June 13, 2018 (LBO) – Due to the lacklustre performance of the Colombo Stock Exchange, foreign investors likely have made significant losses investing in Sri Lankan stocks over the past few years. Some of the largest losses they have experienced in percentage terms are likely to be investments made in shares of Sri Lankan listed Access Engineering (AEL).
Access Engineering’s results for the quarter ended March 31, 2018 were propped up by a revaluation gain on investment property. Without this gain of approximately Rs2.3bn, there was almost no profit in the quarter.
Shares in Access Engineering, currently trading around Rs16, have been a terrible performer since its private placement and IPO almost 7 years ago. AEL raised Rs5n from investors in a private placement, one of the largest capital raising exercises that a Sri Lankan company has ever completed. Despite raising such a large amount of zero cost capital, performance of the company has been sluggish.
When factoring in the private placement price of 25, and the opportunity cost of double digit interest rates over the last 7 years, investor capital in real terms has been decimated. If money was invested in a fixed deposit versus investing in AEL’s private placement, an investor would have at least triple the money they have today.
Despite its poor performance, AEL has been able to attract a significant amount of foreign institutional investors. It is particularly strange that several significant global investors would want to invest in a Sri Lankan industry that has been historically a hotbed of corruption.
As of March 31st 2018, 33 foreign institutional investors held 87,129,358 shares of AEL, which represented approximately 8.71% of the outstanding shares in the company.