Sri Lanka Newspapers Wednesday 14/03/2012

CSE still placed ‘second worst stock exchange’

Colombo held on to its position of being the second worst stock exchange in the world, according to latest analysis of global capital markets by the Bespoke Investment Group.

"The average year to date performance of 78 countries (as at March 7) stands at 6.82 percent, with 66 markets of 78 (85 percent) in the black. Venezuela is up the most at 36.95 percent, followed by Vietnam at 26.30 percent and Russia at 21.69 percent. Bangladesh is down the most at -18.51 percent, followed by Sri Lanka at -9.92 percent and Slovakia at -6.74 percent.

"Of the G7 countries, Japan is surprisingly up the most in 2012 with a gain of 13.25 percent. With a gain of 7.55 percent, the US ranks 4th out of the G7 countries behind Japan, Germany and Italy. Canada has been the worst performing G7 country in 2012 with a gain of 3.11 percent.

"While the BRICs underperformed last year, all four are outperforming the US in 2012."
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*Another interest rate hike: Currency dealers divided

The rupee fell to a new low yesterday closing at Rs. 123.60/80 against the dollar fuelled by importer demand and Central Bank prescriptions, currency dealers and market analysts said.

The rupee opened the day at Rs. 122.0/20 against the greenback and continued to slide to a recent low as importers scrambled to book their deals ahead of the festive season next month.

"The Central Bank has also contained dollar liquidity in the market by recently imposing limits on forward bookings, which is not helping the exchange rate. At the same time, the Central Bank has been pumping in rupee liquidity into the system which has continued to fuel import demand to an extent," a currency dealer said.

The banking system is facing a rupee liquidity crunch and the Central Bank has from the beginning of this month pumped in more than Rs. 63 billion via the reverse repurchase window with a further Rs. 35 billion being pumped in via cash auctions to help banks with liquidity constraints and this also keeping interest rates from moving up too high.

Monetary policy rates were increased by 50 basis points and an 18 percent cap on credit growth was imposed by the Central Bank last month to contain credit growth which was meant to bring down importer demand. However, by pumping rupee liquidity, the Central Bank is still making credit available at lower rates and this in turn is feeding into importer demand, currency dealers said.

They said banks still found it profitable to borrow at 9 percent from the Central Bank and lend at around 13 to 15 percent to importers looking to book their dollars with these rupees as early as possible, speculating a further depreciation of the rupee next month.

As reported in numerous occasions in The Island Financial Review, the liquidity crunch faced by the banking sector was for the most part caused by the Central Bank selling dollars (more than US$ 3 billion since July 2011) to keep the exchange rate stable during the latter half of 2011. When rupees were drained this way, the Central Bank pumped in rupees (printed, more than Rs. 300 billion since August 2011), to keep off pressure on interest rates. We had artificially low interest rates and an artificially strong exchange rate.

With the Central Bank expected to announce its monetary policy stance today, currency dealers are divided as to what to expect. Some say interest rates could be increased (by 50 basis points at the most) in order to once and for all put the brakes on excessive import demand and some said the Central Bank was likely to keep interest rates stable.

"The biggest problem in the market is the lack of direction. After intervening for so many years the Central Bank made a sudden u-turn instead of weaning the market from its interventionist policies. Credibility has been lost," a currency dealer said.

Meanwhile, according to a survey carried out by Reuters of 17 analysts, the Central Bank is expected to raise its repurchase and reverse repurchase rates by 50 basis points for a second month to 8.00 percent and 9.50 percent respectively to their highest level in more than two years.
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*Turnover up, indices marginally down

The Colombo Stock Exchange continued to edge down although yesterday’s turnover of Rs.522.4 million, up from the previous day’s Rs.378.33 million, was slightly better than the Rs.350 million level of recent days with JKH providing the major business volumes. Brokers said.

Over half yesterday’s turnover came from this stock where nearly 1.4 million shares were traded closing 70 cents up at Rs.194 with foreign buying interest evident.

Brokers said that Royal Ceramics too saw some relatively small quantities traded closing Rs.2 down at Rs.115 on nearly 0.2 million shares.

Next on the turnover league was Central Finance which closed Rs.4.30 up at Rs.178.80 on 82,366 shares.

Counters like Aitken Spence, down Re.1 to Rs.115.50 on 0.1 million shares, and Swarnamahal, down Rs.5.80 to close at Rs.150.50 on 72,165 shares edged down, brokers said.

"The going was slow with many investors still on the sidelines although a couple of big deals are anticipated in the short-term according to market talk," a broker said.

CSE announced that it has approved in principle the application for listing 500,000 unsecured, subordinated, redeemable debentures of the Commercial Bank at an issue price of Rs.1,000 each with an option to issue a further 500,000 debentures in the event of the initial issue being oversubscribed.

The subscription list will open from March 27.

Ceylon Tobacco Company announced that a new Finance Director, Mr. Ariful Islam, has been appointed to its board with effect from March 13 following the resignation of Mr. Atif Hasan on March 12.
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Bartleet Religare Securities became the first stockbroker firm to be rated with RAM Ratings Lanka assigning it long and short term corporate credit ratings of BB+ and deleted respectively. The long-term rating has a positive outlook.

"The ratings are upheld by the Group’s established franchise, strong financial profile and liquidity position. On the other hand, the ratings are tempered by the Group’s vulnerability to stock market volatility, keen competition in the industry as well as its high reliance on key personnel in generating brokerage income," The ratings agency said in a statement yesterday.

"The outlook of the long-term rating is based on our view that BRS’s competitive position would strengthen over the medium term on the back of Religare Enterprise Limited’s involvement, leading to better market share and profitability. Given its access to a vast Indian clientele through Religare,

we expect BRS’s market share to increase, thereby improving its performance, and easing its customer-concentration risk.

"BRS is involved in stockbroking and is a 50:50 joint venture (JV) between Bartleet Transcapital Limited (BTCL) and Religare Capital Markets Limited (RCML). The latter is a wholly owned subsidiary of the Indian-based financial conglomerate, Religare.

Meanwhile BRS also falls under the umbrella of the Bartleet Group through its 50%-stake of the latter’s financial arm, BTCL.

"The ratings are supported by BRS’s good franchise; this is reflected in its relatively good market share, underscored by its established reputation derived from the century-old Bartleet Group as well as its strong retail clientele. Bartleet is a conglomerate with interests in plantations, finance, manufacturing, trading and information/communication. In addition, the Group’s franchise is expected to be strengthened by the rebranding strategy of incorporating its new JV partner’s brand, Religare, which would help attract foreign clients.

"The ratings are further supported by the Group’s financial profile which has strengthened significantly following a capital infusion by RCML in November 2010. BRS’s gearing ratio had improved to 0.03 times as at end-FYE 31 March 2011 (end-FY Mar 2010: 0.26 times), before improving further to 0.01 times as at end-June 2011. At the same time, its net exposure (T+3 debtors outstanding) to shareholders’ funds had also improved to 14.42% (end-FY Mar 2010: 22.86%). The strong capital buffer is expected to sufficiently support the Group’s branch expansion, information-system upgrade and expanding business.

"Furthermore, BRS’s liquidity position is deemed strong. The Group’s liquidity levels have improved substantially after the infusion of capital, resulting in a net-cash position. As at end-June 2011, the Group had LKR 550.59 million of cash and bank balances, compared to its debt load of LKR 4.05 million and T+3 creditor balance of LKR 107.28 million.

"Despite the above strengths, the ratings are moderated by BRS’s core business being vulnerable to stock market volatility. All stockbroking companies are susceptible to the inherent volatility of the equity markets, which in turn are affected by a range of factors including domestic economic conditions, political stability and the global economic environment. This is reflected in the volatility of BRS’s revenue and profits, which are directly correlated to the fortunes of the local bourse.

"On a separate note, competition is keen in the stockbroking industry because of its low entry barriers and the commoditised nature of its services. We note that the industry is fragmented, with 28 players at present compared to 15 member firms a few years ago. Going forward, we expect competition to intensify with the entry of new players amid the relatively lenient requirements of obtaining a stockbroking licence.

"As per the industry norm, BRS relies heavily on its senior managers when generating its brokerage income, who collectively accounted for the majority share of its brokerage income in FY Mar 2011. Thus, the loss of these key personnel could have a significant impact on the Group’s revenue-generating ability," RAM Ratings said.
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Commercial Bank of Ceylon PLC has received the Colombo Stock Exchange approval to list its debt securities on the Main Board of the CSE.

Commercial Bank will raise Rs 1 billion through 500,000 unsecured, subordinated , redeemable debentures at an issue price of Rs 1,000 each ,with an option to issue up to a further 500,000 debentures in the event the initial 500,000 is oversubscribed.

The funds will be used for Tier II Capital Adequacy in expectation of the large credit growth which is anticipated , a Commercial Bank senior official told Daily News Business. The date of opening of the subscription list is March 27, 2012. The prospectus would be delivered to member firms /trading members on March 16, 2012.

The bank has also spelled out plans to new markets such as Nepal, Myanmar, Cambodia and Indonesia in a bid to be a regional player.

ComBank also posted a profit after tax of Rs. 8 billion during 2011 and already has made its presence felt in Bangladesh with 17 delivery points.

The ATM network of the Commercial Bank connected its 500th terminal, further consolidating its status as the largest electronic cash dispensing system owned by a single bank in Sri Lanka.

The annual report of the Commercial Bank has been adjudged the best among the financial sector companies in the SAARC region every year since 2001,while its 2004 annual report was selected as the best among all categories in the region, making the bank the most consistent winner of these awards in South Asia. IH
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