In this interview, Tushan Wickramasinghe, Chairman/ CEO of Capital Trust Holdings (CTH), reflects on the remarkable journey from a stockbroking firm to a diversified conglomerate. He delves into the pivotal moments, strategic diversification and visionary leadership that have propelled CTH to new heights.
Can you give us an overview of Capital Trust Holdings’ journey over the last few years and reasons for diversification?
Capital Trust Holdings has undergone significant transformation since its inception as a stockbroking firm. Despite several challenges – economic and political, CTH has evolved into a diversified conglomerate with 25 subsidiaries. The first diversification into Wealth Management, Margin Trading, and Corporate Finance, with a focus on foreign assignments, marked a strategic shift.
Venturing into property investments and brokerage, Minoli Wickramasinghe founded the Capital Trust Properties group, collaborating with global real estate leaders such as Knight Frank, CBRE Group, Colliers International and Sotheby’s, along with prominent local developers. The Capital Trust Residencies Group has successfully developed three award-winning apartment complexes built to international standards. This group has also strategically invested in substantial land holdings at key locations.
Currently, CTH’s real estate portfolio includes 35 short-stay apartments and over 100,000 square feet of office space, providing a stable income stream. Additionally, the diversified portfolio extended to other successful ventures, with Shakthi Institute leading in English medium support education for the past 27 years and ALFT Packaging emerging as a leader in the flexible packaging industry.
Capital Trust Securities (CTS) was ranked number one in Transaction Turnover, Brokerage Turnover and Transactions for 2021, 2022, FY2021/22 & FY 2022/23. What other notable achievements would you like to share?
CTS has a client base exceeding 65,000. The turnover achieved in FY 2021/22 stands as an unprecedented record in the history of the Colombo Stock Exchange (CSE) for any broking firm. This achievement reflects our dedicated efforts, yielding benefits for both investors and stockbrokers during that period.
Over the past two decades, the collective contributions of CTS’s current and former shareholders and staff have been instrumental in undoubtedly executing the most number of strategic transactions on the CSE. This track record underscores the firm’s commitment to excellence and proficiency in navigating the intricacies of the market with integrity.
What are the primary challenges impacting the Stock Market, and how is Capital Trust Holdings preparing to address them?
The primary challenge affecting the performance of the Colombo Stock Market in recent months is the significant lack of liquidity. Unusually high interest rates persisted throughout the past one and a half years, prompting a shift of funds from the stock market to treasury bills and fixed deposits. Despite a reduction in policy rates by the Central Bank, financial institutions have been slow in adjusting interest rates. Compounding the issue, institutions are not readily re-lending even to those who have fulfilled all loan instalments. This is reflected in a Rs221 billion decline in credit granted to the private sector in the first 10 months of 2023.
However, we anticipate a positive shift shortly. A decline in interest rates is evident in the 3-month Treasury bill rate, which has fallen to 14.5%. Therefore, for investors with a taxable income exceeding Rs3.7 million per year, subject to a 36% income tax, the effective yield, net of taxes, is now less than 9.5%. Fixed deposit returns have also seen a decline. Bond traders are finding diminishing opportunities in bonds. This sets the stage for a conducive investment environment in stocks, where capital gains remain tax-free.
The reduction in the Average Weighted Prime Lending Rate (AWPR) and financial institutions once again actively promoting margin trading facilities are expected to stimulate stock market turnover and improve overall performance. At CTH, we are strategically positioned to capitalize on any positive turnaround in the stock market. Our substantial investments in technology and a skilled team underscore our commitment to delivering exceptional service to our clients.
Considering your group’s experience in a diverse portfolio, what specific growth opportunities does Capital Trust Research anticipate?
After doing 32 webinars and many Research Reports on Companies in the 2021/22 period, Capital Trust Research has been deliberately silent in the recent past due to many unpredictable variables such as taxes, lending rates, geopolitics and many other factors.
With the group’s diverse array of services, we can offer clients a one-stop solution for their investment needs by diversifying across asset classes. With a considerable amount of fixed deposits and Treasury bill investments invested for periods less than 12 months, we expect stock market turnover levels to rise. This is because in fixed deposits the real return after tax is less than 5%,
We also expect investment apartments to increase as the replacement cost is far above the present selling prices. We expect the Golden Visa programme to get approved and expect investments from the diaspora into stocks and apartments.
What are your projections for 2024 and beyond?
With the implementation of the IMF programme, the country has initiated a series of long-overdue structural reforms. The government has undertaken various revenue-generating and efficiency-improving initiatives, including the privatization of state-owned entities to achieve strategic targets. Adherence to the IMF programme facilitated global funding from the IMF, World Bank and ADB, with approximately USD 780 million approved in December 2023 alone. Importantly, this has established a framework for effective governance and anti-corruption measures.
Sri Lanka’s economic recovery is evident, with GDP growth transitioning from negative in 2023 to a projected positive 1.8% in 2024. Notably, inflation has declined sharply from 69.8% in September 2022 to 4.0% in December 2023. In support of economic recovery, the Central Bank’s monetary easing policy implemented total rate cuts of 650 bps in 2023.
The 12-month treasury bill rate has dropped from its peak of 30.50% in September 2022 to the current level of 13%. Similarly, fixed deposit rates, including the Average Weighted Prime Lending Rate (AWPR), have fallen substantially, offering both listed and unlisted companies the prospect of lowered borrowing costs, contributing to improved corporate margins and profitability.