Sri Lanka Newspapers Wednesday 29/02/2012

CSE.SAS · 1 Sri Lanka Newspapers Wednesday 29/02/2012 Tue Feb 28, 2012 11:03 pm

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Bourse down despite Rs. 5 bn. Aitken Spence deal
Insurance Corp. sells out to Melstacorp

The Colombo bourse declined yesterday for the second consecutive day despite a Rs.5 billion deal where Sri Lanka Insurance Corporation (SLIC) sold its long held stake in Aitken Spence at Rs.115 per share to Melstacorp Limited, a 100% subsidiary of the Distilleries Company of Sri Lanka.

The market closed with the All Share Price Index dropping 44.92 points (0.82%) and the Milanka down 33.96 points (0.71%) on a turnover of Rs.5.86 billion, up from the previous day’s Rs.616 million, with 124 losers comfortably outpacing 72 gainers.

Brokers and analysts said that the market was unable to sustain the previous week’s rally that ended a protracted slump.

"Most of the day the turnover was around the Rs.170 million range until the big deal went through in early afternoon trading," a broker said. "Other than for the Spence transaction and some big trades in Ascot Holdings and PC House, the market was virtually dead."

The General and Life Funds of the SLIC sold their Spence stakes by crossings – the General Fund selling slightly over 26 million shares (6.14%) and the Life Fund 18 million shares (4.43%).

SLIC was the fourth biggest shareholder of Aitken Spence and broking circles said that these shares had been available for some time. The deal went through above the Rs.112.83 mandatory offer by Melstacorp for Spence that is pending right now.

A total of 1.6 million Ascot was transacted at Rs.225, up Rs.47.20 from its previous close. The share however closed at Rs.206.40, gaining Rs.28.60.

A total of 5.2 million PC House was traded yesterday closing flat at Rs.10.90. Brokers said that Acme Printing and Packaging was also heavily traded gaining 50 cents to close at Rs.27.10.

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*High interest rates, uncertain exchange rate dents vehicle market

The rupee continued to slide against the dollar on Wednesday. Opening at Rs. 121.30/60 to a dollar, the rupee fell to Rs. 123.20 against the greenback on importer demand, an all time low. But dealers said volumes were thin and no oil bills were presented to the market.

State banks later sold dollars to the market which gave some life to the rupee which gained to Rs. 120.50 against the dollar. Some currency dealers said the Central Bank had intervened, but some where not so sure because of the thin volumes.

However, the rupee weakened further before closing at Rs. 121.80.

Dealers said the foreign exchange market was still trying to find its way and moral suasion from the Central Bank was also not helping to stabilise the exchange rate.

"We saw the exchange rate move on thin volumes which suggests the exchange rate was driven by a few trades. Credit growth is still high and unless we see some contraction in credit growth rates the rupee would continue to be under pressure," a dealer said.

The Central Bank had said it would not intervene in the market and last sold dollars on February 06 after which, it allowed the exchange rate to float.

Over US$ 3 billion was sold to keep the exchange rate stable from July 2011 to early February and more than Rs. 300 billion was printed to maintain rupee liquidity in order to ease pressure on interest rates.

The Central Bank increased policy interest rates on February 03 and slapped an 18 percent ceiling on commercial bank credit growth. The bank said it would no longer intervene in the market except when oil bills are presented and large foreign inflows materialised.

These measures, together with increases to domestic fuel prices and electricity tariffs, were belated but necessary to avoid the aggravate a balance of payments crisis.

Meanwhile, high interest rates have caused a dent in the vehicle market.

"We have seen a drop in leasing of brand new and re-conditioned vehicles in January and February after the increase of interest rates. The February drop up to now has been even sharper," said Kamal Yatawara, Chairman of The Finance Houses Association.

"Because of the dollar increase, vehicle prices have gone up and due to the uncertainty customers are showing a lower tendency to obtain a vehicle loan or lease. Many finance companies have reduced their level of exposure toward providing vehicle loans, whereas the client has to pay a higher down payment. As a result there is a significant drop in the market," he said.
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