CBSL suffers $ 76 M drawdown

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By 2017-02-17

By Paneetha Ameresekere

The money market experienced a drawdown in excess liquidity to the tune of Rs 11,429.64 million (US$ 75.82 million) due to a mix of Central Bank of Sri Lanka's (CBSL's) protection of the rupee in the Government of Sri Lanka's (GoSL's) foreign debt servicing market and also due to foreign exits from the Treasury (T)-Bill and T-Bond market. These drawdowns are from CBSL's foreign reserves.

Conversions are based on the controlled but benchmark 'spot' rate of Rs 150.75 to the US dollar as CBSL deals in 'spot.' 'Spot' transactions are settled after two market days from the date of trading.

In addition, CBSL retired Rs 9,554.36 million of its T-Bill holdings (which includes part of GoSL's interest cost because of such debt investments), thereby bringing down CBSL's face value T-Bill holdings from
Rs 211,810.45 million to Rs 194,751.45 million at the end of the day's trading, yesterday. The money market's net shortfall, as a result, increased to 23,168 million, from the previous...
day's net...
shortfall of Rs 2,184 million, because of these developments.

The foreign exchange (FX) market which was mainly dealing in one month's and two weeks' forwards yesterday due to CBSL's moral suasion net on the lesser tenures saw the one month falling steeply by between 30 and 45 cents to close at Rs 152.05 to the US dollar and the two weeks' by between 15 and 25 cents to Rs 151.60 to the dollar due to demand led by foreign exits from the T-Bond and T-Bill market, sources told this reporter.

On the previous day Wednesday (15 February), one month's forwards closed at Rs 151.60/75 in two way quotes to the dollar and two weeks' forwards at Rs 151.35/45 to the dollar in two way quotes. Demand for the dollar is spurred by foreign exits from the T-Bond and T-Bill market, due to expectations that the Federal Reserve System at its open market committee meeting of next month, would raise rates first time for the year.

Currently, the Fed's benchmark Fed funds rate is at between 50 to 75 basis points (bps), having had been previously raised in December by 25 bps. Such expectations have resulted in foreign funds to exit from markets such as Sri Lanka and re-park their investments in US based assets for better returns. Such exits cause depreciative pressure on the rupee.

Volumes at yesterday's FX market were moderate, they said.

In related developments, CBSL which administers government debt rejected all offers made at yesterday's T-Bond auction for the issue of Rs 16.5 billion worth of T-Bonds. Market sources said that there was also apparent disinterest by the market because of the grey area pertaining to taxation vis-à-vis investments in T-Bonds. It has allegedly been proposed in budget 2017 to levy a further 10% tax on the 'final' holders of T-Bonds, in addition to the 10% withholding tax (WHT) levied at the point of sale, at the primary auction. Previously, only the WHT was levied on such investments.

There were four T-Bond tenures offered at yesterday's T Bond auction. Those were the 2019, 2021, 2024 and 2026 maturities, respectively. While the 2019, in secondary market trading was going at 12.20%/30% in two way quotes, the 2021 was fetching 12.45%/55%, the 2024 (12.50%/60%) and the 2026 (12.65%/70%) in two way quotes.

In other developments, the bourse, after making continuous gains for three consecutive market days, fell at yesterday's trading due to profit taking.

The benchmark ASPI fell by 0.03% to 6,137.72 points, though the more sensitive S&P SL 20 Index gained by 0.05% to 3,547.86 points. Number of gainers and losers were squared at 66, each. Turnover was a modest Rs 633.12 million on a share volume (SV) of 37.24 million.

Nonetheless, the bourse enjoyed net foreign inflows (NFIs) for the eleventh consecutive market day yesterday, with a figure of Rs 67.54 million, thereby reducing net foreign outflows in the calendar year to date to Rs 324.91 million.

NFIs were led by blue chip Chevron Lubricants, the market's fifteenth largest capitalized stock, with a figure of Rs 33.42 million.

The single biggest contributor to the day's turnover was blue chip Lion Brewery, the market's fourteenth largest capitalized stock controlled by the Selvanathan brothers Mano and Hari with Rs 163.83 million. 'Lion' closed, up 0.92% to Rs 430 a share, on a SV of 381,001. It was followed by Access Engineering plc with Rs 157.43 million. No other stock entered the Rs 100 million turnover club yesterday.

Access also contributed the second largest SV at yesterday's trading with a figure of 5.95 million, equivalent to 15.97% of the day's total SV. Access closed, up 0.40% to Rs 25.10 a share.

Meanwhile, the largest SV at yesterday's trading was provided by junk stock Central Investments & Finance plc, a failed finance company, which saw a total number of 14.35 million shares changing hands, comprising 38.53% of the day's total SV. 'Central' which contributed Rs 17.76 million to the day's turnover, saw its shares close, down 14.29% to Rs 1.20 a share.

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