Foreigners step up selling Lankan equities; YTD net outflow tops Rs. 41 b mark

•  Last week saw a high Rs. 3.4 b net foreign selling
• YTD figure crossed from Rs. 37.8 b on 27 Aug. to Rs. 41.2 b on 3 Sept.
• Foreign exits driven by  macro concerns and their  impact on corporates
• Don & Don Investments picks up foreign selling of 2.7% stake in HNB for Rs. 1.5 b
• Local HNWIs and institutions collect foreign selling of 3.5% Hemas stake for Rs.  1.5 b

Foreign funds have stepped up selling off their equity holdings on the Colombo Stock Exchange as the year to date net outflow crossed the Rs. 41 billion mark on Friday.

In a repeat of exits by the billions, CSE YTD net foreign outflow figures crossed the rupee billion marks of 38, 39, 40 and 41 within a week. On 27 August, it was Rs. 37.8 billion and by 3 September, it was Rs. 41.2 billion or nearly $ 200 million. In total last week saw Rs. 3.38 billion of net outflow as against Rs. 600 million in the previous week.

Analysts linked brisk foreign selling to concerns over the foreign exchange reserves, volatility of the Rupee, uncertainty or delay in receiving sales proceeds as well as too much Government intervention destabilising normal course of private sector businesses.  

A foreign fund Frontaura recently went public over its unpleasant experience of delay in receiving share sale receipts.

It said sale of its stake from HNB (non-voting) and LB Finance by early July but didn’t receive the proceeds until 5 August. It also exposed what it described as multiple interrelated crises in Sri Lanka›s currency.

Central Bank former Senior Deputy Governor W.A. Wijewardene described the delay in foreign investors getting their sales proceeds as a serious setback for Sri Lanka›s reputation. It also questions the reliability of CSE›s T+3 settlement guarantee for all investors.

The only redeeming feature from foreign outflow is the confidence among locals to buy those stakes.

Biggest outflows last week were from HNB (voting shares) and Hemas Holdings.

HNB, the second-biggest private sector bank, last week saw 12 million of its voting shares change hands via 555 trades for Rs. 1.63 billion between a high of Rs. 139 and a low of Rs. 135 before closing at Rs. 138.75, down by Rs. 1.25.

Big parcels of 5.7 million and 5 million shares each were done via two crossings each with Rs. 135 per share. Overall HNB saw 11 crossings last week.

Bulk of the buying was believed to be by a local investment company, Don & Don Investments Ltd., with speculation linking it to Ishara Nanayakkara. Browns Investments PLC currently holds a near 10% voting stake in HNB.

Despite being blocks of strategic importance, analysts claimed there was no interest from some of the other existing big shareholders of HNB, including business tycoon Harry Jayawardena, who owns 10% of voting stake officially but owns around 17%, or Sohli Captain, who separately controls around 9% stake.

The sellers were two funds, SSBT Al Mehwar Commercial Investments, which held 9.25 million shares as at 30 June, and BBH-RWC Frontier Markets equity Master Fund, owning 2.3 million shares. 

Several high net worth individual investors (HNWIs) and local institutions last week picked up new stakes in Hemas Holdings PLC, following selling by foreign funds.

During the week Hemas Holdings saw 22.16 million of its shares changing hands via 3,524 trades for Rs. 1.56 billion. It touched an intra-week high of Rs. 77.90 and a low of Rs. 69.90 before closing at Rs. 71.40, down by Rs. 4.70 from the previous week. Of the volume, 21 million shares trade for Rs. 1.48 billion on Friday.

Among HNWIs were Nimal Perera, Huzaifa Abdulhusein, Imitaz Buhardeen as well as institutions such as Carson Cumberbatch and First Capital.

Sellers included First State – Stewart Fund which shed 17 million shares of Hemas reducing its stake from 3% to 1% and a frontier market opportunity fund.