2009: Record-breaking year for CSE

2009 was a banner year in every sense of the word with the stock market breaking many records on its march to notch 125 % in annual gains. This performance was only second to the Russian RTS Index which gained 127%, making the CSE one of the best performing markets in the world. The market declined by 40% in 2008 as the global economic crisis raged as did the war in Sri Lanka. On the first market day of the year, January 2nd, the market gained 5% as the LTTE stronghold of Killinochchi fell to government troops and the for the month of January alone, the broader All Share Index (ASI) gained 21% on turnover of Rs. 2.7 billion. That month also saw the arrival of Capital Reach Leasing to the market. January also saw the reconstitution of the board of Seylan Bank with government-owned Bank of Ceylon taking over the management of the bank. Seylan Bank saw a run on its deposits in late December following the collapse of The Golden Key Credit Card Company. Both GKCC and Seylan Bank were members of the Ceylinco Consolidated, the large and broadly diversified conglomerate. Subsequently Ceylinco Consolidated controlled deposit taking institutions The Finance and Ceylinco Finance, both which are listed, and unlisted companies of the group such as Ceylinco Shriram, Finance and Guarantee (F&G) also saw a run on their deposits. Eventually Merchant Bank of Sri Lanka (MBSL) and Lankaputhra Bank had to stop a further deterioration in the finance and banking sector of the country. The subsequent two months saw the market decline by 7 and 3%, as the country faced many crises one of them being the deteriorating Balance of Payments (BOP) and the other being the decline in imports both due to the Sri Lankan rupee being overvalued against the currencies of the nation’s major trading partners. The others were the continuing financial crises in Europe and the United States of America.

February

February saw the market decline 7%, as the nation faced dwindling foreign reserves and slowing exports. Both the Balance of Payments deterioration and the export decline were results of an overvalued rupee making, which were making exports uncompetitive in the international market. Compounding the issues was the global financial crisis which was in full swing with corporate failures and job losses. The month also saw Lalith Kotalawala and many other directors of the Ceylinco Consolidated and related companies being taken into custody over the collapse of GKCC and related issues. HNB Stockbrokers and DFCC Stockbrokers merged to form Acuity Stockbrokers in February. The new entity was to use the license of DFCC Stockbrokers, under the code FWS. DFCC Stockbrokers saw its name and ownership structure change for the 4th time. It was previously known as Forbes and Walkers and also Forbes ABN AmRo. HNB Stockbroker’s too had many changes with the company at one point being known as HDF Stockbrokers, a joint venture with Jardine Fleming group of Hong Kong and DFCC Bank. Many international financial institutions had a presence in the country in the early part of the last decade, as the country was seen as having potential to be a regional financial hub. With the escalation of the country’s civil conflict in the late 1990’s. Jardine Fleming, which was a joint venture of Hong Kong based Jardine Matheson and Scotland based Robert Fleming subsequently collapsed in 2001.

March

In March, Dhammika Perera of the Vallibel group purchased a 21% stake in Hayley’s group with the blessings of prominent shareholder Mrs D S Jayasundera. The month also saw the Jetwing group buy Chemanex’s stake in Lighthouse Hotels. Hayley’s which was in partnership with Jetwing in the leisure sector. Hayley’s subsequently sold out of ‘Vil Uyana’ and Seashells Hotel to the Nepal based Chaudhary group. Motor company Associated Motorways was de-listed from the stock exchange following its acquisition by Dubai based Al-Futtaim group in 2008.

May

With the total defeat of the LTTE in mid May, the stock market saw one of its highest daily gains on May 18, with the ASI gaining 6.5% on Rs 1.2 billion in turnover. The momentum continued from then onwards and the market gained 21% for the month, the best ever monthly gain for the year on turnover of Rs 13.5 billion, though foreign investors were net sellers by as much as Rs 1.9 billion with purchases at Rs 3.9 billion. The month also saw the investment guru and author Jim Rogers giving the country a much needed international boost when he commented on the country’s turnaround prospects. He subsequently visited the country on a fact finding mission in October 2009.

June

Associated Electrical Corporation was de-listed from the CSE in June pursuant to a buyout by the dominant shareholder while Commercial Leasing de-listed subsequent to its takeover by Lanka Orix Leasing. June also saw the Supreme Court reverse the 2003 privatization of Sri Lanka Insurance. With the government takeover, Distilleries Company lost all of Apollo Hospitals and strategic stakes in Asiri Hospital, Asiri Medical, Hatton National Bank, Commercial Bank, DFCC Bank and Aitken Spence & Co.
Lanka Orix sold its stake in LOLC stockbrokers to a consortium of investors led by the CEO and the company was renamed Capital TRUST Securities.

August

In August, Nations Trust Bank revealed that irregular and un-authorised trading in foreign exchange resulted in the bank making losses amounting to Rs 800 million. The CEO Shamil Zavahir and Deputy CEO Inthikab Ahamed resigned over the issue, and a new CEO Saliya Rajakaruna was appointed. The bank which had other income of Rs 1.2 billion still managed to show profits of Rs 151 million for the quarter ending June 2009. Also in August, Dialog Telekom posted the biggest ever loss by a listed company, of Rs 7.7 billion, of which Rs 6.6 came from write-offs in the old network systems.
In a surprise move, Defense Secretary Gotabhaya Rajapaskse was appointed Chairman of Lanka Hospitals, the franchisee for Apollo Hospitals of India in Sri Lanka, when the board was reconstituted to reflect government’s ownership of the hospital. The franchise agreement was subsequently rescinded and the hospital is now operated under the name Lanka Hospitals

September

In September, Ceylinco Seylan Developments changed its name to Seylan Developments, while Associated Property Developers de-listed. Seylan Bank made a rights issue of 54.3 million shares to the public, 13 million to the Bank of Ceylon and 19 million to Sri Lanka Insurance to raise Rs 3 billion after the Central Bank failed to find a suitable investor to recapitalize the bank.
September also saw the successful IPO of Hemas Power, the first since the conflict ended, for 31.3 million shares at Rs 20.00, raising Rs 623 million for capacity building and retiring of debt. In the same month NAMAL along with Acuity Investments introduced the first ever listed Closed End fund to the market. The NAMAL-Acuity Value Fund raised Rs 538 million to invest primarily in listed equity as well as fixed income securities.
The month also saw volatility, first on the 10th, during an island wide power outage disrupted market activity. On the 16th, New York based Sri Lankan-born Raj Rajaratnam was arrested on charges on insider trading. The Manager of the Galleon Partners Hedge Fund was one of the largest investors in the CSE and had substantial stakes in John Keells Holdings, Commercial Bank and DFCC Bank amongst others. The month also saw DNH Holdings commence operations while Ceylinco Finance was renamed as Nation Lanka Finance.

November

On the 21st of November turnover at the CSE hit a record of Rs 115.2 billion, surpassing the Rs 114.6 billion figure reached in 2005. Though 2008 saw higher turnover figures with large stakes in Sri Lanka Telecom, Associated Motorways and Hotel Services changing hands, those deals were crossings and strictly speaking off the market trades. Also In November, the Securities and Exchanges Commission of Sri Lanka conducted a road show in Singapore.

December

And finally in December Renuka Agri Foods’ IPO came to the market offering shares to the value of Rs 270 million and attracted Rs 3.2 billion worth of applications, close to a 12 times oversubscription.
The other stories that drove the market and individual shares was related to the sale of Colombo Hilton. Hotel Developers, which owns and operates the Colombo Hilton, saw its share price gain and lose on stories that the company was being sold. Mired in legal disputes and not having published its books of accounts since 1991, the state-owned listed company was the subject of many rumours on the names of the parties that were interested in. Finally at the end of the year, the hotel only managed to sell its services to many overseas visitors who came with the cheque book in hand rather than itself.
Singalanka Standard Chemicals, a dormant company, saw two if its directors R Navaratnam and K Ketheeshwaran charged with falsifying its books of accounts. Subsequently its dominant shareholder Gulf East Finance increased its stake in the company triggering a mandatory to buy the shares of the minority shareholders.
At the end of the year, there were 231 companies listed on the exchange while there 235 at the beginning of the year. The market capitalization of the CSE was Rs 1,062 billion, with Diversified Holdings (22%) , Banking & Finance (18%), Telecommunications (13%) and Beverages, Food & Tobacco (12%) accounting for 65% of the value of all listed companies. The sector that showed the highest rate of growth was the Construction and Engineering sector with a growth of over 356%, while the Power & Energy sector grew just by 26%. The Diversified Sector grew 212%, The Financial services sector grew 134%, The BFT sector grew 114% and Telecoms sector grew 36%. The leisure grew 199%. Overall market was up 125% and the Milanka Price Index was up 134%.

By Stock Market Corresponden