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17th January 1999
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Credit Rating 

Korea moving on to investment grade soon

Thanks to rising foreign exchange reserves and an improving economic climate, Korea's sovereign rating is expected to be upgraded from non-investment grade to investment grade in the near future.

The U.S. ratings agency Moody's Investors Service and the London-based agency Fitch IBCA said recently they would review a possible upgrade for Korea's sovereign credit rating in view of the nation's "vastly improved external liquidity position."

A review for a possible upgrade indicates that usually within three months, Moody's will decide on whether or not to enhance its rating of Korea, according to officials at the Ministry of Finance and Economy.

The officials said the expected elevation of sovereign rating would greatly encourage Seoul's position to lure foreign capital in order to pull out of the protracted economic crisis. 

"We hope the favourable shift in Moody's view concerning Korea will help prompt foreign institutions to increase lending and investments in the country, while reducing financing costs for domestic borrowers," said Kim Woosuk, director-general for the ministry's international financing bureau.

Moody's also placed three state-invested banks Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea on review for possible upgrade.

"Official foreign exchange reserves have risen to a level that has begun to allow repayments of emergency financing required during the height of the financial crisis," the New York-headquartered rating agency noted in the report.

On Oct. 14, Moody's evaluated Korea's financial sector as technically insolvent, but has since begun to enhance its rating of the Korean economy.

It assigned an investment grade of Baal to Korea's won-denominated government bonds Dec. 4, and confirmed Dec. 16 its ratings of five banks which acquired troubled banks and were re-capitalized with fiscal money. The five banks had been mentioned as facing a possible downgrade because of large amounts of bad loans at the ailing banks.

A Moody's review team is scheduled to visit Korea soon for ratings adjustments.

"We expect that the team will raise Korea's sovereign rating from the current Ba I to the lowest investment grade of Baa3 or higher," another ministry official said.

"Progress in financial and corporate restructuring seems to be an important factor behind Moody's positive turn in its view of the Korean economy and a higher possibility of upgrading Korea's credit ratings."

Such change of view is also expected to affect two other major rating agencies - Standard & Poors - for the better, the ministry predicted.

At present, S&P maintains the outlook of Korea's ratings as stable after raising its rating of long-term, foreign currency government bonds from B plus to BB plus in its latest review Feb. 17.

London-based ratings agency Fitch IBCA has put Korea's long-term foreign currency rating of BB+ under review with positive implications, government officials said Dec. 23.

The transfer risk, the risk that a debt default could be triggered by a lack of foreign exchange despite strong solvency ratios that loomed so large at this time last year has substantially diminished the European agency, said in a report available at the Ministry of Finance and Economy.

It also cited the swing in the current account balance from a deficit of $8.2 billion in 1997 to a projected surplus of $40 billion in 1998; disbursement of $25 billion from an IMF rescue package; a $21 billion rescheduling of inter bank debt; and a $4-billion global bond issue.

"These have generated a remarkable turnaround in usable international reserves, the likes of which remain unprecedented in modern rating history," Fitch IBCA said.

However, downside risks, notably a deteriorating external environment and a heavy debt repayment schedule, will play an important role in determining the evolution of the sovereign rating, it noted.

Huge corporate debt and a poorly supervised financial sector continue to weigh heavily on the economy and could take two to three years to work out, the agency said.

"Nonetheless, there are tentative signs that the economy is turning around, while the government is showing considerable determination in tackling financial and corporate sector reform," it went on to say.

The international agency said that the progress of these initiatives will be critical to investors' perceptions of Korea's external creditworthiness and will represent a key determinant of Fitch IBCA's assessment of Korea's sovereign rating.

It added that the outcome of the assessment will be known early in the New Year.

Courtesy: News Review 


EU Parliament in turmoil

Frantic efforts were under way at the European Parliament last week to head off a vote to sack the 20 member European Commission after Jacques Santer, its president, earlier threatened to resign.

The entire 20-seat Commission would have faced the sack if the 626-member assembly mustered a two-thirds majority in favour of the censure motion. 

The motion was called after parliament refused to clear the 15-nation EU's 1996 accounts last month over allegations of fraud, mismanagement and favouritism.

The assembly's second biggest group, the Christian Democrat European People's Party, on Tuesday joined the Liberals and Greens in calling for former French Prime Minister Edith Cresson and Spaniard Manuel Marin to quit from the Commission. 

Hopes for a compromise centre on a promise by Santer to set up a committee of "wise men" to review all financial and personnel controls in the Commission, required to report by the end of March.


Freight hikes hit a million jobs

Nearly a million jobs are at stake following recent hikes in freight charges. 

Simultaneous increases in terminal handling charges (THC) are also affecting the sector, Sri Lanka Exporters Association (SLEA) has warned.

SLEA Chairman Lyn Fernando said that the export performance of the country would be a negative figure for this year if nothing is done against the increases.

" These increases are anti- competitive," Mr. Fernando said.

Meanwhile, Coir Fibre Exporters' Association (CFEA) said that the increases are pre-planned by ship owners and ship agents.

" We believe that these exorbitant increases are not due to market forces, but due to shipping lines establishing cartels and price fixing which we consider as an unfair trade practice," CFEA Chairman Indrajith Piyasena said.

" It was reported on several occasions that overseas buyers with very small volumes obtain much cheaper rates at their end, while large exporters from Sri Lanka cannot" he said.

Freight was increased last year by 40 percent to the United States and 55 percent to Europe. Further US$1,000 was increased from January for a forty footer to US.

" Further increases to Europe are still not known to us," Mr. Fernando said.

" We hope that the government will take immediate action to protect our export industry," Sri Lanka Shippers' Council Chairman Rohan Wijeyeratne said.

Meanwhile, a meeting scheduled to be held yesterday at the presidential secretariat to discuss matters arising from the increases has been postponed as the North - Western Provincial Council Elections take priority, sources said.


Brazil crisis has hit Colombo indices

Brazil stunned global markets last Wednesday with a 9 percent devaluation of its currency, the Real amid the resignation of the president of the Central Bank. Markets across the globe shed high percentages fearing the repeat of the Mexican Peso in the mid 1990 and the East Asian crisis, a John Keels report says.

Gustavo Franco, President of the Brazil's Central Bank and the architect behind this Latin American country's four year economic recovery programme, resigned and this would follow a more flexible interest rate and currency policy. The Central Bank removed the tight mini band that the Real previously traded resulting in a 9 percent weakening against the Dollar.

Brazil, like most crisis-ridden East Asian and other Latin American countries, has deepened on foreign funds for its economic agenda. In fact, it is estimated that US banks have lent over US$28 billion to the country while there are fears that the current devaluation will not accepted by the market. The currency collapsed resulting in a recession not only in the country, but the region. On the other hand, when Thailand devalued its currency in 1997, it led to a string of devaluations in the neighbouring economies, resultng in the region's financial system collapsing.

Meanwhile, in the US President Bill Clinton has said the Americn Government is in close contact with authorities in Brazil and the International Monetary Fund (IMF). It is widely believed that the US would intervene given the country's high exposure to this nation, the report added.

The Brazilian crisis also had an impact on the Colombo bourse with the All Share and Milinka indices shedding the next day. Price declines were seen more on high-capitalised blue chips, probably anticipating from selling from foreign investors. While we accept the Brazilian crisis is a further set back for emerging markets, the impact on the Colombo bourse is marginal. This is due to the market in recent times being supported strongly by domestic investors, the report said.


Business Briefs

Janashakthi reaches Rs. 350 million
Janashakthi General Insurance Company Ltd. has achieved a turnover of Rs. 350 million during 1998, in its third year of operation, a growth rate of 32.5% over the previous year.

In 1996, the company achieved a record Rs. 200 million turnover, the highest for an insurance company in its first year of operation.

In 1997, the company achieved a turnover of Rs. 264 million and a growth of 32%, which enabled it to record a profit in its second year of operation, a news release said.

Janashakthi General Insurance Company Ltd. has developed excellent relationships with some of the best reinsurers in the world, and have primarily reinsured with Employers Re. of USA, who stands among the world's top 5 Reinsurers. 

The other panel of Reinsurers of the Company are: Tokyo Fire & Marine Insurance Co. Ltd. - Japan, Chiyoda of Japan, GIO - Australia, China Re and Zurich Re. The cumulative credentials of this galaxy of Reinsurers is unmatched in the Sri Lankan insurance industry, and is a guarantee of the Company's strength and stability.

ADFEST in March
The Asia Pacific Advertising Association in cooperation with the Asian Federation of Advertising Associations will host ADFEST 1999, the second annual Advertising Award Competition and Festival of the Asia Pacific Region, at the Royal Cliff Beach Resort in Pattaya, Thailand from March 3 to 5.

ADFEST, the Asia Pacific Advertising Festival is a celebration of creativity, bringing together the talents of the Asia Pacific Region to a feast of creative imagination.

ADFEST will bring together the Creative talent of Asia, Australia and New Zealand. The three areas of creative activity - Television, Print and Campaign (TV or Print).

The inaugural ADFEST was held in March 1998 in Chiangmai 

Renamed : The Club 
Marco Polo Club, which is Cathay Pacific Airways' presitigious frequent flyer loyalty club, is re-branded as 'The Club', a news release says. 

Complete with a brand new logo, 'The Club' will not offer mileage type benefits but services and recognition benefits. Benefits include top tier crediting when flying on any of Cathay's Oneworld partners, a new 'Non Elite' or 'Pre Qualification' being introduced with current green tier being changed to Silver with higher status and the new green tier being the entry level to 'The Club'. 

Qualifying for the Diamond tier will require only 120,000 miles or 80 sectors compared to the 250,000 kms. required earlier. 

The new 'Invitation Tier' was created to enable Cathay Pacific recognise commercially imporant people who will be invited to join 'The Club'. 

The service offered by Cathay Pacific Airways to members of The Club would be enhanced by a 24-hour, 7-day a week, Call Centre which will also serve the airline's Asia Miles members. 

ISO for textile lab
The textile testing laboratory of the Textile Training and Services Centre is now accredited for ISO 9002 Quality Management System from the Internationally reputed certifying body, Det Norsky Veritas of Netherlands. 

This Laboratory has been in the forefront in providing testing facilities to the ever growing demands of the industry. It is equipped with most modern and internationally accepted testing instruments to carry out almost all tests required by the garment industry, a news release said. 

With the Certification, this Laboratory became the - 

first laboratory in Sri Lanka to obtain ISO 9000 certification; 

the first government organization under the Ministry of Industrial Development to obtain this status; and 

the first public sector organization to obtain this status voluntarily. 

The ISO 9002 Quality Management System guarantees Accuracy, Punctuality and Confidentiality consistently in the work performed by the laboratory.

PIMAA meeting
The AGM of the PIM Alumni Association was held recently at the Mount Lavinia Hotel. The Chief Guest Prof. Gunapala Nanayakkara praised the good work done by the Executive Committee headed by the President Rear Admiral Tilak Carthelis during the year. 

The opening of the fully equipped PIMAA Office, Leadership Seminars for school senior prefects, public lectures, social events for the members were some of the events organised by the Committee. The Patron and the Committee presented the President with a plaque in appreciation of his services to the PIMAA. 

Service award winners
The annual awards for Distinguished Services to Society by members of PIMAA were presented to Prema Cooray, Deputy Chairman, Atiken Spence Ltd., Ms. Marise Deckker, Chairperson and Managing Director, Astron Ltd., and Kingsley Wickremasuriya, former Senior DIG Administration of Police Department. 

The following committee was elected for the 98/99: 
Patron : Prof. G. Nanayakkara;
President : Gerry Suraweera;
Vice President : Douglas Jayakody;
Executive Secretary : Athula Abeysekera;
Treasurer : Ms. Inoka Fernando;
Committee: Ramesh Fonseka (Ex. Officio), Ms. Kumari Perera, Dr. Tilak Fonseka, Dr. Sudatta Ranasinghe, Ramesh Kumar, Nandana Abeyratne, Lalith Grero, P.H.K. Dayaratne.

Two new Eagle products
Eagle NDB Fund Management Co. Ltd., has introduced two new product extensions to Eagle Mutual Funds branded Eagle Thilina and Eagle Uruma. 

Eagle Thilina provides a mechanism by which units in Eagle Mutual Funds, can be gifted in the form of a gift certificate. Thereby, the recipient of 'Eagle Thilina' gets the opportunity to own an investment that could grow over time whilst retaining the ability to convert to cash in an emergency, a news release said.Eagle Uruma, facilitates the nomination of a beneficiary to whom an investment in Eagle Mutual Funds can be transferred upon the death of the original investor. 

During the last year Eagle NDB Fund Management Co. Ltd., also introduced two product extensions. Eagle Varika and Eagle Nirathuru. 


Appointments

Elected vice president of SAFA

Lal Nanayakkara, President of the Institute of Chartered Accountants of Sri Lanka, was elected Vice President of the SAFA at its assembly meeting held in Calcutta in December last year.SAFA, a forerunner to SAARC, consists of the Institutes Chartered Acccountants & Cost & Works Accountants of India, Pakistan, Bangladesh, Sri Lanka & Nepal. These constituent Institutes collectively have a membership of nearly 150,000 professionally qualified accountants, a news release says.

The broad objective of the Federation shall be the development of a coordinated accountancy profession in the region. To achieve this objective the following steps will be taken:

co-ordinate and guide efforts to evolve technical, ethical and eductional guidelines within the region;

work towards international recognition of qualifications of accountancy bodies of the region and,

provide opportunities for consultation such as the holding of conferences of accountants within the region to enable memers of the accountancy profession to discuss and interchange ideas and to inform themselves of developments in accounting and related matters;

Mr. Nanayakkara assumed office of Vice President of SAFA in January.


Shipping

  • S.Korea cleared of aid misuse 
  • Lloyd's RM pleased with Colombo port
  • CMA mulling over slots 
  • Hong Kong promotes flag 
  • APL wins major logistics contract for GM in Thailand 
  • DCL begins exports service to US

  •  

    S.Korea cleared of aid misuse

    Claims that South Korea has been misusing the International Monetary Fund's $58bn rescue package to bail out domestic industries such as shipbuilding have been dismissed by the US government.

    The Clinton administration's statement appears to stand in direct opposition to the European Commission's accusations that South Korea is using IMF cash to undercut shipbuilding prices.

    US treasury secretary Robert Rubin said: "No fund resources... have been used to provide financial assistance to the semi-conductor, steel, automobile shipbuilding, or textile and apparel industries."

    Mr Rubin's comments were contained in a letter to the House of Representatives banking committee.

    Under pressure from US industry, Congress had earlier this year asked the Clinton administration to ensure that South Korea was not subsidising cash-strapped businesses from the IMF package.

    The result of the administration's investigation will come as a blow to the Committee of European Union Shipbuilders on the eve of its meeting to examine ways of coping with the industry's looming crisis.

    European shipbuilders have for many months alleged that South Korea has been using IMF funds to subsidise its shipyards.

    Last month the credibility of these claims was strengthened when European industry commissioner Martin Bangemann gave the shipbuilders his backing.

    Despite Korean denials, the commission believes that part of the IMF loans are, at least indirectly, "bolstering Korean shipyards and enabling their aggressive policy to be pursued".

    But the Clinton administration's latest statement lends support to the position of the Korea Shipbuilders' Association, which has denied that its members have benefited from IMF funds.

    It also weakens Mr. Bangemann's bargaining power when he visits South Korea to discuss shipbuilding issues.

    Meanwhile, Samsung Heavy Industries, one of South Korea's big three shipyards, yesterday confirmed that shipbuilding would remain a core business for the company.

    Samsung has been busy strengthening the financial position of its shipbuilding business by raising equity and disposing of loss-making and non-core assets.

    As a result, the company's debt:equity ratio is forecast to improve from 6.82:1 at June 30 to 2.98:1 on December 31.

    By the end of 1999, the ratio is expected to fall to 1.92:1.

    Samsung's financial results are also showing a sharp improvement. After a net loss of Won 95.5bn ($790m) in 1997, the company says the current year should produce a net profit of Won lOObn. 1999 net profit is forecast to reach Won120bn.

    One of the non-core activities Samsung is divesting is marine engine building, which has surprised some observers given its commitment to shipbuilding.

    However, the company said it was exploring alternative ways of securing a safe supply of ship engines for its shipowner customers. Samsung is now in the process of a stock issue of $222m.

    Samsung Heavy Industries is one of eight units of South Korea's five leading conglomerates recently chosen for a debt-to-equity swap programme. (Lloyd's List)


    Lloyd's RM pleased with Colombo port

    Group Regional Manager for the Middle East and the Indian sub-continent of Lloyd's Register of Shipping of London, K.W. Robertson, was in Colombo last week. This was his first visit to Sri Lanka after his new appointment. He was pleased to see new developments in the marine sector.

    He called at Sri Lanka Ports Authority and Colombo Dockyard Ltd.,where he met senior officials and discussed safety, quality and environmental standards in the Port.

    He said Lloyd's Register is delighted to be associated with Colombo Dockyard Ltd., Sri Lanka Ports Authority and other organisations and is prepared to share its expertise and advanced software technology with the establishments in its efforts to strengthen their capabilities.

    Lloyd's Register will provide assistance to ensure that Sri Lankan marine and industrial development is known throughout the world as of high quality, managed by staff with the highest levels of integrity.


    CMA mulling over slots 

    French shipping company Compagnie Maritime D'Affretement (CMA) is negotiating exchanging slots with other carriers in a move to reinforce its service on the Northern European route.

    Sources said that CMA targets carriers offering services calling in Japan because its own services do not cover Japanese ports.

    Whether CMA's plan to extend its Mediterranean service to Japan will materialize or not depends on the outcome of ongoing slot swapping talks, the sources said.

    CMA operates an Asia-Europe service independently and offers a joint Asia-Mediterranean service with Taiwanese line Yangming Marine Transport. Calls in Japan were dropped in its Europe service in February 1993 and in its Mediterranean service in October 1994. Since then CMA has had no service calling in Japan.

    With the CMA-Yangming joint service agreement expiring soon, the French line plans to commence a service of its own on the Mediterranean route in September. 

    It took this opportunity to study the advisability of resuming calls at Japanese ports in Tokyo/Yokohama and Osaka/Kobe, and was to shape up a plan by the end of last month.

    But this project has been put on the shelf since the slot exchange scheme on the European route surfaced. 

    If this slot exchange scheme with a Japan-calling carrier materializes, the plan of resuming calls in Japan in its Mediterranean service may be dropped or postponed, according to the sources.


    Hong Kong promotes flag

    HONG Kong's government has adopted a series of initiatives and cost-cutting measures to encourage shipowners to register vessels under the territory's flag. 

    Procedures have been simplified, and other proposals such as fee changes, which require legislative amendments, are being considered, according to marine director Tsui Shung-yiu. 

    "An owner can save up to HK$80,000 ($10,322) in the first year of registration under the Hong Kong flag by deferring vessel inspection to the next year (when annual inspection charges are less)," Tsui explained. Inspections have been expanded to include vessels up to 15 years old, up from ten years. 

    (Fair play) 

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