Financial Times

Lifeline for 3 Coins beer
By Feizal Samath
Three Coins may be snowed under an avalanche of debt but the country's biggest niche market beer brewer is fighting back and confident of coming out of it and on the path to recovery.

The company, with brands like 3 Coins beer, Irish Dark and Riva, owes Rs. 235 million to DFCC. The Sri Lankan firm has however been thrown a lifeline by Seylan Bank and Ceylinco Consolidated Chairman Lalith Kotelawala in working capital requirements and says it can recover from the present crisis.

"We are confident of a recovery. In fact, a leading value-added global beer brand will be introduced to our portfolio before the year ends," company chairman Chandana Ukwatte said.

He said most bankers insist that Sri Lanka is not ready for high quality beer. "But we disagree and we will allow neither the irrationality of government policy nor the short-termism of lenders to pervert our mission of maintaining Three Coins as the purveyor of finest beer in this country," he said in an interview.

Several months ago, DFCC sought to auction properties pledged by the company, including those owned by individual directors, under parate laws after the Three Coins Co. was unable to settle its mounting debt. DFCC won the first battle in courts giving it the right to auction the properties and recover the money but Three Coins succeeded in obtaining a stay order from the Supreme Court on an issue pertaining to third party mortgages that are not covered by parate rights. The case is continuing.

In the meantime, Ceylinco chief Kotelawala stepped in and decided to help the company with working capital, providing it a breather and time to clear the debt. Providing working capital, a special debt-restructuring unit at Seylan Bank is looking at ways of rehabilitating the company. "It is unfair to throw the book at Sri Lankan industrialists when they default on loans. The majority of Sri Lankan businessmen who borrow money for business purposes are honest and have no intention of cheating. They have lost out because of risks which is inherent in business,'' Kotelawala said.

Seylan also similarly bailed out two other Sri Lankan groups that desperately needed cash - the Tristar group and Micro Car Ltd. Ukwatte said the Ceylinco chairman was taking a personal interest in this matter. "He (Kotelawala) is appreciative of the novelty and the idealism of what we are trying to do and the sense of mission displayed by the Three Coins Company, and is discussing ways of resolving this issue in order to help prolong, improve and perfect the mission," the Three Coins chairman said.

One of the problems is that it takes a long time to build volumes in a niche market product and thus revenues take longer than usual to come in. Industry analysts said that another reason for the company's financial woes was its investment in a canning plant in 1998/99 to take advantage of low excise duties. Subsequently duties went up.

Ukwatte also agreed that drastic duty changes affected forecasts and expectations but believes potential for canned beer still remains largely untapped.

Sales haven't been affected with the company selling all the beer it produces. However Ukwatte said growth has been hurt by under-financing of the project with the company unable to exploit the full potential of the market.

"The contribution from the premium segment of our product portfolio has grown from 20% to 70% over the past four years, reflecting the strategic shift taking place.

However, we have not been able to finance the connected growth because the transition from a low margin, high volume player to a niche marketer was and is under financed."

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