Investing in Government Securities: What You Need To Know – Part 01

Primary Market

Information on auctions for Treasury Bills and Treasury Bonds are published in newspapers at least two days prior to the auction date.

In the case of Treasury Bills, newspaper advertisements relating to auctions are generally published on Mondays and the auctions are held on Wednesdays (if it is not a public holiday). Bids are accepted through the fully automated electronic bidding facility.

Treasury Bills are issued weekly, while 3-4 Treasury Bond auctions are held every month based on the Government’s cash requirement.

The deadline for submission of bids for the auction by Primary Dealers is 11 a.m. on the auction date. The successful bidders are informed within two hours of the deadline for the submission of bids. Auction results are released to the market and published on the CBSL website.

Settlement of successful bids in the primary market is on two business days after the auction date (T+2). Sri Lanka Government debt securities are scripless and therefore transfers of securities take place in an electronic system. Settlement is via the Scriptless Securities Settlement System and the Real Time Gross Settlement System on a Delivery vs. Payment basis (DVP).

Investors are required to maintain accounts with Licensed Commercial Banks or Primary Dealers for cash settlement for their transactions as well as for the crediting of coupon payments. Ownership of the securities is recorded in the Central Depository System maintained by the Central Bank of Sri Lanka.

Secondary Market

An investor can either hold a tradable security until maturity or sell in the secondary market prior to maturity at the market price. Investors can buy tradable securities in the secondary market. Primary Dealers/Licensed Commercial Banks quote buying and selling prices of Treasury Bills, Treasury Bonds on a daily basis for different maturities.

Treasury Bills and Treasury Bonds are held in scripless form and the securities transfer is done on an electronic basis. In the Scripless Securities Settlement System and the Real Time Gross Settlement System, transfer instructions are carried out on a trade-by-trade basis, with the transfer of securities and the transfer of funds for payment taking place simultaneously in an electronic system. In the Scripless Securities Settlement System transfer instructions are carried out on a trade-by-trade basis, with the transfer of securities and the transfer of funds for payment taking place simultaneously on a Delivery vs. Payment basis.

Primary Dealers

A primary dealer is a specialized intermediary in the government securities market, appointed by the CBSL under the Local Treasury Bills Ordinance, No 8 of 1923 and the Registered Stock and Securities Ordinance No. 7 of 1937. The main purposes of the primary dealer system include strengthening the primary market by, (a) helping to build stable, dependable source of demand for securities by effectively participating in the primary auctions conducted by Central Bank of Sri Lanka, (b) providing liquidity in the secondary market, (c) building distribution channels (to act as intermediaries) and, (d) providing market information, including prices, volumes and spreads between bids and offers.

 

Source : http://www.cbsl.gov.lk/htm/english/07_af_2pdm/pdm_2.html#2_1

Unit Trust Solutions

First Capital Holdings PLC is a full-service investment bank with a 30-year history, which offers an array of investment solutions to its clients including services in capital markets advisory, fixed income, equities and wealth management.

The company’s wealth management suite serves individual and institutional investors through unit trusts, financial planning and discretionary portfolio management.

Currently, the company is focusing on promoting its unit trust products to the market, which offers a low-risk investment option. Unit trusts are well suited for both corporates and individuals, as it allows for capital to be invested and managed professionally. The unit trusts funds act as a pooling vehicle in which funds from multiple investors are accumulated, allowing for larger investment in certain instruments with negotiated terms.

First Capital unit trusts products cater to a large base of high-net-worth and institutional clientele including SME and mid-level corporates.

The funds are managed by professional fund managers, who ensure that risks are diversified over a multitude of assets, while the largest state bank, the Bank of Ceylon acts as an independent trustee. Investors are given further peace of mind through the stringent monitoring and regulatory control of the unit trust industry by the Securities Exchange Commission (SEC).

Globally, the unit trust sector asset  base exceeds that of the banking sector. According to the Central Bank of Sri Lanka the bank deposits at LKR 4.7 trillion as at year end 2014, is leaps ahead of industry assets under management LKR 133 billion. Considering the tax exemptions given to unit trusts investments and that retail investors are seeking higher-yield alternative investments away from conventional bank-deposits, the company sees potential for growth in this segment.

Striving to excel in its customer centricity, First Capital encourages potential investors to consider their risk appetite, objectives, and purpose for investing prior to getting involved, ensuring that customers choose the most fitting investment option. “We profile the client, looking at age, responsibilities and commitments, and help them understand what sort of risk they should be taking, to fulfil their goals in life,” explains CEO, Dilshan Wirasekara. The company conducts financial planning on behalf of its clients to help them assess where they stand in relation to achieving their goals.

First Capital has a range of unit trust products targeting varying investor requirements. For the passive investor, it provides a gilt-edged fund, which invests purely in government securities, while providing a money-market fund for moderate risk-takers giving a return of 7-8% per annum, giving a higher rate than short-term bank deposits.   For the more aggressive risk-takers who want high returns, the company offers an equity fund, maintained on ethical grounds.

The company’s flagship unit trust fund – First Capital Wealth Fund was the best-performing fund in its category in 2013 and 2014, and has outperformed the unit trust industry in terms of Annual Equivalent Rate (AER) for the five years ended December 2015.

First Capital even offers customised portfolio management for investors with larger funds, and provides investment advice covering many business sectors.

Wirasekara comments: “The Company differentiates itself by the ability to navigate varying market cycles in multiple asset classes. Its superior performance in unit trust is a result of the ability to identify advantageous trends coupled with exemplary risk management.”

First Capital’s asset management business is only one aspect of its total offering. “We are a fully-fledged investment bank, having many other business lines,” avers Wirasekara adding that “being a primary dealer, we have insights into the bond market and interest-rate direction.” As testimony, First Capital claims to have been the largest manager of debt issuance in the market last year, raising LKR 25 billion of debt.

The company enjoys an unparalleled advantage with its research-backed market insights and expertise, which enables its fund managers to make notable capital gains by capitalising on movement, through risk mitigation and locking-in long-term rates at high yields.

First Capital has extended its local footprint through branches in Colombo, Kandy, Matara and Kurunegala. The company is geared for its journey towards growth in unit trust investments and customer-centric wealth management.

 

Published in May 2016 on the LMD Magazine – Digest Segment on Wealth Management

International Investor Perspective on Local Currency Solutions Seminar

Media Release
Local Currency Seminar

International Investor Perspective on Local Currency Solutions Seminar

Colombo 10 June 2016:  In an effort to expand the horizon of local Banks, Non-Bank Financial Institutions and Micro Finance Institutions a specialized seminar entitled “International Investor Perspective on Local Currency Solutions” is to be held on Tuesday 05th July 2016 at the Cinnamon Grand Hotel, Oak Room Colombo.

The seminar is jointly organized by The Netherlands-based FMO – Entrepreneurial Development Bank, The Currency Exchange Fund (TCX), Frontclear and U.K. based GuarantCo, together with local investment bank First Capital Holdings PLC.

The principle focus of the seminar on an International Investor Perspective on local currency and local collateral solutions is to exchange experiences and raise awareness about Foreign Currency Funding options, whilst also facilitating a platform for local participants to access funding from Development Financial Institutes (DFIs) and Foreign Investors.

The speakers for the seminar include:
Local Currency Seminar

“An International Investor Perspective on Local Currency Solutions in Sri Lanka”

E-flyer

First Capital together with The Currency Exchange (TCX), Guarantco, FMO and Frontclear are organizing a half day seminar on the 05th of July at the Cinnamon Grand for the Financial Sector.

The seminar will give participants insights to local currency and local collateral solutions, whilst providing access to funding from Development Financial Institutes (DFIs) and Foreign Investors.

First Capital Kandy Branch Provides Convenience and Accessibility – Office Relocation Announcement

First Capital Kandy Branch relocated its office to the Colombo Stock Exchange – Kandy Branch at  Cey Bank House 88, Sri Dalada Veediya, Kandy 20000.  The branch provides services in Stock Broking, Margin Trading, Unit Trusts, Wealth Management, Government Securities, Fixed Income Investments and Corporate Finance. 

The new office will continue to offer the same efficient and friendly service at its new address, delivering reliable advice and awareness on investing for the benefit of its customers.

First Capital Kandy Branch contact details are as follows 

Colombo Stock Exchange Kandy Branch
Cey Bank House 88, Sri Dalada Veediya, Kandy 20000
Tel : +94 81 2 236 010
Tel :+94 777 590 521
Fax: +94 81 2 236 011
Email: kandy@firstcapital.lk
Web      : www.firstcapital.lk

 

First Capital Holdings PLC head office is located at No 02 Deal Place Colombo 00300.

Sri Lanka Development Bonds

07 June 2016
Public Debt Department
Central Bank of Sri Lanka

SRI LANKA DEVELOPMENT BONDS

The Sri Lanka Development Bonds (SLDBs) are a debt instrument denominated in US Dollars issued by the Government of Sri Lanka in terms of the Foreign Loans Act, No.29 of 1957.

Repayment is guaranteed by the Government of Sri Lanka.

Eligibility

The following categories of persons are eligible to purchase SLDBs.

(a) Authorised Dealers appointed in terms of Section 4 of the Exchange Control Act, No.24 of 1953;

(b) Primary Dealers appointed by the Central Bank of Sri Lanka under the Registered Stock and Securities Ordinance, No.7 of 1937 and the Local Treasury Bills Ordinance, No.8 of 1923;

(c) Citizens of foreign states whether resident in Sri Lanka or outside Sri Lanka;

(d) Citizens of Sri Lanka who have made their permanent abode outside Sri Lanka;

(e) Citizens of Sri Lanka who have proceeded outside Sri Lanka to take up employment or to set up in business or in a profession;

(f) Citizens of Sri Lanka who have dual citizenship provided that those citizens substantiate that their permanent place of abode is outside Sri Lanka;

(g) Bodies corporate or unincorporate established under the laws of a country other than Sri Lanka;

(h) Companies who have entered into agreements in terms of Section 17 of the Board of Investment of Sri Lanka Act, No.4 of 1978 with full exemption from the provisions of the Exchange Control Act provided that all purchases of SLDBs are made against debits to foreign currency accounts maintained only for the purpose of crediting earnings from exports of such companies.

(i) Companies registered to carry on insurance business in Sri Lanka under the provisions of the Regulation of Insurance Industry Act, No.43 of 2000 provided that all purchases of SLDBs are made against debits to Special Foreign Currency Accounts maintained with commercial banks in terms of the approval of the Controller of Exchange.

The SLDBs are not sold in the USA or to persons residing in the USA.

Salient Features of SLDBs

Maturity Period

The maturity periods of the SLDBs are one (1) year, two (2) years, 3 (three) years and 5 (five) years.

Denominations

These bonds are denominated in US Dollars. The minimum investment at the auction shall be USD 100,000. Denominations are available in multiples of USD 10,000. In the secondary market the minimum investment shall be USD 10,000.

Interest Payments & Principal Repayment

Interest is paid to the holders in every six (6) months from the date of issue. Calculation of interest payments will be based on the six month London Inter Bank Offered Rate (LIBOR) for USD per annum plus a margin determined through competitive bidding at the auction or a fixed margin determined through competitive bidding at the auction.

Principal repayment is made at the end of the maturity period.
Principal and interest on SLDBs are fully repatriable.

Paying Agent

Bank of Ceylon, Colombo, Sri Lanka is the Paying Agent appointed by the Superintendent of Public Debt (SPD) to make payment of interest and repayment of principal to the holders of SLDBs.

Transfer

The SLDBs are transferable by endorsement, delivery and registration on an application made to the SPD. Application forms for transfers can be obtained through Designated Agents.

Joint Holders

SLDBs may be held jointly by two holders. Repayment of principal and payments of interest are made to the person whose name appears first on the SLDB and to the surviving holder whose name appears next on the SLDB in the event of death of the first holder.

Nominee & Custodian

A holder can nominate a nominee as an alternative holder of the Bond in the event of a death of both Registered Holder and the Joint Holder.
A holder can appoint a custodian with the approval of the SPD to hold SLDBs on behalf of the holder.

Tax Treatment

All payments in respect of SLDBs are free from tax.
An amount equal to interest or the discount paid or allowed as the case may be on any Sri Lanka Development Bond denominated in United States Dollars is exempt from Income Tax under section 13 of the Inland Revenue Act, No.10 of 2006, as amended. The SLDBs are exempted from the payment of stamp duty and are not liable for withholding tax.

Collecting Interest and Maturity Proceeds

An investor can make arrangements to collect interest payments and principal repayments in a manner flexible to him/her by a US Dollar cheque drawn in his/her favour or to a US Dollar account in accordance with his/her duly intimated instructions.

Central Bank of Sri Lanka
No.30, Janadhipathi Mawatha,
Colombo 1, Sri Lanka.
Tel. – 94-11-2477277 / 274 / 316
Fax – 94-11- 2477718 / 2477687
Email – pdebt@cbsl.lk
Web site – http://www.cbsl.gov.lk

Source: http://www.cbsl.gov.lk/htm/english/07_af_2pdm/pdm_2.html#2_1