The 1st Dollar Fund offer in Sri Lanka
CEY ON BOND FUND INFORMATION MEMORANDUM July 2014
Ceylon Dollar Bond Fund
The Pioneering Dollar Denominated Unit Trust Fund in Sri Lanka Licensed by
Securities and Exchange Commission of Sri Lanka
Trustee and Custodian
Audited by
Fund Manager
281, Union Place, Colombo 02, Sri Lanka. Tel: +94 11 739 4000 Fax: +94 11 739 4007 E-mail: info@ceylonam.com Web: www.ceylonam.com
Ceylon Asset Management is an Associate Company of
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“Sri Lanka to grow at 7.5% in 2014, the fastest growing economy in South Asia...” - ADB - www.adb.org
“Sri Lankan economy stable & set to grow over 7%” - IMF - www.imf.org
“Trade deficit narrows by 47.9% in May 2014” - Central Bank of Sri Lanka - www.cbsl.gov.lk
“France’s Coface lists Sri Lanka among 10 emerging countries hot on the heels of BRICS” www.ft.lk - April 29, 2014
“Fitch affirms Sri Lanka at 'BB-'; Outlook Stable” www.reuters.com - April 28, 2014
“Will place Sri Lanka on the global toursim map” Mr. Greg Dogan, President & CEO, Shangri-La Hotels & Resorts 500 room Shangri-La hotel under construction, scheduled to open in 2016 - 17
“Sri Lanka’s time to shine in Asia” James Packer- Opening Crown Casino & Mixed Development in 2016
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The offer at a glance The Ceylon Dollar Bond Fund is an open-ended fund that offers US
risk whilst avoiding exposure to Sri Lankan rupee currency risk.
Dollar returns by investing in Sri Lankan sovereign bonds, bank and corporate dollar bonds, rated by an international rating agency and
The fund is dollar denominated while capital and income can be
listed on a recognised global stock exchange.
repatriated freely in foreign currency to the investors’ bank account via the Trustee and Custodian Bank.
The fund risk is currently limited to sovereign risk and bank guaranteed
Investment Plan
Invests in “rated”, interest bearing, US Dollar denominated Sri Lankan sovereign bonds, bank bonds and bank deposits.
Nature of Fund
Open-ended unit trust offering units on a daily basis.
Issue of Units
The manager shall have the absolute discretion to accept or decline any application for units.
Original Issue Price of a Unit
US$ 1.00
Minimum Investment
US$ 1,000 /-
Front End Fee
0.1%
Management Fee
0.25% per annum (p.a.) of assets under management.
Trustee & Custodian Fee
0.165% p.a. of assets under management.
Exit Fee
Nil
Taxation
All income distributions and capital gains on units are tax-free to investors.
Eligible Investors
– Companies registered outside Sri Lanka – International fund managers – Companies approved by the Board of Investments of Sri Lanka (BOI) – Individuals with foreign passports
Repatriation
All capital and interest earned can be repatriated overseas without restrictions.
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Sovereign Dollar Bonds issued by Sri Lanka
2007 2009
Sri Lanka’s debut international sovereign bond for US $ 500 million with a five year maturity and a coupon rate of 8.25% per annum was oversubscribed by over three (03) times.
The second international sovereign bond for US $ 500 million with a five year maturity and a coupon of 7.40% per annum was oversubscribed by thirteen (13) times. This was the first international offering following the end of the thirty year old internal conflict.
The net proceeds of both bond issues were utilised by the Government of Sri Lanka to supplement available concessional funds to develop infrastructure projects that have been previously approved by the Government and included in the 2007 and 2009 Budgets, including in areas such as electricity generation, water supply, roads, ports, roads and railways development.
2010
Global investors’ demand exceeded over US$ 6 billion for the Sri Lankan sovereign bond issue of US$ 1 billion, being over-subscribed by more than six (06) times.
Sri Lanka finalised a US $ 1 billion 10 year sovereign bond issue with a coupon rate of 6.25% on 27 September 2010. Orders were received from 362 investors globally.
2011 2012
Sri Lanka successfully launched a US$ 1 billion 10-year global bond offering at a fixed-rate yield of 6.25%, representing its fourth US Dollar benchmark offering in the global bond markets since 2007. Successfully launched and priced a US$ 1 billion 10-year international sovereign bond issue at a yield of 5.875% per annum.
Fitch Ratings, Moody's Investors Service and Standard and Poor’s have rated the issue at 'BB-' with a stable outlook, ‘B1’ with positive outlook and ‘B+' with a stable outlook respectively.
2014
On 06th January 2014, a 5-year US$ 1 billion international sovereign bond was offered at 6% to the international market and was oversubscribed by 3.2 times receiving US$ 3.2 billion from 200 accounts.
On 07th April 2014, Sri Lanka issued another US$ 500 million at the lowest yield of 5.125% per annum among all five-year international sovereign bond issuances to date as a result of the heavy demand worth US$ 4.2 billion.
January 2014 Asia 12%
EU 26%
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USA 62%
April 2014
Source of Global Investor Funds Sovereign Bond Issue
Asia 32% USA 46% EU 22%
Dollar Bonds Issued by Licensed Banks in Sri Lanka The Central Bank of Sri Lanka relaxed guidelines to enable licensed commercial and specialised banks in the country to issue Dollar Bonds to foreign investors. As a result, several commercial banks raised US$ 1.35 billion in international markets during the year 2013.
APRIL 2013
Rated “BB-” by Fitch Ratings Rated “B1” by Moodys
SEPTEMBER 2013 Rated “BB-” by Fitch Ratings State-run National Savings Bank (NSB) issued a dollar bond in September 2013 and successfully raised US$ 750 million at 8.875%.
Sri Lanka's largest lender, sold a US$ 500 million 5-year bond at 5.325% attracting two billion dollars in orders from 140 European and
The issue was oversubscribed by 6.8 times.
Asian based investors. National Savings Bank is the premier Licensed Specialised Bank in Sri Lead managed by UBS, the bank initially went to the market for US$
Lanka owned by the Government of Sri Lanka (GOSL). It is the only
300 million but sold US$ 500 million, after it was oversubscribed by
bank whose deposits are fully guaranteed by the GOSL as expressed
6.8 times.
explicitly in the statute governing the Bank: 'The repayment of the monies deposited in the bank and of the interest thereon and the
Asian investors had taken 74 percent of the bond with rest being sold
payment due on the surrender of a savings certificate shall be
to investors in Europe. It was not marketed to investors based in the
guaranteed by the GOSL.' (NSB Act No.30 of 1971, Section 18:
US. Bank of America Merrill Lynch, Citi and HSBC were the Joint Lead
Guarantee by the GOSL).
Managers and 'book runners' for the issue.
APRIL 2012
Rated “BB-” by Fitch Ratings Rated “B1” by Moodys Bank of Ceylon raised US$ 500 million through a five-year bond, Sri Lanka's first non-sovereign debt offering since 2004 and the latest illustration of the country's financial progress since the end of a protracted civil war. The state-owned commercial bank priced the bond at par to yield 6.875%, a much lower yield than expected, after attracting US$ 3.86 billion in orders from 215 accounts. Initial guidance had suggested a yield of around 7.125%.
OCTOBER 2013
Rated “B-” by Fitch Ratings Development Finance Corporation of Ceylon (DFCC Bank) launched a five year dollar denominated bond in international markets, raising US$ 100 million at a rate of 9.625%. The DFCC Banking Business attempts to create synergies through integrated banking. The bank offers a seamless gamut of financial solutions by integrating the expertise of a pioneer development bank and the energy of a dynamic commercial bank. DFCC Bank, incorporated by an Act of Parliament in 1955 is the country’s first specialised development bank.
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Dollar Bonds Issued by Sri Lankan Airlines
The 5-year government guaranteed international bond by Sri Lankan
SLA is the national airline of Sri Lanka and has a 54% market share of
Airlines (SLA) has been rated ‘B+’, the same as Sri Lanka’s sovereign
travellers to and from the island. Passenger numbers have increased
rating by Standard & Poor’s and ‘BB-(EXP)’ by Fitch Ratings, due to
to 4.3 million in 2013 from 2.6 million in 2010.
the unconditional and irrevocable guarantee provided by the Government. The Sri Lankan Government holds 92% of SLA directly
Rating sensitivities: Negative - Future developments that may lead to
and 7% indirectly through State-owned entities.
negative rating action include a downgrade of Sri Lanka’s sovereign ratings; Positive - Future developments that may lead to positive rating
The bonds constitute direct, unsubordinated, and unsecured
action include an upgrade of Sri Lanka’s sovereign ratings.
obligations of SLA. The proceeds of the issuance are to be used to acquire aircrafts and as working capital. Sri Lankan Airlines has ordered a fleet of new A300 and A350 aircrafts from Airbus.
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Source : www.dailynews.lk/www.ft.lk
The Sri Lanka Economy The Sri Lanka economy grew 7.3% in 2013 due to the high growth rates recorded by the provinces responding to peace. The
Tourist Arrivals ('000)
accelerated infrastructure roll-out in highways, ports, airports, energy and urban development have created the platform for growth. As a result, the Construction, Tourism and Banking sectors have been growing rapidly over the last four years. The trade deficit has narrowed dramatically by 47.9% in May 2014 as a result of reducing imports and fast growing exports to enable the rupee to stabilise. Containing the budget deficit to 5.9% in 2013 and
1400
1,275
1200
1,006
1000
856
800 600 400
654 448
200 0
reduction of inflation to 4.7% in 2013 has resulted in 1-year treasury
2009
2010
2011
2012
2013
bill rates declining from 10.85% in June 2013 to 6.79% in July 2014. Analysts expect low interest rates to boost the economy to achieve
Tourism Revenue (US$ Mn.)
the target GDP growth rates of around 7% per annum over the next 5 years. The opening of Shangri-La and Crown Casino in 2016, together with
2,000
1,800
1,500
Colombo regeneration as a lake and garden city is expected to attract regional tourists. Fuel bunkering at the Hambanthota Port and the
1,000
1,000
830
exploration for off-shore gas and oil are some areas of opportunity currently unaccounted for as Sri Lanka strives to achieve regional hub status for South Asia in ports and tourism.
500 0
576 326
2009
2010
2011
2012
2013
Sri Lanka economic goals for 2016: – US$ 4,000 per capita income (US$ 100 billion GDP by 2016) – GDP Growth above 8% p.a. on average – ICT Literacy rate to increase to 75% from 30% at present – 2.5 Million tourist arrivals & US$ 3 billion revenue
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Economic Overview - Sri Lanka, Asian Development Bank Growth rebounded last year from a slowdown in 2012, and the current account deficit narrowed substantially. As inflation eased, the central bank relaxed its monetary policy. The outlook is for sustained rapid growth leveraging easy private access to credit and the
Food Other Overall
government’s continued drive to expand infrastructure. An improving external environment will lift trade, but the current account deficit will expand on higher imports. Fiscal consolidation will focus on revenue enhancement.
ECONOMIC PERFORMANCE GDP growth by sector GDP growth rebounded to 7.3% in 2013. The recovery reflected
Jan
Jan
Jan
Jan
Jan
Feb
domestic demand strengthening and a pickup in exports and tourism. Faster growth in the wholesale and retail trade, hotels and restaurants,
Source: Department of Census and Statistics Sri Lanka.
transport, banking, insurance, and real estate lifted performance in the large service sector to 6.4% from 4.6% a year earlier, providing the impetus for the rebound. The industry grew by 9.9%, slightly less than a year earlier, as slower growth in mining and quarrying and in construction offset a pickup in manufacturing and utilities. Favourable weather helped maintain agriculture growth at a relatively favourable 4.7%.
Fiscal indicators The 2013 fiscal deficit is estimated at 5.8% of GDP, in line with the target. The target was hit, despite unexpectedly weak revenues, by compressing current expenditure. Capital expenditure was largely maintained but was again slightly below the target of 6% of GDP.
Agriculture Industry Services Gross domestic product
Revenue including grants is estimated at 13.8% of GDP, lower than both the budget and the 2012 performance. The shortfall in revenue partly reflected measures that curbed certain imports such as automobiles, which suppressed value-added tax (VAT) collections and import-related taxes. Grants Nontax revenue Tax revenue Investment & net lending Recurrent expenditure Domestic financing Foreign financing
Budget balance
SLRs trillion
Source: Department of Census and Statistics Sri Lanka.
Inflation Inflation trended downwards in 2013, averaging 6.9% for the year. Food inflation was at about 12% during the first quarter, as drought late
Budget estimate
in 2012 had disrupted domestic food supplies, but then dropped markedly to 0.9% in February 2014. Non-food inflation also moved lower over the year but picked up to 7.1% in January 2014 on with large increases in communications and transport prices that month.
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Source:
Annual Report
Economic Overview – Sri Lanka, Asian Development Bank
Contd.
Government debt
Exchange rates After the sharp depreciation of the Sri Lankan rupee in the early months of 2012, when the exchange rate was allowed to float, the
Foreign Domestic
currency has been broadly stable against the US dollar. Foreign investors’ exit from emerging markets in mid-2013 had only a modest and temporary effect on the exchange rate. The rupee depreciated against the dollar by only 1.9% over 2013. The real effective exchange rate has risen markedly since April 2012, essentially moving back to the rate prevailing prior to the decision to let the currency float.
Sep Monthly average
Source:
The ratio of government debt to GDP fell to 78.4% in September 2013 from 79.1% in 2012. Debt composition is changing with the gradual move towards market and non-concessional instruments, with foreign investment in government securities, and with the rise in income as a middle-income country. J an
J ul
J an
J ul
J an
J ul
D ec
Credit growth and interest rates To address weak growth, which was evident in 2012, the Central
Source: Central Bank of Sri Lanka. http://www.cbsl.lk
Bank of Sri Lanka relaxed its monetary stance for 2013, which was facilitated by a declining trend in inflation during the year. The bank began its relaxation in mid-December 2012 by cutting policy rates by 25 basis points and continued in May and October 2013 with rate
Current account components
reductions of 50 points in each adjustment. Commercial bank lending
Exports and imports both posted positive growth only in the second
interest rates declined markedly during the year from 14.3% in January
half of 2013, following weakness a year earlier. Export earnings
2013 to 9.9% in December. However, credit to the private sector
increased by 6.3% for the year to US$ 10.4 billion, reflecting the
continued to decelerate, with year-on-year growth slowing to 7.5% in
gradual recovery of demand in partner countries, with garment exports
December 2013 from 17.6% at the end of 2012.
increasing by 13.0% and agricultural exports, mostly tea, advancing by 10.7%. Imports, on the other hand, declined by 6.2% during 2013 to US$ 18 billion as a result of the less demand for oil, the policy
Reverse-repurchase rate Repurchase rate Weighted average prime lending rate
Private sector credit growth Government sector credit growth
measures adopted in 2012 to rationalise imports, and the subdued commodity prices in international markets. Most of the fall was due to reduced imports of transport equipment by 32.7% and fuel by 14.7%. The trade deficit fell to 11.4% of GDP, a marked decline of 4.4 percentage points from 2012. The tourism boom continued in 2013 with the number of visitors growing by 27% to reach 1.2 million and earnings expanding by 35% to US$ 1.4 billion. Tourist arrivals from the People’s Republic of China and the Russian Federation increased significantly, but Western Europe continued to be a large source of visitors. Workers’
Jan
Jul
Jan
Jul
Jan
remittances expanded by 13% to $6.8 billion in 2013. The main factors boosting
Source: Central Bank of Sri Lanka. Weekly Economic
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Economic Overview – Sri Lanka, Asian Development Bank
Contd.
ECONOMIC PROSPECTS
Current transfers Services balance Exports Imports Income balance Current account balance
An improving external environment, higher investments, and a recovery in domestic consumption will sustain a rapid pace of GDP growth in
during the next 2 years. The recent relaxation in the
monetary policy will allow more lending to the private sector and provide an impetus for expansion. Sri Lanka’s post-conflict growth has been buoyed by construction, which has increased its share of GDP from 6.6% in 2009 to 8.1% in 2012, and by transport and telecommunications, its share up from 12.8% to 14.3% in the same period. The government’s focus on infrastructure and post conflict reconstruction and development has supported this expansion and will continue to drive growth in the medium term. The expansion in tourism and related construction has been noteworthy and is reflected
Source:
in hotel and restaurant expansion, though modest scale limits the
Annual Report
contribution to growth. As tourist numbers continue to rise rapidly and
remittance inflows were increased labour migration under the profes-
large hotel projects in the pipeline open their doors, economic growth
sional and skilled category, the expansion of formal channels for
and foreign exchange earnings from tourism will continue to be
remitting money, and the introduction of a swift web-based money
buoyant over the next several years.
transfer system. These earnings held the current account deficit to an estimated US$ 1.4 billion, which is an estimated 2.0% of GDP and a
On the demand side, the investment ratio improved from 28% in 2010
marked improvement on the 6.6% deficit seen a year earlier.
to 31% in 2013. This gradual gain reflects the government’s infrastructure drive and the expansion in construction. The monetary policy relaxation will start to take effect on private sector credit around
Gross official reserves
mid-2014 and continue in 2015, facilitating private investment.
Amount
Import cover Months of imports
Moreover, foreign direct investment is expected to continue to expand as the economy strengthens and the investment climate improves. Exports, having recovered since mid-2013, will continue to expand. With these factors pushing up income, private consumption will pick up after slowing down in 2013 and will contribute significantly to higher growth. Growth is thus expected to accelerate to 7.5% in 2014 and maintain that rate in 2015. While high inflation has been a problem in the past,
Jan
Jan
Jan
Jan
Jan
Dec
Source: Central Bank of Sri Lanka. Weekly Economic Indicators. Portfolio investments recorded a net inflow of US$ 269.9 million for the year, of which about half went into the Colombo Stock Exchange in the form of secondary market transactions. Foreigners’ monthly net purchases on the exchange were broadly stable throughout the year. Foreign direct investment increased by 42% to US$ 870.1 millionin the first 9 months of 2013 from the corresponding period in 2012. Financial account net inflows brought the balance of payments surplus to an estimated US$ 700 million. Consequently, Sri Lanka’s gross official reserves increased to US$7.2 billion in December 2013, equal to 4.5 months of imports.
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it has been contained below 10% since 2009. Inflation is expected to remain in the middle single digits in 2014 and 2015. Broadly stable international fuel and food prices will help to keep inflation in check over the next 2 years, assuming normal weather conditions. While high inflation in the past has been attributed to government’s borrowing from banks, among other things, improved fiscal discipline and a falling fiscal deficit have eased such inflationary pressures in recent years. As the pace of economic growth picks up, the central bank will use monetary policy to keep inflation acceptable. In January 2014, the bank compressed the policy rate corridor, now renamed the standing rate corridor, to reduce variability in the transmission of its policy intentions, and then continued with monetary easing. The standing lending facility rate (the upper band) was cut by 50 basis points to 8.0%, narrowing the corridor to 150 basis points from 200. Credit to the private sector, which decelerated throughout 2013, will
Economic Overview – Sri Lanka, Asian Development Bank
Contd.
expand in 2014 by 16%, according to central bank projections.
Exports
However, broad money is expected to grow at a slower pace as credit
performance in the European Union and the US, Sri Lanka’s main
demand from the public sector declines. Average inflation in 2014 is
export destinations. After declining in 2013, imports will pick up in
expected to fall to 5.0% from 6.9% in 2013, and then accelerate
2014 as domestic demand normalizes. However, policy measures
slightly to 6.0% in 2015. The fiscal deficit steadily shrank to 5.8% of
taken to limit food imports to support local production will affect
GDP in 2013 from a peak of 9.9% in 2009. The government has
imports in the medium term. Measures that helped improve remittanc-
deployed both revenue measures and expenditure reduction to
es will continue to bolster such inflows in 2014 and 2015. The current
narrow the deficit. However, the revenue ratio - tax collections as a
account deficit is projected to widen from an estimated 2.0% in 2013
percentage of GDP - has not picked up as expected, so deficit
to 2.6% in 2014 and 3.5% in the following year.
are
expected
to
strengthen
with
better
economic
reduction has been achieved mainly by rationalizing expenditure. The government expects the deficit to narrow further over the medium term. The 2014 budget estimates the deficit at 5.2%, with a higher revenue ratio and expansive 16% growth in expenditure. Better economic performance and more imports will catalyse higher revenue
POLICY CHALLENGE - BOOSTING FISCAL REVENUES Government finance
collection in 2014 and 2015, but continued policy action is also needed, together with improved revenue administration, to achieve a higher revenue ratio. Some measures are being introduced through the 2014 budget to broaden the revenue base, such as expanding
Budget deficit Expenditure Revenue excluding grants
the nation building tax to the financial sector and lowering the VAT threshold for retail and wholesale trade. The nation building tax is an indirect tax that has been levied since 2009 to help finance the rehabilitation of conflict damage; it is passed on in the price of goods or services sold.
Current account indicators Imports Exports
Current account balance
Budget estimate Source:
Annual Report
Sri Lanka has been focusing on fiscal consolidation and has been taking many steps in recent years to improve revenue collection. However, the revenue ratio excluding grants remains low, at 13.6% of GDP in 2013. In fact, it has fallen over the past few years, underperforming its target Forecast Note: Source:
each year. As the government continues its fiscal consolidation, reversing the revenue ratio’s declining trend is critical.
Annual Report
GDP share of tax revenue One risk to achieving the targeted revenue ratio is that the measures
The main cause for the erosion of the revenue ratio has been the VAT,
to expand the revenue base may take effect more slowly than
which accounts for 25% of tax revenue. VAT revenue has declined
anticipated. If revenue collection is lower than anticipated, the capital
from 5.8% of GDP in 2004 to 2.7% of GDP in 2012. The VAT was
budget will be hard pressed to meet its target of 6%-7% of GDP, as
introduced in 2002, replacing the goods and services tax with rates of
expenditure rationalization is already substantial in the 2014 budget
0%, 10%, and 20%. There are many exemptions: food such as rice,
and 2015 projections.
wheat, tea, and domestically produced sugar; machinery, including
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Economic Overview – Sri Lanka, Asian Development Bank
Contd.
strengthening institutions and improving administration can increase
Value-added tax Excise tax Income tax, etc. Taxes on foreign trade Others
tax capacity. With regard to efforts at fiscal consolidation, so far the reduction in the deficit has come about mainly by rationalizing expenditure. However, improving the revenue ratio is key to reining in the fiscal deficit to a sustainable level and ensuring that public investment is not curtailed. As interest payments are a large drain on Sri Lanka’s budget, higher revenue collection will contribute to lowering the borrowing requirement and future borrowing costs to the government. The government recognises the importance of improving the revenue ratio and has set up a tax reform committee. The committee submitted reform recommendations in 2009 that were first introduced through the 2010 budget. The major tax reform in 2011 reduced rates as it sought to broaden the tax base. Many rationalization measures were introduced, including simplifying the economic service charge (a tax
Source: Central Bank of Sri Lanka.
withholding system) and lowering the tax slabs of the personal income tax. In 2013, the government expanded the VAT base by bringing in the retail trade, which had been exempt. The 2014 budget introduced
that for agriculture and construction; and other items such as crude oil, diesel, kerosene, liquefied petroleum gas, electricity, and public transportation. The VAT Act has been amended many times since 2002, mainly to improve collection. However, VAT collection has
further measures to expand coverage and lower the threshold for certain taxes, such as expanding the nation building tax to the financial sector and lowering the VAT threshold for the retail and wholesale trades.
relentlessly declined, affected by exemptions, the unification of the rate at 12% in 2011, and the poor performance of imports since 2009.
The government has brought the Board of Investment under the Inland Revenue Act in an effort to limit exemptions and tax holidays provided
In the context of faster growth reached in the post-conflict years and increased income per capita, the low revenue ratio implies that revenue generation has not kept pace with the rising capacity of the population to pay. Average tax buoyancy—how well revenue mobilization tracks GDP growth—has hovered for the past 5 years at 0.78, which is significantly below unity. This indicates that tax collection has been unresponsive to the pace of economic expansion. A study
to new companies that apply for incentives. Many existing concessions are ending in the near future, which will broaden the tax base. The government expects the reforms introduced in recent years to contribute to a higher revenue ratio in 2014. It is currently being implemented in the Inland Revenue Department the new revenue administration information system to make revenue collection more efficient.
released in 2013 by the International Monetary Fund entitled Understanding Countries’ Tax Effort estimates Sri Lanka’s tax capacity at 21.9% of GDP, one of the lowest in South Asia. This suggests that
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Source: www.adb.org
Moody's: Outlook for Sri Lanka banking system: stable GLOBAL CREDIT RESEARCH Singapore, July 03, 2014
growth is Sri Lanka's high current account deficit and a resulting reliance on external debt capital flows. This structural weakness exposes the economy and currency to shifts in investor sentiment,"
Moody's Investors Service says that the outlook for the Sri Lankan
says Vadlamani.
banking system is stable, as the economy - now recording a GDP growth rate of 7% - remains one of Asia's fastest growing economies.
However, in this context, the Moody's report notes that Sri Lanka's banks and sovereign have been able to access the international debt
"Since the end of the long civil war in 2009, the country has been
markets at relatively attractive yields, compared to past averages, over
rebuilding, and a pipeline of infrastructure projects is expected to
the last year, indicating the high confidence of foreign investors in the
boost economic growth, together with an accommodative monetary
economy.
policy. In such an environment, loan growth will rebound and asset quality will stabilize" says SrikanthVadlamani, a Moody's Vice President
On the issue of pawning loans, the report says that non-performing
and Senior Analyst.
loans (NPLs) - which had risen because of the widespread use of these gold-secured loans - should stabilize after a sharp increase in
"Our stable outlook for the Sri Lankan banking system is also consist-
2013.
ent with our stable outlook on the Sri Lankan government's B1 rating," says Vadlamani.
"We note that lending standards have tightened and, given that these loans have a tenure of only around 12 months, we expect NPLs in this
Vadlamani was speaking on the release of Moody's "Banking System
segment to start stabilising from around the third quarter of 2014,"
Outlook Sri Lanka", which is Moody's first banking system outlook for
says Vadlamani.
Sri Lanka. Moody's rates two of the 10 largest banks in Sri Lanka by assets. The The report - whose outlook expresses Moody's expectation of how
two - Bank of Ceylon and Hatton National Bank - accounted for about
bank creditworthiness will evolve in this system over the next 12-18
30% of system assets in March 2014. The 10 largest banks together
months - looks at Sri Lanka's banking system in terms of five factors:
represent 87% of banking system assets.
operating environment (which is classified as "stable"), asset quality and capital ("stable"), funding and liquidity ("stable"), profitability and
The rated banks' baseline credit assessments (BCA) are in the b1-b2
efficiency ("stable") and systemic support ("stable").
range, corresponding to a bank financial strength rating (BFSR) of E+.
"Our analysis estimates 14% loan growth this year and we do not view
Source: www.moodys.com
this as excessive. Instead, the key risk to the outlook for economic
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Manager of the Fund CEYLON ASSET MANAGEMENT – BOARDOF DIRECTORS Piyadasa Kudabalage - (Chairman)
Sivendran Vettivetpillai
BCom, FCA, FCMA, FCPM. Managing Director of
CFA, USA. Bachelor of Engineering, (Hons) from
Sri Lanka Insurance Corporation Ltd., Managing
Imperial College, London. Partner, Abraaj Group,
Director/Chief Executive Officer of Litro Gas
UK (a Global Private Equity Company). Member
Lanka Limited and Executive Director of Peoples
of Executive and Investment Committees and
Bank. He has over 30 years of experience and
Chairman of the Partners Council. Has over 20
has held several senior positions with reputed
years of Private Equity investing experience.
companies.
Former CEO of Aureos Advisers Ltd.
Dulindra Fernando - (Managing Director)
Ravi Fernando
CFA, USA. A member of the Institute of Chartered
MBA, University of Colombo. Fellow of the
Accountants in Australia (CA). Bachelor of
Chartered Institute of Marketing, UK. Post
Economics, Monash University, Australia. Former
Graduate Certificate in Sustainable Business and
CEO of MAS Investments. The Founder of Ceylon
Masters
Asset Management.
Cambridge University. Strategic
in
Sustainability Corporate
leadership
from
Guest Lecturer on Sustainability
at
INSEAD-AMP, France and University of Deusto, Spain.
Michael Preiss
Roshan Egodage
Chartered Wealth Manager. A Graduate of the
CEO of Commercial Credit PLC. BSc. Eng.
European Business School with a major in
(Hons) degree from University of Peradeniya,
Finance and International Economics. A guest
MBA from University of Colombo. FCMA,
commentator on International Business TV and
Dip.M(UK), ACIM and ASCMA.
newspaper
columns.
Emerging
market
investment advisor in international banks in Dubai, Hong Kong, Singapore and London.
INVESTMENT COMMITTEE Dhanuka Liyanagamage, CFA Assistant General Manager, Investments - Sri Lanka Insurance Corporation Ltd.
Dulindra Fernando, CFA Managing Director - Ceylon Asset Management
Michael Preiss, CWA Economic Advisor - Ceylon Asset Management
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General information of the fund Investment Rationale
Taxation
The fund aims to provide US Dollar returns by investing in Sri Lankan
All capital gains and income distributions earned by unit holders are
sovereign bonds, bank and corporate dollar bonds, rated and listed
exempt from tax in Sri Lanka. The fund will pay a tax rate of 10% on
on recognised global stock exchanges. The fund risk is limited to
net income earned by the fund. Information is based on the latest
sovereign risk and bank guaranteed risk whilst avoiding exposure to
amendments to the Inland Revenue Act at the time of printing this
Sri Lankan rupee currency risk.
document. Investors who are in doubt as to their tax position should consult their tax advisors on the implications of investing and
Following the array of recent high yielding Sri Lankan Dollar Bond
disposing of units.
issues, foreign investors can now gain diversified exposure to Sri Lanka issued dollar debt securities via the Ceylon Dollar Bond Fund.
Foreign investors are also exempt from income or with holding tax on returns earned from the fund.
The Dollar fund launch follows the success of the “AAA” rated Ceylon Gilt Edged Fund and the “A-” rated (by Fitch Ratings) Ceylon Income
Eligible Investors and Repatriation
Fund managed by Ceylon Asset Management.
This Fund will be only eligible for the following investors in foreign currencies:
The Ceylon Gilt Edged Fund, rated “AAA” was the best performing Gilt
a) Foreign citizens
Edged Fund in Sri Lanka in 2013. Ceylon Income Fund is the first
b) Sri Lankan diaspora with foreign citizenship
corporate debt fund to be rated in Sri Lanka. It received an “A-” rating
c) Companies registered outside Sri Lanka
from Fitch Ratings upon the strength of underlying ratings of individual
d) Foreign fund managers
debt issues, security backing and duration matching techniques
e) BOI companies
employed. The fund was the best performing fixed income fund in Sri Lanka during 2010, 2011 and 2013 Q1.
Foreign investors are free to repatriate dollar capital and profits without restriction.
Risk Factors Being invested in listed bonds, the fund is exposed to the financial and
Investment Restrictions
rated credit risks of the individual issuers and trading price volatility of
The manager will make investments within the parameters set out by
the bonds on the listed exchange.
the Securities and Exchange Commission of Sri Lanka (SEC), directives and guidelines issued by the SEC from time to time as well
Nevertheless, the fund invests only in dollar denominated bonds
as the unit trust deed of the fund. Unless permitted by the SEC, the
issued by Sri Lanka that are rated by an international rating agency.
manager will not make the following investments:
This risk is diversified with a maximum exposure limit of 25% for each
A. Any investment for the purpose of gaining management control of a
individual issuer. Liquidity is provided by bonds traded and respective
company.
market makers on the US Dollar denominated Singapore Stock
B. Any investment in equity shares.
Exchange and other recognised Stock Exchanges.
C. Any investment that involves the trust in unlimited liability. D. Leverage by borrowing against securities or buying on margin.
Income Distribution Policy
E. Make loans or act as a guarantor or indemnify any person.
Distributable income will be derived principally from interest earned
F. Underwrite securities
and realised capital gains. Net income will be distributed at the
G. Investment in commodities
discretion of the manager, after satisfying operating expenses of the
H. Investment in real estate.
fund. All such income distributions are tax exempt in Sri Lanka. Investors have the option to re-invest their distribution in units of the
Please refer to the trust deed for more information on investment
funds. Investors selling units before distributions can realise interest
restrictions.
earned in the form of capital gains.
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16
General Information of the fund
Contd.
The following fees will be charged at cost from the Fund:
– Management fees • 0.25% p.a. on assets under management – Trustee and Custodian fees • 0.165% p.a. on assets under management – Front-end fee • 0.1%
Details of Other Administrative and Professional Expenses Payable by the Fund *Any cost including legal fees incurred in preparation and modifying the unit trust deed. *All professional fees including audit, tax and rating agency fees. *Any taxes, stamp duties, brokerages, commissions (not including commission to agents), bank charges and other duties payable on the trust deed in connection with or arising from the establishment, execution, management or termination of the trust. *Cost of printing and distributing dividend warrants, and accounts and reports of the trust. *Any cost incurred in respect of meetings of unit holders. *Costs incurred in preparing and publishing communications to unit holders. *All other charges or fees expressly authorised by the trust deed or by law, any or all of which may be discharged out of the deposited property of the trust.
Rights of Unit Holders * To redeem units registered in their names. * To receive annual accounts, as at 31st December and the report of auditors. * To receive half yearly reports on the accounts and performance of the fund. * To participate and vote at a meeting of the unit holders. * To transfer units on the payment of a US$ 10/- fixed fee. For further information and clarifications of provisions appearing in the Information Memorandum, investors may inspect the Trust Deed of the unit trust and the Memorandum & Articles of Association of Ceylon Asset Management Company Limited free of charge at the business office.
Reports and Accounts Annual accounts will be prepared up to 31st December and will be distributed amongst the unit holders within three months of the end of the said date. Investors will be provided with half yearly reports on the accounts and the performance of the fund within three months of the period covered. An interim report for the first half-yearly accounting period shall not be prepared; in the case such period is less than six months.
Suspension of Dealings The manager may, with the approval of the trustee and the Securities and Exchange Commission of Sri Lanka, suspend the dealings during: *Any period when the dealings of the Singapore Stock Exchange is restricted or suspended. *The existence of any state of affairs during any period, which, in the opinion of the manager, would be detrimental to the interests of the unit holders. *Any period during which there is a breakdown of communication in determining the prices of their investments. *Such suspension shall take effect immediately upon declaration thereof by the manager subject to the provisions of the trust deed, and shall terminate, once the manager is satisfied that the conditions giving rise to such suspension shall have ceased to exist.
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17
Investment and Redemption The fund, managed by Ceylon Asset Management Company Limited (CAM) is regulated by the Securities and Exchange Commission of Sri Lanka (SEC) Act No. 36 of 1987 and amended by Act No. 26 of 1991 and Act No. 18 of 2003. The trustee and custodian of the investment fund is Deutsche Bank AG, Colombo Branch.
Minimum Investment
Valuation of Units
Applications for units could be for any amount subject to a minimum
The price at which investors may subscribe for or redeem units is
value of US$ 1,000/-. The investment will be divided by the manager's
calculated on each dealing day. In calculating a unit price, the Net
selling price to determine the number of units allotted.
Asset Value (NAV) of the fund is ascertained daily (after adjusting for charges) and divided by the number of units in issue.
Payment You may apply for units and make payment by telegraphic transfer,
Redemption of Units
cheque or bank draft crossed “A/C Payee Only” made payable to:
Units can be redeemed with a written request to Ceylon Asset Management at the manager’s buying price published on each
“Ceylon Dollar Bond Fund” and deposit in:
dealing day. Where a unit holder wishes to redeem units which
A/C No: 2523710 - 08 - 1 Deutsche Bank, Singapore Branch
constitutes an aggregate of three percent (3%) or more of the units of
SWIFT Code: DEUTSGSG
that fund, such holder shall give the manager at least fourteen (14) days written notice in advance. Payment of redemption proceeds in
“Ceylon Dollar Bond Fund” and deposit in:
foreign currency will be made by telegraphic transfer by Deutsche
A/C No: 042242007 Deutsche Bank, Colombo Branch
Bank AG, within 14 business days from the date of receipt of
SWIFT Code: DEUTLKLXXXX
instructions for redemption.
Ceylon Asset Management Company Limited does not accept cash.
Please read the application form at the back of this Information Memorandum for further details.
Allotments Allotment of units will be made after the monies being realised by Deutsche Bank or the application received at the office of Ceylon Asset Management Company Limited, whichever is later. Dealing is carried out daily. Where this falls on a holiday, the next market day is considered to be the dealing day.
DISCLAIMER & DISCLOSURE Please note that prices, valuations and rates as indicated in this document are valid as at July 16, 2014 and are subject to change on a daily basis. Investors are advised to refer the newspapers, contact Ceylon Asset Management or log on to www.ceylonam.com for up-to-date values. The unit trust is regulated by the SECURITIES AND EXCHANGE COMMISSION OF SRI LANKA Act No. 36 of 1987 and amended by Act No. 26 of 1991 and Act No. 18 of 2003
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Key Information FUND MANAGER & FUND REGISTRAR
TRUSTEE & CUSTODIAN
Ceylon Asset Management Company Ltd.
Deutsche Bank AG
281, Union Place,
Trust & Securities Services
Colombo 2,
Colombo Branch
Sri Lanka.
86, Galle Road,
Company Registration No: P B 995
Colombo 3,
A venture between Sri Lanka Insurance Corporation Ltd.
Sri Lanka.
(22.5%), Ceylon Capital Trust (Pvt) Ltd. (67.5%) and Commercial
Deutsche Bank, Sri Lankan branch is a fully owned branch office
Credit PLC (10%).
of Deutsche Bank, Frankfurt.
AUDITORS
LAWYERS
Ernst & Young
Nithya Partners
201, De Saram Road,
Attorneys at Law
Colombo 10,
97A, Galle Road,
Sri Lanka.
Colombo 3, Sri Lanka.
This document does not constitute an offer or solicitation to anyone in
The board of directors of the managing company hereby declare that
any jurisdiction in which such offer or solicitation is not authorised or to
it will carry out the transactions with the trustee at arm’s length basis
any person to whom it is unlawful to make such offer or solicitation and
and on terms which are best available for the fund, as well as act, at
may be used only in connection with this offering of units to which it
all times, in the best interests of the fund's unit holders and also that
relates by distributors as contemplated herein.
the requirements of the guidelines have been compiled with.
“The board of directors of the trustee hereby declare that it will carry
“This Information Memorandum has been seen and approved by the
out the transactions with the managing company at arm’s length basis
directors of the managing company and they collectively and individu-
and on terms which are best available for the fund, as well as act, at
ally accept full responsibility for the accuracy of the information given
all times, in the best interests of the fund’s unit holders and also that
and confirm that, after making all reasonable inquiries to the best of
the requirements of the guidelines have been compiled with. The
their knowledge and belief, there are no other facts, the omission of
trustee further certify that it has read and agrees with the
which, would make any statements herein misleading.”
representations contained herein.”
Authorised Signatory Authorised Signatory On behalf of the board of directors of the trustee
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On behalf of the board of directors of the managing company
Investor Application Form
Ceylon Asset Management Co. Ltd. 281, Union Place, Colombo 2, Sri Lanka. +94 (11) 739 4000 / +94 (71) 703 0000 www.ceylonam.com, cdbf@ceylonam.com
Office use only Type of Account
Corporate
Joint Account
Sole Account
Agent Code: Account No:
First Applicant
Please fill in BLOCK letters
Title
Company
Mr
Mrs
Joint Applicant Ms
Dr
Mr
Mrs
Ms
Dr
Full Name of the Investor
Date of Incorporation / Date of Birth
D
D
M
M
Y
Y
Y
Y
D
D
M
M
Y
Y
Y
Y
Company Registration No / Passport No Nationality Permanent Address*
Country Postal / Zip Code Correspondence Address (If different to above)
Country Postal / Zip Code *Status of above Permanent Address
Office
Owner
Lease / Rent
Other
Contact Details
Office
Owner
Lease / Rent
Other
E - Mail Address**
E - Mail Address**
Office/Home Tel No.
Office/Home Tel No.
Mobile No.
Mobile No.
**A monthly account statement will be sent to the email address Investment Details Investment Amount
/
Currency
Fund Transfer
Cheque deposit
Agents are not authorised to accept Cash
Cheque No Amount in words
Bank & Branch
Investor Information Required - KYC First Applicant
Joint Applicant
Source of funds Corporates
Corporates
Sales / Business Turnover
Profit/Capital
Sales / Business Turnover
Individuals
Profit/Capital
Individuals Savings
Salary / Professional Income
Salary / Professional Income
Other (please specify)
Savings
Other (please specify)
Occupation
Occupation
Bank Account Details of Source of Funds Bank Name & Branch Adrees
A/c No
Account Type
Applicable for joint applicant Relationship to the First Applicant Spouse
Marital Status
Single
Married
Marital Status
Spouse Name
Spouse Name
Occupation
Occupation
Family
Other
Single
Married
Declaration I/We hereby declare that the details furnished above are true and correct to the best of my/our knowledge and belief and I/we undertake to inform you of any changes therein, immediately. In case any of the above information is found to be false or untrue or misleading or misrepresenting, I am/we are aware that I/we may be held liable for it.
Signature
D
D
M
M
Y
Y
Y
Y
Signature
D
D
M
M
Y
Y
Y
Y
Instructions 1. Investment Process
2. Redemption Process
A)
A) Redemption request should be made by the investor via e-mail, with a copy of a scanned signed letter to cdbf@ceylonam.com or posting the originals.
B)
Applications are available at www.ceylonam.com or Ceylon Asset Management Co. Ltd., 281, Union Place, Colombo 02, Sri Lanka. Please submit the following documents along with the application form: Corporate Investors
B) Corporates must sign under the seal as provided in the Letter of Authorisation
-
Copy of Certificate of Incorporation
-
Copy of Board Resolution as per the Articles of Association
C) In case of a ioint account, both first & joint applicant should sign D) the redemption request.
-
A letter of Authorisation with specimen signatures and company seal to operate the investment
D) Units will be redeemed based on buying price of the day the redemption request is received.
-
Passport copies of Authorised Signatories
E)
Funds will be remitted to the source bank account of the orginal investment
F)
For querries, please contact us on cdbf@ceylonam.com or 0094 11 739 4000
Individual Investors
C)
-
Copy of the Passport
-
Billing proof of Address
Transfer funds to : Account Name :
Ceylon Dollar Bond Fund
Bank
Account Number
Deutsche Bank, Singapore
2523710-08-1
DEUTSGSG
Deutsche Bank, Sri Lanka
042-242-007
DEUTLKL
SWIFT Code
281, Union Place, Colombo 02, Sri Lanka. Tel: +94 11 739 4000 Fax: +94 11 739 4007 E-mail: info@ceylonam.com Web: www.ceylonam.com
The 1st Dollar Fund offer in Sri Lanka
CEY ON BOND FUND INFORMATION MEMORANDUM July 2014