ACUITY SECURITIES: UNLOCKING VALUE IN GOVERNMENT SECURITIES

Shehan Stembo, Chief Executive of Acuity Securities, shares insights into the government securities market amidst the unfolding economic crisis and what it takes to build an agile, energized and dedicated team that drives value creation and unlocks growth opportunities for clients, investors and the company.

Stembo begins by explaining how the unfolding economic crisis is impacting the government securities market and Acuity Securities’ response to the challenges:

The far-reaching impact of the ongoing economic crisis affects all sectors of the economy, with two key variables significantly impacting the debt market: liquidity and interest rates. Negative market liquidity has hindered demand for government securities, leading to historically high market interest rates. This uncertain and volatile environment has made identifying trading opportunities challenging, prompting a cautious approach to taking trading positions and mitigating potential negative impacts on the company’s bottom line.

In response to these challenges, we have shifted our focus to clients, offering them the opportunity to invest their money at these high yields. Also, by diversifying our client base, we can generate better returns on investments while managing risk, allowing the company to maintain desired spreads and improve profitability.

To further support our day-to-day operations, we have arrangements with Acuity Securities’ two parent banks, which have always been supportive, to provide additional funding. Through these efforts, Acuity Securities has been able to weather the economic storm and emerge with a stronger position in the market.

What is your outlook for the economy and the government securities market once the IMF programme and debt restructuring process begins? And what are your plans for growth?

Engaging with the International Monetary Fund (IMF) programme is crucial at this critical juncture to bolster investor confidence and promote economic stability. Securing an IMF facility would enable us to obtain bridging finance from markets and other lending institutions such as the Asian Development Bank (ADB) and the World Bank. Signing a board-level agreement in the first quarter of the year would significantly enhance growth prospects for the remainder of 2023. Locking in an IMF programme would attract greater foreign investments to the country and foster economic stability sooner.

However, a debt restructuring process, which is a new consideration, could potentially shock the financial markets, especially given banks’ significant exposure to domestic debt. Such an event could undermine the financial sector’s stability, which is not something we can afford at the moment. Nonetheless, securing an IMF agreement would help adjust the risk premium already factored into current market interest rates, leading to a reduction in interest rates.

If Sri Lanka fails to meet all of the IMF’s conditions, it could adversely affect our ability to secure the deal. It remains to be seen how Sri Lanka will handle its gross financing requirement without restructuring its domestic debts.

Regardless of whether or not there is a debt restructuring, market interest rates are expected to decline, creating a favourable environment for growth. Acuity Securities has increased its capital base to comply with Central Bank requirements, providing more leverage capacity for its portfolio. The company’s robust asset book with high-yielding long-term assets will help maintain spreads as interest rates fall. Acuity Securities is confident that it can sustain its current pace for the remainder of the year and capitalize on the downward trend of interest rates to generate more capital gains.

Can you tell us about your people strategy? How do you engage with employees, give them purpose and help them grow?

Acuity Securities understands that its human capital is the key driving force behind its success. Over the years, the company has assembled a dynamic team well-equipped to tackle any challenge. Employee retention is critical, particularly during an economic crisis when many young people seek migration, making it difficult to find suitable replacements. To maintain our talent pool, our strategy is to empower employees with the necessary authority to work independently, fostering a culture that encourages new ideas and innovation. Transparency is highly valued, and we regularly acknowledge and reward our employees.

We also recognize the importance of continuous learning and development in preparing our employees to become future leaders who can drive the company forward. Acuity Securities is committed to investing in the development of our employees, providing them with growth opportunities and training so that they continue to be the driving force behind our success and growth.

What new initiatives have you adopted in the face of the unfolding economic challenges?

Acuity Securities has been cautious in taking long positions due to market uncertainties and has instead focused on improving its Net Interest Income. However, the company has identified sectors with excess funds that could trade in government security markets and has expanded its branch network to reach out to its outstation clients. Acuity Securities also initiated an incentive scheme for other sub-business units within the group to expand its client base and increase its market share. To further enhance awareness of the treasuries market and its products, the company engages in continuous dialogue with industry thought leaders and facilitates discussions with domain-level experts and other industry practitioners. We believe we can overcome any challenge with sophisticated IT infrastructure and revolutionary security protocols that enable safe, secure, and convenient investments for all our clients. Therefore, the company is working closely with IT vendors towards this transformation, deploying cutting-edge technology to facilitate our next growth phase.