Sri Lanka Equity Analytics

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Sep 30, 2010

Sri Lanka to clamp down on equity warrants


Sri Lanka is capping equity warrants to 15 percent of a company's capital, limiting the term to two years ahead and would also require firms to maintain a minimum public float, a top regulatory official said.

"These rules are in line with international benchmarks and is similar to rules in India and Malaysia," deputy director general of the Securities and Exchange Commission Malik Cader said after addressing a group of senior business executives at the LBR- LBO chief executive officers forum in Colombo.
An equity warrant gives a holder the right to buy a new share in a company (exercised) at a future date at a specific price and is similar to a derivative contract.

Crudely valued, a warrant is worth at least the difference between the current price of an ordinary share and the specified price at which it is exercised. But any exercised warrants would dilute the value of the ordinary share.

If the market price of the ordinary share is lower than exercise price at the exercise date, the warrants would expire without diluting the capital. The uncertainty makes warrants, which are similar to a derivative contract, highly speculative.

Unless a firm is on track to make increasingly higher profits every year, a warrant would be worthless.

Warrants are usually give free as a sweetner when companies issues fresh shares to existing shareholder to raise additional capital through a 'rights' issue.

Though warrants have been issued in Sri Lanka for years, amid the current boom, warrant issues have increased with Environmental Resources Investments, a firm which has bought into several other operating businesses, being a prolific issuer.

The market valuation of warrants can be skewed in a firm which is closely held by insiders, whose underlying shares can also be suffering the same fate, compounding the problem. Illiquid companies are favourite targets of price manipulators.

Cader said firms in the main board of the Colombo Stock Exchange would have to maintain a 25 percent public float to issue warrants and those on the second board would have to maintain at least 10 percent.

The regulator will also shortly release a consultation paper on devising minimum public floats, which though required at the time of listing are not maintained later.

Courtesy - LBO
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Sep 28, 2010

Sri Lanka's Stock Rally May Enter `Blow-Off' on Stock Splits, Nomura Says


Sri Lanka’s stock rally may enter a “blow-off phase” as stock splits help draw individual investors to the world’s second-best performer this year, according to Nomura Holdings Inc.

The Colombo All-Share Index has climbed 103 percent this year, the biggest gainer after Mongolia’s MSE Top 20 Index among 91 global benchmark indexes tracked by Bloomberg. The gauge has tripled since the end of a 26-year civil war in May 2009 on optimism that the government will be able to focus on economic development and draw investment.

Commercial Bank of Ceylon Plc, the nation’s biggest private lender by assets, is among at least 12 companies that have announced share splits this year, Nomura said. The splits, along with rising share prices, have helped boost trading, with average daily turnover surging about 63 percent this quarter from the first half, according to data compiled by Bloomberg.

Sri Lanka’s “improved economic performance has not gone unnoticed by local investors or by listed companies,” analysts at Nomura led by Sean Darby wrote in a report. “The equity market is beginning to exhibit signs of ‘froth’ as stock splitting becomes more widespread to encourage retail investors to return.”

The rally in Sri Lankan stocks has been underpinned by accelerating economic growth, increased foreign investment and lower interest rates. The nation’s $42 billion economy may grow as much as 8 percent in 2010, the Central Bank of Sri Lanka said on Sept. 21, faster than an earlier forecast for a 7 percent expansion.

Borrowing Costs

Governor Ajith Nivard Cabraal has slashed the reverse repurchase rate by three-quarters of a percentage point since early July, taking advantage of low inflation to bolster the economy. That contrasts with central banks in India, Malaysia and Thailand, which have raised borrowing costs this year to check inflation or prevent asset bubbles.

Darby said Nomura first initiated coverage of Sri Lanka with a “bullish” stance on Oct. 15. The market will continue to outperform its peers within markets covered by MSCI Inc., the analyst also wrote.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net

Courtesy - Bloomberg
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Sep 26, 2010

Sri Lanka Stock Market Update - 24th September 2010

Sri Lankan shares closed higher Friday with heavy buying of banking sector stocks, brokers said. The All Share Price Index closed at 6,888.49, up 1.71 percent (115.78 points) while the more liquid Milanka index rose 1.36 percent (97.14) to close at 7,263.65, according to stock exchange provisional figures. Turnover was 5.6 billion rupees.

Nikita Tissera, research manager at SC Securities, said heavy trading in banking sector shares pushed up the day's turnover.

Seylan Bank non-voting shares were among the day's highest gainers, closing at 58.50 rupees, up 6.50 rupees. Sampath Bank closed at 516 rupees, up 25.80 while Commercial Bank ended at 285 rupees, up 18.30. Market heavyweight John Keells Holdings was also heavily traded, closing at 299, up 10 cents.

"We see an investor focus shift back into the fundamentally sound large caps. JKH was the second highest traded stock for the day," Tissera said. "With the news from the macro front being positive, we feel that the investors are betting on possible proxies to the economy."

Economic growth is accelerating following the end of a 30-year war in May 2009. Central Bank governor Nivard Cabraal said Thursday Sri Lanka has upgraded its growth forecast to between 7.5 to 8.0 percent for 2010, on a better than expected second quarter economic expansion and stronger credit flows.

The central bank was earlier forecasting a growth of 7.0 percent for 2010. Colombo Pharmacy Company was the day's top gainer, rising 754.10 rupees to close at 2,999.90 after hitting a high of 3,200 rupees.

A controlling stake in Colombo Pharmacy, an asset rich pharmaceutical retailer, was sold by key shareholders J L Morison Tuesday in a deal valued at over 600 million rupees. The ASI is up 103 percent in the past year while market capitalisation has doubled to almost 2.3 trillion rupees.

Courtesy - LBO
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Sep 18, 2010

Sri Lanka Stock Market Update - 17th September 2010

Sri Lankan stocks continued to rally to break 6,400 point mark Friday, from strong gains across the board, while strong buying interest on selected midcap stocks pushed turnover up, brokers said.The All Share Price Index closed at 6,477.09, up 2.10 percent (133.38 points), while the more liquid Milanka index rose 2.72 percent (179.74) to close at 6,795.77, according to stock exchange provisional figures.

Turnover was 3.4 billion rupees.

"Buying interest continued on fundamentally sound midcap stocks," Nikita Tissera, research manager at stock brokering firm SC Securities said.

"However it will be interesting to see how the market will react to the new price cap formula the (securities) regulator plans to implement."

In recent weeks there has been heavy buying interest on selected midcap shares, brokers said.

Colombo Land and Development Company closed at 16.40 rupees, up 1.10 (9.52 percent) with 2.25 million shares traded, and Dunamis Capital closed at 14.20 rupees, up 90 cents (6.77 percent) with almost 1.7 million shares changing hands.

John Keells Hotels closed at 21.70 rupees, up 1.70 (8.5 percent, while Merchant Bank of Sri Lanka closed at 53.90 rupees, up 4.90 (10 percent) and Pan Asia Banking Corporation closed at 52.90 rupees, up 4.80 (9.9 percent) with 1.823 million shares traded, brokers said.

John Keells Holdings, an index heavy conglomerate closed at 289.20 rupees, down 80 cents (0.28 percent), while Aitken Spence closed at 2,990.00 rupees, down 6.30 (0.21 percent), Hayleys closed at 349.90 rupees, up 90 cents (0.26 percent) and Hemas Holdings closed at 49.20 rupees, up 4.20 (9.33 percent), brokers said.

Courtesy - LBO
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Sep 9, 2010

Sri Lanka Stock Market Update - 8th September 2010

Sri Lankan stocks rallied and passed the 5,900 points mark Wednesday, from price gains on index heavy John Keells Holdings (JKH), Hatton National Bank (HNB), Commercial Bank and Distilleries Company, brokers said. The All Share Price Index closed at 5,962.62, up 1.32 percent (77.63 points) while the more liquid Milanka index rose 1.97 percent (118.65 points) to close at 6,152.93, according to stock exchange provisional figures.Turnover was 4.8 billion rupees.
At end of trade there were 131 gainers and 72 losers.

"There was heavy institutional and high net worth buying on blue chip stocks," Rakshitha Perera, research manager at Bartleet Mallory Stockbrokers said. "There was strong retail buying across the board." In a privately negotiated off-the-floor deal 4.71 million shares of JKH changed hands mostly at 270 rupees per share. It closed at 275.00 rupees, up 10.90 (4.13 percent).

In another private deal, 260,000 shares of Distilleries were traded at 156 rupees per share. It closed at 157.90 rupees, up 5.80 (3.81 percent), brokers said.

Hatton National Bank closed at 310.00 rupees, up 19.60 rupees, (6.75 percent) with 950,800 shares traded, while Commercial Bank closed at 195.00 rupees, up 4.50 (2.36 percent), brokers said. Nations Trust Bank closed at 64.00 rupees, down 1.00 (1.54 percent), and Pan Asia Bank closed at 40.00 rupees, down 20 cents (0.5 percent) and Sampath Bank closed at 408.00 rupees, down 1.50 (0.37 percent). Brokers said in a private deal 7,400 shares of The Bukit Darah changed hands at 7,031 rupees, per share. It closed at 7,650.00 rupees, up 249.00 (3.38 percent).

"We expect the overall sentiment to remain positive due to favourable macroeconomic indicators like low inflation and interest rates," Perera said. "However investors should be mindful and check on the fundamentals regularly."
Brokers said there was investor interest on selected midcap stock. Dankotuwa Porcelain closed at 96.50 rupees, up 8.70 (9.91 percent) with over 1.3 million shares traded, brokers said.


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