13th September 1998
By Mel Gunasekera
As the rouble turned to rubble the tea trade suffered further shocks when last week's meeting with Treasury officials ended negatively. As talks were postponed for tomorrow, the only ray of hope was the possibility of a debt recovery fund.
The emergency meeting was called when exporters were refused credit from banks and guarantees from Central Bank to extend credit facilities as fall of the rouble hit the industry.
Treasury officials are wary of supporting the troubled tea industry as "they don't want the Sri Lankan banking system to get into a crisis."
The Treasury is going to make a request to the banking sector to extend credit facilities to the exporters purely on form of merit., tea board sources said. "It's a plea on behalf of the trade to the banking sector to consider extending credit to tea exporters purely on commercial considerations," Director Tea Promotions Bureau, Hasitha de Alwis told The Sunday Times Business.
Since the banks required a guarantee, the tea board had put forward a proposal to link the bank guarantee to a Tea Debt Recovery Fund.
"The trade has made a request through the Treasury to request the banking system to extend the credit up to the amount being tied up in Russia and the new fund being proposed will gurantee/security for the extended credit," he said. If the Fund is to be accepted, part of the funding would come through a Cess from the trade and the rest through the Treasury.
The Fund would in turn provide the level of confidence to the banks against future borrowings of exporters in this difficult period. Its not intended to compensate for bad practice, tea exporters said.
Traders are requesting the banks to ensure maximum credit facilities are given to them. This would amount to a re-scheduling of debt," Chairman Tea Traders Association, Michael de Zoysa said.
The Treasury is doing their best to help the trade, he said adding "we want something done before the next Tuesday's auction".
Traders are not asking for bail out or subsidies, but request the government to take precautionary measures to avert a collapse of the tea market. The CIS accounts for 30 per cent of Sri Lanka's tea exports, of which Russia consumes the bulk.
Inactive presence of Russian buyers pushed down the average tea auction prices by Rs. 8 per kilo at the Colombo auctions last week.
Around 800,000 kilos of tea were also withdrawn for lack of favourable bids. But brokers said the drop witnessed at this week's auction was not severe but averaged between Rs. 2- 4 per kilo.
There was no further erosions in prices while some good teas and demand from other markets stabilised the market. Unlike the previous auctions, the quantities on offer for next week will be higher about 5-6 mn kilos, brokers said.
"There is no panic at the moment, but only concerns," another broker said. "The real test would be how the auctions will perform with higher volumes at the next two auctions," he added.
The further decline in prices would affect the tea smallholders who account for 60 per cent of the output.
Tea Smallholders are paid on the basis of monthly average and any drop in Colombo auctions is bound to affect them. This issue should be addressed before it's too late, otherwise the impact would be felt across the entire tea industry, tea traders said.
The lack of support could also hurt sentiments and diminish competition in the auctions, Mr. de Alwis said. The buyers from other markets are also waiting to see prices slide further to capitalise from the situation. Since the rouble was steeply devalued, a few weeks ago which precipitated a banking crisis, there has been less demand from Russia and other CIS countries, he said.
Despite poor demand in the past three auctions, brokers highlighted that there was strong demand for selected good low growns among others which is giving strength to the auctions.
Sri Lanka could also cushion the impact by supplying more true to grade quality, which can attract higher prices.
While there are signs that small quantities of tea kept the market from sliding further it's difficult to read the depth of demand until larger quantities come up on offer in the auctions ahead," Senior Vice President Asia Siyaka Commodities (Pvt.) Ltd Anil Cooke said. "It would be advantageous if the decisions are taken sooner than later," he added.
Iraq once again shut out Sri Lanka from the fourth stage of the UN monitored oil for food programme. Sri Lanka was shut out of the third and fourth stages of this programme as well. The total order for the fourth round comprised 15,000 MT of tea. India received an order of 9,000 tonnes, Indonesia and Vietnam clinched orders totalling 3,000 tonnes each.
Sri Lanka export figures released by the Customs however, shows a total of 4 mn kilos shipped to Iraq for the period ending July this year compared with 1.6 mn during the same period last year.
A Semi-scripless system to trade Government securities is to commence next month. It is being designed on similar lines as the present Central Depository System (CDS) where transactions would be done electronically. Investors could have their own individual accounts with the primary dealers, a top Central Bank official said.
The new system would do away with the issuing of certificates, as government securities could be traded electronically, he said. Initially, the semi-scripless system would be limited to major investors like primary dealers, EPF, ETF, insurance companies, and banks. We hope to include other investors once the main system is in place, he said.
"Its not the best system in the world, but an interim solution, before we embark on the fully scripless system," he said. "Our system may not fully comply with international standards, but its being designed and developed in-house within the Central Bank by the Bank's IT staff," he said. The Central Bank (CB) is to commence a study shortly with technical assistance from the World Bank to find a suitable system for Sri Lanka. Once the study is completed (within a year), Central Bank officials intend to have the fully scripless system in place by 12-18 months, he said.
While lauding Central Bank's initiative, primary dealers commented that "it's a start"! They were hopeful that the fully integrated system would be in place within the near future without much delay. Primary Dealers Association (PDA) together with the Colombo Stock Exchange (CSE) has been lobbying the CB to establish a depository system within the CSE, using the existing CDS. They allege that the CB has been dragging its feet over this issue for over three years. The decision to procure foreign expertise for the setting up of a CDS will only delay things further, they said. But CB has been insisting on a separate system to transact government securities. Primary dealers say it is an unnecessary expense to create a similar system when the existing CDS could be adapted. "Sri Lanka needs a central operation not a fragmented one," Dr. Ajay Shah of the Indira Gandhi Institute said. Dr. Shah who made his observations at a recent Capital Markets Development Workshop added, that there is no hard and fast rule to have separate CDS to trade equities and debt.
Sri Lanka being an emerging market should harness its resources if it aspires to become a regional financial hub and become a magnet to attract foreign companies. He added that perhaps a separate organisation dedicated to marketing Sri Lanka overseas as a financial hub would also be beneficial in the long run. - MG
LOLC has planned a new Rs. 500 mn securitization of motor vehicle leases, LOLC Chairman C P de Silva said. There will be opportunity for re-selling and trading these securities through the use of the Deutsche bank's " scripless " trading system.
The process allows LOLC to diversify its funding sources, lower its cost of funding and improve its asset liability mismatch. The first securitization was issued to the tune of 366 million at an interest rate of 17.5%, which was payable quarterly. The security for the notes was vehicle leases, which were mortgaged to a trustee.
A special purpose vehicle company LOLC Funding One Lsimited issued the notes. A sinking fund, which was established with Deutsche banks has now been fully built up to pay all remaining capital and interest payments.
By Shafraz Farook
Three foreign owned and managed hospitals, all BOI projects totalling over Rs 10bn are to opened next year. Apollo hospital, India will open here with the same facilities except for a cancer treatment centre. It would be opened if there is a substantial demand for it. The project is expected to commence in the beginning of 1999 and completed in 2 years time, an official of the Sri Lankan representatives for this project said.
Gleneagles Colombo, is a joint venture between the Gleneagles Hospital of Singapore and International Hospitals (Lanka) Ltd. The 2bn project is expected to commence in 1999 and be operational in mid 2000. The hospital would be managed exclusively by Gleneagles Singapore. AME Lanka hospital Pvt. Ltd, is a Rs. 5bn joint venture with AME Vienna, Austria, which has a 75% stake.
A foreign company in the health sector would manage the hospital. Two of these hospitals have conformed going public two years after commencement and the other hopes to go public from the start. All three would be of international standards, with state of the art equipment and have all the facilities as their counterparts abroad.
A late disclosure of potentially price sensitive information by Lanka Walltiles Limited is being looked into by the Colombo Stock Exchange, a CSE official said.
Ceyexxe plantations a subsidiary of Lanka Walltiles purchased Uni Dil Packaging from Uni Walkers in July with the transaction been noted in the annual report released in early September.
Speaking to the Sunday Times Business the General Manager of Lanka Walltiles Mr. Mahinda Perera said there had been a misunderstanding regarding the need for immediate disclosure of the transaction as Ceyexxe plantations is unlisted.
There had been no willful attempt to hide the transaction with the report of the directors of the 1997/98 annual report of Lanka Walltiles released this month disclosing the purchase as a post balance sheet event, Mr. Perera said.
Lanka Walltiles is in contact with the CSE regarding the issue and would respond fully to any queries it raised by the CSE, Mr Perera said.
The purchase based on a valuation by Auditors Ford Rhodes, Mr. Mahinda Perera said.
The immediate disclosure of any material price sensitive information to the CSE is a requirement of the listing rules of the CSE and the rules of the SEC.
"There should be an immediate suspension of trading of the shares until a full disclosure of the details of the transaction is made.
by Business Bug
In the Stars
The starry-eyed man who runs a star-class garment factory chain is looking to the stars these days.
A few months ago, he was in the doldrums with business not being what it was and the banks that had loaned him money insisting him paying back the debts.
But then, the bank with a heart bailed him out and he must have thanked his lucky stars.
But this Prince of the garment industry is now into star gazing in a big way, re-arranging offices and adjusting schedules, just as the soothsayers want him to, we hear.
We don't blame him though, for this mumbo jumbo, because the stars foretell that success will return, if only he adheres to these rituals.
The country's leading gem and jewellery trade fair concluded last week with some fanfare.
But an unknown facet of the fair was that there were many behind the scenes moves to try and sell the large gem which was accorded so much publicity recently.
Despite the hard-sell there were no takers, they say.
Now all is set for the ban on fags and booze advertising to take effect next year but some in the industry are not giving up without a fight.
So much so that when the Force that has been given a task asked the cigarette people what their cost of production was, they shook their collective heads and said, "we don't know".
How soon can you tell us, the Force asked them. "In three months," said the cigarette chaps.
Well, in three months by the time they figure out the cost of production, the ban will be enforced.
Then there was the curious statement by the people who exchange stocks last week, urging investors and saying, "now is the time to buy!....
The exchange bosses tried to pull a few strings here and there, just to make sure the 'statement' appeared in all the news sheets but apparently there were few takers.
Then, it suddenly dawned on them that it was improper if not unethical for the 'exchangers' to say such things. So now, just about everyone is disowning this little message.
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