Fresh Capital for Sri Lanka Finance Firms that Got into Trouble Two Years ago

25th March 2011, www.lankabusinessonline.com

Fresh capital will soon be given to the remaining Sri Lankan finance companies that got into trouble two years ago, prompting intervention by the banking regulator, senior central bank officials said.

Strategic investors have been found for three finance companies and one leasing company while prospective strategic investors are being reviewed for the remaining four finance companies.

Three finance companies have started normal business operations and their boards reconstituted, said Nelumani Daulagala, director of the central bank's department of supervision of non-bank financial institutions.

Managing agents appointed by the central bank have been released in two finance companies while one public share issue has been completed to raise fresh capital.

Priyantha Fernando, central bank deputy governor, said the biggest of the troubled firms, The Finance Company, was on the road to recovery.

The Finance Company, earlier managed by the Ceylinco group, has raised 1.6 billion rupees from a share sale which was oversubscribed.

Fernando said The Finance was selected for restructuring first as it was bigger than the other troubled firms.

"We thought if we could bring it through that will boost the confidence of others and the general public," he told a public forum organised by the central bank on how the troubled finance companies were revived.

"The crux of the whole solution was capital infusion and conversion of deposits," Fernando said.

Altogether eight firms were affected by the crisis that began in 2008; five registered finance companies and a leasing company in the Ceylinco group and two finance companies in the Aspic group.

Talks are on with strategic investors to infuse fresh capital into the remaining troubled firms, Fernando said.

"We're at a very advanced stage of finalising discussions with capital infusion companies," Fernando said.

"We hope within a one-month period we would be able to . . . bring all the companies to a state of being rescued."

Daulagala told the forum restructuring can be considered successful only when the firms are turned around and deposit liabilities settled.

"The alternative was liquidation or winding up. Liquidation is a long drawn-out process which can take 10-20 years."

Six finance companies among 13 that collapsed in a crisis in the late 1980s were still under liquidation, she noted.

That bailout cost the central bank or the general public 2.5 billion rupees but this time the regulator decided not to risk tax payer money on bailouts.

"Under liquidation, depositors are ranked below secured creditors, hence they get lower priority."

She said the distressed finance companies are expected to list on the Colombo stock exchange in the next 12 months, which will provide an exit strategy to depositors who converted deposits into equity.

"It has taken over two years but was much quicker than the liquidation process."

Sri Lanka’s Equity & Capital Market Sees $459mn Net Inflow in 2010 from Total Inflow of $1.91bn

04th March 2011, www.island.lk

Sri Lanka’s equity and capital market recorded a net inflow of investments amounting to US$ 459 million in 2010, the Central Bank announced yesterday (4). "In 2010, there was an inflow of funds in to the equity and capital market amounting to Rs. 215.9 billion, approximately US$ 1.91 billion.

The outflow on account of repatriation of investments and as well as dividends and income amounted to Rs. 164.1 billion, approximately US$ 1.45 billion," the Central Bank said. "Accordingly, a net inflow of foreign investments was recorded in 2010 amounting to Rs. 51.8 billion, approximately US$ 459 million," the bank said.

In terms of exchange control regulations, foreign investments in the equity and capital market are routed through Securities Investment Accounts (SIA) maintained in licensed commercial banks, which were analysed by the Central Bank to obtain the data presented above.

However, this year the equity and capital market has seen a net outflow of foreign investments from the Colombo Stock Exchange, but the Director General of the Securities and Exchange Commission said these funds were not leaving the country.

Securities and Exchange Commission (SEC) Director General Malik Cader told journalists recently that foreign investors were net sellers in the Colombo Stock Exchange as they were realising profits by selling their shares.

Last year, foreign investors were net sellers amounting to Rs. 26 billion (about US$ 236 million and this year up to February 23, foreign investors had been net sellers amounting to Rs. 6.7 billion (about US$ 60 million).

"We have discussed this with the Central Bank and they said these net foreign sales did not mean funds were leaving the country but are being invested in other areas of the economy. So these correspond only to an outflow from the capital market but not the country," Cader said. "Foreigners exiting the stock exchange maybe investing in government securities."

Cader said this analysis was possible by monitoring the SIAs.

Related Info :

• Securities Investment Accounts (SIA) Replace SIERA & TIERA Accounts

Sri Lanka Ups Bank Capital Requirement to 2bn. Unlisted Private Banks to be Listed on Colombo Bourse

08th September 2010, www.lankabusinessonline.com

Sri Lanka will increase minimum capital requirements of banks to increase their resilience to shocks and also require unlisted private banks to list on the Colombo bourse, the Central Bank said.

Existing commercial banks will have to increase their minimum capital to three billion rupees by end-2011, and further raise it to four billion rupees by end-2013 and five billion rupees by end-2015.

Existing licensed specialised banks will have to raise their minimum capital to two billion rupees by end-2011, 2.5 billion rupees by end-2013 and three billion rupees by end-2015.

The Central Bank said in a statement its Monetary Board decided to increase the minimum capital requirement of licensed banks "with a view to promoting the existence of strong banks that are resilient to internal and external shocks."

The minimum capital requirement of new licensed commercial banks will rise to three billion rupees in 2010, four billion rupees in 2012 and five billion rupees by 2014.

The minimum capital requirement of new licensed specialised banks will increase to two billion rupees in 2010, 2.5 billion rupees in 2012 and three billion rupees by 2014.

"Increased capital will further provide a cushion for banks to enhance their contribution to the new growth sectors of the economy and to absorb any unexpected losses," the Central Bank said.

Unlisted locally incorporated private banks will be required to list in the Colombo Stock Exchange by December 31, 2011.

This was to meet "the need for enhancing the ability of banks to raise additional capital in a more transparent manner and further improving governance through market discipline," the Central Bank said.

Sri Lanka Opens for Derivatives as Legal and Regulatory Framework is in Place

23rd March 2010, 365financenews.wordpress.com

Derivatives, a long-term capital market instrument will be introduced to the Sri Lankan investment portfolio shortly. It could not be implemented until recently due to lack of legal and regulatory framework, Securities and Exchange Commission’s Financial Services Academy Director Dr. Harendra Dissa Bandara told Daily News Business.

Derivatives are gaining much popularity in the emerging markets due to its successful implementation and trading where Sri Lanka could benefit. The objective of this program is to create awareness before the product is introduced to the capital market.

There will be a 2 day conference on derivatives in Colombo and over 100 local participants from the stock brokering industry, market intermediaries, unit trusts, academics, banking and financial professionals and lawyers will benefit from this conference.

Topics such as forwards and futures- products and pricing, trading strategies, clearing, settlement and risk management in derivatives will be discussed.