Sri Lanka Newspapers Wednesday 09/05/2012

* Experts and analysts insist savings giant as a custodial bank must pay up and resolve internal issues separately without compromising integrity stability and confidence of market
* Popular settlement banker Sampath with Rs. 390 m overdrawn from CDS following payment on TFC deal stalls operations on Friday, causing chaos for brokers and clients of other deals; CSE expects backlog to be cleared today



The sanctity and credibility of the Colombo Stock Exchange (CSE) today hinges on the National Savings Bank (NSB) with analysts fearing failure to honour its recent purchase of The Finance Company Plc (TFC) shares can dealt the biggest blow to capital markets.

As exclusively reported by the Daily FT last week, the bizarre turn of events following the purchase of a 13% stake in TFC for Rs. 390 million by NSB have sent shockwaves across the entire financial services industry.

Analysts said irrespective of whether the purchase of TFC stake is ill advised or not, foolish or otherwise, the sanctity of the trade cannot be compromised, hence NSB must honour the transaction by paying and resolve its own issues separately than risking the stability and confidence of the capital market.
The background to the unprecedented crisis situation facing the Colombo Bourse is that NSB, despite its status of a custodial bank, had 1) failed to reject the buy order if NSB had some doubts about the transaction within the permitted T+1 window or even thereafter and 2) thus far it has failed to settle the due arising out of the transaction.

Adding insult to injury, the settlement bank to the transaction Sampath Bank had “jumped the gun” and settled the sellers without ensuring remittance of funds from the buyer.

With regard to Sampath Bank’s predicament analysts said that usually there is zero doubt of a Custodial bank (which is part of the capital market payment system hence it is an inter-participant settlement) not honouring the commitments hence it (Sampath Bank) had gone ahead with the payment for sellers.

After having realised NSB hadn’t remitted funds, as of Friday, Sampath Bank has overdrawn Rs. 390 million from the Central Depository System (CDS). The latter development triggered a further crisis on Friday with Sampath Bank shutting down its settlement system with broking community on commitments due for T+3 on Friday.

The Daily FT learns that Sampath Bank had maintained the position that it needs to clear the funds before making fresh settlement on T+3 commitments of Friday. Sampath, given its excellent services and rates, is the settlement bank for at least 15 brokers. At least two brokers had around Rs. 60 million worth of settlement falling on Friday.

The affected brokers and their clients were furious on Friday despite assurances by regulators that the matter will be resolved.

It is learnt that following legal advice obtained, Sampath Bank will be emphatically told by the CSE that it needs to clear the backlog today irrespective of Rs. 390 million overdrawn problem arising out of the TFC transaction/payment though brokers’ fears remain. Brokers and investors who were affected by Sampath’s action had nothing to do with TFC fiasco.

Be that as it may, NSB as well as Sampath Bank coupled with the current crisis unless resolved would threaten defaming the Colombo Bourse as being unreliable for both local and foreign investors.

On 27 April NSB purchase 13% stake in TFC from a consortium involving Director and shareholder Dinal Wijemanne, high net worth investor Rayynor Silva (2.9 million shares each), Nandadeva Perera (669,700 shares) and Yogendra Perera (667,700 shares) as well as another TFC Director Anura Fernando (50,000), for Rs. 390 million.

There were 15 sellers in total for NSB, however the five named sellers accounted for 89% of the TFC shares traded on Friday, whilst NSB picked up the balance shares from the market. Devi Holdings, an existing shareholder, was the sole buyer of TFC apart from NSB collecting 115,000 shares.
It appears that following the purchase, NSB hadn’t rejected the buy order within T+1 or T+3 windows. On 3 May (the T+3 due date), even as late as 11 a.m. NSB officials had indicated they were waiting for clearance of payment over the purchase.

However, after the 12 noon deadline for settlement had elapsed, NSB officials had inquired from the CSE whether the buy order could be cancelled. By this time, Sampath Bank had effected the settlement to the sellers of TFC shares, either oblivious or not whether the funds from NSB had come in or not.

For the settlement system a saving grace was Taprobane Securities (CEO of which is Dinal Wijemanne, a director/shareholder of TFC) was the buying broker as well as for the majority of sellers with only three other brokers figuring in trades of TFC. If there had been widespread broker involvement, the fiasco over the settlement issue would have been far more damaging.
http://www.ft.lk/2012/05/08/sanctity-of-cse-hinges-on-nsb/

‘Ridiculous’ NSB-TFC deal haunts bourse
*Cabraal distances CB from controversial deal, says SEC probe on
*Brokers, investors say transaction was bad from the start

Selling pressure saw both indices close in the red on Tuesday when the Colombo Stock Exchange opened the week after a long weekend, with the National Savings Bank (NSB)–The Finance Company (TFC) deal having a negative effect on the bourse, even though the controversial deal was annulled by the president last week.

"The deal was ridiculous from the very start. It was a case of directors of a finance company dumping their shares on a national bank. This has negatively effected perceptions," one broker said not wanting to be named. "The banking sector is going to have a tough six months ahead and finance companies will not have it any easier either with interest rates on the rise. This will affect the overall performance of the stock exchange and we may see the indices continue to decline as many investors seem to be jittery and are trying to exit," he said.

TFC shares closed at Rs. 29.50 yesterday (May 08). On Friday April 27, NSB purchased 7,863,362 shares at Rs. 49.74 a piece although the market price was just Rs. 30.

The Director Board of National Savings Bank had a meeting with top officials of the Ministry of Finance and Planning last afternoon, and then a board meeting was held in the evening. At the time of making this report, no statement was issued by the bank explaining the rationale for purchasing a 13 percent stake of TFC at a price inflated by more than 60 percent more than a week ago.

"This is bad for corporate governance, but the President must be commended for annulling the deal," good governance and minority rights activist K. C. Vignarajah told The Island Financial Review. "The deal was suspicious from the very start and I was very happy the president intervened and stopped the payment coming out of public monies," he said.

"The management of the NSB should be held accountable to the public, no matter how small the transaction may seem to them. Some had argued that the president cannot prevent the payments from being made on technical grounds, but if the deal was suspect there is nothing wrong with preventing those responsible from getting away with the loot, especially when it is public money," Vignarajah said.

Central Bank Ajith Nivard Cabraal yesterday distanced the Central Bank from the NSB-TFC deal.

When journalists asked him about the deal at a press conference, he said the Central Bank was just the regulator and that the responsibility for the decision to purchase TFC shares rested with the management of NSB. He said the Securities and Exchange Commission was probing the deal.

The All Share Price Index fell 1.49 percent to close at 5,295.60 while the Milanka Price Index of more liquid stocks fell 1.53 percent to close at 4,741.69.

Turnover was nearly Rs. 430 million on a volume of 26.2 million shares changing hands during the day. The net foreign inflow for the day amounted to Rs. 62 million.

"Markets opened flat today but could not sustain the selling pressure and fell below its support levels and ended the day 79 points lower at 5,295. Milanka Index closed 73 points lower at 4,741. Selling pressure was seen across the board, the market breadth was negative as only 20 shares advanced and 176 shares declined," Bartleet Religare Securities said.

"Technically the markets have broken its crucial support levels and the markets are expected to come down further and may touch 5,200. Markets have closed below the recent swing low of 5,347 that it made on 22nd March. Markets were in a complete grip of bears today as the markets kept drifting lower and closed almost at day’s low. Support level for the Index is now placed at 5,200 and resistance comes at 5,400," it said.

The highest trade in terms of turnover involved JKH shares; generating Rs. 69.9 million to turnover with the share closing at Rs. 202.00.

CSF generated a turnover of Rs. 57.4 million closing at Rs, 9.50. Two crossings of nearly 5.2 million shares were seen at Rs, 10 each.

PCH featured in a crossing of three million shares at Rs. 8.80.

A parcel of 200,000 JKH shares also changed hands at Rs. 203.00 each.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51431

By Mario Andree

An optimistic Central Bank Governor Ajith Nivard Cabraal says sovereign inflows would improve considerably within the next few months, appreciating the rupee, building up reserves and leading to a balance of payments surplus of US$ 1,250 million by the end of the year, from a deficit of US$ 1 billion as at the end of 2011.

The Central Bank has revised Sri Lanka’s medium term macroeconomic framework keeping in line with the external sector pressures to reach a GDP growth of 7.2 percent.

Cabraal pointed out that a reasonable increase in reserves would be seen over the next few months based on several projections.

Foreign currency inflows are expected from exports, contributing US$ 11.7 billion, tourism US$ 1.2 billion, a sharp increase in worker remittances US$ 6.5 billion, and FDIs US$ 2 billion.

The bank expects a net stock market inflow of US$ 500 million and the commercial banks’ tier 2 capital to reach US$ one billion while major corporates are also expected to raise capital internationally amounting to around US$ 500 million.

Long-term currency swaps are expected to bring in a further US$ 500 million, while net Treasury bills and bonds would create US$ 500 million and an expected sovereign bond issue to generate another US$ one billion.

Cabraal also said that imports were expected to settle at US$ 20.9 billion this year after last year’s US$ 20.3 billion import bill. Import growth would be subdued following several measures to control them.

Government loan repayments are expected to reach US$ 1.4 billion while Sri Lankan investments abroad would reach US$ 500 million.

He said that the current inflow to the stock market was US$ 172 million for the past three months and the Central Bank expected it to reach US$ 500 million. Last year’s stock market outflow stood at US$ 172 million.

With a successful bond issue by the Bank of Ceylon the net inflows to banks has increased significantly with US$ 880 million already flowing in out of the overall target of US$ one billion, and Cabraal predicted inflows to reach US$ 1.4 billion.

"Inflows to government securities were performing ahead of expectation," he said. "Currently a net inflow on government securities recorded US$ 483 million compared to the annual projection of US$ 500 million, and based on the outstanding performance, a further US$ 400 million could be accommodated."

The current reserves situation of the country is comfortable but at a moderate level according to Cabraal, it was expected to be US$ six billion in May reflecting 3.4 months of imports.

He said in the later part of the year, the foreign currency reserves situation was likely to improve, keeping up with the inflows to the country.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51432

By Mario Andree

Five investors led by Navara Capital has paid Merchant Bank of Sri Lanka Rs. 100 million in advance to acquire a 68 percent stake in MBSL Savings Bank previously known as Ceylinco Savings Bank.

They would purchase 87 million ordinary voting shares and 100 million nonvoting shares of MBSL Savings Bank for Rs. 562 million, market sources said.

MBSL Chairman M.R Shah told The Island Financial Review that the deal had not been completed despite the Navara Capital led team making an advance payment of Rs. 100 million and the bank was awaiting for the Central Bank approval to go forward with it.

According to him the consortium of investors led by Navara Capital would pay Rs. 3.75 for voting and Rs. 2.35 for non-voting shares of MBSL Savings Bank to MBSL.

Last year, another investor had negotiated to purchase shares of Merchant Savings Bank for Rs. 600 million, but the deal did not go through.

According to market sources, the MBSL Savings Bank’s original price has been devalued. Further the balance payment of Rs. 462 million was to be paid out from proceeds of a loan through MBSL, however Shah quashed this rumour and said that the balance was to be paid in cash to MBSL.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51436

The National Savings Bank’s (NSB) role as a custodial bank has been suspended by the Colombo Stock Exchange following its failure to honour the payment on its purchase of a 13% stake on 27 April, the Daily FT learns.

CSE officials refused to comment about the suspension whilst there was no official statement either.

The suspension of NSB’s custodial role was anticipated by the capital market after it originally failed to reject the original buy order within the T+1 window after the transaction whilst it has failed to make the payment amounting to Rs. 390 million to date.

In a related development, Sampath Bank yesterday cleared the backlog of settlements it didn’t carry out on Friday after it was overdrawn to the tune of Rs. 390 million on account of settling the sellers of TFC shares to NSB on 27 April without having funds in place from NSB.

Market talk was that outstanding T+3 settlements due on Friday were estimated at around Rs. 100 million. Sampath is the leading settlement bank with a base of at least 15 brokers. It refused to participate in settlements on Friday on the grounds funds hadn’t been cleared.

Speculation was that it had settled all brokers except Taprobane Securities Ltd. This appears to be a direct fallout of the NSB-TFC deal for which the major broker was Taprobane Securities.

Meanwhile, Daily FT learns a meeting between NSB Chairman Prasad Kariyawasam and the Secretary to the Treasury was scheduled yesterday afternoon to resolve the impasse whilst a Board meeting of the NSB was on last evening.

These meetings were taking place amidst market talk that the Securities and Exchange Commission (SEC), which is probing the ill-fated deal, may in fact cancel it in its entirety. This however will require the buyer and seller making a joint request to the SEC.

Other analysts however have cautioned against such a move since a reversal will have major repercussions. The suggested compromise is for NSB to pay and then divest the stake to a willing buyer.

The controversial NSB-TFC deal is also expected to come under fire today during a media briefing convened by UNP MP and its Chief Spokesman on Economic Matters Dr. Harsha De Silva.
http://www.ft.lk/2012/05/09/nsbs-custodial-role-suspended-sampath-clears-friday-settlements/

Amitha Lal Gooneratne FCA (Eng & Wales) has been appointed to the DCSL Group as the Managing Director of its strategic investment arm Melstacorp Limited. He was appointed to the Board of Melstacorp in February 2012.

Melstacorp Limited is the holding company of several reputed companies such as Lanka Bell Limited,
Balangoda Plantations PLC, Pelwatte Sugar Industries PLC, Continental Insurance Lanka Limited, Melsta Logistics Limited, Periceyl Pvt. Limited, Texpro Industries Limited, Bogo Power Limited and Melsta Regal Finance Limited.

Gooneratne, a British qualified Chartered Accountant, is a Fellow of the Institute of Chartered Accountants in England and Wales. He also holds a Higher National Diploma in Business Studies awarded in the United Kingdom.

Being a reputed business leader, he recently retired as the Managing Director of Commercial Bank of Ceylon n PLC (CBC) after an illustrious 29 year career with the bank. He joined CBC in 1983 and held several senior positions prior to his appointment as General Manager/Chief Executive Officer in 1996. He was appointed to the Board of CBC as Managing Director in January 1997.

Gooneratne was a Board Director of Sri Lankan Airlines during 2002/2004, and also was a member of the National Task Force on Corporate Governance for the banking industry.

With his appointment as the Managing Director, Gooneratne has also joined the Boards of several subsidiary companies of Melstacorp, namely Melsta Logistics Limited, Periceyl Pvt. Limited, Balangoda Plantations PLC, Lanka Bell Limited, Texpro Industries Limited and Bogo Power Limited. He will join the Boards of Continental Insurance Lanka Limited and of Melsta Regal Finance Limited as Chairman once approval is granted from respective regulatory bodies.

Gooneratne also serves as a Non-Executive Independent Director of Textured Jersey Lanka Ltd.
http://www.ft.lk/2012/05/09/amitha-gooneratne-joins-dcsl-group-as-managing-director-of-melstacorp/

Softlogic Capital has successfully raised Rs. 1,904 million of new equity from existing shareholders through the issue of 272 m new shares. The total number of outstanding shares after the share issue is 299.2 m.

The Rights Issue attracted a total subscription of Rs. 2,127, including the application for additional shares and recorded an excess of Rs. 223 m over the amount offered.

A decision was taken at the Extraordinary General Meeting on 2 April 2012 to increase Softlogic Capital’s share capital by raising up to Rs. 1,904 m of new equity through a 10:1 Rights issue at Rs. 7 per share, creating 272 m additional shares.

The success achieved through the Rights Issue reflects the investor confidence in the company and positions it to achieve its strategic growth plans. Softlogic Capital is the holding company for the Softlogic Group’s finance sector operations and counts Softlogic Finance PLC, Asian Alliance Insurance PLC, Softlogic Credit Limited and Softlogic Corporate Services Pvt. Ltd. as its subsidiaries.

The major shareholders in Softlogic Capital are Softlogic Holdings Ltd., with 53.2%, Rosewood Pvt. Ltd. at 18.5% and other investors with a 28.3% stake.

Softlogic Capital is helmed by a team of proven business leaders. Ashok Pathirage, Chairman of Softlogic Holdings, is also the Chairman of Softlogic Capital, while Iftikar Ahamed serves as the Managing Director of Softlogic Capital. Mayura Fernando, Ranjan Perera, Lucil Wijewardena, Ajita Pasqual and Nimal Palihena are fellow Directors on the Board.

The company is steadily carving out a niche for itself in the financial services arena and has demonstrated strident growth in recent years. Spanning the entire spectrum of financial products and services including leasing, finance, insurance and equity broking, Softlogic Capital’s comprehensive financial services portfolio positions it as the total financial solutions business partner in the market today.
http://www.ft.lk/2012/05/09/softlogic-capital-rights-issue-fully-subscribed/

Thanks CSE:SAS.