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The Budget’s impact on Entrepreneurship – 24×7 Derana

“The government is proposing to ignite entrepreneurship through facilitation and support of all types of services ….and this is significantly reflected through out the budget under the concept of ‘Enterprise Sri Lanka’.”

First Capital’s Head of Research Dimantha Mathew discussing the budget’s impact on Entrepreneurship at Derana 24×7.

Watch full interview >>

First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.

First Capital records profit after tax of Rs. 731Mn for the 1st half of 2017/18

Colombo 16th November 2017 First Capital Holdings PLC (the Group) recorded a profit after tax of Rs. 731Mn for the 1st half of 2017/18, a substantial increase compared to Rs. 406Mn in the corresponding period of the previous year. Total comprehensive income for the 1st half was Rs. 641Mn (2016/17 – Rs. 406Mn).

The primary dealer business dominated the Group’s earnings reporting a profit after tax of Rs. 538Mn for the 1st half (2016/17 – Rs. 371Mn), displaying an impressive performance. First Capital Treasuries PLC capitalized on opportunities created by declining interest rates in the secondary market, realizing significant trading gains. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Sri Lanka, with a capital base of Rs. 2.2Bn.

A strategic approach has led to improved activity in the corporate finance business, mobilising Rs. 13Bn for clients through structuring and placement of corporate debt securities and recording a fee income of Rs. 42Mn (2016/17 – Rs. 30Mn) during the period under review.

Nishan Fernando: Chairman First Capital

First Capital Asset Management Limited recorded a substantial growth in funds under management to end with Rs. 6.7Bn as at 30th September2017.

The Group’s equity arm, First Capital Equities took several steps to strengthen its business by establishing strategic partnerships with brokering houses based in Asia and the United States, in addition to reinforcing its local efforts through the Group’s expanding branch network.

“Whilst we are pleased with our performance to date, we expect earnings to moderate in the 2nd half with interest rates stabilizing resulting in lower trading opportunities for the primary dealer business” said Director / Group CEO, Dilshan Wirasekara.

Dilshan Wirasekara: Director/CEO – First Capital

“However, we will continue to work throughout the year towards ensuring that our fundamentals remain strong to sustain our business in the long term. Our main focus is to enhance the fee-based activities and the management of risk” concluded Wirasekara.

 

The credit rating of First Capital Holdings PLC and First Capital Treasuries PLC was reaffirmed by ICRA Lanka Limited in October 2017 at “A-”.

First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.

Sri Lankan stocks extend run of declines, hit near 6-week closing low

FIRST CAPITAL’S SENIOR RESEARCH ANALYST ATCHUTHAN SRIRANGAN SPEAKS TO REUTERS

NOVEMBER 13, 2017

COLOMBO, Nov 13 (Reuters) – Sri Lankan shares fell for a third straight session on Monday to their lowest close in near six weeks, weighed down by declines in telecom and banking stocks after the island nation targeted both cash-rich sectors in its 2018 budget to boost revenue.

The Colombo stock index ended 0.63 percent weaker at 6,511.55, its lowest close since Oct. 4. Last week it dropped 1 percent.

The market was dominated by foreign investors who accounted for 86 percent of the day’s buying.

The net bought shares worth 570.1 million rupees ($3.71 million), extending the net foreign inflow in equities to 18.7 billion rupees so far this year.

Finance Minister Mangala Samaraweera imposed new taxes on motor vehicles, telecoms, banks and liquor in a bid to boost revenues in its 2018 budget outlined on Thursday, as the budget deficit for the current year slipped to 5.2 percent of the gross domestic product.

Samaraweera imposed taxes on telecom towers and text messages, and introduced a debt repayment levy of 20 cents per 1,000 rupee bank transaction with effect from April 1 next year.

“Retail investors are not clear about the budget. That is the main reason for the fall. Retail investors were not active at all,” said Atchuthan Srirangan, senior research analyst, First Capital Holdings PLC.

“There are several taxes that are not decided if they should be borne by the customers or businesses. But eventually they will be passed to the customers, making cost of living higher.”

He also said the release of the government gazzate notification on new Inland Revenue Act will also weigh on the market in the next few days.”

Turnover was 1.29 billion rupees ($8.40 million) on Monday, more than this year’s average of around 956 million rupees.

The finance minister announced tax concessions worth a monthly 1.5 billion rupees ($9.8 million) on Wednesday to reduce the cost of living and boost consumption.

Top mobile services provider Dialog Axiata dropped 3 percent, while listed private lender Hatton National Bank fell 1.8 percent.

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management, retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.<

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

MARKET UPDATE ON ADA DERANA ENGLISH NEWS – 12.11.2017

Stock-Brokers-in-Sri-Lanka(1)

First Capital’s Senior Research Analyst Atchuthan Srirangan with the Market Review on Ada Derana

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management, retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

Sri Lanka sugar tax to hit beverage firms

ECONOMYNEXT – The Sri Lankan government’s decision to impose a tax on sugar content on beverages is likely to affect the profitability of listed companies selling sweetened drinks, an analysis by a brokerage said.

The government’s 2018 budget presented to parliament Thursday by Finance Minister Mangala Samaraweera proposed to introduce an excise duty of 50 cents per gram of sugar contained in beverages with effect from midnight the same day.

First Capital Equities the new tax will hit food and beverage sector companies like Ceylon Cold Stores, Nestlé Lanka, and Cargills which make and sell soft drinks.

The increase in costs will impact the profitability of the companies affected, the brokerage said in an analysis of the budget.

Samaraweera told parliament the new tax was imposed as part of the ongoing effort to reduce diabetes and obesity, especially among children. (COLOMBO, November 11, 2017)

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management, retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

Budget 2018 Review on Ada Derana – 09.11.2017

Stock-Brokers-in-Sri-Lanka

First Capital’s Head of Research Dimantha Mathew with the Budget 2018 on Ada Derana

The comments on this report are provided by the Capital Markets Research Unit of First Capital Holdings PLC an investment bank in Sri Lanka.

The company operates in the capital markets of Sri Lanka in government securities – treasury bills and bonds, stock brokering and share market investments, asset management, private wealth management, retirement planning, personal financial planning, unit trust, margin trading, capital market research, trustee services, corporate finance advisory services including corporate debt structuring (debentures, trust certificates, commercial papers), valuations, restructuring, mergers and acquisitions, initial public offerings (IPOs) and project advisory.

The First Capital Group consists of First Capital Treasuries PLC, First Capital Limited, First Capital Markets Limited, First Capital Asset Management Limited and First Capital Equities (Private) Limited covering Colombo, Negombo, Matara, Kandy and Kurunegala.

First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.

Sri Lanka – Budget 2018 Review

The Budget for 2018 focused promoting entrepreneurship and proposing structural changes to convert the economy to a more outward looking policy framework while also taking an active stance in promoting green environment and also providing an enabling environment for Public Private Partnerships. Government plans on a sustained path of fiscal consolidation as it aims for the first time to achieve a revenue surplus and to reduce budget deficit to 4.8% of GDP for 2018 while the Debt to GDP ratio is expected to improve to 77.5%.

Read Full Report >>

  • With Government’s revenue enhancement strategies on track, budget has proposed large number of low interest and interest free credit schemes for a range of small and micro industries and startups supported by establishing incubators with a vision to enhance entrepreneurship while para tariff removal for 1200 goods and supporting infrastructure including creation of EXIM windows are proposed accelerate growth in tradable sector.
  • The budget has a special focus on creating green environment with tax concessions on electric vehicles and solar panels, implementation of a carbon tax and concessions for manufacture of degradable products while PPPs are promoted by establishing a single agency and creating regulating framework for PPPs.
  • Measures relating to Capital Market Development, budget proposes improving legal and policy framework of the capital market, improve liquidity via listing of non-strategic enterprises and allowing state to raise equity and debt from the capital markets.

First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.

Pre-Monetary Policy Analysis

Ceylon Today | 2017-11-07

By First Capital Research
GDP Growth
GDP growth for 2Q 2017 was better than expected, growing by 4.0% YoY in the 2Q 2017, with the industrial and services activities recording higher growth rates of 5.2% YoY and 4.5% YoY respectively.

Credit Growth
FC Research upgraded private sector credit growth for end 2017 to 16% from 14%, amidst a possible pickup towards year end. Private sector credit figures show an increase to LKR 53 billion in August 2017. Despite slowdown in the credit in July, and we believe overall credit is likely to continue to remain under control.

Inflation
CCPI-based headline inflation accelerated on a YoY basis to 7.8% in October 2017 from 7.1% in September 2017. NCPI-based inflation also accelerated on a YoY basis to 8.6% in August 2017 from 8.6% in September 2017.
However, Core inflation remained under check, decelerating to 5.8% in October 2017 from 6.0% in September 2017.
FC Research forecast November 2017 CCPI headline inflation to beat 7.0% and CCPI core inflation at 4.7%.

FC Research View
FC Research believed that point-to-point inflation would dip beyond November 2017, despite food shortages due to higher base effect from increased VAT, implemented on November 2016. Further, going forward, Core inflation is likely to be around the 5.0% mark over the next few months.

Official Reserves
Sri Lanka’s forex reserves assets dropped by US$ 418 million to US$ 7.29 billion in September, which was equivalent to about 4.5 months of imports from US$ 6.0 billion reserve at end 2016.
The CBSL had net purchased US$ 1.2 billion on a net basis from currency markets so far this year. FC Research View: FC Research believe Foreign Reserves are now at comfortable levels and likely to end the year around the US$ 7.0 billion mark.
CBSL HOLDINGS
During the last two months, CBSL bought down its holding in Government Securities from LKR 130 billion to below LKR 31 billion as at 1 Nov 2017.

Fed Rate Hike Expectations
Economists said the Fed will still pencil in three hikes for 2018, but with the first of those not projected until June, versus March in the Fed’s previous set of forecasts.
The September 2017 survey shows the Fed expects to raise policy rates in December 2017, with no further hikes expected since, until after May 2018.

Expected Monetary Policy Stance
FC Research believes that, considering the current economic conditions with better-than-expected GDP growth level and the considerable improvement in the Economic Health, the current monetary policy is appropriate and no change is required.
We expect the CBSL to keep the Statutory Reserve Ratio (SRR) unchanged at 7.50%.

First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.

A promising trinity of reforms

Sri Lanka’s stymied economic reforms agenda gets a major boost. But, will the country be able to make the most of it

October 31, 2017 | Echelon

Overshadowed by brinkmanship, Sri Lanka’s economy underwent some major reforms, two of which were new laws replacing outdated ones, and the third, an asset disposal. A surrounding mêlée clouded the importance of the legislative changes and the discussion of their long-term economic impact.

The new laws for income and consumption tax administration, and to liberalise foreign exchange transactions together with a billion dollar deal for the long-term lease of the Hambantota sea-port, may not alter the economic trajectory by themselves. However, they are a powerful signal to investors about the government’s resolve to confront its biggest challenges.

How firmly Sri Lanka will grasp the reforms, which have to be backed by regulations and government agencies able to implement those, may determine their success.

Dimantha Mathew, who heads investment bank First Capital’s equity and fixed income research, says these reforms will strengthen the government budget, which has been the main source of Sri Lanka’s instability. In a wide-ranging discussion about the country’s economic outlook, Mathew discussed the long-term outlook for the Sri Lankan economy.

Excerpts from the interview are as follows:

THREE TIMELY REFORMS

The first six months of 2017 was a tough period, we had floods, and on the reforms agenda, there was nothing to talk about after waiting two years for change. We went through a sovereign bond issue, and things started to get better. Three factors led to this. First, the Foreign Exchange Act was passed, followed by the Inland Revenue Act; the Hambantota Port deal was the third factor. Three key things that changed the whole dynamics of the economy, and without which the economy was heading for rough times.

I will start with the debt-to-GDP ratio. We forecast debt to reach 80% of GDP in 2017, up slightly from 79% last year. Now, however, with the three reforms within the last two months, we believe debt-to-GDP will decline going forward to around 77% in 2019. The decline doesn’t seem to be much because our GDP growth is slow. We previously expected the economy to grow 5% this year, but the first six months were bad and GDP grew only 3.9%. We’ve revised down our GDP growth forecast to 4.3% because of the floods. Three months after the floods, the economy still struggles because, unlike last year, nine districts were impacted this time. Consumer demand and buying power went off the system, so there was a crash in retail.

Usually, businesses believe it takes three months to recover from flooding of this magnitude, and for buying power to normalize. So, a part of the third quarter is also slightly affected. GDP growth will not kick-start with the reconstruction efforts and infrastructure development because floods impacted them too—construction had to stop for two to three weeks. The economy will slowly pick up from the third quarter, leading to higher growth in the fourth quarter, which is usually Sri Lanka’s biggest quarter. We could probably have 5% GDP growth. Also, when government revenue improves with the new Inland Revenue Act, the recurrent expenditure gap will be met, so additional borrowings will go into investment and capital expenditure. When that happens, there is more money spent on investments, which will regenerate the economy.

The three reforms will have a big impact going forward. For example, the foreign exchange act is very important for locals. If you take the biggest foreign exchange earners, it’s likely that most of them don’t bring all their foreign earnings into the country. This is because you can’t take it out of the country. If you bring in foreign earnings, it will belong to the government. When you liberalise laws so foreign exchange can be taken out of the country, money will start coming in, like in Singapore. If you want to be an economic hub for the region, you need to liberalise, mainly the outflows.

Right now, people have the right to invest their foreignexchange the wa y they want to, which means there is a high likelihood that more money will start coming in. Worker remittances are an important inflow for Sri Lanka. There’s been a gradual shift towards skilled labour, but remittances are not keeping pace with the amount of labour we export. So you really see the shift. Over the last three years, we’ve seen more skilled labour being exported to Southeast Asia, like Malaysia and South Korea, which has become a big labour export market for Sri Lanka.

Sri Lanka is slowly moving towards commercial borrowings, and repayments are due in 2019. We need to get our act together to attract foreign inflows with which to build sufficient reserves. Also, investors feel confident when they know they can freely take their money out, and then they will invest more. That’s why the foreign exchange bill is so important.

TAXING INCOME, NOT TRADE

The government has stepped up revenue collection over the last couple of years, and the new Inland Revenue Act will further strengthen that trend. For the first time, we’re coming closer to achieving the revenue figures estimated in the budget approved by parliament. Over the last 10-15 years, successive governments failed to reach the revenue targets they set out each year in the budget. The new act will bridge the gap between budgeted revenue and actual collection. The new act will also shift the government’s dependence away from indirect taxation to direct taxes.

Export growth is hindered because of high indirect taxes. To grow exports, we need imports. Most indirect taxes like VAT, PAL and NBT are charged on imports; so when government revenue is increased from these sources, it leads to balance of payments problems. The new act will shift the government’s revenue source from imports to collecting taxes from profits. The new act is not looking at asset classes like the previous law, but at sources of income instead, which will be taxed at the appropriate rate.

With that, you’re shifting the focus to direct taxes. In my view, it will be difficult to reduce the dependence on indirect taxes as much as the government would like, unless they start bringing down indirect taxes at the same time. According to the agreement with the IMF, the government has to abolish NBT. This is indicative of the commitment to bring down indirect taxes. If this happens, the poorer segments of the community will benefit, leading to a small buildup of consumer demand. Another precursor to reducing indirect taxes is lowering the telecom levy. I believe this is another tax that can be abolished going forward. The government will abolish five taxes every year going forward. We have 35 different taxes and that needs to be brought down to about 10 or less. This will simplify the tax system and reduce the tax burden as well. This is a regional trend. Even India went through one of its biggest tax reforms recently. So that’s where the region is moving to and we’re in line with the trend.

GROWTH SECTORS

Even though economic growth is slow, the reforms agenda is moving in the right direction, especially with the Inland Revenue Act. As a result, future real incomes will increase with expectations that inflation will be controlled at around 5-6%. We’ve been successful at keeping inflation at these levels over the last five years or so, except for short lapses. So, when you have this sort of conversion from indirect to direct taxation, real income starts moving up. This actually benefits higher-income groups, but t he middle income group even more. The middle income group is growing every year, and retail is starting to accelerate.

First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.

Government Securities Market Weekly Report

Ceylon Today | 2017-11-01

Weekly Yield movement & Volume

Bond market activity remained relatively high during the past week following the last Bill auction held on the 25 Oct 2017 illustrating a slowdown in the upward movement in yields. However, mid to long term yield saw marginal upward movement (5 bps) before the end of the week. Heavy slowdown in activity was witnessed on Monday ahead of the Bond Auction. The shorter week resulted in the Bill auction being held on Tuesday where market witnessed steep buying interest specifically in the short to midtenures on expectations of a dip in rates in the bill auction following the bond auction rates which fell in line with the market rates.

Liquidity & CBSL Holdings

Market liquidity remained volatile over the past week but remained around the LKR 30 billion mark while the CBSL Holdings also registered a slow deterioration. However, a sudden drop in market liquidity coupled with a jump in CBSL Holdings was witnessed on 31 Oct 2017 which could be linked to a sizable outflow for the Government.

Foreign Interest

Foreigners remained net foreign buyers for a 7th consecutive week adding a further LKR 3 billion to foreign holding. However, with the overall outstanding Government securities stock increasing overall foreign holding percentage remained at 6.2% as at 25 Oct 2017.

Maturities for the Week

The Government securities market has Treasury Bill maturities on LKR28Bn which needs to be settled on 5 November 2017.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.