Sri Lanka shares fall, Com Bank down after oil hedge exposure revelation

Dec 05, 2008 (LBO) - Sri Lankan shares headed down Friday on low trading volumes with Commercial Bank falling sharply after it revealed a sizeable exposure in an crude oil hedge deal whose payments have been suspended on a court order.

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The All Share Price Index fell 2.28 percent (36.64 points) to end at 1,567.17 while the more liquid Milanka dropped 3.39 percent (61.12 points) to end at 1,740.54.

Brokers said turnover was only 56 million rupees and that the outlook remained gloomy given difficult economic conditions and high interest rates that made equities less attractive.

Commercial Bank, the most actively traded stock, fell over six percent (4.75 rupees) to close at 69.50 rupees.

The said in a stock exchange filing that its exposure on the Ceylon Petroleum Corporation oil hedge deal is 982 million rupees with oil at 48 dollars a barrel, after payments were suspended by court.

The bank said the calculation on the contract, which expires in June 2009, was based on an exchange rate of 110 rupees per US dollar.

Bartleet Mallory Stockbrokers said they would trim the profit forecast for Commercial Bank based on the disclosure about the hedge exposure.

It said in a research note that the bank's actual liability could be around 540 million rupees after deducting for taxes.

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"If the entire amount is to be made as a provision in the FY08 income statement then BMS Research would trim the forecast profit of 4.12 billion rupees in its recent research report to 3.

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58 billion rupees."

It said the extent of the bank's liability would vary based on global oil price movements.

"A further drop in oil price, below 48 dollars a barrel, will raise bank’s liability and vice versa.
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"

In other trading on the Colombo bourse, Lanka Tiles suffered the sharpest fall, dropping 19 percent (6.50 rupees) to end at 27.50 after hitting a low of 20.50 during the day.

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