Swarnamahal Financial Services mulls Gold Exchange Traded Fund portfolio

Swarnamahal Financial Services Ltd., (SFS), linked to same name bearing trusted top jewellery retail brand, is planning to launch a Gold ETF (Exchange Traded Fund) fund, to provide the investing public with benefits of this ever in demand precious metal.

SFS is a registered finance company in operation since 2005, and the idea of Gold ETF heralds the setting up of a Commodities Exchange in Sri Lanka.

“Gold and jewellery are synonymous with the brand Swarnamahal. With our rich legacy, expertise and professional acumen coupled with the success so far, we are keen to pioneer a Gold ETF fund when the necessary legal framework as well as the Commodities Exchange is ready along with regulatory approvals,” SFS Director Nalaka Edirisinghe told the Daily FT.

He said that the very idea of setting up a multi-asset class Commodities Exchange is a welcome move as it will further help developing Sri Lanka as a commercial hub in line with the Government’s stated policy. Globally Commodities Exchanges as well as ETFs are an integral part of the capital and financial markets offering wider options for investors in diversifying the management of their funds as well as risks.

Via a Gold ETF the public has the comfort of investing in the precious metal sans the hassle of stocking or requiring attention to details and logistics of purchase. Globally some Gold ETF track gold stock index or gold price index. (See Page 9 to find out how Gold ETFs work).

Though operating independently SFS as well as ETI Investments, another registered finance company with links to EAP Group, is considered to be having the biggest haul of gold stock among finance companies on account of pawn broking/lending.

Separately Swarnamahal Jewellers is the country’s biggest importer and retailer of gold and gold jewellery.

Edirisinghe said that setting up a Gold ETF was a natural extension of Swarnamahal Financial Services’ value offering to customers.

SFS, whose shares incidentally will debut on the Colombo Stock Exchange (CSE) Diri Savi Board, is one of the fastest growing registered finance companies. The Central Bank-required listing (to all unlisted registered companies) of SFS is by way of an introduction and 25 million ordinary voting shares will be quoted. The Company is also rated BB+/NP with stable outlook by RAM Ratings Lanka Ltd.

The Company in the 31March, 2011 ended financial year had reported a pre-tax profit of Rs. 120.6 million, a 417% increase over the performance in 2009/10 financial year figure of Rs. 23.3 million. Net profit had grown by over four fold to Rs. 76 million from Rs. 16.8 million. SFS’s net interest income had grown by 121% to Rs. 318 million whilst interest income generated from prawn broking amounted to 77% of the Company’s total interest income. The contribution from leasing and hire purchase businesses was 17%. It also offers term loans, fixed deposits and savings accounts.

The SFS’s pawning portfolio had grown by nearly three-fold or 181% to Rs. 2.43 billion as at March 31, 2011, from Rs. 864 million a year earlier. The company’s deposits had increased by 84% to Rs. 3.5 billion.

Edirisinghe described SFS’s performance in 2010/11 financial year as “remarkable” which he attributed to the rebound in the post-war economy as well as proper business strategies implemented by the management.

In tandem with pick up in business SFS in 2010/11 opened three new full-fledged branches and two pawning centres including in the North and East. “Our operations in the North and East have made a significant contribution to profit in 2010/11 and we are confident that there is greater potential out there for better quality and reliable service,” Edirisinghe added.

He said the higher net profit is reflected in the improved return on assets and return on equity ratios which rose from 0.82% and 7.27% respectively in FY 2010 to 2.33% and 24.66% respectively by FY2011 end.”This significant growth in profitability is due to the growth in the pawning advances portfolio,” Edirisinghe added.

The Board of Directors of Swarnamahal Financial Services Ltd. comprise Dr. Soma Edirisinghe (Chairperson), Jeewaka Edirisinghe (Deputy Chairman), Nalaka Edirisinghe, Deepa Edirisinghe, Asanka Edirisinghe, Sunil Abayaratne, Sameera Ganegoda (Director/CEO), J.F.G. De Silva, Mahendra De Silva and Ajit Weerasinha.