Sri Lanka Newspapers 03/02/2012

Bourse tumbles sharply, below billion turnover

The Colombo bourse yesterday suffered a sharp tumble on a turnover of Rs.970.1 million, down from the previous day’s Rs.1.33 billion, with both indices down – the All Share by 76.84 points (1.35%) and the Milanka by 68.35 points (1.39%) with 32 gainers dismally trailing 162 losers.

Brokers said that Acme Aluminium which had been on a retail-driven high in recent days fell sharply to close Rs.8.60 down at Rs.24 with nearly 7.3 million shares traded between Rs.23 and Rs.34.50 generating the day’s top turnover of Rs.221.8 million.

"There was lot of speculative trading on this stock for reasons that are not clear," a broker said. ``After peaking to Rs.34.50 it slumped to a low of Rs.23."

In addition to Acme, there was heavy retail activity in Swarnamahal, Orient Garments and Asia Asset Finance, brokers said.

JKH continued to show volume closing Rs.2.50 down at Rs.169 on nearly 0.6 million shares done between Rs.167 and Rs.170 with a crossing of 476,000 shares at Rs.170 first thing in the morning.

Swarnamahal continued to gain, up Rs.11.80 to close at Rs.153 on nearly 0.5 million shares done between Rs.142.70 and Rs.157 while Orient Garments closed 50 cents up at Rs.24.80 on nearly 2.1 million shares done between Rs.24.10 and Rs.29.50.

Asia Asset Finance also showed volume but edged down 20 cents to close at Rs.6 on nearly 6.2 million shares done between Rs.5.90 and Rs.6.70.

Commercial Bank, both voting and non-voting, lost ground with the voting share closing Rs.3 down at Rs.102.50 on 0.3 million shares done between Rs.101.10 and Rs.104. The non-voting share was down Rs.3.50 to at Rs.85.10 on 91,900 shares done between Rs.85 and Rs.90.30.

Other blue chip losers included HNB down 10 cents to Rs.150, Asian Hotel Properties down Rs.5 to Rs.69 and Aitken Spence down 20 cents to Rs.113.20. Tokyo Cement was up 10 cents to close at Rs.41 on nearly 0.5 million shares traded between Rs.39 and Rs.40.

Asiri Hospitals and Asiri Surgical declared second interim dividends of Rs.0.13 per share for 2011/12 XD from Feb. 15 and with payment on Feb. 27. Rs.0.07 (54.9%) of the Asiri Hospitals dividends will be tax-free while the whole dividend from Asiri Surgical will be free of tax, the announcement said.

CIC announced a dividend of Rs.0.80 per share for 2011/12 XD from Feb. 15 with payment on Feb. 23 while Ceylon Tobacco announced a final dividend of Rs.5.70 per share for 2011 after shareholder approval at an April 3 AGM. The share will trade XD from April 4 with payment on April 17.
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* Interest rate, exchange rate expected to move for stability say dealers

Money market players are at the edge of their seats as the Central Bank and International Monetary Fund are expected to release key statements today (Feb. 03).

Speaking to The Island Financial Review dealers said they expected little change in the status quo but did not rule out some dramatic changes, going by recent statements made by the Central Bank Governor.

Dealers said the Central Bank could not go on defending the exchange rate with import demand continuing to be a severe strain on the country’s reserve position. High credit demand would also have to be curtailed. These issues have been extensively covered in The Island Financial Review.

The trade deficit for the period January to November 2011 more than doubled, expanding 111.3 percent to US$ 8.8 billion from US$ 4.18 billion a year earlier, as export growth was outpaced by the growth of imports. Official reserves which stood at US$ 6.2 billion as at end November 2011, fell 30.6 percent, down from US$ 8.1 billion as at end July 2011.

"Something has to happen today, either with the interest rate or the exchange rate," one dealer said.

Earlier, Central Bank Governor Ajith Nivard Cabraal has told Reuters that changes would be introduced with today’s Monetary Policy Review that would create a new structural change in the economy as banks continue to face liquidity constraints amidst Central Bank dollar sales in defence of the exchange rate and high credit growth.

Cabraal has said that the Central Bank may take action to cool down continuing high credit growth in the economy which has caused some concern as banks continue to face liquidity constraints as the Central Bank continued to sell dollars to keep the exchange rate stable.

"We are concerned about high credit growth. It was too high in the last quarter and in fact it took us by surprise. We were expecting a slowdown due to the global and Asian slowdown," Cabraal said.

"We may consider actions if credit remains high and we have a number of tools including raising interest rates, imposing import margins, depreciating the rupee, and increasing taxes. But we don’t want to kill the growth momentum," Cabraal said, declining to comment on what would be the main tool of credit growth continued to persist.

As reported in these pages, Treasury Secretary Dr. P. B. Jayasundera and many economists have called for a depreciation of the rupee and tightening of interest rates to curtail import demand.

"In the next monetary policy announcement, you will see some of the few new things that we are doing, designed in an overall balance that will create a new structural change for the economy," Cabraal said. The Monetary Policy announcement will be announced early morning today (Feb. 03).

Cabraal also said the government plans to sell a US$ 1 billion eurobond this year as the debut US$ 500 million sovereign bond matures this year in 2012. He said the timing and tenure are not yet decided.

Some dealers told The Island Financial Review that they expected policy rates to remain unchanged but said the statutory reserve ratio of commercial banks could be increased to stem high credit growth. Some dealers however, said the bank could simply stop pumping in rupees to the market which would kill off any demand for credit.

Today, the International Monetary Fund is also expected to announce its preliminary finding of the review mission which concluded yesterday. Dealers said this would have a great bearing on any plans to issue another sovereign bond in the international market.

Dealers said they expected the IMF to voice its concerns over the exchange rate with the rupee continuing to be defended at 113.89/90 against the dollar with over US$ 1 billion being sold by the Central Bank from the reserves since the rupee was devalued by 3 percent in November 21, 2011.

As to Cabraal’s recent statement that the remaining US$ 800 million tranche would not have to be drawn, dealers said it would be better to draw the tranche and complete the programme so as to give foreign investors confidence in the economy. However, dealers also warned that should the IMF continue to demand for a rupee depreciation, it would be better to end the programme as the short term costs would be too great to handle.

Some dealers were confident that foreign investment inflows would continue to improve with the US holding its key interest rates at low levels. Also, with India’s currency appreciating against the dollar over the last two days, dealers said the tide could be turning and foreign investors maybe coming back to the region.

"We bucked the trend when India was depreciating its currency. But now we see the Indian rupee appreciating and we believe inflows would continue to be strong as well, so there maybe pressure on the rupee to appreciate. If the exchange rate holds and the rupee is not depreciated, we may actually attract those investors who are holding back fearing another depreciation like last November," a dealer said.

"We do not expect much change in the monetary policy review, but with the Central Bank and IMF sizing up one another it would be difficult to expect anything less than fireworks. We will have to wait and see," two dealers out of four we spoke to said.

US$ 1.56 billion was used up from the reserves to artificially prop up the rupee during the four month period July to October 2011. According to dealers, a further US$ 1 billion has been sold to-date since the rupee was depreciated by 3 percent in November 21. By end November 2011 reserves stood at US$ 6.2 billion, down 30.6 percent from US$ 8.1 billion in July, with the borrowed component now becoming more significant as the reserves diminish, shrinking the comfort zone.

According to our calculations, for the past one and a half months, the Central Bank has pumped in a total of almost Rs. 300 billion to ease the rupee liquidity tightening which was caused by the dollar sales. The drain on rupee liquidity has resulted in some banks finding it difficult to maintain favourable overnight balances.

Fitch Ratings also said the loans-to-deposits ratio of the banking sector was falling with smaller banks reaching 100 percent, an indication that liquidity was tight.

Private sector loans from the domestic banking sector grew 35.3 percent year-on-year to Rs. 1.764.6 billion as at end November 2011, generating new loans amounting Rs. 60.4 billion, the highest generated in a month last year.

New loans from the domestic banking system to the private sector amounted to Rs. 56.4 billion in October 2011. In September it amounted to Rs. 53.8 billion, in August Rs. 49.4 billion and Rs. 27.3 billion in July. New loans generated for the first eleven months of this year amounted to Rs. 436.6 billion. The new loans generated for 2010 was Rs. 290 billion.

Net credit to the government grew 42 percent Rs. 801.5 percent with loans from the Central Bank up 163.5 percent to Rs. 216.4 billion as at end November 2011. Credit from the domestic banking sector grew 21.7 percent to Rs. 472.8 billion. Total credit to corporations was up 29.8 percent.
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* Burning issue for several months, calls for immediate Central Bank intervention
By Ravi Ladduwahetty

Sri Lanka’s tea exports to Iran is currently in a quagmire due to local banks not providing pre-shipment credit to Iran leaving exporters to do their own funding of exports while having to sustain delays in the remittances of their dollar funds.

"This is a very critical situation where we are not allowed pre-shipment loans by the state banks which are not negotiating the loans with us due to the fear of sanctions and also for the fear of these banks being blacklisted," Tea Exporters Association Chairman and Vanrees Ceylon Ltd, Managing Director CEO Niraj De Mel told the Island Financial Review last night.

He said it was high time the Central Bank intervened to rectify this burning issue, which has been a concern for several months. Mid 2011 tea exporters had voiced their concern about banks refusing to extend pre-shipment credit, but to-date nothing has been done.

He also said that the Colombo based private banks too feared a reprisal as most of their funds were coming from western banking sources.

He also said that the tragedy was that the exporters had to do their own funding when the proceeds of their exports were remitted as the two state banks refused to negotiate with the exporters, fearing a reprisal.

He said that this was indeed a decisive time for Sri Lanka where a sum of US$ 10-15 million was at stake on a monthly basis and where ironically, Iran was the second largest importer of Sri Lanka tea accounting for a sixth of the tea exports out of Sri Lanka, he said.

He also stressed that the most affected segment of the tea producers were smallholders who account for over 70% of the country’s production, especially the low grown teas which were extremely popular in Iran for which they paid premium prices.

These are the bulk teas which are shipped in 10 kilogram cartons which fetch high prices, he said.

Central Bank Governor Ajit Nivard Cabral when contacted said that providing credit facilities was the discretion of the banks where they do their own due diligence. Also, providing credit was the discretion of the banks too.

"Let the tea exporters officially intimate their concerns and the Central Bank could intervene in the settlement of this crisis," the governor said.
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