CSE News Updates

Plush five star The Kingsbury’s owner Hotel Services (Ceylon) PLC is going for a 3 for 8 rights issue to raise Rs. 660 million.
Offered at Rs. 10 per share the rights will entail issuance of 66 million new shares.
Funds raised will be used to retire debt thereby strengthen the balance sheet. Long-term borrowings as at 31 March 2013 was Rs. 1.2 billion, up from Rs. 400 million a year earlier and short term borrowings were Rs. 634 million, up from Rs. 28.4 million in FY12 whilst there was also a short-term loan of Rs. 775 million from related companies.

The rights issue is subject to regulatory and shareholder approval.
Hayleys PLC holds a 38% stake and subsidiary Carbotels Ltd., a further 13%. Other major shareholders include EPF (10.5%) and Bank of Ceylon (4.4%).
In the FY13, with an investment of Rs. 2.4 billion, the company completed the upgrading of the former Ceylon Continental Hotel  and rebranded the property as the landmark of luxury in Colombo; The Kingsbury.
The property which was closed for upgrading in February 2012 was planned to be operational by
October 2012 but due to the change of scope of the upgrading program for the betterment of the hotel, the opening was re-scheduled to mid December 2012. The opening went through a gradual phase from
January to March 2013.
Due to the closure, the company in FY13 suffered a net loss of Rs. 449 million up from Rs.186 million.
The reduction in revenues experienced year on year was Rs.363 million due to the closure of the hotel. The increase in administrative expenses by 41% to Rs.365 million in FY13 from Rs. 259 million in FY12 was mainly attributed to the investments the company made on its human resources.
The company said with the appointment of a qualified and experienced senior team with extensive international exposure to manage the hotel, the Kingsbury under their leadership is poised to reach unparalleled levels of performance during the next financial year.

Sri Lanka needs to do a lot more in terms of marketing and promoting its capital markets in the Middle East and be on its radar, according to a capital markets expert.

“We need to do a lot more in terms of promoting this country in the Middle East. The road show to Dubai is a good start,” Ravi Abeysuriya, CEO Candor Equities, owned by Dubai based Eagle Proprietary Investments Ltd (EPIL), told the Business Times in a telephone interview from Dubai where he was attending the “Invest Sri Lanka’ Forum organized by the Colombo Stock Exchange. He said that the forum was an encouraging one and that they made many contacts. “There is great interest from investors and fund managers in the UAE on Sri Lanka.”

Mr. Abeysuriya said that stock brokerage Heraymila Securities Ltd and asset management firm Heraymila Capital (Pvt) Ltd, which headed, have been acquired by National Industries Group Holding SAK (NIG) through its investment arm EPIL. With this acquisition the Heraymila companies will be rebranded as ‘Candor’.

He said with EPIL’s backing, Candor will have a strong presence in the Middle East.

Heraymila had been scouting for a strategic partner and was offering 15 per cent but EPIL was interested in 100 per cent.

“This is how EPIL acquired Heraymila,” Mr. Abeysuriya said. He said that under the terms of the deal, EPIL has acquired four licenses to operate in Sri Lanka, covering equity capital market brokerage, asset management, financial advisory, and outsourcing. Working alongside the current management team, as well as partners such as New York-based consulting firm Accordion Partners, EPIL plans to aggressively grow all four business areas.

Raj Dvivedi, CEO of EPIL, in a company press release, said that Sri Lanka’s capital markets have immense potential for growth being situated at the centre of global shipping routes that link international trade between East and West. He further expressed that “Sri Lanka’s proximity to rising economic powers of Asia and Middle East will also play a central role in its success story. Since mid-2009, Sri Lanka has been a politically stable nation and perhaps one of the safest places in Asia for doing business”.

June 6, 2013 (LBO) - Sri Lanka's state-run Bank of Ceylon will finance 48.2 kilometre road at a cost of 3,915 million rupees, the state information office said.
The cabinet of ministers had given the nod for the proposal by the ministry of finance to enter into a loan agreement with the bank.

The road will be built by Road Development Authority.

The RDA has borrowed from both state and private banks to finance road building under a Treasury guarantee.

June 05, 2013 (LBO) - Sri Lanka's Treasuries yields eased at Wednesday's auction with the 6-month yield falling as much as 09 basis points to 9.81 percent, data from the state debt office showed.
The 3-month yields fell 03 basis points to 8.70 percent and the 12-month yield fell 01 basis point to 10.85 percent.

The debt office said it sold 1.3 billion rupees in 3-month bills, 3.0 billion in 6-month bills and 20.3 billion rupees in 12-month bills, after offering 13.0 billion in bills at the auction.

In money markets the Central Bank's total Treasury bill stock which fell to a low of 92 billion rupees on May 15 with 6 billion rupees in excess liquidity has since climbed to 101 billion rupees with 21 billion rupees of excess liquidity by June 04.

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June 04, 2013 (LBO) – Fitch Ratings has confirmed an 'A-(lka)' National Fund credit rating of Ceylon Income Fund that is managed by Ceylon Asset Management, a fund that primarily invests in corporate debt instruments.

“The affirmation of the 'A-(lka)' National Fund Credit Rating is driven by the fund's stable weighted average rating factor (WARF) and rating distribution,” Fitch Ratings said in a statement.

“The majority of investors in the fund are not exposed to mark-to-market risk. Instead the vast majority of investors are duration matched with investors entering the fund with a specified maturity which is matched to the maturity of securities in the fund.”

Fitch says the fund has a limited capacity to withstand negative rating migration before it would be downgraded to the 'BBB(lka)' National Fund Credit Rating category.

“The negative modifier in the fund's 'A-(lka)' National Fund Credit rating reflects the moderate concentration risk.”

The full rating report is below

Fitch Ratings-London/Colombo-31 May 2013: Fitch Ratings has affirmed the National Fund Credit Rating assigned to the Ceylon Income Fund at 'A-(lka)'. The fund primarily invests in corporate debt instruments and is managed by Ceylon Asset Management (CAM).

The affirmation of the 'A-(lka)' National Fund Credit Rating is driven by the fund's stable weighted average rating factor (WARF) and rating distribution while reflecting Fitch's opinion that the fund is moderately concentrated.

Fitch has rated the fund on the basis of its understanding that the majority of investors in the fund are not exposed to mark-to-market risk. Instead Fitch understands that the vast majority of investors are duration matched, i.e. investors enter the fund with a specified maturity which is matched to the maturity of securities in the fund. Furthermore, Fitch believes that there is no secondary market for the corporate instruments held by the fund. Given the absence of a viable secondary market and the fact that the majority of the fund's investors are not exposed to market risk, Fitch does not consider a National Fund Volatility rating applicable and as a result the rating is 'V-NR'.

The portfolio is exposed to Sri Lanka corporate debt instruments, bank deposits, and securities issued or guaranteed by banks and government securities. The fund's WARF is consistent with a National Fund Credit Rating in the 'A(lka)' National Fund Rating category. The WARF has been broadly stable since Fitch rated the fund in September 2012. The negative modifier in the fund's 'A-(lka)' National Fund Credit Rating reflects Fitch's view that the fund is moderately concentrated with a top-five issuer concentration of around 78% of the portfolio as of April 2013. The fund's investment guidelines limit it to investment-grade rated issuers only. The majority of issuers in the portfolio are rated in the 'A(lka)' and 'BBB(lka)' rating categories. Around 4% of securities in the portfolio were subject to Rating Outlook Negative as of April 2013, but no securities were subject to Rating Watch Negative.

CONCENTRATION:

In Fitch's opinion, the fund is moderately concentrated. Consistent with its rating criteria, Fitch has therefore conducted deterministic stress tests on the portfolio. Based on its analysis Fitch believes the fund has a limited capacity to withstand negative rating migration before it would be downgraded to the 'BBB(lka)' National Fund Credit Rating Category. The negative modifier in the fund's 'A-(lka)' National Fund Credit Rating reflects the moderate concentration risk Fitch has identified in the fund.

COLLATERAL:

Around 30% of the portfolio's holdings are over-collateralised as of April 2013, comparable to the level in September 2012. Fitch takes comfort from the presence of collateral, notably in cases where issuers are only rated by a local rating agency. Fitch has afforded no credit above public rating levels in its analysis of the fund (i.e. Fitch has not 'notched-up' the ratings of issuers where the exposure is collateralised).

PORTFOLIO SENSITIVITY TO MARKET RISK:

Around 97% of the fund's investors are duration matched, i.e. investors enter the fund with a specified maturity which is matched to the maturity of securities in the fund. These investors are therefore not exposed to mark-to-market risk. The remaining 3% of investors in the fund may face minor daily mark-to-market volatility owing to the fund's use of mark-to-market pricing (based on the yield curve published by the Unit Trust Association of Sri Lanka) for securities with a residual term to maturity of over one year (implemented since January 2013). Given this, and the absence of a viable secondary market for the corporate instruments held by the fund, Fitch does not consider a National Fund Volatility rating applicable and as a result the rating is 'V-NR'.

FUND PROFILE:

The fund is regulated by the Securities and Exchange Commission of Sri Lanka under the Unit Trust Code, 2011. The fund's trustee is Deutsche Bank Sri Lanka, a branch of Deutsche Bank AG (rated 'A+/Stable/F1+'). The fund was launched in 2010 and has been growing. As of April 2013 the fund's total assets under management were approximately LKR470m.

THE ADVISOR:

Fitch considers CAM suitably qualified, competent and capable of managing the fund. The investment committee has relevant experience and the company has sufficient sources of information on which to base its decision-making process. Fitch considers the systems supporting the fund's investment activities satisfactory.

CAM is 25% owned by Sri Lanka Insurance Corporation Ltd (SLIC, 'AA-(lka)'/Stable) and 75% by Ceylon Capital Trust (Pvt) Ltd (NR). The business is currently in an investment phase and Fitch believes it to be supported by shareholders. CAM has been in existence and managing funds since 1999. The current management team has been in-place since 2005 and SLIC invested in the business in 2010.

RATING SENSITIVITY:

Funds in the 'A(lka)' rating category are considered to have high underlying credit quality relative to other entities in the Sri Lankan market. The fund's assets are expected to maintain a weighted-average portfolio rating of 'A(lka)'.

Comparisons between different national fund rating scales or between an individual national and international scale are inappropriate.

The ratings assigned to the fund may be sensitive to material changes in its credit quality. A material adverse deviation from Fitch criteria for any key rating driver could cause ratings to be downgraded by Fitch. Specifically, Fitch would expect to downgrade the National Fund Credit Rating in the event of sustained deterioration in credit quality of larger issuers in the portfolio. Fitch highlights the exposure of the fund to the leasing and financing sector.

For additional information about Fitch rating criteria applicable to bond funds, please review the criteria referenced below, which can be found on Fitch's web site at www.fitchratings.com.

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