People’s Merchant Bank props Bourse

Heavy retail interest both on speculation and fundamentals following LOLC and foreign fund entry doubles PMB share price to new highs

People’s Merchant Bank (PMB) continues to prop the Colombo stock market as investors, especially retailers, chase after it based on both fundamentals and speculation following the entry of Lanka Orix Leasing Group and several foreign funds including Raj Rajaratnam’s Galleon.

Yesterday PMB’s share price shot up Rs. 18.25 or 28% to close at Rs. 84.25 with 1.5 million shares changing hands. On Friday following strategic purchases on PMB, its share price shot up by Rs. 12.50 to close at Rs. 39.50 after touching a new high of Rs. 40.50. Within two market days, the PMB share price has doubled.

The frenzy follows late last week purchasing a near 8% stake thereby increasing its holding in PMB to 20%. Lankan born US hedge fund manager Raj Rajaratnam’s Galleon International master Fund picked up 11% stake as well as Lionhart Investments a 10% stake. The seller of these stakes was DPMC Financial Services. On Thursday when the deals took place, PMB share moved up from Rs. 26 to Rs. 32.50 with nearly 8 million shares changing hands. Total turnover of PMB trades last week amounted to Rs. 357 million.

That momentum has continued up to yesterday as well. Yesterday the share price peaked to a high of Rs. 93.50 but softened to Rs. 84.25 at closing time.

Analysts said that Galleon and Lionhart investments are independent of LOLC strategic acquisition but investors, especially retailers, have begun to see a significant upside in PMB’s earnings potential following the flurry of strategic buying.

“LOLC which has fast grown to be a financial conglomerate will certainly enhance PMB,” they said.

LOLC has as its Group CEO Kapila Jayawardena, former Country CEO of Citibank Sri Lanka and who is also one of the top investment bankers. Following the associate status of PMB, LOLC will get a Board seat on PMB and Kapila is certain to give a big boost.

The strategic stake in PMB will also further expand LOLC Group’s stronghold in financial services.

Some analysts said that retail chase on PMB is over speculation that People’s Merchant Bank which is the single largest shareholder may sell out.

However sources close to LOLC said that it was unlikely that pioneering leasing company and now a financial conglomerate would ups its stake further in PMB at the moment.

Meanwhile LOLC also bought a 29% stake in Touchwood Investments last week. Whilst LOLC is seeing Touchwood as a company that markets an investment product, the acquisition is also connected to better management of its lending into Touchwood.

Following the acquisition, Touchwood too has been sought after by investors. Yesterday it closed at Rs. 113, up by Rs. 6.50. On Friday too it closed the week with a Rs. 6.50 increase.

Touchwood profits in 2006/7 had dipped to Rs. 52 million, from an exceptionally high Rs. 613 million in the previous year.