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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Central Bank targeting early return of EPF to stock market

Central Bank targeting early return of EPF to stock market

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mahasona2

mahasona2
Manager - Equity Analytics
Manager - Equity Analytics
Central Bank targeting early return of EPF to stock market
March 16, 2019, 8:26 pm 

Central Bank targeting early return of EPF to stock market 2011007975central
The two trillion rupee Employees Provident Fund (EPF), the country’s richest investment fund holding the retirement funds on non-public sector employees, is targeting an early return to the now depressed Colombo Stock Exchange where it has been inactive since 2016, well informed sources said yesterday.

This has been actively pushed by market players and investors who believe that the EPF’s return to the CSE, even in a relatively small way, would help catalyze particularly retail sentiment in the market.

"This has been long talked about with even Central Bank Governor Indrajit Coomaraswamy saying as far back at October last year that the Central Bank which overlooks the EPF was setting up the necessary checks and balances for the fund’s re-entry into the market in a prudent and proper manner," an analyst said.

It has been argued from the time of former governor Nivard Cabraal that opportunities for the EPF to invest in government debt are reducing, with the present governor on record saying that "in the future, the government domestic funding requirement will get lower."

Coomaraswamy estimated the numbers late last year as peaking at Rs. 980 billion and expected this to reduce to Rs. 600 billion this year and to between Rs. 400 to Rs. 500 billion thereafter.

Necessary safeguard like CCTVs, voice recorders etc. are already in place and staff has been trained. The bond scam investigation surfaced alleged links between some EPF staffers and dealers and this has signaled similar risks where stock trading is concerned.

Stockbrokers say that the fences that have been built are protection against corruption. "They are terrified and don’t want to do anything," one broker said.

Analysts say that the role of the EPF is not to help the stock market but to maximize returns for its own members. It has been pointed out that the present depressed market conditions provide buying opportunities and the possibility of future capital gains.

Governor Commaraswamy is one record saying several weeks ago that there are buying opportunities in the stock market due to what he then called "a fire sale of corporate Sri Lanka at the moment."

The situation has sharply deteriorated since his remarks at the October Monetary Policy briefing last year.

"The governor has been talking of the EPF coming into the market but not said when," a big market player said. "It’s now been a long time and nothing has happened,"

There has been a sharp outflow of foreign funds from the CSE this year with nearly Rs. 6 billion going out up to now against an outflow of Rs. 27.5 billion last year. This compared with an inflow of Rs. 17.65 billion in 2017.

The EPF has about 2.5% of its investment portfolio in listed shares but is unlikely to go above 5% the governor has said.

There has been no major acquisition of shares by the EPF since the present government came into office in 2015. But in 2016 during the tenure of Arjuna Mahendran as Governor of the Central Bank, there was selling of blue chips from its portfolio to raise funds to make part refunds of EPF holdings of members’ funds for housing purposes.

The EPF was holding Rs. 10.8 billion in private (unlisted) equity investments made between the previous regime’s tenure between 2010 and 2015. These include buying equity of SriLankan Airlines as has emerged in the current Commission of Inquiry proceedings SriLankan.

Large EPF investments in unlisted equity include Rs. 5 billion in Canvil Holdings, Rs. 2.9 billion in West Coast Company, Rs. one billion in SriLankan Catering, Rs. 500 million in SriLankan Airlines, Rs. 495 million in Cargills Bank, Rs. 450 million in Weligama Hotel Properties, Rs. 350 million in Jetwing Symphony (since listed) and lso in Fitch Ratings.

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