Sri Lanka Newspapers Sunday 26/02/2012

January a cruel month for CSE

The January report of the Colombo Stock Exchange reveals the steep downturn of the Colombo stock market during the month with the All Share Price Index down 6.26% and the Milanka down 5.80%.

Turnover however at Rs.19.1 billion was up from Rs.17.9 billion in December with foreign participation rising slightly to Rs.3.5 billion from Rs.3.3 billion in December.

The All Share Price Index which dipped below the 5,000 points resistance barrier earlier this month but has since recovered to clear this benchmark closed at 5,693.92 points in January having opened at 6,074.42 points at the beginning of the month.

The Milanka dipped below the 5,000 point barrier to close January at 4,925.91 points having opened the month at 5,229.16 points.

Market capitalization in January was down 5.86% to Rs.2,084.13 billion from Rs.2,213.87 billion at the beginning of the month.

The market price earnings ratio which opened at Rs.15.82 in January closed at Rs.14.90, down 5.82% but the dividend yield improved 6.29% during the month by rising to Rs.1.86 at the close of the month from Rs.1.75 at the beginning of the month.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46114

By Duruthu Edirimuni Chandrasekera
While tight rules governing private placements (PP) are being considered by the Securities and Exchange Commission (SEC), it also wants to firm up the regulations for 'introductions' through which many companies went public last year, the SEC chief said.

"We are considering regulating introductions in order to bring in more liquidity to the Colombo Stock Exchange (CSE). We also want to bring in minimum rules pertaining to liquidity levels of firms already in the share market," Thilak Karunaratne, SEC Chairman told the Business Times. He said that introductions don't offer new shares. "The public has to buy these shares from the existing shareholders. Listing through introductions doesn't give much liquidity to the CSE. So we are trying to bring some regulations with regard to listing through introductions."

Last year the CSE saw 18 listings through introductions while only 13 firms were listed through Initial Public Offerings (IPO). This year so far two firms went in for introductions while three were listed through IPO.

Meanwhile current rules governing PP say that the shares allotted on private placement shall be locked-in for a period of one year from the date of allotment of such shares. Mr. Karunaratna added that a company's PP should be imposed a lock in period from the date the firm goes public, which will prevent its share price from falling after trading in it. "This way the retailers are protected," he added.
http://sundaytimes.lk/120226/BusinessTimes/bt03.html

Dialog Axiata Plc, Sri Lanka’s top mobile phone provider, may not be the only company to take a hit from the sudden devaluation of the Rupee in December but that single event saw the company report substantial losses totalling Rs 638 million. However that didn’t ruin the company’s profits.

“Growth in Group profitability was achieved on the backdrop of substantial foreign exchange (translational/non-cash) losses totalling to Rs. 638 million, resulting from the devaluation of the Sri Lanka Rupee in the fourth quarter,” the company said in a statement announcing its year-end 2011 results.

The company sustained its revenue growth at Rs 11.9 billion, up by over 10 % during the fourth quarter of last year supported by about 11% year on year outgoing volume growth and about 4% year on year increase in the subscriber base.

It said revenue growth together with continued operational improvements led to the group posting a healthy 9% quarter on quarter growth in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The fourth quarter 2011 EBITDA was recorded at Rs 4.7 billion, inclusive of Rs 311 million accruing from the recognition of the Telecommunication Development Fund reimbursement from the Telecommunication Regulatory Authority, the statement said.

Group EBITDA for the last financial year was recorded at Rs 16.4 billion, up 9% compared to the corresponding period in 2010 and featured an EBITDA margin of 36%. Group net profit for Q4 2011 was posted at Rs 1.4billion, up 2% quarter on quarter, according to the statement. Net profit for last year was recorded at Rs 5.4billion, up by 6% year on year.

Core-mobile revenue has been the major contributor to the group’s revenue, accounting for approximately 90% of the total revenue. Dialog said that the increase in affordability has served as the catalyst for the increase in the pre-paid as well as the post-paid subscriber base for the year ended 2011. The group recorded strong revenue growth across all segments to reach Rs 11.9 billion during the fourth quarter recording a quarter on quarter growth of 3%. Group revenue grew 10% during last year to Rs 45.6 billion, the statement said.

The company recorded revenues of Rs 10.9 billion and Rs 41.8 billion for the fourth quarter and last year, the statement said.
http://sundaytimes.lk/120226/BusinessTimes/bt25.html

Stockmarket Review
By Elton P. Ebert
After weeks of stagnation, the market moved into a new phase of renewed vigour, but was unfortunately dampened by the introduction of the new ATS version on Friday which slowed down activity and curtailed the turnover to Rs.508 million.

The brokers say that they need time to get used to the new system, which according to some brokers is not so user-friendly. The indices were in positive territory for all the four days of the week yielding a high turnover of which a massive Rs. 3.7 billion turnover was produced on Thursday when seven million shares in LB Finance and four million shares in Aitken Spence were transacted. Foreign and local institutional activity in Commercial Bank, JKH, Lion Brewery and Asiri Surgical was another important factor seen during the week which created confidence in the bourse. For the purpose of statistics it should be noted that the bourse was under severe depression around mid-February, the ASI down to 5009 on February 14. Some analysts say that this transformation came because most companies have been releasing excellent earnings data, which drew some of the high net-worth investors into the market.

The leading three banking corporates, Commercial Bank and Sampath Bank announced cash dividends and scrip dividends recently while this week Hatton National Bank followed with a cash dividend of Rs 3 per share and a scrip dividend of 1 for 54,815 voting shares and 1 for 34,963 for the non-voting shares. Now many investors are posing the question whether NDB Bank and DFCC Bank will take the cue. Colombo Dockyard announced a dividend of Rs.6 per share and the capatilization of reserves in the ratio of 1 share for every 20 held. In a week where most shares were on the rise, the Malaysian Shalimar Malay rose to Rs.926, Selinsing to Rs 1,500, and Good Hope to Rs 1,414. The other interesting price movements were that of Harischandra Mills at Rs 2,475, Paragon Ceylon at Rs.1,900 and Nuwara Eliya Hotels at Rs1,180.

With the slight lift in market conditions, IPOs are staging an appearance. Mackwoods Energy Ltd will issue 25 million voting shares at Rs14 on the main board. The issue opens on the 22nd March but investors can subscribe from 8th March onwards.

Changes in directorates: Ceylon Hotels Corporation - Gunapala Tissakuttiarachchi was appointed a Director representing the ETF from February 16; Touchwood Investments PLC - D. M. De S.Wijeratne was appointed a Non-Executive/Independent Director effective 23rd February; Indo Malay PLC- Tennyson Rodrigo was appointed Non-Executive Independent Director on 21st February; Nation Lanka Finance PLC - Former Tax chief K.M.S. Kandegedara was appointed Non-Executive Director on 10th February; Muller & Phipps Ceylon PLC - A.R. Rasiah and S.Deleted. Palihena were appointed independent Non-Executive Directors on 15th February; Seylan Developments PLC - S. Palihawadana was appointed Deputy Chairman on 17th February, M.K. Muthukumar a Diirector while H. L. Gunasekara as a Director. The turnover for the four days was Rs.6.8 billion as against Rs. 8.2 billion the week earlier. Meanwhile both indices were improved, the All share Price gaining 281.13 points or 3% to end at 5566.30 while the Milanka was 253.35 points or 2.5% better closing at 4802.78.
http://sundaytimes.lk/120226/BusinessTimes/bt26.html

The Colombo Stock Market gained momentum last week with the All Share Price Index gaining over 250 points with turnover hitting a high of Rs.3.7 billion on Thursday, Acuity Stockbrokers said in a market report.

This turnover figure of Rs. 3.7 billion was a high for 2012, the brokerage said.

Foreign investors remained net buyers for the second consecutive week, pushing the market’s year-to-date net inflow to Rs.2.81 billion against a net outflow of Rs.7.09 billion during the comparative period a year earlier.

"Positive sentiment and robust market fundamentals boosted overall markets although investors adapting to the new trading system dampened Friday’s volumes," Acuity said.

The brokerage expected the positive momentum to continue this week.

The ASPI gained 281.13 points (5.32%) last week while the Milanka was up 253.35 points (5.57%), although it is still below the 5,000 point benchmark closing the week at 4,802.78 points.

Average daily turnover last week at Rs.1.71 billion was down a marginal one percent from the previous week’s daily average of Rs.1.73 billion.

Turnover was dominated by LB Finance, Hayleys and Aitken Spence which together contributed 40.79% of last week’s turnover.

Brokers said that Mr. Dhammika Perera acquiring Royal Ceramics-owned 7% of Hayleys and selling his LB Finance holding to Royal Ceramics where he is controlling shareholder accounted for much of the week’s turnover.

The Acuity report noted that active foreign participation had continued with foreigners posting a net buying position of Rs.1.18 billion against the previous week’s net buying of Rs.1.17 billion.

However net foreign purchases during the week were down 39.7% to Rs.334.8 million against the previous week’s Rs.555.4 million.

John Keells Stockbrokers (JKSB) reported that the indices continued a positive trend appreciating over 5% week-on-week "with strong activity dominated by large trades on LB Finance and Hayleys along with trades centered on large caps."

JKSB said that the foreign inflow of Rs.1.18 billion was driven by trades on Commercial Bank.
http://sundaytimes.lk/120226/BusinessTimes/bt26.html

ER Dips To Rs. 120 Before Settling at Rs. 119/70/90 Levels
The exchange rate (ER) on the back of importer demand and speculation depreciated by 50 cents to Rs. 120 to the US dollar ($) on Friday over that of the previous day Thursday’s close, before recovering to be quoted at the Rs. 119/70/90 levels in two way quotes in interbank trading by the weekend, a market source told this reporter.

On the previous day too, ie on Thursday (February 23), importer demand held sway in the market, resulting in the ER being lowered by as much as 70 cents to Rs. 119/40/50 in two way quotes.
However on Wednesday (February 22), the ER was bereft of the volatility it experienced in the immediate aftermath of the rupee free float, with the ER depreciating by 20 cents each in the first two days of last week to be commanding prices in the region of Rs. 118.70/80 to the $ in two way quotes in interbank trading as at Wednesday.

Monday was a bank holiday.
The source expected pressure on the ER to continue in the new week beginning tomorrow as well, despite the fact that the GoSL delivered a further kidney punch on the poor man’s stomach by increasing bread prices by Rs. 5 due to agitation by bakers and an expected Rs. 15 increase in milk powder prices due to demands by milk powder manufacturers.

A weak rupee makes the cost of essential imported commodities such as medicines, sugar, wheat flour (and therewith bread) and milk powder to go up, hitting the poor the hardest.

A depreciating rupee may also force the poor to give up on essentials due to the higher prices those fetch, which needless to say have to be imported, leading to political instability in Sri Lanka as a result.

“Micro inflows of some $ 10-20 million, such as that which is being experienced in the stockmarket currently are not enough to obviate pressure on the ER,” another source said. Despite the end of the country’s 26 year old terrorist war, Sri Lanka is not getting large infusions of inflows as it should have had.

“We need massive inflows in the region of $ 2-3 billion to help alleviate the situation,” the source said.
Higher inflows, either in the form of foreign direct investments (FDI), grant or concessional aid or increased export revenue or tourism or remittances receipts would help alleviate pressure on the ER, caused primarily due to a rising import bill, aided and abetted by escalating oil prices globally due to the Iranian crisis.

A hotelier commenting on the situation said that the war end presented a golden opportunity to President Mahinda Rajapaksa to take the country forward. He has however missed the bus (see the business pages of The Sunday Leader’s last week issue).

Rajapaksa’s recently passed Expropriations Act which empowers the Government to takeover even public quoted companies, is no fillip to encourage either FDI or local investments into the country.
These columns last week predicted that the ER would settle at the level of between Rs. 118-119, which however was not to be.

In the immediate aftermath of the free float, the ER depreciated by as much as Rs. 2 or more on a daily basis, and Thursday’s and Friday’s sharp depreciations of the rupee by as much as Rs. 1.20 in total has had thrown that prediction overboard.

The lowest the ER has depreciated since the Government of Sri Lanka (GoSL)/Central Bank of Sri Lanka (CBSL) allowed for the free float of the rupee on February 9 was on February 15, when it fell to the Rs. 121 levels, after which it recovered due to alleged temporary intervention by CBSL then.
The source further said that forward bookings by both importers and exporters alike saw the ER’s forward premiums of one month and three months bookings go up to Rs. 4/4.30 and Rs. 2/2/30 respectively in two way quotes on Friday.

In contrast, just two days earlier, ie on Wednesday (February 22), one and three month forward bookings were going at premiums as low as 55 cents and Rs. 1.75 respectively.

In the previous week, those premiums fetched Rs. 1.75 and Rs. 3.70 respectively.

Importers who previously booked forward at any price after the rupee float due to panic are now subdued, a source, two days earlier, ie on Wednesday had however said. This has caused rupee volatility to settle, the source then had added. However exporters are still cautious to book forward which may not be good to assure for the sustainable stability of the local currency, he had then said, a prediction which, at least partially was proven to be true as the unfolding events the following day Thursday and Friday proved, despite exporters having had reenterd the forwards market on Friday.

Rates To Rise
Despite the volatility in the ER market in the last two days of the week, ie on Thursday and Friday, interest rates, without rising appreciably, held on tenuously, but Wednesday’s (February 22), Treasury Bill auction saw the weighted average yields (WAYs) for all three tenures on offer go up by a uniformed 20 basis points (bps) each, which a source however said that such symmetrical increases “smack” on the side of manipulation. As a result, three months (91 day), six months (182 day) and one year (364 day) T Bill maturities that came up for reissue on that day fetched WAYs of 9.51%, 9.64% and 10.19% respectively.

“There is room for yields to go up further”, he said. These pages in its last week’s edition predicted that yields in the T Bill auction in question will go up.

When asked whether such increases were due to the illiquid state of the market? The source answered in the affirmative. When asked whether such increases will have an impact on the market? He answered “yes,” while at the same time saying that the CBSL is following the market!

The market, sometime ago raised its fixed deposit rates to 12-12½% to attract liquidity which is under pressure due to credit growth, it’s only now that CBSL is adjusting itself to market rates, otherwise it will not be attractive for investors to invest in “low yielding” Government debt,* he said.

Normally it’s CBSL which is the trend setter, but here it’s the other way around, the source said.
He further said that with CBSL’s T Bill holdings spilling over to the Rs. 200 billion level, an indication as to how much of money was printed to meet both the Government’s and the market’s borrowing requirements, it was therefore imperative that the market be a conduit to attract massive inflows, in the range of $ 2-3 billion, to tide over this situation.

Micro inflows of some $ 10-20 million, such as that which is being experienced in the stockmarket currently are not enough, he said.

However an exercise of money printing to tide over the market’s illiquid state may cause further inflationary pressure on the economy.

But liquidity caused as a result of foreign inflows not only eases pressure on the ER, but is also a spur to international trade, further enriching the lives of those people in that country, while at the same time excess liquidity caused by that former exercise of money printing, may be drained off from the system by CBSL selling its excess stock of T Bills to the market, thereby controlling inflationary pressure on the economy caused by those forex inflows, by having a rein on rupee liquidity.

Currently what is happening is that CBSL, other than the market is also subscribing to T Bills offered, to negate the higher yields demanded by the latter, but on the flip side this exercise is fuelling inflationary pressure on the economy due to the excess money created by such an exercise.

* Investing in T bills is one form of investing in Government debt, to meet the state’s borrowing requirements.
http://www.thesundayleader.lk/2012/02/26/us-2-3-billion-inflows-needed-to-bring-stability/