Financial Times

Harry J to divest stake in Sri Lanka Insurance
By Duruthu Edirimuni
The Distilleries Company of Sri Lanka (DCSL), which has a controlling stake in Sri Lanka Insurance Corporation (SLIC), is planning to divest 40 percent of its shares by the end of this year, in a bid to broad base its shareholders.

A top official in the company said this is in line with the business model their sister companies have. "In all our quoted companies, the holding company has the majority stake and the rest has been given to the public," he said.

He said when SLIC was privatised two years ago, the company announced its intentions of divesting in two years. "We had to streamline some processes in the company and now we are ready to divest," he added.

While hinting at a placement (issuing shares to selected parties) he said that an IPO is also a strong possibility, but did not divulge any plans. Meanwhile, market analysts who eagerly await an IPO of SLIC said it will increase the liquidity of the stock market.

"We need more issues like SLIC to capture more investors," an analyst said, adding that a placement in shares will be very unwelcome in the market. "We were expecting the SLIC issue for a long time and it has been too long," he said.

Namal Kamalgoda, Chief Investment Officer, Eagle NDB Fund Management Company Ltd., said an SLIC issue will boost market capitalisation, while bringing in large institutional and foreign investor focus into the market.

"SLIC is the largest insurance firm in the country and it needs to have transparency and accountability, because of the substantial amount of public funds they hold," he said, adding that a listing will enable the public to know what is happening in the company.

Aritha de Silva, Head of Research, Asha Phillip Securities Ltd., said an IPO will bring in a large quantity of 'new' retail investors. "They usually come into the market when there is a new issue and will stay on," he said.

However, some analysts said that an IPO or a placement will bring in fresh capital for DCSL (the holding company), which will enable them to go for a large acquisition. "They may be 'eyeing' the Colombo Hilton," an analyst said.

He said the divestiture will see a big jump in the earnings of DCSL in the first year, due to the huge capital gain, but the consolidated earnings per share (EPS) will drop after the first year.

"When DCSL profits are consolidated the minority interest of 40 percent in SLIC will be deducted and on a 'going concern' basis their EPS will see a considerable fall," he added.

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