Sri Lankan stocks hit by Distilleries verdict

June 04, 2009 (LBO) - Sri Lankan shares dived on Thursday after courts reversed the privatization of an insurer controlled by a listed firm, saying it was illegal, while the rupee held steady against the greenback. The spot dollar was trading at 114.90/95 levels in late afternoon trade, dealers said.

Distilleries Company of Sri Lanka shares headed south during late afternoon trade as the Supreme Court started reading out a judgment on a 2003 sale of a Sri Lanka Insurance Corporation to the Distilleries group.

The Colombo All Share Price Index closed down 2.

02 percent (44.13 points) to end at 2,139.34 while the Milanka index of liquid stocks dived 3.55 percent (87.73 points) to close at 2,384.59 according to provisional stock exchange data.

Turnover was 581.1 million rupees. Brokers said retail activity was high.

Distilleries fell 17.25 rupees (18.35 percent) to close at 75.50 rupees.

Court ordered the government to repay 6.0 billion rupees originally paid by the private firm to gain control of SLIC.

Court said Milford, a special purpose company incorporated by the Distilleries group to purchase SLIC, could keep the profits earned during the time they ran the insurer.

SLIC was sold in 2003 in what court said was in incomplete transaction to listed Distilleries, which itself was a former state owned company.

Distilleries is a unit of business tycoon Harry Jayawardena's Stassens group, which also has large holdings of Hatton National Bank, DFCC Bank, Commercial Bank and Aitken Spence Holdings.

Following the ruling, investors would be worried about other privatizations done in the past, brokers said.

The verdict had a negative impact on market sentiment, leading to some panic selling by retailers" said Thakshila Hulangamuwa of Asha Phillip Securities.

"Distilleries shares are heavily weighted on the index, so the impact on the index would be greater if prices go down further.

HNB lost rupees to close at 106.00, while DFCC lost 3.00 rupees to close at 114.00. Diversified Atken Spnce lost 1.00 rupees to close at 475.25 on thin volumes traded.

Sri Lanka’s largest private bank, Commercial Bank of Ceylon lost 3.

25 rupees to close at 120.00, while National Development Bank lost 1.

75 rupees to close at 115.25.

Conglomerate John Keells holdings which has business interest in transport, property development, finance and food processings, lost 1.

50 rupees to close at 109.50.

Index heavy Dialog Telekom, a subsidiary of Telekom Malaysia lost 25 cents to close at 5.25 on large volumes traded.

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