Business

Fitch Ratings has upgraded Sri Lanka Insurance Corporation Limited's (SLIC) Insurer Financial Strength (IFS) Rating to 'B+' from 'B'. The Outlook is Stable. The Under Criteria Observation status on the IFS Rating has also been removed.

Fitch has simultaneously upgraded SLIC's National IFS Rating to 'AAA(lka)' from 'AA+(lka)' with a Stable Outlook.

KEY RATING DRIVERS

The upgrade follows the revision of Fitch's global Insurance Rating Criteria in January 2019. SLIC's IFS rating was previously capped by the sovereign constraint set at 'B', which is the Long-Term Local-Currency Issuer Default Rating of Sri Lanka. The new criteria remove the top-down sovereign constraint and Fitch assesses SLIC's country risk in each criteria factor under a bottom-up analysis. The agency has assessed that the positive impact from the removal of the top-down sovereign constraint exceeds the negative pressure from the revised bottom-up country-risk assessment.

The rating action takes into account SLIC's favourable business profile and 'Good' financial performance and capitalisation, which more than offset the company's high investment and asset risks.

Fitch's assesses SLIC's business profile as favourable compared with other Sri Lankan insurance companies due to its leading business franchise, well-diversified participation in business lines across life and non-life insurance sectors, stable business focus on established product lines and its favourable domestic operating scale. Fitch scores SLIC's business profile at 'bb-' under its credit-factor scoring guidelines in light of the ranking. SLIC was Sri Lanka's second-largest life insurer and third-largest non-life insurer based on gross written premiums in 2018. Nevertheless, Fitch expects the growth in industry premiums to moderate in the near term due partly to a slowdown in motor premiums fuelled by a continuous increase in taxes on imported vehicles and slower recovery in the country's economic activity.

SLIC's life and non-life risk-based capital (RBC) ratios, a measure of its capitalisation, were 437% and 200%, respectively, at end-2018 (2017: 432%, 200%), significantly above the industry average and the 120% regulatory minimum. Fitch expects the company will maintain its capitalisation above 350% for life and 200% for non-life operations in the medium term.

The insurer has consistently maintained its non-life combined ratio below 100% for the previous four years (last three-year average: 96%) buoyed by its scale advantages as a large entity, which helps SLIC keep its expense ratios well below that of the industry, as well as prudent underwriting practices. However, Fitch expects the weakening of the rupee against the majority of hard currencies to increase claim costs in 2019, mainly due to the higher costs involved in importing replacement automotive components.

SLIC's exposure to Sri Lankan sovereign investments was 140% of its capital at end-2018, which continues to restrict Fitch's assessment on SLIC's investment and asset risk to 'b-' under our credit-factor scoring guidelines. SLIC has relatively high exposure to non-core subsidiaries, which underscores its high investment and asset risks, although that is balanced by the insurer's favourable business profile, healthy financial performance and consistent above-industry capitalisation.

RATING SENSITIVITIES

An upgrade for SLIC's National IFS is not possible as its 'AAA(lka)' National IFS Rating is already the highest score on the National Rating scale.

Downgrade sensitivities include:
- Significant weakening in SLIC's business profile
- Deterioration in the RBC ratio to below 350% for the life and 200% for the non-life businesses for a sustained period or a significant increase in non-core investments
- Significant increase in SLIC's sovereign investment concentration risk
- Deterioration in the non-life combined ratio to well above 100% for a sustained period
- A downgrade of the local-currency sovereign rating of Sri Lanka by more than one notch

Upgrade sensitivities include:
- Maintenance of SLIC's favourable business profile while significantly reducing its investment and asset risks on a sustained basis.

The Monetary Board of the Central Bank of Sri Lanka (CBSL) has decided to extent by another three months from May 15, recent actions taken in connection with the troubled The Finance Company PLC (TFC). 

"The Monetary Board of the Central Bank of Sri Lanka (CBSL) initiated a number of regulatory actions, as temporary measures, under the provisions of FBA, on The Finance Company PLC (TFC) with effect from 15th February 2019, with a view to safeguard the interests of the depositors and other stakeholders of the company," the CBSL said in a press release today.

Regulatory measures include suspension of accepting new deposits, withdrawal of deposits and disbursement of loans and advances to facilitate the restructuring process of TFC.

CBSL stated that the Monetary Board decided to extend the said regulatory actions in order to consider the business restructuring proposal submitted by the company and added that interest due on deposits will be paid continuously.

The Board of Investment (BoI) has recently signed a USD 4.5 million investment project with Sundara (Pvt) Ltd, to develop a luxury hotel on Sri Lanka's south coast. The project is expected to be completed by 2020.

Speaking at the event the BoI Chairman Mangala Yapa said that this investment will be a great step in order to build up confidence among investors to invest more in Sri Lanka.

Meanwhile speaking at the event, Sundara (Pvt) Ltd Co-Founder Dale Rennie said the main purpose of investing in Sri Lanka is due to Sri Lanka's long-term tourism prospective.

“We are interested in bringing a lot of these green initiatives to Sri Lanka” he further noted.

The property, named The Plantation Koggala, will have 14 residency villas.

Rennie and his wife and Co-Founder Sabrina Van Cleef Ault are the major investors of the project who owns 80% of the shares in Sundara (Pvt) Ltd.

The hotel will be built on a former cinnamon plantation and will start its construction work in a month.

Investors in the villas have the option of living in them or allowing the hotel management to rent them out and receive a 7% annual return.

The property was marketed to investors in the Singapore, Hong Kong, Australia, Germany, Switzerland, Holland and the US.

Minister of Tourism John Amaratunga has appointed Johanne Jayaratne as the Chairman of the Sri Lanka Tourism Development Authority (SLTDA), today (14).

Jayaratne had been serving as Managing Director of the Sri Lanka Tourism Promotion Board (SLTPB) Prior to his appointment at the SLTDA, Jayaratna was serving as the Managing Director of the Sri Lanka Tourism Promotion Bureau (SLTPB).

Jayaratna previously served as an Executive Director of the Airport and Aviation Authority of Sri Lanka. 

Jayaratna also served on the Tourism Advisory Board and was the Chairman of the AASL organising committees for the CHOGM, SAARC and IIFA conferences. During his tenure at AASL, Jayaratne actively collaborated with Sri Lanka Tourism in achieving the country’s tourism development strategies, and actively took part in promotional activities of the tourism industry.

He was immersed in tourism for several years during a brief spell at Walker Tours prior to emigrating to the USA to attend university and to obtain his pilot licenses.

He is a founding partner of a biometric company in Southern CA and led the organisation successfully as its CEO for many years. He also held a Board Director position at DCS America that provided identification solutions to public sector organisations worldwide and is the holder of international patents in biometric technologies that are used extensively at international airports worldwide.

The Monetary Board of the Central Bank of Sri Lanka (CBSL) at its meeting held on 30.05.2019, having considered the continuous failure to comply with directions applicable to primary dealers, acting in terms of the Regulations made under the Registered Stocks and Securities Ordinance and the Local Treasury Bills Ordinance, has decided to suspend NatWealth Securities Limited (NWSL) from carrying on the business and activities of a Primary Dealer for a period of six months with effect from 31 May 2019.

The CBSL in a statement said that they will take necessary measures to ensure that this regulatory action does not have a disruptive impact on the Government Securities market and added that action will also be taken to facilitate the handling of the interests of the customers and counterparties of NWSL in an orderly manner.

Spa Ceylon – the world’s largest Ayurveda Wellness chain, reached their landmark 90th international location with the opening of their exclusive Wellness Boutique at the prestigious Evropeiskiy Shopping Mall located in the heart of the Russian Capital - Moscow. This follows the successful opening of the brand’s 1st Russian store in the resort city of Sochi earlier this year.

Speaking to media in Moscow, Shiwantha Dias, Managing Director Spa Ceylon stated that this prestigious opening was a significant milestone for the brand. “We plan to expand rapidly in Russia & to have around 10 branded stores in operation by end 2020, at locations earmarked across Moscow & major Russian cities such as St. Petersburg, Novosibirsk, Yekaterinburg, Nizhny, Novgorod & Kazan. We have also commenced online retailing via multiple digital channels in the country, very successfully catering also to the growing Russian demand forM-commerce” said Shiwantha.

Speaking to media at the opening, co-founder director Shalin Balasuriya explained “The continued growth of the international wellness market to over US$ 4.2 trillion signals a strong shift in consumer preferences towards wellness. Spa Ceylon occupies a unique lifestyle space where personal care meets wellness. Given its brand attributes of high-performance authentic formulations, Ayurveda origins, environmental activism and ethical sourcing, it will continue to resonate with the modern consumer to drive further growth. I have spent the past few days in Moscow meeting industry professionals, media & consumers that reviewed the range & am delighted by their overall response to Spa Ceylon, from packaging to product quality & functionality, giving us confidence that the store roll-out in Russia will be a great success.”

Spa Ceylon’s rapid international growth continues in 2019 with the first quarter of the year seeing the addition of 7 international new locations, including openings in Galle Fort Sri Lanka, Kuala Lumpur Malaysia, Sochi Russia, Nagoya Japan, Bambalapitiya Sri Lanka, Shangri-La Hambantota & now Moscow Russia. Their immediate next five store openings are scheduled to be in Osaka Japan, Malé in the Maldivian capital & a second store in Sofia Bulgaria. Whilst a host of other new European openings are also being finalised across Europe, the brand envisages the opening of their landmark 100th store at a premium location in Western Europe.

Firmly entrenched in the global wellness market, Spa Ceylon was awarded the prestigious Asia’s Greatest Brands status, at the Asia’s Greatest Brands & Leaders Awards 2018, with the brand’s co-founders Shiwantha Dias & Shalin Balasuriya being honoured with Asia’s Greatest Business Leaders 2018 Awards.

The brand’s multi award winning product range was also adjudged the Best New Skincare Range 2018 for their Virgin Coconut Skin Care Range at UK’s DFNI Magazine Duty Free Selections. Their luxury Ayurveda spa service offering has also brought them international acclaim through more than 10 awards & multiple global category wins at the World Luxury Spa Awards over the past 4 years.

The Spa Ceylon Story

 Founded in May 2009 by brothers Shiwantha Dias & Shalin Balasuriya, ‘Spa Ceylon’ has fast become a dynamic force in the global luxury wellness sector and has taken its Luxury Ayurveda brand to the world, with a global presence of more than 90 branded stores and spas situated in Ginza Tokyo, Osaka, Kyoto & Nagoya in Japan; Moscow & Sochi in Russia; Melbourne, Australia; Sofia, Bulgaria, Larnaca, Cyprus, Bucharest, Romania, Singapore; Seoul, South Korea; Kuala Lumpur, Malaysia; Istanbul, Turkey; Mumbai & Hyderabad in India; Karachi, Pakistan, the Maldives Islands & over 30 locations across Sri Lanka. The brand also operates in Kiev, Ukraine, across Switzerland & in the USA.
Spa Ceylon captures the romance of old Ceylon combined with ancient Ayurveda wisdom to create their range of majestic spa rituals and Royal spa formulae designed to soothe, calm and relax the body, mind and soul.

Spa Ceylon now produces over 500 all-natural Ayurveda inspired personal care, wellness, make-up & home aroma products. Their complete range comprises of prestige skin, body, bath, scalp & hair care preparations, oils, balms & potions, colour cosmetics, home aroma blends, candles, diffusers, incense, herbal infusions & gourmet teas, handmade stoneware, bath accessories & a range of tropical resort wear.

Flemingo International, one of the world's premier duty free service providers, has called on both the world of travel retail and the wider world to stand by Sri Lanka.

In the wake of the Easter Sunday bombings that targeted churches and luxury hotels in Colombo, research from Forward Keys said that more than 80% of bookings to Sri Lanka were cancelled.

Flemingo is, however, urging people to still visit a destination that was named by Lonely Planet as the best to visit in 2019.

The retailer used Blue Storks Head of Travel Retail Marine Bemelmans and Head of Inflight Sales & Marketing Jan Simonson Hoefnagels as a positive example. The pair recently started a two-week tour of the island driving a Tuk Tuk.

Bemelmans and Hoefnagels explored Flemingo’s arrivals store after landing before heading to Negombo, where they met up with Flemingo International Directors Paul Topping and P Thimmayya.

After a morning spent learning how to drive a Tuk Tuk in Negombo, Bemelmans and Hoefnagels headed on to Sigiriya to spend the next two days exploring the cultural triangle.

A statement from Flemingo said: “It is great to see the two travellers supporting the country, demonstrating their passion to see the island and drive their Tuk Tuk themselves. We recommend you follow in the footsteps of Marine and Jan.

“While they cannot compensate for the slowdown in tourism, they understand that every little bit goes a long way. Several countries including India and China have relaxed the travel restriction against Sri Lanka this week.

“So, go out there and give them a wave, a clap, a shout of “well done” as their branded Tuk goes rolling down the highways. The country needs more of them coming here. And no, you don’t have to drive a Tuk Tuk. Just come and enjoy what is on offer, we promise you won’t be disappointed.”

The Central Bank of Sri Lanka (CBSL) would be paying the now defunct finance Company, ETI Finance Limited (ETIF) depositors a total amount in excess of Rs 10 billion without any financial contribution from the Government of Sri Lanka (GoSL), the CBSL said in a release.

A number of regulatory measures have been taken on the company from time to time which resulted in, inter alia, the directors of ETIF transferring their personal assets including EAP Broadcasting Co Ltd and Swarnamahal Jewellers Ltd, and the directors giving an undertaking to transfer additional personal assets to cover the negative net worth of the company.CBSL would like to emphasise that as a result of the regulatory actions taken since the time of identifying the issues of ETIF, the company was able to realise this amount of cash to repay the depositors by disposing theassets transferred to ETIF. Further, CBSL has also initiated several legal actions against the directors of ETIF to seize personal assets of the directors and transfer those proceeds to ETIF.

Considering the extremely vulnerable liquidity position of ETIF and its inability to repay the depositors, the Monetary Board (MB) of the Central Bank of Sri Lanka (CBSL) issued directions on 02.01.2018, restricting the operations of the company. Further, based on a proposal submitted by the company, MB gave its concurences on 21.02.2018 to dispose identified subsidiary, sub-subsidiary companies and investment properties of ETIF for a total consideration of USD 75 mn, with the view of repaying the depositors utilising the sale proceeds.

The said transaction had to beconcludedexcluding certain assets for a total consideration of USD 70 mn, which was received in 4 tranches and assets to the corresponding value were transferred to the buyers. Since the buyer did not remit the remaining USD 5 mn, ETIF has retained its subsidiary, Swarnamahal Financial Services PLC (SFSP), which was intended to be transferred for the corresponding value. ETIF and SFSP, along with CBSL, are currently considering alternative measures to revive SFSP. Since SFSP was retained by ETIF for the USD 5 mn not received, there has been no financial loss to ETIF despite the transaction being not completed in its entirety.

Based on the exchange rates at the time of receiving money through the above 4 tranches, ETIF has received over LKR 11 bn so far. These funds have been already utilised to repay 20% of the deposits and accrued interest liabilities of ETIF. The company is currently processing a further 10% repayment to the depositors.

The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) commenced the post implementation review of SLFRS 9 Financial instruments with the engagement of key stakeholders. CA Sri Lanka has adopted the full version of SLFRS 9 in 2014 with an effective date of financial periods beginning on or after 01st January 2018.

Consequently, CA Sri Lanka organised a series of training programmes and workshops to raise awareness and also provide application level training on the adoption of SLFRS 9.

A resource person makes a point at a workshop organized by CA Sri Lanka for stakeholders on SLFRS 9

In early April 2019, CA Sri Lanka represented the meeting organised for the bankers with Hon. Prime Minister Ranil Wickremesinghe on the impact of lending to the SME sector which was one of the subject areas. The Institute also contributed to compile a report on Reduction in Market Interest Rates and Enhancing Lending to the SMEs together with the representatives of bankers and the Central Bank of Sri Lanka. At the meeting with Hon. Prime Minister, it was agreed to assess the impact to the Financial Services Industry due to the SLFRS 9, Basel III and Regulatory Changes.

Accordingly, CA Sri Lanka conducted a post implementation review of SLFRS 9 with series of forums with the CEOs and the representatives of Sri Lanka Banks' Association, Finance Houses Association of Sri Lanka, and Leasing Association of Sri Lanka. Further, a separate discussion was held with the panel of auditors. In addition, written comments were obtained from the financial services industry as well as Chartered Accountants in Public Practice.

CA Sri Lanka gathered further observations and comments with regard to practical concerns encountered with the financial services industry in relation to the SLFRS 9, Basel III and other related regulations issued by Central Bank of Sri Lanka from all stakeholders. Subsequent to the forums, discussions and written submissions; the technical committee of CA Sri Lanka developed a draft report with the insights on the way forward. CA Sri Lanka submitted this draft report to the Central Bank of Sri Lanka for further consideration on the areas that are under their purview. CA Sri Lanka intends to issue additional interpretation guidance on the SLFRS 9 in due course.

This draft report includes areas such as Temporary Overdrafts (TD); Non-Performing Loans; restructured and rescheduled loans; exposures denominated in foreign currencies; threshold of the SME loans and consideration on registered partner organisations; impact on the capital adequacy, profitability and other operational matters and special concessions on the industries which are affected due to the prevailing conditions in the country.

In response to the global financial crisis in 2008, this standard emerged, and it prudently replaces the existing Incurred Loss Model with a forward-looking Expected Credit Loss model (ECL) which considers historic, current and forward-looking data which is in line with the recognition of revenue. Accordingly, the financial services industry is required to establish a robust credit risk management framework within their enterprises which enables them to absorb any external intrusions.

IRCON International Ltd., has bagged an international railway contract worth $91.27 million from Sri Lanka Railways, sources from the Ministry of Transport and Civil Aviation said.

The contract is to upgrade Northern Railway line from Maho to Omanthai in Sri Lanka. Under the contract, IRCON will the upgrade the single line broad gauge track of around 128 km in length, including associated infrastructure works, said a release. This is an item rate contract, financed through Exim Bank of India as per Indian lines of credit.

A group of 12 tour operators from St. Petersburg, Russia is currently in Sri Lanka for a familiarization tour with Aitken Spence Travels.The group leader Gorodenskiy Dmitry stated that he along with his other colleagues are very happy to be in Sri Lanka, which incidentally is their first visit although they have been promoting destination Sri Lanka.

“We are very happy about the security provided and felt everything is very normal. We love the Sri Lankan people and they are so friendly and helpful,” said Gorodenskiy.

He was confident that his Russian colleagues in the group will promote destination Sri Lanka and drive the much-needed tourists to the island.

The group visited Sigiriya and climbed the 660 ft tall rock capitol of King Kasyapa which is a UNESCO World Heritage Site. Sigiriya is considered one of the best-preserved examples of ancient urban planning.

The group would also make their way to the Dambulla cave temple, the Kandy Temple, experience a tea plantation, visit the gentle giants at the Pinnawela elephant orphanage and sum the tour by spending some time to enjoy the beach prior to departure.

Laugfs Terminals Ltd officially inaugurated the operations of its state-of-the-art LPG transhipment terminal at the Hambantota International Port, the largest of its kind in South Asia, with the first of its LPG cargo brought in by the Sri Lankan-flagged vessel Gas Success, part of Laugfs Maritime’s own LPG vessel fleet. 

The new Laugfs LPG Terminal is an important energy infrastructure in the Indian Ocean, having strategically located amidst key international maritime trading routes connecting west to east.

The first LPG cargo discharge on board Laugfs Maritime’s LPG ship, Gas Success, was ceremoniously initiated by Laugfs Chairman W.K.H.

Wegapitiya, Laugfs Group Managing Director Thilak De Silva and Hambantota National Port Group CEO Ray Ren, with the presence of Hambantota International Port Service Co. Ltd CEO Captain Ravi Jayawickrama, Laugfs Maritime Director/CEO Dr. Leslie Hemachandra, Laugfs Terminals Director/CEO Ananda Premachandra and General Manager Heshan De Silva.

“This marks a historic occasion not just for Laugfs but for our nation as well as the entire Asian region,” commented Wegapitiya.

“The first revolutionary step taken towards realising Sri Lanka’s vision to become a maritime and logistics hub in South Asia was propelled in the early 1970s by the ground-breaking initiatives taken at the Colombo Port to create a hub for container transhipment. 

What we are initiating today with the Laugfs LPG transhipment terminal will be a trigger for the second such revolution in fulfilling this ambitious vision of our country by creating an energy hub surrounding the Hambantota International Port. 

The economic and social impact of this to Sri Lanka is tremendous and multi-fold,” he added.

With a projected annual export value of US $ 500 million, the 30,000 MT LPG terminal represents a significant investment in infrastructure development in Sri Lanka. 

The new LPG Transhipment facility will also serve to initiate coastal shipping services between Hambantota and Colombo ports for the first time in the country. 

The Laugfs terminal operations are expected to create and support many direct and indirect industries surrounding its activities, generating employment and income generation opportunities for the country.

“Over the past two decades, Laugfs has been able to stride ahead with true entrepreneurial vision as a world-class Sri Lankan conglomerate that could proudly etch the Sri Lankan flag on the global map,” remarked Laugfs Group Managing Director Thilak De Silva.

Strategically located in close proximity to some of the largest emerging LPG markets and key international trading ports in the region, the Laugfs LPG transhipment terminal will garner multiple benefits to the regional LPG players, elevating its significance as a central LPG hub in South Asia. 

With tremendous opportunities to support the regional growth of the LPG industry, plans are also underway for the capacity to be extended to 45,000MT by the completion of the second phase of the project, marking a total project investment of US $ 85 million. 

The new Laugfs LPG terminal will operate as a central hub for LPG importing, re-exporting as well as provisioning to retailers.

The terminal is also expected to support Laugfs Gas’ rapid expansion plans in the region to become an integrated regional LPG player in the Indian Ocean Rim area by leveraging on the synergies and strengths within its energy value chain. Over the years, Laugfs’ energy presence has rapidly expanded across the region in line with the Sri Lankan government’s keen interest in the sector. Laugfs’ presence in the sector ranges from LPG downstream activities in Sri Lanka and Bangladesh by Laugfs Gas, to LPG ocean freight services and related logistics with its own fleet of LPG vessels by Laugfs Maritime and energy trading by Dubai-based SLOGAL Energy DMCC.

Laugfs has continued to build its stake in the energy value chain with strong investments in energy infrastructure and the Laugfs transshipment terminal at Hambantota will be an important addition to this journey.