CSE News Updates

Jan 16, 2012 (LBO) - Sri Lanka's Access Engineering Ltd, a construction firm is planning a public listing of its shares in February or March, having raise 4.5 billion rupees through a private placement last July, a media report said.
The Sunday Times newspaper quoted chairman Sumal Perera as saying that the firm had 30 billion rupees of contracts for the next three years and about 80 percent of them are foreign funded state projects.

Last July the firm had raise 4.5 billion rupees by selling 180 million shares at 25 rupees amounting to 18 percent of the firm.

Sri Lanka's John Keells Holdings, Carsons Group, MAS Holdings, Vallibel One, Associated Electricals Company and the Hirdramani Group are among key shareholders after the placement, the report said.

The firm had gifted 120 million shares, valued at 3.0 billion rupees to employees.

Access Engineering's fully owned unit, Access Realties, owns the 'Access Towers' building in Colombo.

Access Engineering is planning to expand into renewable energy and property development, the newspaper said.

Jan 16, 2012 (LBO) - Sri Lanka's Securities and Exchange Commission said it had allowed brokers to lend up to three times their net capital to clients to buy shares in a relaxation of credit rules imposed last year.
The adjusted net capital is arrived at after deducting from net capital 50 percent of the value of fixed assets.

Earlier brokers were only allowed to lend only their own assets. The new rule allows them to leverage, effectively engaging in a finance business of borrowing and lending.

The SEC said the new rule will increase the amount all brokers can lend to the market to 8.7 billion rupees from the current 5.0 billion rupees.

In 2011, the SEC put credit curbs and the stocks, especially fundamentally weak illiquid stocks were punted upwards amid credit bubble supported by lower interest rates and excess liquidity in the banking system.

Credit growth has since hit the balance of payments and rates are now rising.

The market has since corrected and profits of many firms have also improved.

Brokers went to Sri Lanka's President to pressure the SEC to relax credit rules, eventually leading to the resignation of the chairperson of the SEC.
The cabinet of ministers earlier removed the SEC director general soon after a crackdown on price manipulation, hype and dump scams and insider dealing started.

By Duruthu Edirimuni Chandrasekera

Union Bank (UB) is bullish on the economy and having secured almost Rs 5 billion in Tier I capital, is now eyeing countries in East Asia for the Tier II capital. "We haven't still finalised which countries we will source these funds from, but Malaysia, Singapore and Hong Kong are places we are interested in targeting as these countries have the strength of the (Kuala Lumpur-based) Genting Group, (which owns 29% i UB)," Anil Amarasuriya, Director/CEO Union Bank, told the Business Times on the sidelines of the opening of UB's state of the art headquarters on Friday.

"We strongly feel that with the predicted high economic growth rates, the banking and finance sector will contribute positively in driving the country's way forward. In this context, Union Bank has leveraged on its strong financial position and has comfortably surpassed the regulatory requirements on capital adequacy placed by the Central Bank of Sri Lanka and is already nearing the 5 billion-rupee mark required by 2015 enabling more space to continue bank operations safely and to remain steady and resilient," Mr. Amarasuriya added.

The new head office will also house the bank's subsidiary companies including National Asset Management Limited, which they bought early last year with Ennid Capital, (the Sri Lankan Jeweller, B.P. de Silva's investment arm) from Milford Holdings Private Limited, a subsidiary of Distilleries Company PLC for nearly Rs 455 million.

The bank which went public last March UB plans to carry out branch expansion and mobilisation of low cost funds, expand while leveraging of e-channels, focus on priority sectors in the economy for credit, and carry out trade financing, expand their capital market operations and share trading, introduce banking for the bottom of the pyramid (bare-foot banking), implementation of a core banking system to increase efficiency and resource utilization and risk management system for prudent credit pricing and monitoring and focused recoveries.

A consortium of five investors including Lankem and Siddhalepa, has completed a deal to take control of MBSL Savings Bank Ltd (formerly Ceylinco Savings Bank), a subsidiary of Merchant Bank of Sri Lanka at an investment of Rs.562 million, its main promoter and investor said. The 5-member consortium led by Navara Capital Ltd with PCH Holdings - owning company of PC House-, and Ideal Motors (Pvt) Ltd as the other two investors,, will purchase 68% of voting shares (87.1 million voting shares) and 72% non-voting shares.

(100 million), Navara Capital Managing Director Harsha N De Silva said. A deposit of Rs 100 million will be made initially. In May 2009, MBSL acquired control of Ceylinco Savings Bank (CSB) which suffered a run after the Golden Key Credit Card Company, a member of the Ceylinco Group, collapsed. He revealed that they are waiting for Central Bank approval to go ahead with their business plan aimed at revitalising the MBCL Savings Bank.

This business plan and the names of the board of directors of the entity have been forwarded to the Central Bank for its endorsement. MBSL Savings Bank, a Licensed Specialised Bank (LSB), registered under the Central Bank will be listed in the stock exchange by the end of this year as the consortium needs some time to restore the entity, Mr de Silva said. Commenting on the deal, MBSL Savings Bank Chairman M.R. Shah said that they have been able to resurrect the Ceylinco Savings Bank resolving the liquidity crisis. "But the turnaround of the acquisition has not been as rapid as anticipated," he added. The bank has today emerged as a dynamic and fast growing bank with a solid financial stability and a leading market share creating value for all stakeholders, he revealed.

The Colombo Stock Exchange (CSE) which was to go online with its Automated Trading System (ATS) upgrade with ATS Version 7 on Friday postponed it amidst some resistance from the stock brokers, CSE sources said.

“This has to be done as the hardware in our system is outdated. We cannot afford another system crash like last year," a CSE source said, adding that last year on 19 September the system went out of control and was not reflecting the actual prices of some shares after it started functioning.

He said that on Tuesday, all CEOs of broking firms met with CSE CEO, Surekha Sellahewa on the ATS upgrade. Here brokers complained that this new ATS version doesn’t have many features which are in the present version and that it’s not user friendly. “The new system is cumbersome. When placing an order the customer ID isn’t easily accessible and when cancelling orders it is difficult, unlike in the current system,” a broker told the Business Times.

The source said that the CSE plans to incorporate some of the features that the brokers suggested and is trying to upgrade within two to three weeks.

 By Bandula Sirimanna

The revival of the state-acquired Celestial Residencies, one of the premier iconic properties of collapsed Ceylinco group of companies, under the troubled Revival of Underperforming Enterprises and Underutilized Assets Act has turned into a mess, due to the wrong company being listed in this law.
The owning company of Celestial Residencies is Ceylinco Homes International Lotus Tower with its main shareholders being Ceylinco Homes International, Ceylinco Capital Investment (a subsidiary of troubled Shriram Capital Management), and Ceylinco Insurance, Ceylinco Homes International, sources close to the owning company, said.

According to the Act, the government acquired Ceylinco Leisure Properties Ltd which has nothing to do with Ceylinco Homes International Lotus Tower, the owning company of Celestial Residencies.
This is the fourth such issue the government is facing over, what lawyers say, is a badly-crafted law. Pelwatte Sugar earlier objected to the take-over on the grounds that its lease agreement doesn’t fall within the ambit of this law; Chalmers Granaries was never vested or alienated by the state while Lanka Tractors is not owned by the state but is a public company.

Under the latest crisis, the payment of compensation for creditors, contractors and those who paid advances to buy super luxury residential apartments will become a major problem as their dealings had been with Ceylinco Homes International Lotus Tower -- not Ceylinco Leisure Properties, a senior official of the Finance Ministry said.

A top official of Ceylinco Group said Ceylinco Homes International Lotus Tower has pre sold about 82 apartments and those who have purchased the units have paid on average two thirds of the cost.
He revealed that the company owes close to Rs 3 billion in a secured loan to Seylan Bank and a similar amount is owed in advances to apartment buyers.

Asked about the legal implication of the wrong company being listed in the law, opposition parliamentarian Wijedasa Rajapaksa said the government would have amend the schedule of the Act in Parliament to overcome this mess. It has to sort out all the legal problems and carefully inspect the documents because the Ceylinco group had a very complicated and diversified company structure, he added.

The senior Finance Ministry official said the move made by a consortium led by Sri Lanka Insurance Corporation to take over Celestial Residencies – which was reported in the Business Times on December 25-with an initial investment of Rs. 6.8 billion has been suspended pending the resolution of the ownership issue.

The group had planned to resume construction work on Sri Lanka's tallest building at 45 stories, where a funding shortage had halted work. The project is sited on a prime 262 perch seafront property in the capital’s main business and entertainment district of Colombo.

 PC Pharma Pvt. Ltd. is to list 101 million shares on the Colombo Stock Exchange through an introduction.

The company is a leading pharmaceutical company and markets a wide range of internationally-reputed medicines, biomedical devices, medical equipment, nutraceuticals and cosmetics augmented by value added services.
The company is a subsidiary of PCH Holdings of which PC House Pvt. Ltd., an IT solutions specialist, is the flagship company. The CSE announced that the company’s ordinary shares would be granted a listing on or before the third market day upon receipt of a declaration from the company.
The company lists its key competitive strengths as being financial stability, marketing skills, creative focus and superior networking arrangements with key stakeholders within and outside the industry. PC Pharma’s marketing processes comply with ISO 9001:2000 standards.
PC House shares are trading at Rs. 12.90 to Rs. 13 levels and 140,900 shares were traded yesterday contributing Rs. 1.8 million to market turnover. The company saw revenue grow 25% to Rs. 1.95 billion in the six months to September 2011 as profits grew 16% to Rs. 104 million over the same period last year.
PC House’s market capitalisation is Rs. 2.97 billion, 0.13% of the total market capitalisation of the Colombo market.

Tata group firm TRF Ltd. has increased its shareholding in Sri Lanka-based Dutch Lanka Trailer Manufacturers Ltd. to 100 per cent by acquiring the remaining 49 per cent stake for $ 8.33 million.

TRF had picked a 51 per cent stake in 2009 for $ 8.67 million through its wholly-owned subsidiary TRF Singapore Pte. Ltd. The deal also gave TRF a Put and Call option to acquire the balance 49 per cent, which the firm has exercised now.
Dutch Lanka Trailer has a manufacturing facility in Sri Lanka and sells trailers in over 30 countries. One of its subsidiaries is also involved in repairing, maintenance and service business of trailers.It also has a subsidiary in Oman besides a JV with Tata International to manufacture and sell trailers in India.
TRF is involved in providing solutions for material handling equipment and processing systems required in the infrastructure development. It has also expanded into automotive applications business. TRF earlier said that it plans to grow to Rs. 2,500 crore by 2013 focusing on material handling business and auto applications business.
For the six month period ending September 2011, TRF reported 7.55 per cent increase in revenues to Rs. 271.86 crore with Rs. 5.3 crore in net profit (as compared to Rs. 15 crore loss) in the same period last year.
In 2010, TRF acquired UK-based Hewitt Robins International for $ 4.62 million. Hewitt Robins is engaged in design, manufacturing of screens, mobile crushing and related products.

Dec 07, 2012 (LBO) - Sri Lanka's Softlogic group may look for foreign private equity to further develop its retail business this year ahead of a public listing , chairman Ashok Pathirage said.
Softlogic Holdings, which has interests in information technology, retailing, healthcare and financial services raised money last year from a domestic private placement and initial public offer by subscription. But its stock flopped on debut.

"Most probably this year we might look at private equity but we will not think of Sri Lanka," Softlogic chairman Ashok Pathirage told the LBR-LBO CEO forum, a gathering of senior executive, in Colombo.

"We have burnt our fingers with having the Softlogic IPO, with the guys who bought in the private placement selling out on the first day, just to make money.

"We do not like to have those kind of investors with us. So most probably we will look at outside."

Pathirage said Softlogic's healthcare arm, through Asiri Hospitals was already largely listed and so was its financial services units.

Pathirage, who started out in information technology after leaving Sri Lanka's John Keells Holdings with eight others when he was 27 became well known for retailing popular brands such as Nokia. It later acquired franchises for Panasonic and Samsung.

Branded Products

He said branded products will have a big potential with the government targeting 4,000 dollars per capita income by 2016.

Sri Lanka's current administration committed to a strong exchange rate and lower inflation ending decades of currency depreciation and high inflation.

Currency depreciation which was institutionalized as a policy by so-called 'New Dealers' of the administration of President Franklin Roosevelt in the US, is the principle tool through which rulers and the state can impoverish citizens.

Under the post World War II Bretton Woods system, so-called 'soft dollar pegged' central banks were set up around the world which targeted the exchange rate and interest rate at the same time, generating 'foreign exchange shortages' and balance of payments crises.

When contradictory policy pushes Sri Lanka into a balance of payments crisis, rulers and bureaucrats slap taxes on what are everyday consumer goods in other countries, deviously claiming that they are 'luxury goods', which analysts say is a risk to business.

Policy has improved in recent years, though the dollar peg is again under pressure due to delay in raising interest rates in 2011.

"If we achieve this 4,000 dollar per capital income by 2016, we believe that there will be a lifestyle change," Pathirage said.

"People will aspire to own branded and quality products,"

He said people will move up from standard mobile phones to smart phones and from motor cycles to cars.

He said Softlogic had also got the franchises for Nike, Levi's and the Mango store.

In this year's budget the state cut taxes for branded shoes, though nationalist industrialists still have a tight protectionist grip on footware used by poorer people.

Shopping Mall

Pathirage said Softlogic also had also signed up the UK based department store Debenhams.

The first Debenhams store will be around 20,000 to 30,000 square feet and may open next year, he said.

"It will be the first international department store if it works out," he said. "We are at the moment looking for retail space because that is one of the constraints we are facing today."

He said large shopping mall developments that are now being planned will help the sector. Several integrated hotel, retail and apartment projects are being planned in Colombo with the onset of a tourism boom.

"With the brands and products we have, we can easily occupy 150,000 to 200,000 square feet space in any new mall that is coming up."

"Basically our growth is going to come from there. In ICT we do not expect much growth."

He said while ICT may grow at 15 percent, about 100 percent annual growth is expected in retail.

Pathirage said the group had 110 electronic stores and the chain will grow to 250 by the year end.

"With 250 stores basically we are going to match the top two guys. That is Singer and Abans. Singer could possibly end up this year with 20 billion rupees plus turnover.

""Our idea is after having 200 outlets in 2014 we will most probably look at 20 billion plus from the retail side, only from consumer electronics."

Jan 06, 2012 (LBO) - For the second time in a year, Sri Lanka's Environmental Resources Incorporated (ERI) plans to delay warrants that were to be converted to shares whose price has slumped to the conversion price, amid anticipation of selling pressure.
The company, which was fined last year for providing misleading information, said in a stock exchange filing its board of directors decided on January 5 to recommend extending the cut off date of is 2012 warrants from February 03, 2012 to September 6, 2013.

It also recommended extending the expiration date of the warrants from February 24, 2012 to September 26, 2013.

It said the board of ERI was "of the view that it would be in the best interests of the company if the 2012 warrants were fully exercised."

Stock market analysts said the company was trying to buy time and that there was also speculation that ERI's controlling shareholder Lionhart Investments, had not taken up its full subscription of warrants.

Lionhart Investments, a UK-based fund, has about 80-90 percent of both shares and warrants of ERI.

"The February 2012 warrants are coming at 33 rupees. Today's share price is already 33," said an analyst.

"Furthermore, the 2011 warrants are to be converted and getting traded next week at 24 rupees which is at a discount to 33 rupees.

"So the market perception is of further selling pressure on ERI with speculation also that the controlling shareholder has not taken up their full subscription of the warrants.

"There will be sellers among those who acquired shares at 24 rupees through conversion of 2011 warrants. At today's price a conversion at 33 rupees next month is probably not going to successful."

The 2011 warrants were also delayed by six months with the conversion date changed from May - June to July and December 2011, a move ERI director Kosala Heengama told LBO at the time was due to "adverse market conditions".

According to the September 2011 interim results of ERI, a prolific issuer of warrants, the exercise date for conversion of 104.3 million 2011 warrants was extended to July 7, 2011 and December 21, 2011 from the original date of June 3, 2011.

A note to the accounts said 2,532,590 warrants were exercised on July 7, 2011 and the company raised 60.8 million rupees with the option given to warrant holders who had not yet exercised, to exercise on December 21, 2011.

The market valuation of warrants can be skewed in a firm which is closely held by insiders, whose underlying shares can also be suffering the same fate, compounding the problem.

Illiquid companies are known to be a favourite targets of price manipulators.

An equity warrant gives a holder the right to buy a new share in a company at a future date at a predetermined price although any exercised warrants would dilute the value of the ordinary share.

Crudely valued, a warrant is worth at least the difference between the current price of an ordinary share and the specified price at which it is exercised.

If the market price of the ordinary share is lower than the exercise price at the exercise date, the warrants would expire without diluting the capital.

The uncertainty makes warrants highly speculative and unless a firm is on track to make increasingly higher profits every year, a warrant would be worthless.

Jan 06, 2012 (LBO) - Sri Lankan stocks closed weaker Friday for the fourth day running with a private deal in a bank where foreigners have been selling out bolstering the thin turnover, brokers said.
The main All Share Price Index fell 0.16 percent (9.23 points) to 5,930.52, while the more liquid Milanka index fell 0.20 percent (10.31 points) to 5,083.15.

Turnover was a low of 337 million rupees, according to stock exchange provisional figures.

Commercial Bank closed at 100 rupees, up 20 cents, with a crossing or off-market private deal of 500,000 shares at 100 rupees each accounting for most of the trades.

Index heavyweight John Keells Holdings fell 1.30 rupees to close at 167.80.

Environmental Resources Investments shares and warrants were heavily traded with the firm announcing it plans to delay conversion of warrants by six months from February 2012 to September 2012.

ERI shares closed at 32 rupees, up 20 cents while its W0002 warrants were the day's highest gainer, closing at 15 rupees, up 1.70.

Jan 06, 2012 (LBO) - Fitch Ratings Lanka has upgraded People's Leasing Company's (PLC) National Long-Term rating to 'A+(lka)' from 'A(lka)' and People's Finance's (PF) to 'A-(lka)' from 'BBB(lka)'.
The outlooks on both ratings are stable, the rating agency said in a statement.

PLC's outstanding 1,155 million rupee senior unsecured redeemable debentures have also been upgraded to 'A+(lka) from 'A(lka)'.

"The upgrade reflects the increased capacity of the systemically important state-owned parent - People's Bank - to support PLC and PF," it said.

The full statement follows:

Fitch Ratings Lanka has upgraded People's Leasing Company Plc's (PLC) National Long-Term rating to 'A+(lka)' from 'A(lka)' and People's Finance Plc's (PF) to 'A-(lka)' from 'BBB(lka)'. The Outlooks are Stable. PLC's outstanding LKR1,155m senior unsecured redeemable debentures have also been upgraded to 'A+(lka) from 'A(lka)'.

The upgrade reflects the increased capacity of the systemically important state-owned parent - People's Bank (PB, 'AA(lka)'/Stable) - to support PLC and PF. PB's National Long-Term was upgraded to 'AA(lka)'/Stable from 'AA-(lka)'/Positive in November 2011 to reflect Fitch's view of the government of Sri Lanka's increased capacity to support PB as indicated by the upgrade of the Sri Lanka's Sovereign Issuer Default Rating to 'BB-' from 'B+' in July 2011.

PLC's and PF's ratings also reflect their ownership by, integration with and strategic importance to, PB. Fitch considers these aspects key elements when assessing an institutions willingness to provide support. PB owns 75% of PLC and indirectly owns 66% in PF through PLC. Operationally, PLC benefits from PB's extensive branch network, and operated over 130 'window offices' within PB branches besides 43 standalone branches at end-September 2011. This has enabled PLC to maintain a wide reach yet keep operating costs low compared with peers. PLC in turn exercises control over PF at both a strategic and operational level. In addition, PB is represented on the boards of PLC and PF. At end-September 2011 (H212), the PLC group which includes PF and five other subsidiaries accounted for 12% of PB's group assets and 36% of the group's profits.

Fitch also factors in the subsidiaries' strong association with, and consequent reputation risk to, PB's franchise.

Any changes in Fitch's assessment of PB's ability and willingness to support its subsidiaries could trigger rating actions at PLC and PF.

PLC is a specialized leasing company established in 1995. The company acquired PF, a registered finance company, in 2009. At H212, total consolidated assets of the PLC group were LKR 87.1bn with PF contributing 16% of the total.