Sri Lanka Newspapers Friday 11/05/2012

Liability DollarizationMay 10, 2012 (LBO) - Sri Lanka's Dialog Axiata, the island's largest mobile operator which also sells fixed access services said it lost 530 million rupees in the March 2011 quarter, hit a 2.1 billion rupee forex loss on foreign loans.

The firm said it lost 27 cents per share, down from a 14 cent earnings per share a year earlier on profits of 1.29 billion rupees.

Group revenues grew 18 percent to 10.9 billion rupees in the March quarter and costs grew at a slower 13.8 percent to 7.2 billion rupees allowing it to grow gross margins 24 percent to 5.6 billion rupees.

The firm's finance costs rocketed to 2.2 billion rupees in the March quarter from just 50 million rupees a year earlier, hit by a 2.2 billion rupee forex loss.

Sri Lanka's rupee fell from 110 to around 130 in the first quarter as the peg gave way under sterilized sales of foreign exchange by the Central Bank.

Sri Lanka has a soft-pegged exchange rate where a central bank tries to target both the exchange rate and also the interest rate by printing money.
Dollarization

Sri Lanka established a central bank with money printing powers in 1951 to join the failed Bretton Woods system of soft-pegs abolishing a hard peg or currency board that kept the exchange rate fixed since 1885.

In the 1980s Sri Lankans who wanted to escape currency depreciation started to keep foreign currency deposits, a phenomenon called deposit dollarization.

But with the peg gaining more credibility amid tighter monetary policy many firms borrowed in dollars, seduced by lower foreign interest rates and lulled by seeming stability of the exchange rate peg.

The phenomenon also seen in other soft-pegged countries is called liability dollarization.

But a soft-peg can break at any time, sometimes catastrophically as long as a central bank has the legal power to sterilize the balance of payments, or print large volumes of money while 'defending' a currency peg.
http://lbo.lk/fullstory.php?nid=1968946634

CSE down for eighth day, steepest recent fall

The Colombo bourse yesterday suffered its steepest recent fall, declining for the eighth consecutive day with the All Share Price Index down 92.85 points (1.77%) and the Milanka 69.85 points (1.48%) on a turnover of Rs.403.3 million, down from the previous day’s Rs.544.1 million, with 31 gainers trailing 172 losers with brokers and analysts saying that NSB’s The Finance deal continued to impact negatively on the market.

"We have seen the market dropping by about 400 points since the smelly stuff hit the fan and there is no word from either the CSE or Taprobane who were the buying and selling brokers," one analyst said.

Brokers said that relatively small margin calls are being made as is inevitable when there is a steep fall in the market.

There were no crossings yesterday but some interest shown in banking stock although counters that showed some liquidity saw no price gains.

Commercial Bank closed flat at Rs.105 on nearly 0.2 million shares, DFCC was down 30 cents closing at Rs.119.70 on slightly over 0.1 million shares, HNB (non-voting) down 30 cents to close at Rs.93.70 on 87,478 shares and Seylan Bank closing 70 cents down at Rs.61 on slightly over 0.1 million shares.

JKH was the day’s biggest turnover generator but the counter which had been recently trading at over Rs.200 lost Rs.2 to close at Rs.197.90 on nearly 0.4 million shares generating the day’s top business volume of Rs.79.2 million.

Aitken Spence Hotels followed closing flat at Rs.70 on over 0.4 million shares done between Rs.69 and Rs.70.50 contributing Rs.29.8 million to turnover and Colombo Lands closed Re.1 up at Rs.36.20 on nearly 0.6 million shares done between Rs.34 and Rs.38.80.

CDIC announced a final dividend of Rs.1.25 per share for 2011 following shareholder approval at an AGM on June 21. The share will trade from June 22 and payment will be on July 2.

http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51568

A board member of emerging conglomerate Lanka Orix Leasing Company PLC (LOLC) has resigned so that he can serve his church.

"Rajan Asiriwatham who functioned as a Director of Lanka ORIX Leasing Company PLC from 2008 has informed the company of his intention to resign from the post he holds in order to avoid the occurrence of a personal conflict of interest," LOLC said in a statement.

"He has stressed that a business transaction with regard to the acquisition of a property on a long term lease between one of the Browns Group companies and the Church of Ceylon, of which he holds a position of a Trustee has placed him in a situation of conflict of interest with the duties he required to perform towards the Church. The above situation has reluctantly compelled him to consider resigning from the Boards of these two companies as he wishes to continue to hold office as a Trustee of the Church of Ceylon," the conglomerate said.

Meanwhile, a former Deputy Governor of the Central Bank has been appointed to the board of one of LOLC’s subsidiaries.

Priyantha Fernando who held office as a Deputy Governor of the Central Bank of Sri Lanka and Ex-officio Commission Member of the Securities Exchange Commission of Sri Lanka has joined the LOLC Group as a Director of Commercial Leasing & Finance Limited (CLC)

Fernando counts more than 35 years of experience in the Banking Sector. He was attached to the Central Bank of Sri Lanka serving in senior and diverse capacities. He was the Deputy Governor of the Central Bank in 2010-2011 in charge of the Financial System Stability and the Corporate Services cluster. Fernando has extensive experience and expertise in the fields of Banking and Financial Sector Regulation, Information Technology, National Accounting and Statistics, Finance and Fund Management. At the Central Bank he was the Chairman of the Financial Stability Committee, member of the Monetary Policy Committee, member of the Risk Management Committee, Chairman of the National Payment Council.

He was an ex-officio board member in several regulatory organisations namely the Securities Exchange Commission, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers –Sri Lanka and has also served as a Board Member at Employers Trust Fund, Lanka Clear Pvt Ltd and Lanka Financial Services Bureau.

Upon obtaining a license to function as finance Company, CLC, which is a subsidiary of Lanka ORIX Leasing Company PLC, made an application to the Colombo Stock Exchange for the listing of its ordinary voting shares for which approval in-principle has already been granted by the Exchange. Trading of the company shares on the floor of the exchange are expected occur in the near future.

CLC’s lending portfolio consisting of lease, loan hire purchase and factoring receivables, grew by 88% over the previous year to Rs. 18.4 Bn. CLC was successful in maintaining a very high credit quality along with the rapid growth of the portfolio, with a gross non-performing loan (NPL) ratio of 0.8% and a net NPL ratio of negative 1.9%.

In September 2010, the Company raised capital by way of a Rights Issue. Rs. 1 Bn was raised enabling the company to maintain its rapid growth. The Company’s debt to equity ratio was at a healthy 4.2 times as at financial year end (3.7 times in 2010). The debt to equity ratio excluding the double count of loans created due to foreign currency hedges was at 4.1 times (3.3 times in 2010).

The technical financial expertise and the wide experience possessed by Fernando is expected to propel the company towards another year of exponential growth while ensuring adherence to the best of corporate governance practices, LOLC said.


http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51569

Retired senior banker and a former Colombo Stock Exchange Chairman Rienzie T. Wijetilleke yesterday highlighted several damning outcomes of the controversial deal where the National Savings Bank purchased a 13.2 percent stake of The Finance Company at an inflated price.

"The deal cancelled by President Mahinda Rajapaksa, as the Finance Minister and the low, unethical statement by the bank, which now rejects the purchase due to several matters which they had identified later, had brought about questions of credibility," the outspoken fomer chairman of Hatton National Bank told The Island Financial Review.

He said it was a low thing for the NSB board to reject its own original decision. Despite several allegations, it should have stuck to the original decision and halted the deal.

The cancelled controversial deal would have a negative impact on the CSE and the image of the country because such a large investment was halted due to the negligence of the authorities.

He said that NSB, the CSE, Monetary Board and the SEC had failed in their duties.

Wijetilleke highlighted several downturns of NSB on the investment, which had unlikely followed the proper system for investment of public funds.

According to him, a specific system involving a committee and the Board of directors had to be followed. The committee had to submit a research paper on an identified investment to the board for approval by each director.

The committee would evaluate the company assets, the safety of the investment and the return before they could submit the prepared analysis to the board, where, if the investment was viable, all board members agree on it.

"However, given the status of the current situation of the stock market and the company which had been purchased, it was unlikely such a procedure had been followed and in a broader perspective it merely seems like the bank was misusing deposits," Wijetilleke said.

"The Central Board, as the custodian of public funds, had to intervene in the controversial deal. However, the responsibilities of the Central Bank seems to have been skipped and passed on to the SEC for investigation," he said.

The SEC had assured brokers a fair investigation on the controversial deal, which disturbed the Colombo bourse but it has not materialized as nothing has been published so far, he said.

He criticised the function of the Colombo Stock Exchange as a corrupt institution. Questioning good governance, he said the CSE had not done its duties on the day of the suspicious deal.

According to him, when the transaction took place the CSE authority should have halted the deal for a few hours and conducted special research reasoning on the deal. It is unlikely that such a procedure had been followed, and given the magnitude of the deal it was mandatory for the authority to inform the CEO whereby a message would been sent to the SEC to conduct a special investigation, specially knowing it was public funds which were invested.

"The Colombo Stock Exchange performed well for two years," he said, "But now for some time it has been falling. A transaction of this magnitude breaking down has an adverse effect."

He also highlighted that the custodian bank, which had paid the seller, before they had received funds from the buyer, had misused public funds in the CDS account disturbing the smoothness of the Colombo Bourse.

According to him, it was unethical for the custodian account holder to pay the seller without receiving funds from the buyer.

He said today’s ‘stock brokers’ were more likely ‘stock breakers’. The brokers are having conflicts of interests. The stock brokers involved in the controversial deal were participating for both the buyer and seller which makes the purchase more suspicious.

In conclusion, he said that several members needed to be fired from all authorities and a special investigation was needed to be conducted to prosecute the guilty in courts.

http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51566

The Securities and Exchange Commission (SEC) is currently negotiating with all the concerned parties in the National Savings Bank’s acquisition of The Finance Co. Ltd shares and is confident that a solution could be arrived at before end of business on Monday.

"We have been talking to all parties concerned, some individually, person to person, and others by phone and are confident that an amicable solution will be arrived at before end of business on Monday, acceptable to all parties," SEC Chairman Tilak Karunaratne told The Island Financial Review last night.

"We are working on an amicable settlement but that will also not preclude us from continuing the investigations which have been launched as to how it all happened," the SEC Chief said.

"Any party- institution or individual found guilty will be imposed the highest penalty under the Securities and Exchange Commission Act," he asserted.

http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=51567

* Calls for dismissal of wrongdoers
* Outlines the numerous offenders
* Insists brokers are now market “breakers”
* Casts blame on CSE and says worst hit is the Bourse
Prominent banking personality Rienzie T. Wijetilleke, who is best known as the former Head of the Hatton National Bank and for his 10-year stint as a Director of the Colombo Stock Exchange (CSE), of which he was Chairman for four, yesterday joined the growing chorus seeking justice in the controversial NSB-TFC deal.
Speaking to the Daily FT, Wijetilleke insisted that it was essential to consider the issue from a multi-dimensional aspect to understand the true harm the transaction had caused.

He stressed that given the magnitude of the offence, if he was in a responsible position, he would have sent several people home and “would have gotten others jail terms”.

Referring to the NSB Investment Committee, he said: “Firstly the Investment Committee should have assessed whether what they proposed was feasible and good for the organisation. Once they have decided this, they must go to the Board of Directors. That is the normal form. The Board of Directors will strictly go by the experts of the Investment Committee. This does not require physical meetings. In my bank it could have been done in an hour over the phone and other means. This procedure is necessary because everyone must remember that we are using public money for investment, but apparently this was not the case.”

He went on to emphasise that the monitoring unit of the stock exchange should have acted swiftly to suspend the transaction. “During market operational time, there are two people expected to look at every transaction that takes place on the screen, especially big transactions. The deals have to be monitored and a button pressed to approve the transaction. When the NSB transaction came through, in my view the person who saw this transaction should have taken this information up to the top CSE people and notified them. The CSE has every authority to suspend the sale for 12 to 24 hours; this is actually done very often.
That should have been done. So there they were flawed.”

Wijetilleke also faulted the settlement bank for paying the buyers before they received money from the NSB. “Nowhere in the world can the settlement bank pay the buyer before they get the money. They are flawed there. The settlement bank is totally responsible for settling this money before the transaction came through; they should be called on that.”

He highlighted that the monetary authority is the custodian of public deposits. “When I was heading HNB and constructing HNB Towers for Rs. 6 billion, the Director of Bank Supervision was very vigilant of whether we used public funds. The Central Bank used to send people every other day to check on us. That public obligation should have been lived up to by the Central Bank soon after the news came because the deal concerns public deposits.”

He added that higher brokering standards also needed to be implemented in the country. “Today you don’t get market brokers – you get market breakers.”

For Wijetilleke, the worst consequence is the battering an already-careworn CSE has had to face. “The saddest thing is now that the NSB has decided not to pay for the shares, this has given a critical message to the world about our stock market at a time when the market is struggling. For a public institution to say that they are not going to honour their commitment regarding a purchase is giving a very serious message about our country and our stock market as well as our credibility to financial markets, which I feel is the saddest thing from the public point of view.”
http://www.ft.lk/2012/05/11/wijetilleke-backs-calls-for-tough-action-on-nsb-tfc-deal/

The Colombo stock market fell sharply yesterday, increasing its year-to-date negative return to 15%.
SC Securities said the performance of the Colombo Bourse worsened, ending in the red for the eighth day running.

The benchmark index, All Share Price Index (ASPI) lost 1.77% (92.85 points) whilst the more liquid Milanka Price Index (MPI) too shed 1.48% (69.85 points).

Market turnover at Rs. 403 million slightly declined over Wednesday’s level. The top turnover generators for the day were John Keells Holdings PLC (JKH), Aitken Spence Hotel Holdings PLC (AHUN), Colombo Land & Development Company PLC (CLND), Commercial Bank of Ceylon PLC (COMB), and Ceylon Tobacco Company PLC (CTC). The top five turnover generators accounted for circa 40% of the market turnover of the day.
Arrenga Capital said the stagnant slow phase of the Bourse has been taken over by a nose-dive force as the market slashed down 92.9 points yesterday with 14 of the 25 counters of the Milanka index reaching 52-week lows.

“The tumbling down effect has increased the worries of investors as they see their asset values eroding faster leaving questions of when the market would bottom out and recover. This is anyway the typical direction that most equity markets take in a high interest rate environment,” Arrenga added.

It said price performance of Ceylon Tobacco Company stagnated after its dip of 2% on Wednesday following its 33% appreciation over the past two months. The counter was found among the top turnover list after a 20,000 share block was taken on board at Rs. 690 but continued to report very thin volumes.

Colombo Land & Development proved to be active during the day as the counter saw a total of 568.100 shares being traded whilst it closed with a gain of 2.8% at Rs. 36.

Another index heavy, John Keells Holdings, too was among investor interest as two trades taking up a total 98,900 shares at Rs. 198 and Rs. 198.50 were seen picked on board. Two on-board transactions totalling 400,000 shares at Rs. 70 on Aitken Spence Hotel Holdings led the counter to the top turnover list towards the latter hours of trading.

Among the day’s active banking counters were DFCC Bank (-0.3%), Commercial Bank [Voting & Non-Voting](0.0%, -1.9%), Seylan Bank (-1.1%), Hatton National Bank [Non-Voting] (-0.3%) and National Development Bank [-0.3%].

Sampath Bank hit a 52-week low of Rs. 165 after the controversial talks of its involvement in the NSB- TFC transaction.
http://www.ft.lk/2012/05/11/tumble-at-bourse-worsens-year-to-date-negative-return-now-15/

RANIL CALLS FOR LEGAL ACTION ON NSB-TFC DEAL

Says trade chambers and private sector full of ‘deal makers’ with Govt.

Opposition United National Party (UNP) Leader Ranil Wickremesinghe yesterday charged that those responsible for the “fraudulent” National Savings Bank-the Finance Company share deal should be brought to book and legal action taken against them.

“Just stopping the deal will not correct the wrong committed by them. The National Savings Bank Chairman and the Board of Directors who are responsible for this corrupt act should immediately resign. Securities and Exchange Commission Board should also be removed. Who allowed this corrupt deal? They should be punished.

The Sri Lanka Securities and Exchange Commission is investigating the controversial transaction between the National Savings Bank (NSB) and The Finance Company, Senior Minister Sarath Amunugama told Parliament yesterday.