Sri Lanka Newspaper 18/01/2012

Credit rule relaxation bit of a ‘puswedilla’

Anticipated kick-start week & not sustained

The relaxed broker credit rules announced by the SEC on Monday failed to kick start the Colombo bourse yesterday although turnover was reasonably good. Both indices closed down with gains recorded during early morning trading not sustained, brokers said.

The market posted a turnover of Rs.1.39 billion, up from the previous day’s Rs.1.17 billion, with the All Share Price Index down a marginal 4.73 points (0.08%) and the Milanka down 33.68 points (0.67%) with 90 gainers against 104 losers.

"The market was back to base with the much anticipated announcement on broker credit not making much of a difference," Prashan Fernando of Acuity Stockbrokers said. "It was up in the morning but couldn’t hold those gains."

Asia Asset Finance was the top business generator closing Rs.2.70 up at Rs.8.50 with nearly 45.8 million shares traded between Rs.6.30 and Rs.8.70 contributing the day’s top turnover of Rs.365.9 million.

ERI followed gaining 60 cents to close at Rs.34.20 on nearly 6.2 million shares done between Rs.34.10 and Rs.37.90 contributing Rs.218.1 million to the day’s business volumes.

Brokers said there appeared to be continuing foreign selling on Commercial Bank, Tokyo and JKH all of which demonstrated volume and price declines.

ComBank which hit Rs.104 during early trading closed 10 cents down at Rs.100 on over 0.8 million shares done betwe4en Rs.100 and Rs.104 while Tokyo (non-voting) closed 30 cents down at Rs.27.90 on slightly over 1.9 million shares done between Rs.27.90 and Rs.29.50. JKH was down Rs.2.10 to close at Rs.162 on a little over 0.1 million shares done between Rs.162 and Rs.168.

"Traders who bought in the last two days planning to sell on anticipated market gains following the SEC announcement sold off anyway," a broker said.

He noted that the stocks that showed price gains and volume were speculative counters like Asia Asset Finance, ERI and HVA Foods. Colombo Land also demonstrated volume (nearly 0.8 million shares) but closed 90 cents down at Rs.53 on a trading range of Rs.53 to Rs.58 with gains made during early trading not sustained.

Panasian Power closed flat at Rs.4.20 on nearly 6.8 million shares done between Rs.4.10 and Rs.4.50 as did Blue Diamonds which closed at the previous Rs.8.40 level on slightly over 2.7 million shares done between Rs.8.30 and Rs.10. Regnis peaked at Rs.382 but closed just Rs.1.80 up at Rs.360 on l71,200 shares traded between Rs.340 and Rs.382.

Brokers said that there was selling pressure on the market and once that is done they were hopeful that the market would move up slowly.

There were four crossings yesterday – 452,800 ComBank at Rs.100, two parcels each of 600,000 of ERI at Rs.34 and 1.2 million Tokyo X at Rs.28.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=43372

The additional Rs. 5 billion than was infused to the stock exchange, after the Securities and Exchange Commission (SEC) relaxed broker credit restrictions, failed to lift the bourse despite an early morning rally with brokers warning that there was a much bigger problem to deal with.

"The SEC had taken its time to revise the broker credit restriction while most broker firms clamoured for an early relaxation, griping that it was hurting sentiment at the Colombo Stock Exchange resulting in the slump that we saw. But the SEC realised there was a bigger problem and the relaxation announced on Monday may have been a move to placate the nagging market. After, the performance of the CSE on Tuesday, regulators maybe saying ‘we told you so’," a market analyst told The Island Financial Review.

Meanwhile, a broker firm that had earlier said relaxing broker credit restrictions may not help much and that other capital sources may have to be tapped, said reality set in twenty minutes into the opening of the day’s trading session and that the problem was much deeper.

"The most anticipated announcement hit the market Tuesday morning and both indices had their quick fix for about 20 minutes and slowly came back to reality within the hour," Bartleet Religare Securities (BRS) said.

"This is a clear indication of the amount of selling pressure that persists in the market. What will the key stakeholders now do to kick start the system? Clearly a quick fix wont work as the problem is much deeper than a few billion rupees," it said.

"AAF continued its stunning run as most market participants jumped in and out to make quick profits. We are currently unsure of the market direction and unable to forecast any stocks to watch for. We advise clients to stay in cash as the probability of a move up is very low.

Technically the ASPI has clear resistance at 6,030 and support is at 5,850. We could see the index now fall back to support unless we see a speculator or two take control of a stock or two which hopefully will help the index trade within its range," BRS said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=43373

Harry’s post on HNB Board deemed vacated

Harry Jayawardena is deemed to have vacated his post as Director of Hatton National Bank PLC in keeping with Central Bank governance regulations.

"At a meeting of Board of Directors of Hatton National Bank PLC on January 12, 2012, it was decided that by operation of Monetary Board Direction No 11 of 2007, as amended by Direction No 5 of 2008, issued under the Banking Act, Mr. D H S (Harry) Jayawardena is deemed to be vacated his office as a Director of HNB after having completed his term of office," the bank said in a stock exchange filing yesterday (Jan. 17).

"His vacation of post as Director of HNB was accepted by the Board with effect from December 31, 2011," the bank said.http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=43374

Softlogic to construct luxury resort

Softlogic Holdings entered into shareholders’ agreement with Ominga International (Pvt) Ltd to construct a luxury resort with 40 rooms and 20 luxury villas in Pasikudah.

"According to the agreement, Softlogic shall own a 66.66 percent stake in Ominga for which the company would make an investment of Rs. 200 million. The said investment would be made in tranches upon the Board making calls based on the funding requirements of Ominga for the construction," Softlogic Holdings said in a stock exchange filing.http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=43375

Lanka braces for surge in tourist arrivals as officials lament destruction of shipwrecks
* SME tourism sector gets boots

By Harischandra Gunaratna

Deputy Economic Development Minister Lakshman Yapa Abeywardena yesterday expressed confidence that the tourist arrivals for this month would reach 100,000 and during the first 15 days of the year accounted for 60,982 arrivals, of whom 27,000 had obtained visas online.

"We exceeded the anticipated revenue of US$ 750 million for 2011 and earned US$ 850 million from tourism and the country would easily reach the one million mark in tourist arrivals by the end of the year," the minister said.

He was addressing a news conference in connection with the forthcoming "Sancharaka Udawa" (Meet Mart) organised by the Sri Lanka Association of Inbound Tour Operators (SLAITO) which would act as a spring board for those in the Small and Medium Enterprises in Tourism on a single platform.

Abeywardena praising the initiative taken by SLAITO stressed that the SME sector needed more assistance in marketing their products and the knowhow and expertise to improve their products. "If their products, which would have a high demand if properly marketed, will generate a better income for them thus bringing in the much needed foreign exchange to the country and there are many places of scenic beauty which can be potential sites for tourism promotion.

"The "Sancharaka Udawa" would act as a springboard for them and they would come in contact with big players in the industry who could assist the Small and Medium Enterprises and it would augur well for tourism, the Minister said.

Responding to a question on the number of domestic tourists recorded last year, the minister said it was around two million.

Abeywardena stressed the need to promote the concept of "Home Stays" and added that in 2011 there had been 500 rooms operating in this segment of tourism.

He was confident that more and more people would venture out on "Home stays" as there was a big demand from tourists and banks were providing loans at 8 percent interest.

"What is necessary is to provide the knowhow and training to those interested in providing "Home Stays," and the private sector is ready to assist them with financial assistance," he said.

President of SLITO Nilmin Nanayakkara said that already over 150 stalls each priced at Rs 6,000, had been sold and towards the end of the month he was confident that the number would reach 200 which was the maximum number that could be accommodated at the venue.

Chairman Sri Lanka Tourism, Dr Nalaka Godahewa urged the media to assist the Small and Medium sector by highlighting the ventures coming under the SME sector and the tourist attractions around them.

Dr Godahewa said that there were around 600 ship wrecks in the seas surrounding the country and certain elements cannibalise them for scrap iron. These shipwrecks would instead be a great tourist attraction if properly marketed he added. If properly marketed, these sites could generate a billion dollars from high-end tourists.

Environmentalists have voiced their concern over the large scale destruction of shipwrecks for scrap metal which was destroying the invaluable corral reefs and heritage of the country.

Dilip Mudadeniya, Director, Sri Lanka Tourism in charge of Investments said that at present there were only 22,000 hotel rooms and the number would be increased to 45,000 by 2016 to meet the growing demand.

"In Passekudah alone there 1,000 rooms will be available by the end of this year," he said.

"Sancharaka Udawa" will be held on January 31 at the Ceylon Continental Hotel.http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=43379

Travelon introduces ‘Holidays on Rail’

Innovative domestic & out-bound tour operator, Travelon has ventured into new vistas of travel, namely rail travel with an out-sourced rail company giving ground support.

The recent tour by Travelon saw 36 travelers boarding the Kandy - Colombo ICE (Intercity Express). The guests were served champagne, afternoon snacks, tea and coffee travelling in a super luxury comfort within the cabin maintained by the CGR.

The luxury compartment comprising 40 seats is attached next to the engine, so as not to make any excessive swings & swaying of the carriage due to the uneven rails which dates back to 1950’s or prior.

However the guests who traveled with Travelon on rails were quite happy with the new service which the travel company has introduced and enjoyed the beautiful scenery.

The 1st class carraige is fully air conditioned, with comfortable seats & tray holder, baggage compartment, free flow of tea and coffee, piped music & movies and clean & modern toilettes. The tourists also had the option of availing themselves of the service of a mini fridge and a microwave oven to heat the food. vegetarian food would be served, if prior bookings are made at the time of purchase of tickets.

The next rail tour by Travelon will be during the 4th - 6th February long weekend when they venture out to Nanuoya (Nuwara Eliya), Peradeniya, Kandy & return to Colombo entirely on the luxury train. Night stays in Hotel Hilltop - Kandy and Alpine or Silver Falls.http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=43358

RAM assigns corporate ratings of BBB/P3 to Sierra Cables PLC

RAM Ratings Lanka has assigned respective long- and short-term corporate credit ratings of BBB and P3 to Sierra Cables PLC (Sierra or the Group); the long-term rating has a stable outlook.
The ratings reflect Sierra’s good brand and established track record as well as satisfactory financial profile. Meanwhile, the ratings are moderated by the Group’s vulnerability to fluctuations in raw material prices, intensive working capital requirements which has rendered a moderate liquidity position as well the Group’s dependence on the cyclical construction sector. The ratings are further moderated by the gestation periods of the Group’s planned new businesses.
Sierra is involved in the manufacture and sale of low-voltage cables, primarily for electrification and for the purposes of the telecommunications industry. The Group’s product range includes earth wires, domestic and industrial wiring cables, power cords, antenna wires and telecommunication distribution cables.
Incorporated in 1978, Sierra has an established track record and a good brand name, particularly in the construction industry. The Group derives its name from its parent, Sierra Holdings (Pvt) Ltd. (Sierra Holdings), a leading player in the Sri Lankan construction industry.
Sierra is currently the second-largest player in the domestic cable industry, and is estimated to hold a market share of around 20%.
The Group’s market position is supported by its island-wide network of distributors and vast array of products.
Meanwhile, the ratings are also supported by the Group’s satisfactory financial profile. Although total borrowings increased over five-fold to Rs. 766.15 million by end-March 2011, to fund higher working capital requirements the Group’s gearing levels clocked in at 0.59 times.
In tandem with its rising debt level, the Group’s funds from operations debt coverage declined to 0.20 times, albeit still considered good. Supported by its stronger overall performance in 1Q FYE 31 March 2012, the Group’s FFO debt coverage improved to an annualised 0.40 times as of end-June 2011.
On the other hand, the ratings are pressured by Sierra’s vulnerability to raw material prices, mainly copper, aluminium and polyvinyl chloride. This is exacerbated by the fact that Sierra is unable to fully pass on cost increases to its customers owing to intense competition. This is reflected in Sierra’s volatile margins.
Sierra is also exposed to foreign-exchange risk as all its raw materials are imported.
On a separate note, RAM Ratings Lanka notes that the Group’s operating cash cycle is lengthy, of late averaging at around nine months. This is primarily due to Sierra’s inventory cycle, which has increased to around eight months.
In working capital terms, this translated into an inventory level of Rs. 978.39 million as of end-March 2011, rising further to Rs. 1.06 billion by end-June 2011. As such, Sierra has resorted to using more short-term debts to fund its intensive working capital requirements, which has in turn resulted in a moderate liquidity position.
The Group is exposed to the inherent cyclicality of the construction sector, particularly housing and commercial developments. That said, Sri Lanka’s construction sector has a positive long-term outlook. Looking ahead, higher disposable income against the backdrop of stronger economic growth is anticipated to support the expansion of the housing industry. This, coupled with Government-led infrastructure projects, is expected to propel the overall growth of the domestic construction sector.
Looking ahead, the management plans to venture into the manufacture of PVC pipes, primarily for irrigation-related activities. In addition, the Group plans to venture into the power sector by constructing a hydro-power plant.
While acknowledging that the new ventures will diversify Sierra’s cash flow sources, RAM Ratings also notes that the requisite gestation periods may hamper the Group’s performance in the immediate term.http://www.ft.lk/2012/01/18/ram-assigns-corporate-ratings-of-bbbp3-to-sierra-cables-plc/#more-66652

Japanese investments sought for US$ 13mn handlooms industry

Sri Lanka’s growing apparels and handloom sectors are open for Japanese investors. Specially, the $ 13 Mn handlooms sector has strong investment potential. "Also, Industry labour used in Sri Lanka’s apparel sector is qualified and skilled in comparison to some other manufacturing destinations providing low cost labour. Our human resource capacity has resulted in high quality apparel exports from Colombo on a continuous basis," said Rishad Bathiudeen, Minister of Industry and Commerce of Sri Lanka.

Bathiudeen made these comments to Nobuhito Hobo, Ambassador of Japan to Sri Lanka and Maldives, who made a courtesy call last Monday.

"The demand for Sri Lanka handlooms have been steadily growing in both local and international segments. Sri Lanka’s booming tourism has become a key driver in the handloom surge. To strengthen the sector, we have set up a high priority national Handlooms Task Force in early January. Having set up the new national level task force, we are now preparing to upgrade the sector with product diversification, new training, design development, and marketing. We are planning to establish District level handloom centres under private sector management. Our promising handlooms can utilise valuable Japanese support in this new direction," Bathiudeen said.

"Also, we warmly welcome Japanese international investors who want to invest in our apparel sector. We are keen to increase our share of apparel exports to the Japanese market. The handlooms sector is a direct way to develop our rural economy. We are also developing the rural sector with such projects as the Divineguma."

According to the Department of Commerce of Sri Lanka, Foreign Direct Investment (FDI) by Japanese companies into Sri Lanka dates back to the 1970s; the first milestone was in 1972, with the establishment of a joint venture between Noritake of Japan and the Ceylon Ceramics Corporation. Since 1996, a number of large multinational conglomerates including NTT, Mitsui Group, Kawasho Corporation, and YKK have committed substantial investments in large infrastructure and manufacturing projects. At present, there are about 60 enterprises with Japanese investment, operating in Sri Lanka under the BOI Law at end of 2009, having invested about US$ 350 million, and providing more than 12,000 employment opportunities. Among the leading Japanese projects in Sri Lanka under BOI are Ceyquartz M B I (Pvt) Ltd, Colombo Power (Pvt) Ltd, Colombo Dockyard, Dankotuwa Porcelain, F D K Lanka, Koolair Venture Power, Noritake Lanka porcelain, Tokyo cement, Uchihashi Lanka, and Okaya Lanka.

Responding to Bathiudeen, Nobuhito Hobo said: "The Sri Lankan handloom sector certainly appears to be interesting. Fair trade practices are now very active in the Japanese market. Also, to advance in the Japanese market, Sri Lankan apparels and looms need to differentiate more. The main character of the Japanese apparel market is being high end.Sri Lanka handlooms should encourage further product diversification and should also better connect to international markets. This year Japan and Sri Lanka will commemorate the 60th anniversary of the establishment of our diplomatic relations. The 60th Anniversary celebrations will further strengthen the friendly relations between our two countries."

According to the ministry, Sri Lanka’s $ 13 Mn handlooms industry has seen a sudden resurgence in the aftermath of end of conflict in 2009 and booming tourism numbers. Currently, Sri Lanka handlooms, in addition to the domestic market, are readily absorbed by Italy, Maldives, Germany, France, United Kingdom, Thailand, Netherlands and Norway. According to the Exports Development Board (EDB) under the Ministry of Industry and Commerce, the handloom exports valued $ 0.90 Mn in 2009 rose in 2010 to $ 1.5 Mn and in January-October 2011, stood at $ 1.17 Mn.

EDB expects the handloom exports to hit $ 2.24 Mn in 2015. The handloom textile export target for 2011 set by the EDB under the Ministry of Industries is US $ 1.29 million (Rs 146 million). Sri Lanka’s handloom sector is one of the low cost but high earning industries. Its annual production exceeds six million metres of looms with an estimated annual production value of Rs 1500 Mn ($ 13.19 Mn) all of which are absorbed by both local and international demand. The production is labour intensive and the industry consumes less electricity & utilities while generating higher employment. At present, there are 511 weaving centres with 2971 weavers and more than 10000 looms in Sri Lanka assisted by 22 dying houses. More than 10000 personnel are engaged in the handloom industry. According to NEDA, there are 919 private sector handloom operators of which 536 are based in the East, operating 2454 looms.

In the cooperative sector, 925 handlooms in 110 centres and under the Provincial Councils are 5169 handlooms in 511 centres. The key Lankan provinces for handlooms are the Wayamba, Western, and Central provinces. The eastern regions of Sri Lanka too were reputed for handlooms but the 2004 Tsunami disaster inflicted damage on the eastern production but despite this, eastern handlooms continue to command buyer appeal.http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=43360

Volatile market conditions persist on the Colombo bourse with both indices in the red by mid day, Wednesday and retail investors the most active. Profit taking is seen on recent price gainers and a newly listed pharmaceutical firm is the hot stock for the day so far, said brokers.
Asia Asset Finance which recorded significant gains over the past week is witnessing profit taking, with the share recording the second highest losses by mid day Wednesday.
ERI, also
a recent price gainer, shed Rs 2.30 or 6.7 percent trading at Rs 32.00 having reached a high of Rs 34.50 in earlier trade.
PC Pharma share, which started trading Wednesday having listed through introduction, is drawing investor interest. The share with an indicative price of Rs 10.00 opened at Rs 60.00, shooting up to Rs 89.00 before settling at Rs 66.40 by mid day.
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