Srilanka Newspapers Tuesday 03/04/2012

Asian Footprint
Apr 02, 2012 (LBO) - London Stock Exchange which is using software developed by a Sri Lanka based firm to run the world's fastest trading platform said it is looking to expand operations is Asia, including more outsourcing.

London Stock bought MillenniumIT, a Sri Lanka-based exchange software maker, three years ago, which has supplied at least 30 other securities exchanges including Colombo.

Mark Harries general manager, technology services, London Stock Exchange said the acquisition has given them a presence in Asia, an area with vast potential.

"We are looking more and more as how to use our foothold in the region to further our business and indeed to offshore more of our business into the area," Harries told an investment forum in Colombo held with the island's Expo 2012 fair.

He said an 'Asian footprint' was not part of the original objectives of acquiring the IT company.

"We looked at options around the world. We looked at 18 different options, ranging from building it ourselves, buying existing systems or developing what we already had," Harries said.

"During our search we very quickly focused on a small company based in Sri Lanka called MillenniumIT.

"Today we are trading on systems development and provided by Sri Lanka and we are trading in microseconds.

"And we are very proud about the world's fastest trading system. And that system has been developed from scratch in Sri Lanka."

The platform now handled 750,000 transactions a day with each measured in milliseconds.

"We work in an increasingly competitive global environment, and iour business in underpinned by technology," Harries said.

"It is vital that technology is high performance, is robust, fast and is resilient."

He said the distance between Europe and Sri Lanka was a challenge. MillenniumIT already had 650 staff and a new development centre was being built.

Sri Lanka has become niche player in off-shoring with a number of specialist companies.

""So will continue to invest, will continue to be an active player in Sri Lanka," Harries said.

"We will also continue to explore how to make better use of the offshore footprint we have.

"We are already looking at some business process off-shoring and I am sure more will follow."

Update II
http://lbo.lk/fullstory.php?nid=735180407

Rupee falls on import demand, overnight lending rates ease

The rupee fell against the dollar for the second straight day on a resurgence of import demand, although volumes were low, currency dealers said.

The rupee closed at Rs. 128.25/30 against the greenback from an opening of Rs.128.10/30 last Friday. Last Thursday the rupee was at its strongest at Rs. 127.80 since the Central Bank floated the exchange rate last February, with exporters converting their dollar holdings to meet their commitments ahead of the festive season and remittances buoyant.

"We saw some import demand, but volumes were low. This was after a few days of subdued activity by importers, which saw the rupee gain," a currency dealer said.

The fate of the US$ 400 million tranche from the IMF is expected today.

The Central Bank last week said it was expecting inflows amounting to more than US$ 500 million within the next few weeks.

Currency dealers expect the rupee to strengthen against the dollar with exporters converting their holdings and import demand tightening further.

Meanwhile, overnight interbank borrowing rates continued to ease further.

The overnight call market rate for interbank borrowings not backed by security eased to 9.18 percent yesterday from 9.21 percent on Friday. The market repo rate eased to 8.25 percent from 8.30 percent while the Sri Lanka Inter Bank Offered Rate eased to 9.25 percent from 9.28 percent.

The Central Bank absorbed Rs. 7.1 billion yesterday in order to contain those few banks with excess rupee liquidity positions from generating loans for imports, currency dealers said. The bank has absorbed more than Rs. 150 billion since March 19.

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Hatton National Bank PLC yesterday received an international credit rating from Moody’s Investors Service, becoming the first bank to receive such a rating.

Commenting on the rating Rajendra Theagarajah, Managing Director / CEO of HNB PLC stated that "we are delighted to announce that HNB has been assigned an international rating by Moody’s which is on par with the sovereign rating of B1 of Sri Lanka. This is the first ever international rating obtained by a Sri Lankan Bank. We would like to thank Barclays Capital and Citi Bank the joint advisors to the rating for the excellent support extended throughout the process.

Moody’s Investors Service has assigned the following debt and deposit ratings to Hatton National Bank, with a stable outlook. The detailed ratings assigned are : Local currency deposits : B1/deleted, Foreign currency deposits : B2/deleted, Foreign currency senior unsecured debt : B1, Foreign currency issuer rating : B1. Moody’s has also assigned E+ bank financial strength rating (BFSR), mapping to a base line credit assessment (BCA) of b1 with a stable outlook.

"This is the first assignment of international ratings for HNB. These ratings and outlooks take into account the balance of strengths and weaknesses characterizing HNB’s credit profile on a standalone basis, as well as our assumptions on the probability of government support in times of stress, which we assess as moderate. At E+ / b1, our support assumption does not result in any rating uplift," Moody’s said in a statement.

"HNB’s business model is geared towards lending to corporates and small and medium-sized enterprises, though it has a diversified portfolio of retail clients and products. Its credit profile is characterized by a significant domestic franchise, with a market share of approximately 10% and an extensive network of branches and ATMS distributed throughout the country.

"From this platform, HNB has steadily generated strong profitability while building and maintaining above-average capitalization levels relative to other similarly-rated banks rated in the Asia-Pacific region. At the same time, the bank is inherently vulnerable to the cyclicality typically associated with emerging markets, which exposes it to periodic asset quality pressure, as evidenced by its non-performing loan record. Also, for a bank exposed to such risk, we consider its provision coverage to be low.

"Although net interest margins were under pressure during 2011, they remained high at nearly 5%. HNB also reported a relatively strong pre-provision income level of 3.7% and a return on average risk-weighted assets of 2.6% in 2011. Going forward, we expect HNB’s strong profitability to continue as a result of the investments it has made in recent years to expand its reach through the country by materially increasing its branches and ATMs. This should also help improve its efficiency (cost to income) ratio, which currently stands at a relatively high level of close to 60%.

"At 13% of risk-weighted assets, HNB’s core Tier 1 capitalization levels at end-2011 would allow it to sustain an adverse downside scenario, and the banks’ continued profitability level and internal capital generation policy should contribute to safely maintain capital above 10% going forward, even when assuming a 20% risk-weighted asset growth.

"On the other hand, the bank’s standalone rating of b1 takes into account the high level of non-performing loans, which is only partly offset by the bank’s elaborate risk management framework. HNB’s asset quality indicators compare weakly to its Asia-pacific peers in the same rating category. Gross non-performing loans are high at 4.56%, whereas provision coverage is low at 49%.

"Although the bank has implemented risk management processes, which include clearly laid out limits and controls established on the basis of forward-looking internal ratings and dynamic risk-return analysis, the asset quality indicators could rapidly deteriorate in a cyclical downturn given the rapid credit growth during 2010 and 2011. The unavoidable rapid increase provisioning that would result when considering the low base from which these provisions would start would pressure the banks profits.

"HNB’s rating outlook could be lowered if the core Tier 1 capital ratios drop to below 10% and net NPL ratio exceeds 2.5%. If the profitability drops to under 1.5% of risk-weighted assets and weighs on internal capital generation, then the ratings would be under pressure.

"To be upgraded, HNB will need a combination of two factors: a demonstrated resilience of its core financial ratios over time; and an upgrade of the government rating against which it would otherwise be constrained.

"The foreign currency senior unsecured debt rating of B1 factors in the moderate level of systemic support from the government, which is also rated B1 for foreign currency debt. As part of Moody’s joint default analysis model, Moody’s considers Sri Lanka to be a medium support country. In assessing the probability and likelihood of external support, Moody’s took into account the systemic importance of the bank, as well as the willingness and capacity of the government to provide support, including the non-fiscal measures that could be deployed to support a bank, if needed.

"Established in 1888 and headquartered in Colombo, HNB had assets of LKR388.59 billion at end-December 2011," Moody’s said.

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The Colombo Stock Exchange closed 0.28 percent lower with motor stocks taking a hit on the recent import duty increases.

The All Share Price Index fell 0.28 percent to 5,398.70 while the Milanka Price Index of more liquid stocks closed 0.15 percent lower at 4,888.95.

Turnover amounted to Rs. 694.6 million.

Net foreign inflows amounted to Rs. 34.4 million.

"Monday’s trading activity saw narrow movement as the market opened flat but closed 20 points in the red. Markets are witnessing neither an uptrend nor a downtrend. Instead the markets are oscillating between a relatively narrow range without forming any distinct trend. The market moved within a close band of 30 points, with neither the bulls nor the bears being able to dictate the trend," Bartleet Religare Securities said yesterday.

"The bullish and bearish trigger levels for the index are equally poised as above 5,500 we are headed for 5,800-5,900 and the support levels are at 5,300. The overall breadth in the market was negative with 107 shares declining and 60 shares advancing. Noticeable gainer in the markets was ASCO.N which was up by 8%, JKH.N continued to provide support to the markets. COLO.N and DIMO.N were major losers," it said.

Listed companies importing motor vehicles saw their shares drop on Monday, a day after the government increased duties in a bid to curb imports.

Colonial Motors saw its share price fall to Rs. 271 from an opening of Rs. 309.60.

DIMO saw its shares fall by Rs. 110.70 to close at Rs. 829.40.

United Motors lost eight rupees to close at Rs. 100.

Meanwhile, India’s Bajaj Auto, listed on the Mumbai Stock Exchange, fell 1.4 percent on news of the import duty hike.

This (the duty hike) will have an impact on the revenues of the company as Sri Lanka contributes 15 percent of Bajaj Auto’s exports and 5 percent of overall revenue, foreign new agencies said.

Softlogic Capital Ltd announced that it had entered into a share sale and purchase agreement with Forbes Capital for the sale of 5.1 million ordinary shares of Softlogic Credit for a consideration of Rs. 100 million. The shares thus sold constitute 67 percent of the share capital of Softlogic Credit Ltd.

Softlogic Capital said the transaction would be finalised after regulatory and shareholder approvals were obtained by Softlogic Credit Ltd.

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CIMB Investment Bank (CIMB) announced the acquisition of most of the Asia Pacific cash equities and associated investment banking businesses of the Royal Bank of Scotland (RBS). The GBP173.9 million (RM849.4 million) deal will see CIMB emerging as the largest investment banking franchise based in Asia Pacific (ex-Japan).

“This is an excellent opportunity to complete the build-up of our capabilities in Asia Pacific markets, and to do it quicker and less expensively than if we grew organically,” said Dato’ Sri Nazir Razak, Group Chief Executive, CIMB Group.

“Top tier international investment banking is an important extension to CIMB Group's ASEAN universal banking platform. CIMB's expanded investment banking franchise will enable us to assist investors and businesses who want to move in and out of ASEAN or across Asia Pacific as a whole,” added Nazir.

Since the acquisition of GK Goh Securities in 2005, CIMB's investment banking franchise, including its securities operations, has been the market leader in ASEAN.

It has full presence in key ASEAN markets and representation in New York, London, Shanghai, Mumbai, Hong Kong, Colombo and Bahrain. It also operates via partnerships in Taiwan, Korea and Australia. The addition of the RBS units will mean that, upon regulatory approvals, CIMB will have new on-shore presence in Taiwan and Australia, as well substantially enlarged operations in Hong Kong, India and China. As RBS has decided not to sell its Korean entities, CIMB will seek to set up new operations in Korea soon. This deal decisively transforms CIMB into an Asia Pacific investment bank.

“This acquisition takes CIMB to the next level. We will have seats on nine exchanges and partnerships in three others. Our research will cover approximately 1,093 Asia Pacific-based companies and we will see a big increase in global institutional investor relationships,” said Nazir. “While we are still finalizing the full staff complement of the merged businesses, we are expecting between 350-400 RBS staff to join us.”

Leading the move to CIMB is Matthew Kirkby, Head of Global Banking Asia Pacific for RBS. “We look forward to joining CIMB with a sense of enthusiasm and optimism,” he said.

“CIMB's Group Chief Executive has personally spoken to all of us and shared the CIMB story - both the fantastic track record in ASEAN capital markets and future plans in Asia Pacific investment banking. This is a complementary exercise with a compelling set of potential business synergies,” said Kirkby.

The deal will see CIMB paying RBS a gross amount of approximately GBP88.4 million (RM431.8 million) and injecting a further GBP85.5 million (RM417.6 million) of new capital into various operating entities. CIMB will only acquire legal entities in Australia; in other jurisdictions, the relevant businesses of RBS including selected staff, assets and client mandates, will be migrated to existing or new CIMB subsidiary companies. In addition, RBS will pay CIMB a sum of approximately GBP13.8 million (RM67.4 million) which will be used to defray the first year running costs of the business. The effective Price to NTA ratio of the transaction is about 0.98 times.

Acknowledging the possible risks of the transaction, Nazir added: “We do not underestimate the new and unique management challenges that this acquisition brings to us. But, we can point to our proven and exceptional record in M&A and our integration of banking and investment banking across ASEAN.

At the heart of our success so far is our ability to manage and leverage the diversity of our businesses and people.”

“I have said before that this won't be the Asian Century without Asian companies rising to the occasion. CIMB is not only stepping up, but also placing itself in a superb position to assist other companies in Asia to move across borders,” he said.

CIMB Group is Malaysia's second largest financial services provider and one of ASEAN's leading universal banking groups. It offers consumer banking, investment banking, Islamic banking, asset management and insurance products and services.
http://www.dailynews.lk/2012/04/03/bus12.asp

Corporate AGM organizers, beware of ‘Senior Urchins’!
April 2, 2012, 7:01 pm

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Last week I attended a share holders AGM, of a prestigious company, held in a posh hotel premises. Up to starting point it was very orderly, calm and quiet. All entered in a highly respectful and professional manner to collect their gifts and refreshment coupons, exchanging pleasantries. Each member received an umbrella as a gift for their ‘Yes Mr Chairman’, or is it a bribe for paying out lower dividends this year? Exactly after 24 minutes of the commencement of the AGM, members started walking out one by one, while the meeting was in progress. Members who left were making a higgledy-piggledy noise in the outer buffet hall. I also went out to see what the commotion was.

OMG!! It was a real rugby field scenario, where supporters of both sides had invaded the field for a "free for all." While few decent members were trying to form a queue in an orderly manner, others gate crashed along the table from everywhere and demanded their refreshment packets immediately by tendering their coupons to the staff behind the buffet counter. Ladies were no better! They also joined the foray for packets. One staffer was pleading with the unruly crowd, "We have another function in the afternoon Sir, please do not break our buffet table by leaning on it, we will serve you all". Some had three or four packets in their hands, and were busily emptying them to their shoulder bags and brief cases – I am amazed how they collected the coupons for extra packets. The crowd was made up of well dressed, English speaking gentlemen and few ladies who seem to be ex-professionals, of course they must be grand-parents! It is shameful for these grand old people to act like street urchins to collect food packets, in a rowdy manner. Is this the discipline they instill in their grand children at home? A hotel staffer said, "This is quite normal, this happens at all AGMs when food is given out." "Now most companies don’t serve the buffet– they issue packets to ensure that all receive their portion." I heard that they collect all these gifts and foodstuff going from one meeting to another when several AGMs are held on the same day.

Organizers of such events should never issue refreshments until the meeting is completely over. Refreshment coupons should be numbered so that packets could be issued according to the ticket number, to avoid a crazy stampede. Gifts, if any, too should be issued at the end of the programme when members are leaving. This will teach these senior citizens to act in somber manner rather than playing havoc (or playing for Havelocks) in star class hotel premises.

Charles A de Silva

Piliyandala
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