Brokers ring alarm bells over land bill

Thursday, 25 September 2014 00:19 -     - {{hitsCtrl.values.hits}}

The Colombo Stock Brokers Association has expressed serious concerns over the proposed Land Bill by the Government, warning that if passed it will adversely impact investor confidence in the Bourse as well as the country. Reservations over and warning on the Land (Restrictions on Alienation) Bill had been communicated to Ministry of Finance and Planning Secretary Dr. P.B. Jayasundera by CSBA President Dihan Dedigama on behalf of the 23 members who actively promote important foreign portfolio and local investments into listed companies. The letter detailed a host of concerns which CSBA said would adversely impact the listed companies on the Colombo Stock Exchange. The Land Bill, the CSBA said, “will lead to an erosion of local and foreign investor confidence in the Colombo Stock Exchange and in the country as a whole.” Year-to-date the Colombo Bourse has seen net foreign investment of Rs. 11 billion, whilst last year it amounted to Rs. 22.7 billion and in 2012 the figure was Rs. 38.6 billion. The market has so far given over 20% return, reflecting strong recovery as opposed to a 5% return in 2013 and negative growth in the previous two years. If an increase in the foreign shareholding of a company in the CSE causes a company to lose its land and building purchased after 1 January 2013, this would be viewed as a tremendous risk by the directors of the companies and more importantly by its shareholders. Therefore, the retrospective effect of the bill can drastically adversely impact the balance sheets and the market price of the shares. Foreign shareholders will refrain from investing in listed in listed companies through the stock market because of the uncertainty of the status of the assets, if the foreign shareholding in such company was to exceed 50%. Further foreign investors will not be able to make a mandatory offer, as they will not be able to obtain more than 50% of shares in issue if the company has brought recently any land and building. The Land Lease Tax should not be applicable to day to day routine operational transactions such as short term rentals of office space for use of businesses, shops and commercial spaces in malls for trading, entertainment, restaurants and homes to love in. The proposed bill must apply only to long-term leases which are more capital in nature (i.e. de facto substitutes of freehold title). The requirements in the bill of obtaining valuations and confirmations of shareholding prior to transfers/leases will hinder day to day commercial operations, discourage new investments and will increase the cost of business operations. The commercial viability of several large shopping malls, office development, apartment complexes and other developments which are aimed at making Sri Lanka a premier tourist destination and region al commercial capital through the attraction of international brands and other world-renowned organisations, tourists sought facilities and attractions will be significantly eroded. The role of the Registrar of Companies (ROC) in ensuring compliance with the restriction on transfer of land with the role appears to be misconceived. If the bill requires obtaining an endorsement by the ROC in relation to shareholding, it will delay and frustrate many commercial transactions such as back to back mortgages, etc. It also fails to take into account that ROC registers are not up to date. Nullity of land and property transactions executed from 1 January 2013 may result in many mortgages getting cancelled. Many shareholders of negatively impacted companies may decide to diverse their shareholdings which may result in large selling of shares in the Colombo Stock Exchange and therefore a decline in share prices.

 Bourse slips from 3-year highs; more losses seen

Reuters: Stocks slipped on Wednesday from their highest in more than three years hit in the previous session as investors took profits in recent gainers such as Bukit Darah Plc, brokers said. The main stock index ended down 0.09%, or 6.21 points, at 7,254.43, slipping from its highest closing level since 9 June 2011 hit on Tuesday. The index fell for the first time in seven sessions. “Illiquid shares led the index to end marginally down,” said Dimantha Mathew, Manager Research at First Capital Equities Ltd. “The index might struggle a bit on profit-taking and correction as we feel big-cap counters are overvalued.” Shares of Commercial Leasing and Finance Plc, which led the overall losses, fell 4.17% to Rs. 4.60, while Bukit Darah lost 1.37% to Rs. 725. Conglomerate John Keells Holdings Plc, which fell 1.54% during the day, ended 0.35% firmer at Rs. 254.80. The day’s turnover was Rs. 1.53 billion ($ 11.7 million), surpassing this year’s daily average of over Rs. 1.27 billion. Foreign investors were net buyers of Rs. 156.94 million worth of shares on Wednesday, extending the year-to-date net foreign inflows in stocks to Rs. 11.23 billion.