Sri Lanka markets off to a shaky start, rupee edges lower

August 29, 2007 (LBO) – Sri Lanka’s financial markets got off to a shaky start Wednesday with the rupee edging lower against the greenback and stocks losing ground after opening firmer after a religious holiday. The spot dollar traded at 113.10 rupees with intervention at 113.08 dealers said.

Meanwhile overnight call rates dropped to 13.00/13.50 and market repos to 11.45/12.50 amid excess liquidity.

Low short rates undermine the incentive to convert dollars to rupees With the 3-month risk free rate at 17.50 low short-term rates take away incentives to convert dollars, but analysts say Sri Lanka has a structural problem with policy rates.

In equity markets brokers said the Asha Central Hospitals deal is expected to take place today and drive turnover up.

Though the all share index opened about five points higher, the benchmark index was down three points after one and a half hours of trading at 11.00 am.

There was also active trading in Touchwood Investments Ltd (TIL), a forestry management firm whose accounting methods have generated controversy and which has reportedly been the subject of a takeover bid.

Asiri Surgical and the Softlogic group have expressed interest in talking over Asha Central.

The share price of Asha doubled in recent days while Asiri Surgical’s price also rose.

Sri Lanka Telecom shares settled down around 33 rupees with investors still trying to figure out the impact of Monday’s Supreme Court ruling on tariffs on the telco’s profits.

The Supreme Court gave a ruling Monday under which SLT has to cut tariffs and shift to a per second based billing system by November 1.

SLT said in a statement that the adjusted tariff “will represent not more than a maximum reduction of 9.03 percent of SLT’s domestic telephone revenue.”

Under the court settlement, in a case filed by a consumer rights group, it was also agreed that from January 1, 2007 to October 31, 2007, consumers will be provided a credit equivalent to 8.72 percent of the monthly bills that had been issued during the period.

This credit will be provided in the November 2007 telephone bills.

Brokers said the market is expected to move up next week mostly on retail investor interest and continuous buying by foreigners.

Some 243,800 Touchwood shares changed hands in early morning trade with the price hitting 75 rupees compared with the close of 72 the previous trading day.

Touchwood has been the subject of speculation following the announcement by Lanka Orix Leasing Company (LOLC) that it was in talks with the firm on recovering loans where TIL shares were pledged as security.

But LOLC said at the time it would not make a mandatory offer to shareholders.

Touchwood has got into a controversy over its accounting practices and valuation of its assets.

Arjuna Dassanayake of DFCC Stockbrokers there appeared to be some profit taking with the end of the month approaching but that prices were expected to move up next week.

“There is a little bit of interest from investors, mostly retail, and also there’s been continuous foreign buying for the last two months. Foreigners have been net buyers – they’ve been collecting John Keells Holdings.”

Dassanayake said generally market conditions had improved.

“Retailers have tasted a little bit of success in the last week or so. Low priced stocks have moved up.

Updated