory so that the brand name “Ceylon Tea” remains uncompromised.

The budget 2016 proposed to establish a Working Committee consisting of both the government and private sector officials to address the current issues faced by small and medium scale tea growers due to current market situation.

 

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CSE sets mandatory rules on Related Party Transactions

Dec 07, 2015 (LBO) – The Colombo Stock exchange has mandated the rules relating to Related Party Transactions by all Listed Companies from 01 January 2016.

Accordingly, section 9 of the CSE Listing Rules set out the relevant rules applicable in the event a listed entity enters into a related party transaction.

The salient features of the said Rules:

Definition of a “Related Party Transaction” (RPT)

A Related Party Transaction (RPT) is a transfer of resources, services or obligations between Related Parties regardless of whether a price is charged.

Related Party Transactions Review Committee (RPT Committee)

The listed entity should appoint a RPT Committee. The Rules relevant to such Committee are stated under Rule 9.2 of the CSE Listing Rules.

Requirement for shareholder approval

In respect of certain RPTs the company should obtain shareholder approval via a special resolution (Rule 9.1 of the CSE Listing Rules).

Immediate Market Disclosures

Some RPTs trigger an Immediate Market Disclosure (Rule 9.3 of the CSE Listing Rules).

Disclosure in the Annual Report

Listed companies should disclose details on the RPTs in the Annual Report (Rule 9.3.2 of the CSE Listing Rules).

Exempted Related Party Transactions

Certain identified RPTs do not fall within the ambit of section 9

Applicable only to equity listed companies

The Rules set out under Section 9, shall only be applicable in the event the company has shares listed at the CSE

 

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Commercial Credit Debenture Issue oversubscribed on opening day

Dec 07, 2015 (LBO) – Sri Lanka’s Commercial Credit and Finance PLC’s issue of up to 20 million rated, guaranteed, subordinated, redeemable five-year Debentures at a par value of 100 rupees each was oversubscribed soon after subscriptions were opened on Wednesday, the 3^rd of December 2015, the company said in a media release.

Accordingly the company was able to raise up to the maximum amount of up to two billion rupees.

The debentures will be listed on the Colombo Stock Exchange. The issue will yield an annual effective rate of 10.67 percent for Type A debentures or 6 months Treasury Bill Rate + 1.5 percent payable semi-annually for Type B Debentures. The issue has rating of “[SL] A+ (SO) Rating with Stable Outlook” by ICRA Lanka Limited.

“The opening day oversubscription reflects the investor confidence in Commercial Credit and Finance PLC., and allows us to sustain our growth momentum into the coming year. We would like to thank our investors and all our stakeholders for the confidence placed in us.” Rajiv Casie Chitty, Chief Operating Officer of Commercial Credit and Finance PLC said.

The current debenture issue will further reinforce the Company’s Tier II capital base, with the funds being utilised to strengthen the asset base and to reduce the interest rate risk by reducing the maturity mismatch of assets and liabilities.

“The lending portfolio of the company has been expanding and the private credit growth has also been significantly increasing in the current year. Funds raised through this issue will diversify the sources of long term funding and will enable us to reduce the asset liability mismatch,” Chitty said.

The company would continue its focus on the SME and Microfinance sectors and play a major role in empowering the customer base to reach higher financial goals and higher living standards.

The company will also look at expanding its branch network across the island to serve a wider consumer base, the media release said.

Managers to the issue was Acuity Partners (Private) Limited.

 

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FCID arrests Nalaka Godahewa over misuse of SEC funds

Dec 07, 2015 (LBO) – Sri Lanka’s Police Financial Crimes Investigation Division has arrested Former Chairman of Securities and Exchange Commission, Dr. Nalaka Godahewa on charges of financial fraud involving five million rupees.

The Police said he was arrested after arriving at the FCID on Monday morning to provide a statement.

Two individuals including a Deputy Director General of the Securities and Exchange Commission have been arrested over the alleged irregularities occurred during the past years.

 

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Debt Report: Thin activity in Sri Lanka markets, liquidity surplus dips

Nov 07, 2015 (LBO) – There was thin activity in Sri Lanka’s bond market with foreign remittances balancing importer dollar demand in the currency market.

Market eyes are on Fed policy meeting Dec 15-16, with Federal funds futures showing a 79-percent chance the Fed will end seven years of near-zero interest rates and about 50 percent chance of a second rate rise by March.

Federal Reserve Chair Janet Yellen could argue that U.S. labor market is healthier to raise benchmark interest rates this month, but dissenters argue that the hike will be counterproductive.

“There was hardly a trade in the bond market, there’s little activity in the currency market as well,” a dear said.

“I am holding to my view that there won’t be a US rate hike this month,” he said.

Comments by the IMF that Sri Lanka has not yet applied for balance of payments support was noted by market participants who said there was no real crisis that requires a support facility.

“There is no real crisis at the moment, so this borrowing may not happen immediately,” a trader said.

The rupee was quoted flat against the dollar at 143. 25/30, while 10-year bonds were unchanged at 9.35 percent.

The liquidity surplus was down to 84.9 billion rupees on Friday from 101 billion rupees on Thursday, likely on some government securities held by the Central Bank maturing, dealers said.

 

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Asiri Hospitals shows interest in buying Lanka Hospitals

Dec 07, 2015 (LBO) – Sri Lanka Softlogic‘s flagship hospital chain Asiri Hospitals Holdings Plc had shown interest in buying Lanka Hospitals stake, the company said in a filing to stock exchange.

“Softlogic’s flagship hospital chain Asiri Hospitals Holding Plc being the leading private sector healthcare provider in Sri Lanka wish to announce that we have expressed our interest in perusing the opportunity of acquiring the selling stake in Lanka Hospitals corporation Plc owned by the government of Sri Lanka as per the procedure related to divestiture of same by the Government of Sri Lanka.”

Sri Lanka’s diversified conglomerate Hemas Holdings also expressed that the company is interested in acquiring a stake of state-owned Lanka Hospitals Corporation.

As at the end of last year, 54.61 percent of Lanka Hospitals Corporation was owned by Sri Lanka Insurance Corporation and 28.66 percent was owned by Fortis Global Healthcare Holdings private limited.

Lanka Hospitals Corporation posted a net profit of 510 million rupees for the last year compared to 677 million rupees recorded in the previous year.

Basic earnings per share of Lanka Hospitals Corporation which commenced operations in 2002, under the name of Apollo Hospitals was 2.28 rupees in 2014.

The Government is to exit partially or fully from investments in Lanka Hospitals, Colombo Hilton, Hyatt Residencies, Waters Edge, Grand Oriental Hotel, Ceylinco Hospital and Mobitel by listing such investments in the CSE during 2016.

 

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Sri Lanka's CSE eyes more global investors through new CCP

Dec 07, 2015 (LBO) – Sri Lanka’s Colombo Stock Exchange (CSE) is aiming for more international investors by introducing a new risk management system through establishing a Central Counter Party (CCP) system, a senior official said.

“We need to manage the risk of the CSE – this is an area that we are lacking in,” Vajira Kulathilake, chairman Colombo Stock Exchange said.

“We are in the process of implementing a CCP which will reduce risk drastically and once we get this more global investors will be coming here.”

Effective risk management practices render stability to the financial markets and its participants by ensuring proper and timely settlement of trades.

The Colombo Stock Exchange (CSE) signed an agreement with BTA Consulting (BTA) of the United Kingdom to provide Consultancy and Project Management services to set up a Clearing House which will act as a Central Counterparty (CCP) for settlement of securities, including shares, corporate debt and other financial market instruments transacted in Sri Lanka.

This is a joint initiative between the Central Bank of Sri Lanka (CBSL), the Securities and Exchange Commission of Sri Lanka (SEC) and the Colombo Stock Exchange (CSE). The project was launched in January 2015. The Clearing House is expected to be set up within a two year period.

Kulathilake says that the proposed Securities and Exchange Commission act will be the legal back bone for the CSE while the proposed demutualization process would help with the governance side.

“The SEC act will be the legal back bone of the all the things that we are proposing to do, not only criminal but also civil proceedings,” he said.

“We will start the demutualization process soon and this will help the governance side.”

Analysts say that the present SEC Act was introduced in 1987 and though there were three amendments thereafter, an overall review of the provisions to align it to the global market trends has not been done.

 

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Op-Ed on Sri Lanka Budget - Is Sri Lanka's Fiscal House in Order?

By Todd Schneider

Constructing a good budget is like building a good house. The foundation needs to be solid, high-quality materials make a big difference to durability, and careful craftsmanship will bring both stability and confidence to weather future storms. Similarly, budgets needed to be well grounded and credible, built with care to ensure both equity and support high levels of inclusive economic growth, and have enough room to adapt to shocks. Sri Lanka’s proposed budget brings many of these elements to the table, but the devil is in the details and some proposals raise questions.

The proposed budget is right to emphasize the secular decline in government revenue over the past two decades and to make reversing this trend a top priority. Sri Lanka’s tax-to-GDP ratio is one of the lowest in the world, and estimated tax efficiency is low compared with peer countries. However, the targeted rise in public revenue (tax and non-tax) of almost 40 percent seems ambitious—perhaps overly ambitious. This compares with the average rate of revenue growth over the past 20 years of 12 percent. Apart from being an unprecedented increase, the main underlying measures—for the most part—are likely to work toward lowering revenues. For example, the budget proposes to (i) reduce the rate of the value added tax (VAT); (ii) introduce multiple VAT rates (a practice that generally makes the tax more difficult to administer); (iii) reverse the extension of the VAT to the wholesale and retail sectors; (iv) raise significantly the threshold for the personal income tax; and (v) introduce new tax exemptions. Non-tax revenue is projected to rise by 300 percent, but the specific measures to achieve this increase are not clearly specified.

On the spending side, there are legitimate and long-standing public investment needs, and the projected increase in capital expenditures is welcome in that context. But the concern is whether the overall targets can indeed be met. Overall expenditures are expected to grow by a brisk 30 percent—with recurrent and capital spending increasing by 17 and 70 percent, respectively. After the sharp rise in wage and salary spending under the 2015 budget, the increase in spending in this area is expected to be contained to just 7 percent. However, spending for other goods and services almost doubles, and the reason for this has yet to be clarified. The increase in capital expenditures is ambitious, and from a macroeconomic perspective, a positive commitment given the need to bolster infrastructure in support of sustained economic development and growth. The risk is that capital spending could be slashed in the event of revenues falling short—which has been the case for the past several years. This underscores the need for realistic revenue estimates which would then provide greater certainty to the path of critical expenditures.

Even assuming the budget is executed as planned, there is still the question of how to finance a deficit close to 6 percent of GDP. The budget envisions a second year of heavy reliance on domestic debt—covering about three-quarters of the total deficit, with the remainder financed by issuance of new external debt. Here again, the numbers should raise questions. A large portion of new domestic financing is assumed to come from Sri Lanka’s nonbank financial sector, while bank financing (which rose precipitously in 2015) is projected to fall. It is not clear whether the nonbank sector has the liquidity to cover this financing gap.

Perhaps of greatest concern are not the absolute numbers, but the direction of policies and the lack of a medium-term context. The fundamental problem with Sri Lanka’s public finances—as amply highlighted in the budget speech itself—is low revenues. The fundamental solution to this problem involves restructuring the tax framework and tax administration to make the system simple, fair, and efficient. The proposed budget falls far short of steps needed to move the Sri Lankan tax system in this direction. Without such commitments, medium-term prospects may suffer from the same weaknesses seen in the past—continued deficits, tight limits on needed investment in infrastructure and human capital, and a persistent overhang of public debt that undermine Sri Lanka’s ability to cope with shocks.

What is needed? In the near term, spending has to be held in check. Careful scrutiny is needed to ensure that taxpayer funds are invested in such a way that maximizes public benefit and raises Sri Lanka’s capacity for sustained and inclusive growth. Revenues need to rise quickly enough to reduce the government fiscal deficit and allow public debt to fall. Several steps are needed. First, so called “tax expenditures” (exemptions, holidays, and special rates) need to be clearly outlined in the budget itself so that policy makers and the public can evaluate their cost in terms of foregone revenue. Second, most of these exemptions should be eliminated—which would significantly increase the tax base and spread the burden of public finance more broadly (and more fairly). Third, the structure of taxation (particularly the many rates which make the direct tax system almost indecipherable) needs to be simplified—the budget proposal to redraft Sri Lanka’s tax legislation is a good first step in this regard. Taken together, these steps would not only rebuild revenue, but also increase transparency, level the playing field, and help to ensure greater equity in taxation.

Prime Minister Wickremesinghe’s November 5 speech to parliament set out two major policy milestones: A budget deficit of 3.5 percent by 2020, and elimination of tax exemptions. It would be a welcome development to see the first steps toward these objectives captured in the 2016 budget—a new foundation for Sri Lanka’s fiscal house.

 

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Sri Lanka equity earnings down 6 pct in Q3 on diversifieds, telcos: CT CLSA

Dec 04, 2015 (LBO) – Sri Lanka equity market earnings declined 6 percent in the third quarter of this year largely due to lower earnings in diversified and telecommunications sectors, CT CLSA said in a research report.

A slowdown in banking, finance and insurance added to this performance, the securities firm said.

On a twelve-month basis, however, motors, manufacturing and healthcare showed strong earnings growth.

The diversified sector reported 10 percent lower earnings in the third quarter, year on year, “impacted by various challenges, including the declines in power segment earnings, volatile interest rate environment and impacts of the currency depreciation.”

Telecommunications earnings fell 65 percent in the third quarter largely due to book losses incurred on the back of currency depreciation.

The banking, finance and insurance sector rose by a slow 6 percent in the third quarter, with topline growth supported by private sector credit growth and demand for leasing.

Earnings of certain sector heavy weights were negatively impacted by marked to market losses amid rising interest rate environment, CT CLSA said.

Diversified Sector

Diversified earnings were particularly affected by losses incurred by Carson Cumberbatch (CARS) and Dunamis Capital (CSEC).

“CARS losses were attributable to the exchange losses recorded in oil palm subsidiaries amid depreciation of Indonesian Rupiah against the dollar.”

CSEC earnings were impacted by the decreased profits of subsidiary, First Capital Holdings (CFVF), which recorded trading and fair valuation losses on the sale of government securities, amid the increase in interest rates during the quarter.

“Sector heavy John Keells Holdings (JKH) earnings was boosted by boosted by exchange gains, amid the depreciation of LKR.”

In the meantime, Consumer Foods, Retail, Finance, FMCG and Logistics subsectors improved earnings of CT Holdings (CTHR), ExpoLanka Holdings (EXPO) and Valliblel One (VONE).”

Telecommunications

In terms of telecommunications, revenue growth at DIAL and SLTL were driven by growth in data business volumes (at an estimated sector data margin of 26 percent) and Pay TV business volumes.

However, revenue related to international termination continued its decline amid increased usage of Voice Over Internet Protocol (VOIP) tools such as Skype, Viber and WhatsApp.

International termination revenue related business margins are estimated at 60 percent for the overall telecommunications sector in Sri Lanka

Motors +66 pct growth

In terms of the last twelve month earnings, up to September, Motors is the best performing sector up 66 percent over the previous year, followed by Manufacturing up 39 percent, and Healthcare up 32 percent.

Banking, finance and insurance is up 27.7 percent, and beverage, food and tobacco showed earnings growth of 18.4 percent.

For the market, overall, trailing twelve-month (TTM) earnings increased 5 percent.

“Current TTM market PER stands at 14.2X – we forecast forward market PER at 14.7X by 2015E and 13.8X by 2016E, supported by YoY total market earnings growth of +8% and +6% respectively,” the report said.

The report can be viewed here:

http://www.lankabusinessonline.com/wp-content/uploads/2015/12/CT-CLSA-3Q2015-Market-Earnings-Review-30-November-2015.pdf

 

 

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IMF looking at Sri Lanka options, fiscal consolidation key: IMF

Nov 04, 2015 (LBO) – Sri Lanka’s government has expressed interest in a IMF-supported program as one option to address balance of payments pressures, the resident representative of the IMF told Lanka Business Online.

“IMF staff is considering options for Sri Lanka, which would depend on our assessment of macroeconomic vulnerabilities, the nature and size of balance of payments needs, and government policies to address these vulnerabilities,” Eteri Kvintradze, the resident representative of the IMF, said in emailed comments.

“However, we have not formally entered into program negotiations,” she said.

Prime Minister Ranil Wickremesinghe said in Parliament recently that Sri Lanka will consider support from the IMF as a matter of prudence due to a difficult international economic environment.

“Sri Lanka faces tighter external financing conditions, slower-than-expected recovery in Europe, rebalancing in China, and geopolitical-related economic distress in some trading partners,” Kvintradze said.

“Domestic macroeconomic policies are also an issue.”

The budget announced for 2016 has proposals to formalize the economy and widen the tax base, which according to the finance minister would pay dividends over the medium term.

“The IMF has emphasized the need for steps to reestablish fiscal consolidation and reduce public debt—mainly by expenditure restraint and such revenue reforms as eliminating tax exemptions.”

Kvintradze said IMF staff has some concerns with the proposed 2016 budget, which does not envisage significant consolidation relative to the expected outturn for 2015.

 

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Sri Lanka's CSE to see infrastructure bonds and REITs soon

Dec 04, 2015 (LBO) – Sri Lanka’s Colombo Stock Exchange (CSE) chief said that new products in the form of infrastructure bonds and REIT’s will be introduced to broaden and add depth to the islands debt markets.

“New products need be brought in, Sri Lanka’s debt market needs to be broadened and depth needs to be brought in,” Vajira Kulathilake, chairman Colombo Stock Exchange said.

“But that will not be enough we need to broaden it further so that infrastructure bonds can be issued soon on the CSE.”

He was speaking at a ceremony held in Colombo to mark the 30th anniversary of formally setting up the Colombo Stock Exchange. Kulathilake said that Real Estate Investment Trusts or REITs, a type of property fund will also be added to the CSE soon.

“Similarly we will go for REITs,” he said.

“This is very important to get exposure to the real-estate side of things and investments – people can’t have real estate at the moment because it is too expensive and REIT’s can be used to take real-estate to the general public.”

Analysts say that there are is a new market space opening up around this core to serve institutional investors, real estate firms and Real Estate Investment Trusts (REITs) with the boom in Sri Lanka’s property market.

REITs can own and manage properties and investors receive the income from these properties through dividend distributions.

Experts says that there are many benefits of investing in REITs which include higher dividend yields than for shares, they are bought and sold on exchange just like shares and lower costs than buying and selling property directly.

Data shows that in 2009 the luxury housing stock stood at 783 units and by 2015 the number has gone up to 2,657. By the end of 2018-19, the numbers are expected to hit 6,000, when projects such as Altair, Shangri-La, Colombo City and 96 Iconic are completed.

 

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Sri Lanka stocks close down 0.2-pct: Net foreign outflow

Dec 04, 2015 (LBO) – Sri Lankan stocks closed down 0.16 percent with losses in index heavy stocks amid low investor activity, brokers said.

The Colombo benchmark All Share Price Index closed down 11.10 points at 6,869.56 down 0.16 percent. S&P SL20 closed 7.54 points lower at 3,638.56 down 0.21 percent.

Turnover was low at 372 million rupees, lower than the daily average of 1.1 billion rupees with 60 stocks closing positive against 62 negative.

“There was net foreign outflow after four consecutive days of inflows,” Lanka Securities said.

The main index showed losses in Nestle Lanka closing at 2,080.20 rupees, 44.00 rupees and John Keells Holdings closing at 180.00 rupees, down 0.70 rupees.

Distilleries Company also closed at 265.00 rupees, down 4.60 rupees.

There was a net foreign outflow of 13 million rupees with foreign participation at 38 percent.

 

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Sri Lanka state sector asked to generate revenue for national economy: PM

Dec 03, 2015 (LBO) – Sri Lanka’s state-owned enterprises have to perform better towards contributing to the national economy, Prime Minister Ranil Wickremesinghe said.

“Our first focus is on the state enterprise and we will ensure that there is better performance in the state enterprises in the coming few years,” he said.

“We are keeping the 2020 deficit target so that the state enterprises have to make a contribution to the national economy and to the state revenue.”

Sri Lanka wants to reduce the budget deficit to 3.5 percent of gross national production in the medium term by 2020.

The new administration made a public sector salary increment in its mini budget 2015 to win the public sector votes and experts say more taxes have been charged from the people to pay state workers in the budget for 2016.

Sri Lanka’s state sector workers has been criticised often due to their inefficient work methods.

Also the loss making nature of key SOEs has created immense pressure not only on the national budget but also on the entire financial system of the country.

Finance Minister Ravi Karunanayake said in his budget speech that “an inability to bring in innovative measures to combat the incidence could be termed as a dangerous trend.“

Hence, there is a strong necessity for the introduction of corrective measures on a priority basis to make them commercially viable enterprises rather than being loss making enterprises.

The government said they have already initiated measures to address this malady.

“The creation of the innovative Ministry of Public Enterprise Development is a key step forward in this regard,” Karunanayake said.

“What we are focused on is to restructure the management model of SOEs, introduce market based pricing mechanisms in public utilities on a selective basis, rationalize recruitment while adopting measures to improve productivity of the existing workforce, and explore avenues to improve efficiency of SOEs including through the public private partnership.”

In the budget for 2016, the government said it will exit partially or fully from those non-strategic investments in Lanka Hospitals, Hotel Developers PLC (Colombo Hilton), Hyatt Residencies, Waters Edge, Grand Oriental Hotel, Ceylinco Hospital and Mobitel by listing such investments in the Colombo Stock Exchange during 2016.

The monies generated through such listings will be used to retire high cost debt accrued by the Rajapaksa regime.

 

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