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Wednesday February 28th, 2024

Sri Lanka’s Serendib Finance to get capital from parent, ‘A+(lka)’ rating confirmed

ECONOMYNEXT – Fitch Ratings has confirmed an ‘A+(lka)’ rating of Serendib Finance Limited, a finance company controlled by ‘AA(lka) rated, Commercial Bank of Ceylon, which is expected to inject cash to meet capital requirements.

“Serendib’s rating is driven by Fitch’s view that its parent, Commercial Bank of Ceylon PLC (CB;AA(lka)/Stable), the largest private commercial bank in Sri Lanka, would provide Serendib with extraordinary support, if required,” Fitch Ratings said.

“We see Serendib’s intrinsic credit profile as being considerably weaker than its support-driven rating. We expect CB to inject equity capital to enable Serendib to meet the minimum regulatory capital of LKR2.5 billion by 1 January 2021.

Fitch Affirms Serendib Finance at ‘A+(lka)’

Fitch Ratings has affirmed Serendib Finance Limited’s National Long-Term Rating of ‘A+(lka)’. The
Outlook is Stable.

Key Rating Drivers

Serendib’s rating is driven by Fitch’s view that its parent, Commercial Bank of Ceylon PLC (CB; AA(lka)/Stable), the largest private commercial bank in Sri Lanka, would provide Serendib with extraordinary support, if required. CB’s ability to support Serendib is reflected in its credit profile, which is underpinned by its standalone strength and Serendib’s relatively small size.

The support assessment also takes into account CB’s 100% ownership of Serendib, track record of support via multiple equity infusions and the subsidiary’s increased level of integration with its parent.

Serendib is rated two notches below its parent because of the subsidiary’s limited role within the CB group with Serendib accounting for less than 1% of CB’s consolidated gross loans at end-March 2019.

It also reflects the absence of a common brand and Serendib’s weak performance.

We see Serendib’s intrinsic credit profile as being considerably weaker than its support-driven rating. We expect CB to inject equity capital to enable Serendib to meet the minimum regulatory capital of LKR2.5 billion by 1 January 2021.

Serendib’s profitability continued to be weak as a result of high impairment charges with its reported gross non-performing loan ratio remaining significantly higher than that of the industry.

Serendib’s funding profile has limited diversity due to its total reliance on bank borrowings.

Serendib accounted for only 0.4% of sector assets at end-March 2019.

RATING SENSITIVITIES

Weakening links with the parent or a downgrade of CB’s National Long-Term Rating could trigger arating downgrade on Serendib.

A rating upgrade would most likely result from an upgrade of CB or a significant increase in Serendib’s strategic importance to its parent through an increase in its role within the group.

Serendib Finance Limited; National Long Term Rating; Affirmed; A+(lka); RO:Sta (Colombo/Oct01/2019)

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Sri Lanka rupee closes at 310.00/15 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 310.00/15 to the US dollar Wednesday, from 310.25/50 on Tuesday, dealers said.

Bond yields were broadly steady.

A bond maturing on 01.02.2026 closed at 10.60/80 percent from 10.60/75 percent.

A bond maturing on 15.09.2027 closed at 11.90/12.00 percent up from 11.80/95 percent.

A bond maturing on 15.03.2028 closed stable at 12.00/15 percent.

A bond maturing on 15.07.2029 closed at 12.20/50 percent from 12.25/50 percent.

A bond maturing on 15.05.2030 closed stable at 12.25/40 percent.

A bond maturing on 15.05.2031 closed at 12.55/75 percent down from 12.60/80 percent.

A bond maturing on 01.07.2032 closed at 12.50/90 percent down from 12.55/13.00 percent. (Colombo/Feb28/2024)

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Sri Lanka Treasuries yields edge up after steep fall

ECONOMYNEXT – Sri Lanka’s Treasury bill yields edged up across maturities at Wednesday’s auction with the 3-month yield up 09 basis points to 9.87 percent, data from state debt office showed.

The debt office sold 27.5 billion rupees of 3-month bills after offering 35 billion rupees.

The 6-month yield rose 09 basis points to 9.95 percent with 37.23 billion rupees of bills sold, after offering 47.5 billion rupees.

The 12-month yield went up 03 bis points to 10.05 percent, with 39.5 billion rupees of bills sold and 40 billion rupees offered.

Sri Lanka’s Treasuries yield have come down sharply in recent weeks.

The trend was partly helped by some banks which were earlier not buying into bills, starting to buy them.

Deposit in the central banks overnight window (private sector sterilization) has come down from around 200 billion to around 130 billion rupees in recent weeks.

Sri Lanka’s central bank in the past have triggered currency crises and eventual high corrective rates by not allowing Treasury bill yields to move when up private credit picks up and buying them into the balance sheet.

The resulting forex problems are then blamed on budget deficits (politicians) and current account deficits (mainly imports of the public usually petroleum, gold or cars).

The central bank can still buy Treasury bills outright from banks, term or overnight to inject money, alter rupee reserves of banks and encourage them to overtrade and trigger forex shortages, confidence shocks, capital flight and a second default, critics say.

The central bank recently lifted counterparty limits of standing facilities, which are given at the policy rate without a penalty unlike in countries with greater monetary stability.

In recent weeks the central bank has oversold bills outright and injected money long term and short term, though so far overall net injections have been deflationary. (Colombo/Feb28/2024)

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Sri Lanka stocks close up, retail activity coming in

ECONOMYNEXT – The Colombo Stock Exchange closed up on Wednesday, data on its site showed.

The broader All Share Index closed up 55.29 points, or 0.52 percent at 10,678; while the S&P SL20 Index closed up at 3,056 points, up 0.06 percent, or 1.73 points.

Turnover was at 1.2 billion.

Market participants said that “retail activity is also picking up.”

Hemas Holdings Plc saw large volumes being traded, contributing 90 million to the day’s turnover. The share closed up at 75.00.

Kapruka Holdings Plc announced that it had purchased 197,015 ordinary voting shares of its subsidiary Kapruka e-Commerce (Pvt) Ltd for 13.2 million rupees at 67 a share. The proceeds will be used by Kapruka e-Commerce “to fulfill the IPO objective of launching Kapruka Partner Central, the company said. The share closed down at 6.80.

E B Creasy and Company Plc announced a disposal of investment in its subsidiary, Lanka Special Steels Limited (LSSL) in accordance with the restructuring process of the E B Creasy Group. The Board resolved “to divest its 100% stake represented by 2,138,657 shares in its subsidiary Lanka Special Steels Limited (LSSL), to subsidiary company Laxapana Batteries PLC (Laxapana) for a total consideration of Rs694mn which will be settled in installments. Shares of E B Creasy and Company Plc closed up at 22.00.

Sectors that attracted investor interest were Capital Goods (376mn), Food, Beverage and Tobacco (181mn), and Banks (166mn).

Positive contributors to the indices in the day included Hayleys Plc (up at 82.00), Chevron Lubricants Lanka Plc (up at 104.00), Vallibel One Plc (43.30), and Cargills (Ceylon) Plc (up at 349.75) whose Chairman Ranjith Paige donated 3 million rupees to the ‘Children of Gaza Fund’ earlier today. (Colombo/Feb28/2024).

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