Sri Lanka Newspapers Thursday 16/02/2012

Bourse breaks free of losing mode
Some bargain hunting, fewer margin calls

The Colombo bourse yesterday broke off from what some analysts regarded as a `death grip’ of sharp downturns in nine consecutive trading sessions posting marginal gains on both indices on a turnover topping Rs.1.2 billion, up from the previous day’s Rs.2.35 million.

The All Share Price Index was up 13.84 points (0.28%) and the Milanka up 19.82 points (0.46%) with 119 gainers outpacing 93 losers with some active bargain hunting and reduced selling on margin calls, brokers said.

The day’s big business generators were LMF, PC Pharma, HVA Foods and Leather Products with Sampath Bank announcing a cash and scrip dividend totaling Rs.9 per share and Kelani Valley Plantations a dividend of Rs.5 per share.

LMF was by far the day’s big business generator with 3.4 million shares done at a price of Rs.99 closing Rs.5.90 up at Rs.96 generating a turnover of Rs.350.7 million with a total of a little over 3.5 million shares traded between Rs.80 and Rs.97.

There was not word on the buyer and seller with the market speculating that a big name was on the buying side.

PC Pharma followed closing Rs.2.10 down at Rs.35 on a total of 4.5 million shares done between Rs.35 and Rs.36.90.

"Valentine’s Day last year saw the bourse closing at a record high while this year it was the other way about with a record low," a broker said. "Hopefully, we have broken out of that negative situation. The indices went both higher and lower than the close intra day.’’

PC Pharma saw 4.5 million shares crossed at Rs.40 while HVA Foods also saw some big trades at Rs.16 although none of them were crossings. The counter traded between Rs.15.50 and Rs.19 closing 80 cents up at Rs.18.50 generating Rs.55.8 million from over 3.4 million shares traded.

Brokers said that Ceylon Leather also saw some activity closing Rs.9.40 up at Rs.100 on over 0.4 million shares done between Rs.87 and Rs.100 while Swarnamahal gained Rs.8.30 to close at Rs.163.90 on over 0.2 million shares done between Rs.154 and Rs.165.

Commercial Bank closed 40 cents up at Rs.99.90 on nearly 0.4 million shares done between Rs.99.50 and Rs.101 while JKH edged down 10 cents to close at Rs.159.50 on nearly 0.2 million shares done between Rs.159 and Rs.164.

The Sampath cash dividend of Rs.4.50 per share was described as "full and final" for 2011 to be paid on April 9 after shareholder approval at a March 30 AGM. The share will trade XD from April 2.

The scrip dividend will be in the proportion of one new share for every 43.06 shares held with slightly over 3.64 million new shares valued at Rs.175 per share being issued. The dividends will be paid from the profits of financial year 2011 with no reserves to be capitalized.

Kelani Valley Plantations will pay a first and final dividend of Rs.5 per share following shareholder approval at a March 29 AGM with payment on April 9. The share will trade XD from March 30.
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* Central Bank tackles uncertainty
* High fuel costs will help conserve energy
* CB to absorb large foreign currency inflows and provide dollars for oil imports

The Central Bank says the extent to which the rupee fell against the greenback over the past few days was a temporary phenomenon, and that stability would come soon. The bank also said it would limit selling dollars to the market, intervening only to settle oil import bills and would absorb the excess inflows, so as to prevent a sharp appreciation of the rupee.

Dealers said this stance would prevent the exchange rate from being too volatile. By absorbing large foreign currency inflows, the bank could also build its depleted reserves.

The rupee has fallen nearly 5.7 percent since February 03, closing at Rs. 120.10/30 to a dollar on Tuesday after the Central Bank said it would limit interventions in the foreign exchange market which saw more than US$ 2.5 billion being sold from the reserves to keep the exchange rate stable in the face of severe import demand.

Importers have panicked and exporters are not converting their dollar earnings, opting to wait and see how far the rupee would fall so as to maximize their returns, dealer said. "This behaviour of importers and exporters is driving the rupee down and does not necessarily reflect the supply and demand for trading activities," a dealer said.

"The Balance of Payments in 2012 would record a comfortable surplus and such a surplus would serve to ease any pressure on the foreign exchange market. In this context, the recent depreciation of the Sri Lanka rupee, which seems to be a reaction of foreign exchange dealers adjusting to the more vibrant market driven policy framework, would appear to be a temporary overshooting of the realistic level," the Central Bank said, echoing sentiments of some market players as previously reported in The Island Financial Review.

"With effect from 10th February 2012, the Central Bank decided to limit its intervention in the forex market, so as to limit the supply of foreign exchange to the extent needed to settle the bulk of petroleum import bills, and to absorb surplus forex liquidity that would flow into the market from various sources including the issue of Tier-2 capital by banks, inflows to equity and bond markets etc., that may otherwise lead to the undue appreciation of the rupee," the Central Bank statement said.

Defending the sharp increase to domestic fuel prices the Central Bank said it would help conserve energy and also bring down the huge import bill.

The Central Bank had ignored for too long the warning signs and the government which knew what was going on was happy to take the people for a ride that everything was alright. A slight depreciation of the rupee, or a slight tightening of interest rates, several months ago would have not left room for the chaos we are seeing today. Already, a young protestor had lost his life, shot down by riot police, when fishermen protested against the recent fuel price hike.

"No doubt all these measures are necessary for the economy to stabilise, but when delaying these decisions for far too long they become too costly to implement. The Central Bank knew this, and the Treasury knew this, but they decided to gamble with the lives of the people just to save some face because they hold a misguided notion that a depreciated rupee, or higher interest rates, or an increase in fuel prices was a bad thing. Yes, perhaps bad for politics, but not for the economy. The intellectual capacity of everyone involved in decision making has been found wanting," an economist said.

The full text of the Central Bank statement follows:

"As has been announced from time to time, the Central Bank has been intervening in the domestic forex market in recent years to build up foreign reserves and to smooth out any undue fluctuations in the exchange rate. Such interventions resulted in the build up of foreign reserves to a historically high level of US dollars 8.2 billion by August 2011, thereby preventing an excessive appreciation of the rupee.

"However, during the second half of 2011, the widened trade deficit underpinned mainly by the sharp increase in import expenditure necessitated the Central Bank to supply foreign exchange to meet a part of such increased demand, despite increased receipts on account of

"Although the Central Bank expected this import demand to decelerate towards the latter part of 2011 due to the uncertain global conditions, such a moderation did not take place and therefore, on 3rd February 2012, the following policy measures were introduced to strengthen the external sector of the economy, and to contain the high growth in bank credit: first, an increase in the policy interest rates by 50 basis points with effect from 3rd February 2012, so that the resultant increase in borrowing cost would restrain credit growth leading to the reduction of import demand; and second, a Central Bank direction to commercial banks to limit their credit expansion in 2012 to 18 per cent [23 per cent if 5 per cent of funds could be raised from abroad] as compared to the 2011 increase of 34 per cent, with a view to effectively reduce the quantity of credit granted.

"At the same time, in view of increased oil prices in the international market, the government has also decided to increase the domestic prices of petroleum products with effect from 12th February 2012. Such policy

action would encourage energy conservation and help reduce the use of oil products, thereby reducing the expenditure of imports further. In addition, several expected inflows to the Financial Account of the Balance of Payments in 2012, as set out in the Central Bank’s ‘Road Map for 2012 and beyond’, are now at varied stages of realisation and such inflows are expected to augment inflows during 2012.

"In this background, with effect from 10th February 2012, the Central Bank decided to limit its intervention in the forex market, so as to limit the supply of foreign exchange to the extent needed to settle the bulk of petroleum import bills, and to absorb surplus forex liquidity that would flow into the market from various sources including the issue of Tier-2 capital by banks, inflows to equity and bond markets etc., that may otherwise lead to the undue appreciation of the rupee.

"In light of the above measures and actions, the Central Bank has projected that the Balance of Payments in 2012 would record a comfortable surplus and such a surplus would serve to ease any pressure on the forex market.

"In that context, the recent depreciation of the Sri Lanka Rupee, which seems to be a reaction of forex dealers adjusting to the more vibrant market driven policy framework, would appear to be a temporary overshooting of the realistic level," the Central Bank said.
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Talawakelle Tea Estates PLC (TTE) and its subsidiaries have reported consolidated turnover of Rs 2.79 billion and a net loss of Rs 73.8 million for the year ending 31st December 2011, a period described by the company as ‘most challenging.’

A 28 per cent increase in the cost of wages from April 2011, which translated to an additional cost of Rs 244.8 million for wages and related gratuity provisions combined with unsettled conditions in key international tea markets contributed to these results.

At company level, net profit declined from Rs 135 million in 2010 to a loss of Rs 99.2 million, according to TTE’s income statement filed with the Colombo Stock Exchange.

The Hydro Power sector generated a net profit of Rs 25.4 million for the Group, enabling it to reduce consolidated loss after tax.

The company incurred capital expenditure of Rs 170.2 million including Rs 11.1 million on worker welfare, housing, water and sanitation in the year reviewed.

Talawakelle Tea Estates was ranked No.1 at the Colombo Tea Auctions for prices amongst the Regional Plantation Companies for the eighth and fifth year in succession for high and low grown elevations respectively. The average tea price registered by the Company was well above the national averages.

The company’s tea production in the year was 6.89 million kg compared with 6.82 million kg in 2010. Estates that recorded a healthy profit in the first quarter were adversely impacted when the increase in wages came in to effect from beginning of the second quarter. The situation was further compounded with prices at the Colombo Tea Auctions declining from mid-year. The depressed prices continued to the end of 2011, mainly because of softer demand from countries in the Middle East such as Syria, Iran and Libya.

Talawakelle Tea Estates PLC produces high-quality tea in 17 tea gardens situated in the best tea country of the land. Twelve of these estates, nestled in the Dimbula region manufacture high-grown teas while the rest, situated on the verdant planes of the South bring forth the low-growns that satisfy tea connoisseurs around the world.

The Board of Directors of Talawakelle Tea Estates PLC comprises of Messrs A. M. Pandithage (Chairman), Merrill J Fernando, Malik J Fernando, S. T. Gunatilleke, Prof. Uditha Liyanage, Dr. S. S. S. B. D. G. Jayawardena, L. N. De S Wijeyeratne, J. A.G. Anandarajah, G. K. Seneviratne, Dr. K. I. M. Ranasoma, W. D. N. H. Perera and Ms M. D. A. Perera.
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Sampath Bank announcing a cash and scrip dividend totaling Rs.9 per share and Kelani Valley Plantations a dividend of Rs.5 per share

Good news to value investors targeting on dividend base investment plus capital appreciation.