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Teejay, Sri Lanka banks in EPF buy list

ECONOMYNEXT- Sri Lanka’s largest pension fund, the Employees’ Provident Fund, which is managed by the central bank, has invested in Teejay Lanka Plc and private banks after its initial investment in Dialog Axiata Plc in the June quarter, data showed.

Amid the lowest valuations in the Colombo Stock Exchange (CSE) in seven years after the Easter Sunday bombings, the EPF, which manages 2.3 trillion rupees in assets, re-entered the market in 2019, investing over 2 billion rupees in the June quarter.

EPF’s purchase of 55 million of Dialog Axiata shares for around 495 million rupees in mid-May helped re-kindle interest in the stock market.

Official data as at end-June showed that the investment in Dialog had increased by 56.3 million shares or 513 million rupees from end-March.

The EPF had also invested in Teejay Lanka, an export firm, for the first time, buying 384,849 shares (0.05 percent of total Teejay shares) worth 12.04 million rupees.

The central bank triggered monetary instability after juggling with conflicting external and internal anchors, triggering runs on the rupee which sharply depreciated the currency in 2018. 

But the monetary authority has been on a depreciating path under a real effective exchange rate targeting exercise.

Depreciation gives a subsidy to exporters at the expense of society by cutting real wages. In Sri Lanka lack of market pricing of utility prices gives an additional subsidy.

Central Bank Governor Indrajit Coomaraswamy, speaking to EconomyNext after the EPF’s first foray into the market, said that the fund was buying from a small list of stocks.

The fund’s target is to increase its portfolio of stock investments from 3 percent of total assets to 6 percent.

The EPF had also bought into several banks. Though monetary instability in 2018 led to a spike in bank loans, central bank deposit rate cuts are helping bank profits.

The EPF had invested 1.5 billion rupees in Commercial Bank, Sampath Bank, Hatton National Bank and Seylan Bank in the June quarter.

The largest investment in the banks was 1.1 billion rupees in Sampath Bank, amid a rights issue of the firm.

Despite a mish-mash of conflicts of interest in a central bank managing an equity fund which invests in the domestic market, current Governor Coomaraswamy had overhauled the governing process after allegations of earlier mis-management.

Coomaraswamy had said that while many banks are likely to opt for rights issues to improve their capitalisation, the EPF will only subscribe to rights if fundamentals are right.

Sampath Bank shareholders did not subscribe to all the rights issue leading to the board seeking new investors to buy rights.

The government controls private banks through both the EPF and other state institutions.

Coomaraswamy had also said that he was personally against the EPF investing in banks, as it allows the central bank, which is the financial sector regulator, to also control the institutions.

Coomaraswamy said additional measures including putting the EPF under Deputy Governors who had no role over banks will be considered.
 
Meanwhile, data showed that the EPF had fully sold its stakes in Browns Capital Plc and Browns Investments Plc.

The data did not show how much the 104,900 Browns Capital and 2.1 million Browns Investment shares were sold for.

The EPF had bought the shares in the two firms for 4.2 million rupees, but they were worth 3.5 million rupees as at end-March.

The two firms had merged in March.

Sri Lanka’s stocks had started to recover over the past few weeks. The EPF has a large list of stocks, which its managers have to track to effectively manage the agency, including speculative stocks bought when governance was weak.

There have been calls for independence management of EPF especially due its investment in bonds. There have been concerns that due to central bank’s obligation to sell bonds for the Treasury it may be buying bonds below market price as a so-called ‘captive’ investor. (Colombo/Jul28/2019, Updated Jul28/08:36- Added merger of Browns Capital and Browns Investments)
 

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