Sri Lanka Newspaper 27/01/2012

Bourse recovers more lost ground
Turnover tops Rs. 2 bn. With big trades in JKH & ComBank

The Colombo bourse yesterday recovered a little more lost ground with both indices continuing to gain on the back of some big transactions on JKH and Commercial Bank, brokers said.

Turnover at nearly Rs.2.29 billion was up from the previous day’s Rs.628.9 million with the All Share Price Index gaining 36.11 points (0.65%) and the Milanka 21.53 points (0.45%) with 91 gainers slightly ahead of 87 losers.

"There was some welcome foreign buying seen with some big parcels of JKH acquired by a foreign party from a local seller," a broker said. "Trades in JKH and Commercial Bank where there was foreign selling and local buying accounted for the bulk of the dayturnover."

JKH gained Rs.3.40 to close at Rs.163 on over 8.8 million shares done between Rs.159.70 and Rs.164 generating the day’s top turnover of Rs.1.47 billion with several crossings among the trades.

"The big JKH parcels were traded at a price of Rs.167 during afternoon trading and after they were done small quantities of the share were traded at Rs.164 and Rs.163," a broker said.

Commercial Bank closed 40 cents up at Rs.100 on slightly over 3.7 million shares traded between Rs.99.50 and Rs.100.50 contributing Rs.371 million to the day’s turnover.

Here too there were some big parcel done at a Rs. 100 price during late trading.

"The big blue chip transactions boosted confidence and helped the market," a broker commented. "We must wait and see whether such transactions will continue."

Other stocks that showed some price gain and quantities included Asia Asset Finance up 60 cents to close at Rs.7.10 on nearly 11.1 million shares traded between Rs.6.70 and Rs.7.10 and Swarnamahal up Rs.4.60 to close at Rs.121.60 on over 0.3 million shares done between Rs.112 and Rs.122.

Blue Diamonds announced a reduction of its stated capital to recoup accumulated losses with the present stated capital of Rs.1.06 billion to be reduced to Rs.208.4 million.

The company also plans to sub-divide the existing 103.3 million voting shares into 14 each increasing the number of shares to over 1.4 billion.

Similarly the non-voting shares too will be sub-divided 14 for 01 increasing the existing number of shares from approximately 153.4 million to approximately 2.15 billion with no change in the stated capital.

The sub-division of shares will be effected subsequent to the reduction of the stated capital.

Brokers said that there was heavy retail activity in Blue Diamonds yesterday with nearly 4.2 million shares traded between Rs.7.30 and Rs.8.20 with the counter closing 50 cents down at Rs.7.50.

Retail activity was evident in AAF and ERI where nearly 0.5 million shares were done between Rs.27.20 and Rs.28 with the counter closing 10 cents up at Rs.27.20.
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Aitken Spence has made a capital gain of Rs. 630 million after selling its 30 percent stake in the Colombo South container terminal project to former venture partners China Merchant Holdings.

"We are pleased to announce that we have finalised the formalities of our sale of the 30 percent shareholding in Colombo International Container Terminals (CICT) to China Merchants Holdings (International) Company Limited (CMHI) our joint venture partner,"Aitken Spence Company Secretary R E V Casie Chetty said in a letter to the Colombo Stock Exchange yesterday (26).

"The sale was on normal commercial terms which have been determined through arms length negotiations between the parties. The directors consider the sale is in the best interest of the company and our shareholders.

"We are very pleased that attracted CMHI to partner us as the sole bidder for the development and operation of the Colombo South Terminal, the project has now commenced which is in the greater interests of the country.

"Aitken Spence PLC will realise a capital gain of approximately Rs. 630 million on the sale of these shares," the letter said.
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With the Central Bank continuing to defend the exchange rate on a daily basis by selling dollars from part hard earned and part borrowed reserves, much to the displeasure of the Treasury, economists warn that Sri Lanka would continue to be under the influence of the International Monetary Fund, making it difficult for the country to formulate and implement policy to keep the economy on a robust growth trajectory amidst a miserable global economic environment.

A top official of the Treasury says the Ministry of Finance and Planning is against the Central Bank spending millions of dollars on a daily basis to keep the exchange rate steady amidst severe import demand.

"What is harmful to the economy is erratic fluctuations of the rupee against the dollar, and this is what the Central Bank is supposed to minimise. But by spending millions of dollars from our reserves on a daily basis, not allowing a certain degree of flexibility, is pushing things a bit too far. Not only is our reserve position getting exposed, but the Central Bank has also got to pump in rupees to the banking system because the dollar sales are draining rupee liquidity in the system, which is also putting pressure on interest rates. One imbalance is causing another. This may be alright for a short period of time, but it cannot be sustained for long, perhaps it has already gone on for far too long," a top Treasury official said not wanting to be named.

US$ 1.56 billion was used up from the reserves to artificially prop up the rupee during the four month period July to October 2011. According to dealers, a further US$ 1 billion has been sold to-date since the rupee was depreciated by 3 percent in November 21. According to our calculations, for the past one and a half months, the Central Bank has pumped in a total of almost Rs. 300 billion to ease the liquidity tightening which was caused by the dollar sales.

By end November 2011 reserves stood at US$ 6.2 billion, down 30.6 percent from US$ 8.1 billion in July, with the borrowed component now becoming more significant as the reserves diminish, shrinking the comfort zone.

Treasury Secretary Dr. P. B. Jayasundera has publicly said the rupee had to be more flexible, and on Wednesday (25) he ruled out a balance of payments crisis but he said he was concerned about how global oil prices would move. Apart from essentials which cannot be produced here, he suggested a vigorous import substitution programme as a way out of the problem in the medium to long term. The short term option if things get worse in the global arena would be allowing some flexibility in the exchange rate.

Economists point out that by artificially propping up the rupee by selling reserves in 2008/09 the country was pushed to a balance of payments crisis as it could not meet a surge in global commodity prices and the country had to rush to the IMF for support. The same thing is happening today, although not as serious as then.

Last October, a special paper was prepared by a team of economists as part of a process to formulate a new labour policy for Sri Lanka.

"To retain macroeconomic policy manoeuvrability to appropriately respond to its development priorities and to avoid the need for IMF conditionality-driven policy setting in future, Sri Lanka needs to ensure prudent macroeconomic management," the paper said.

"In 2011, with a fiscal deficit of 7 percent, a moderate inflation of 6 to 7 percent, and fairly healthy external reserve position, Sri Lanka does have the opportunity to gear its macroeconomic policies towards productive employment, by adjusting and releasing resources for capital investment in infrastructure and spending on key sectors such as health and education," it said in October 2011. Today all these variables are within target, except the reserves which continues to decline. The Central Bank is hoping stronger foreign currency inflows would materialise within this quarter and ease the pressures on the balance of payments. But the Treasury is on pins.

"True, imports would be cheaper when the exchange rate is stronger, but when it is artificially propped up for too long we also lose our ability to finance these imports and the need arises to borrow more because the dollars have to come from somewhere. Rupees we can print, but not dollars. We can either borrow at higher rates from international capital markets, or we could turn to the IMF which comes with a sting of conditions. The more we are indebted the more difficult it is to borrow at cheaper rates. When the rupee is artificially stronger we also artificially make our exports less competitive, and also lessen the earnings of migrant workers," an economist said, not wanting to be named because "the exchange rate debate was somehow a too sensitive issue," he said.

"The government has also expressed its willingness to complete the current programme with the IMF, if not for balance of payments support, then to show the world the economy was well managed. But the exchange rate issue is growing a rift between us and the multilateral donor, and getting ourselves out of its dependence with our heads held high may now prove a little difficult. Unless of course the surge in foreign currency inflows materialised like the Central Bank said it would, then we would have worried for nothing. However, we must be warned, we have no control over these inflows, but the exchange rate we can control," the economist said.

"Imagine the inflows would not materialise what then do we do?" he asked.
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By Hiran H. Senewiratne

The Daya Group of Companies which lost control over the Sevanagala sugar factory to the government under the controversial expropriation law, will set up a sugar factory in India through a joint venture with investments from the US and UK.

"Sri Lanka is now beginning to suffer as a result of the government’s decision to take over private assets under the recently passed expropriation act, with most entrepreneurs turning their back on the unfriendly investment climate in the country, Daya Group Chairman Daya Gamage told The Island Financial Review.

He said he was able to attract two investors from the US and the UK to set up a sugar factory in India.

"The company has decided to invest in sugar production ventures overseas especially in India because foreign investors were deterred from investing here because of the uncertain investment climate," the businessman with close ties to main opposition, the deleted, said.

"There are no more prospects to operate in the local industry following the state’s takeover of Sevanagala Sugar Industries, which we had managed profitably," he said.

"We would first invest US$ 50 million on a sugar production venture in India. We will also look at our options in Burma."
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John Keells Holdings reported a 56 percent growth in net profit to Rs. 2.73 billion during the December quarter, its Chairman Susantha Ratnayake told shareholders. The bluechip recorded a net profit of Rs. 5.67 billion for the nine-months period ended December 31, 2011.

"Group revenues of Rs. 21.14 billion and Rs. 54.27 billion in the third quarter and the first nine months of 2011/2012 were 35 per cent and 28 per cent above the Rs. 15.62 billion and Rs. 42.50 billion recorded in the corresponding periods in the previous year," he said in a report detailing the diversified holdings financial statements for the quarter ended December 31, 2011.

"Group gross profits of Rs. 5.45 billion and Rs. 12.40 billion in the third quarter and the first nine months of 2011/2012 were 32 per cent and 33 per cent above the Rs. 4.12 billion and Rs. 9.35 billion recorded in the corresponding periods in the previous year.

The recurring Group profit before tax (PBT) of Rs. 3.39 billion for the quarter and Rs. 7.39 billion for the first nine months of the financial year 2011/2012 grew by 44 per cent and 33 per cent respectively compared to Rs. 2.36 billion and Rs. 5.54 billion in the corresponding periods in the previous year, excluding the gains of Rs.1.79 billion from the sale of stakes in Asian Hotels and Properties PLC (AHPL) and John Keells Hotels PLC (KHL).

Group PBT was Rs. 3.39 billion for the quarter and Rs. 7.39 billion for the first nine months of the financial year 2011/2012, compared to the PBT of Rs. 2.36 billion and Rs. 7.33 billion in the corresponding periods in the previous year. As stated above the previous year’s PBT for the first nine months included capital gains of Rs. 1.79 billion.

While the recurring profits attributable to Equity Holders grew by 55 per cent for the quarter and 46 per cent for the first nine months, the profits attributable to Equity Holders for the quarter and first nine months of the financial year 2011/2012 were Rs. 2.73 billion and Rs. 5.68 billion respectively as against Rs. 1.76 billion and Rs. 3.9 billion recorded in the corresponding periods in the previous year.

The Company PBT was Rs. 919 million for the quarter and Rs. 2.42 billion for the first nine months of 2011/2012 compared with the PBT of Rs. 1.12 billion and Rs. 4.44 billion in the

corresponding periods in the previous year which included the capital gains.

Transportation PBT for the quarter increased by 44 per cent to Rs. 879 million [2010/11 Q3: Rs. 611 million] on the back of improved performance in all segments.

Leisure recorded a PBT of Rs. 1,002 million for the quarter compared to a PBT of Rs. 632 million recorded in the same period last year, reflecting a growth of 59 per cent. This growth was achieved despite the closure of two resort hotels for a part of the period. Both our city hotels contributed significantly to the improved performance with Cinnamon Lakeside operating at full capacity from the 1st of October following refurbishment of some rooms. JKH has partnered Sanken Construction (Pvt) Ltd to build and manage a 240 room business hotel in Colombo and

construction is progressing as planned. Chaaya Tranz, Hikkaduwa which was closed from May 2010 for refurbishment and Chaaya Wild, Yala which was closed from May 2011 for refurbishment were reopened on schedule in November 2011. The construction of the Rs. 2.63 billion Chaaya Bey, Beruwala is progressing as planned and will be the latest addition to our resort portfolio in the second half of 2012.

Property recorded a PBT of Rs. 319 million for the quarter, compared to a PBT of Rs. 222 million recorded in the same period last year, reflecting a growth of 44 per cent. The revenue recognition from the "Emperor" project and the "OnThree20" project were the main contributors to the sector’s performance this quarter. The construction of the Rs. 8.0 billion "OnThree20" project is progressing as planned.

Consumer Foods and Retail PBT of Rs. 532 million for the quarter was an increase of 241 per cent over the same quarter last year [2010/11 Q3: Rs. 156 million]. The soft drinks and ice creams businesses continued to perform exceptionally with higher volumes. The retail business also witnessed an improved performance driven by higher basket values, footfalls and better margins.

Financial Services PBT for the quarter was Rs. 606 million as against Rs. 528 million recorded in the corresponding period in the previous year, reflecting a growth of 15 percent. While Union

Assurance and Nations Trust Bank performed to expectations, John Keells Stockbrokers continued to be impacted by the lower market turnover witnessed in the CSE.

Information Technology recorded a PBT of Rs. 65 million for the quarter, which was an improvement of 364 per cent over the same period last year [2010/11 Q3: PBT Rs. 14 million]. The BPO business, which has acquired new customers, saw higher revenues while the Office Automation business continues to perform strongly.

Others comprising Plantation Services, John Keells Capital and the Corporate Centre recorded a PBT of 167 million for the first nine months while recording a marginal loss of Rs. 15 million for the quarter, as against Rs. 2.17 billion and Rs. 192 million recorded in the corresponding periods last year. The previous year’s PBT for the first nine months included capital gains of Rs. 1.79 billion.

BPO operation in Mahavilachchiya in the Anuradhapura District has proved to be a successful pilot in creating sustainable employment for rural youth, enabling them to work from their own village. During the third quarter, 18 youth were engaged in transaction processing for InfoMate (Pvt) Ltd, the captive finance and accounting service provider for the John Keells Group. The BPO collaboration with FARO - continues to record healthy volumes, translating to increased income levels to its youthful shareholder-employees. Meanwhile, the second BPO operation at Seenigama in the Southern Province in collaboration with FARO and Foundation of Goodness, has shown much potential, scaling up to 15 young employees within a space of 15 months of commencement of operations," Ratnayake said.
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Sampath Bank PLC appoints Mr. Channa Palanasuriya as Deputy Chairman

Jan 27, 2012 (LBT) - After a Board of Directors meeting held on the 26th January 2012, Sampath Bank PLC, in a filing to the Colombo Stock Exchange made an announcement notifying the appointment of Mr. Channa Palansuriya who was Director before as Deputy Chairman of the company with immediate effect.http://www.lbt.lk/corporate/announcements/1083-deputy-chairman

Vallibel Power Erathna PLC completes another Mini Hydro Power Project

Jan 27, 2012 (LBT) - In a filing to the Colombo Stock exchange, Vallibel Power Erathna PLC announced the completion of another Mini Hydro Power Project . It was also told that the 4.65 Mega Watt Kiriwaneliya Mini Hydro Power Project of its subsidiary company Country Energy (pvt) ltd, Has now commenced its commercial operations.http://www.lbt.lk/news/business/1082-hydro-power

Watawala Plantations PLC to sell its subsidiary Watawala Marketing Limited

Jan 27, 2012 (LBT) - Watawala Plantations PLC has decided to dispose its subsidiary Watawala Marketing Limited for a sum of Rs. 741.5 million.
In a filing to the Stock Exchange it was said, the investment by the Watawala Plantations on Watawala Marketing limited is carrying a value of Rs. 355 million representing 35,500,002 ordinary shares.
The Board of Directors of the company has proposed to dispose the entire unit of the investment of the company.
Watawala Plantations PLC is engaged in managing tea plantations and marketing tea brands.http://www.lbt.lk/news/business/1081-marketing-sale