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9th May 1999

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Good rating possible, says ASJ

By Mel Gunasekera

The government is optimistic of securing a good rating in the international capital markets, despite the Central Bank's warning to control the ballooning fiscal deficit and ensure economic growth, a top government official said.

"We are going for a sovereign rating this year, and we are confident of getting a good rating," Governor Central Bank, A S Jayawardena told The Sunday Times Business.

The Governor made his comments after the Central Bank's 1998 annual report said the budget deficit rose sharply to 9.2 per cent of gross domestic product (GDP), fuelled by rising defence expenditure and lower tax collections.

Though the higher fiscal deficit in 1998 was 'somewhat disturbing', if not controlled soon, it "could trigger galloping inflation aided by stronger depreciation of the rupee," the bank warned.

"In this scenario, a good rating will be difficult," Head of Research CT Smith Stockbrokers, Rajiv Casie Chitty said.

The cost of borrowing will be high (in the international markets), as Sri Lanka has moved into the 'lower middle income' level and will no longer be eligible for concessional foreign aid, he said.

Lower per capita income translates to foreign aid on concessionary rates, which in turn is enabling Sri Lanka to maintain a good debt service ratio, Head of Research NDBS Stockbrokers, Chanaka Wickremasuriya said.

"The sovereign rating is just a stepping stone. But what's important is at what price Sri Lanka can raise the money in the international markets," he said.

Sri Lanka is due to borrow around US$ 100 mn to 200 mn in the international capital markets this year.

After the Asian crisis and the twin nuclear testing in the region saw currency risk premiums soar.

Analysts say Sri Lanka is hoping to borrow at LIBOR (London inter bank offered rate) plus 2.5 per cent. But, the prevailing rate is LIBOR plus 3 per cent.

However, the value of the amount to be raised this year will depend on what type of a rate we get for it, analysts said. "A lower rate would mean more foreign borrowings," they said.

A sovereign rating sets the benchmark credit risk for a country and serves as a guide for private issuers to borrow abroad.

Rating agencies take into account debt service ratios, balance of payments and political environment before issuing a rating.

The on-going war is not as bad as countries like Vietnam and Cambodia, neither is Sri Lanka on the cutting edge like Thailand and Indonesia, analysts said.

They forecast problems in the balance of payments this year.

Commodity imports are expected to pick up as the year goes on. Oil prices are rising, and there are indications that wheat and grain prices will rise this year.

However, export growth is expected to slow down with tea and rubber exports not forecast to grow this year.

The apparel sector is expecting a moderate growth, but it cannot compensate enough for tea, rubber and other exports like gems, ceramics.

COMESA puts pressure on Lankan tea industry

By Shafraz Farook

Egypt's announcement of duty concessions to COMESA (Common Markets for Eastern and Southern Africa) members is adding pressure to the local tea industry.

Sri Lanka supplies 15% of Egypt's total tea imports, which consists mainly of high and mid grown dust and BOPF's grades.

Asia Siyaka Commodities said this share would either decline significantly or Ceylon tea price's would decline to counter market pressure from African suppliers.

Countries represented by COMESA will be imposed a minimum of 6% duty for packed and bulk tea whereas, import duty on Ceylon tea will continue at 30%.

Market sources say, the 6% duty would drop to a zero duty by 2001.

Market predictions are that the 10 mn to 12 mn (15%) share will drop to 4mn to 5mn kilos per annum.

It is interesting to note that of the 10 mn to 12 mn kgs of tea exported to Egypt, an estimated 8% to 9% component consists of dust grades. Sri Lanka produces approximately 15 mn kilos of dust teas per annum.

This tariff concession is likely to add further downward pressure on the industry already hit by low demand for BOP's from Russia. Producers shifted their production from BOP to BOPF and Dust to compensate for the drop in demand from Russia, an Asia Siyaka report said.

With the COMESA trade agreement, local tea traders will have to find alternate markets, such as Pakistan, to sustain profitability.

A trade delegation will leave for Pakistan after the talks in India come to a close.

Industry officials said Sri Lanka should negotiate for similar concessions, exploring relationships through the G16 trade block and move to advance duty reductions to 15% due under WTO (World Trade Organisation).

Supporting existing Ceylon Tea based brands and aggressively pursuing existing relationships such as SAARC are other suggestions.

Officials say that the Asian region could dominate the global tea industry if they have preferential tariffs for the region. This however, will not cork the bottle completely but merely reduce its contents from pouring out.

Asia Siyaka reported that Egypt's earnings on import duty would decline by around 70% to 80%with the likelihood of a further drop as other suppliers lose market share at the expense of Africans.

If Sri Lanka were to make some reciprocal gesture, it would be realistic to expect Egypt to respond positively.

New debenture from Vanik

Vanik Incorporation launched a Rs. 200 mn three year unsecured unsubordinated debenture to raise funds for the company's market operations.

The debenture carries a high interest rate of 17.55 per cent payable annually, or 16.5 per cent payable quarterly.

Incidentally, this is one of highest interest paid instruments offered in the market at present.

Vanik single handedly pioneered the quoted debt market when they issued the first Rs. 150 mn debenture three years ago. Though the initial issue was under subscribed, subsequent later issues were oversubscribed.

The Rs. 150 mn debenture carrying a 20 per cent interest expired recently. Some of the earlier investors have already re-invested in the new issue, Vanik CEO, Justin Meegoda said.

Vanik's audited accounts for 1998/99 is yet to be released pending an audit inquiry on Forbes International Bahamas.

Market sources say the Colombo Stock Exchange hesitated to list the new debenture until the auditors were fully satisfied with Vanik's group accounts.

Mr. Meegoda said, the Bahama's operation has been audited, but the auditors take time to release the accounts. The accounts were late last year as well.

Since time is running out, we decided to go ahead with the debenture without a listing, he said. He was confident that Vanik could raise the money within a month.

Central Bank cashes in on World Cup Cricket fever

Numismatists and cricket lovers get a shot at indulging in their passion, with the Central Bank issuing a silver coin to commemorate Sri Lanka winning the 1996 Cricket World Cup.

Minted at the London Royal Mint, the Rs. 1,000 silver proof coin, is sold at a Rs. 200 premium.

The coin depicts a Sri Lankan batsman on one side and on the other side, the coveted 1996 trophy.

We are issuing a coin because England has decided not to make a special coin after agreeing to do so earlier, Central Bank Governor, A S Jayawardena told a media briefing.

Sri Lanka cashed in on this idea after England decided to issue a Rugby Union World Cup commemorative coin.

Already, nearly 16,000 coins of mint of 25,000 have been booked by Sri Lankans living overseas, mainly in Britain.

Central Bank will also issue a Rs. 5 coin to coincide with the World Cup on May 14, he said.

The market price of this coin is gauged in consultation with international experts and such special coins have increased in value with time.

The Rs. 5 'Buddha Jayanthi' coin issued to commemorate 2500 years of Buddhism is now trading as high as Rs. 6,000.

Last year, the Central Bank issued a series of commemorative coins and a currency note to mark Sri Lanka's golden jubilee of independence.

The cache included, Rs. 5,000 gold coin, Rs. 1,000 silver coin, Rs. 10 bi-metal coin and Rs. 200 polymer note.

The gold coin being the exact size of the sterling pound, is the most expensive commemorative coin to be issued so far.

The jubilee issues were sold at a premium, which prompted the Central Bank to amend the 1998 Monetary Law (Amended) Act providing for commemorative coins and notes to be issued at prices above their legal tender value.

As at end 1998, the volume of currency in circulation stood at Rs. 60 bn as against Rs. 53 bn in 1997.

Dealers want more time

The new regulations for dedicated primary dealers has run into trouble with only 9 out of the 18 primary dealers signing up by the April 30 deadline.

The nine dealers include 7 non-financial institutions and two commercial banks, Central Bank sources said. The status of the remaining nine dealers is uncertain at present.

Under the new Central Bank (CB) guidelines, primary dealers must form separate public limited liability companies dedicated to dealing government securities if they wish to remain as primary dealers. The CB the says purpose of the regulation is to further stimulate and develop the debt market.

Commercial banks who also operate as primary dealers, are reluctant to form separate entities as it conflicts with the bank's deposit mobilisation.

The banks have pointed out that the minimum Rs. 150 mn capital requirement was too high and trading in government securities was not profitable. The Bankers Association wrote to the Public Debt Department recently seeking more time for the new regulations.

However, only 11 commercial banks belonging to the Bankers Association are primary dealers. Other primary dealers are accusing the commercial banks of dragging their feet on the issue.

"It's a dog in the manger set up, and we have virtually come to the beginning, nothing has changed," some primary dealers said. They said the Central Bank has to take a firm decision about commercial banks.

Central Bank officials said certain commercial banks have appealed for additional time.

CB officials said they were considering this, but needed existing primary dealers to indicate their willingness soon, or else Central Bank would issue primary dealer licence to any financial institution that complies with the Bank's guidelines.

Mind your Business

By Business Bug


Cricket fever is on the rise with the World Cup fast approaching but that may not be so lucrative for merchandisers this year. Many memorabilia related to the Cup can be marketed in Sri Lanka and many have made many queries from the Board in this regard, because the sanction of the controlling body is needed. But the answers have been discouraging. The Board as we all know is having more than its fair share of problems and what with court action pending they don't want to do anything more than the bare essentials...

Ringer is king

How about free in coming calls, 24 hours a day, for any duration for a not-too-high monthly rental fee, from a cellular operator? That is what one network is targeting in a package proposed to be unveiled shortly. Other networks, they feel will be hard-pressed to match this offer but the deal has to be vetted by the regulators where there may be charges of unfair competition.

Freer discussion of economic policies needed

Insufficient communication of official points of view and the rationale for economic decision making are serious impediments to economic development. Recent years have witnessed a welcome improvement in the availability of economic statistics and economic indicators. Such data are published in the newspapers and available to the public reasonably early.

Some new and useful information on the economy has also been put out, especially by the Central Bank. In contrast, there is a dearth of discussion of economic policy by officials.

Most pronouncements are of a propagandist sort saying how well the economy has fared, rather than a reasoned analysis of economic issues.

The underlying reason for this state of affairs is that government officials fear being found fault with for expressing their views. In fact, some institutions insist that their officials obtain permission to say anything on the economy, But it so happens, when officials seek such permission they are almost always denied it.

The final outcome of all this is that the public are denied a studied and well informed discussion of the official positions on various economic issues. Instead they have government propaganda on the one hand, and views and analysis of those opposing government policy on the other.

The ultimate losers of this state of affairs, we would suggest, is the government itself and the nation.

It is time for the government to take some remedial action. Public officials in responsible positions should be given greater freedom to express their views. They may indicate that the views expressed are their own and not of the department or public institution or of the government.Such a disclaimer would not detract from the substance of the contribution to informed discussion of public issues. Then, unlike today we could have a richer, more varied and informed discussion of economic problems, the state of the economy and the rationale for various policy measures.

The quality of public discussion of economic affairs would be enhanced and the government itself may get a useful feedback.

The silence of public officials has led to a misunderstanding of economic issues and a feeling that there is no dialogue on economic policies with the private sector which is described as the engine of growth ad nauseam.

It has led to a misinterpretation of economic policies. It has created a feeling of distrust with the government and its officials. All this has meant an erosion of confidence in the economy and in investor confidence.

A freer discussion of economic issues and government policies would improve the quality of economic decision making. The reality of many economic problems is known by the business community rather than government officials. Economists must temper their theoretical understanding with practical realities.

Economic policies would bring the intended results if they are fashioned after a broad participation and discussion of the issues. Public officials must view such discussion as a necessary input to the formulation of economic policies.

Productivity suffers World Cup cramp

By Feizal Samath

When Sri Lanka launches the defence of its World Cup cricket title on May 14, taking on England in the opening game of the 1999 tournament, employers in Sri Lanka are bound to scratch their heads in despair.

For the next couple of weeks, it would be all leisure and no work as Sri Lankans spend time in front of television sets or listen to the radio for the latest on the World Cup action. There would be more work in offices - calculating statistics and figures of Sri Lankan performances - and less of anything else.

The lethargic mentality has also affected Sri Lankan residents in England. One local newspaper, quoting its London correspondent, reported somewhat proudly that Sri Lankans either plan to take a holiday from work on May 14 or conveniently "fall sick" - a malady one would have thought was only prevalent here.

"Though the matches would run late into the night, due to the time difference in England, many workers are bound to feel groggy for work the following day and productivity would suffer," says Franklyn Amerasinghe, Director-General of the Employers Federation of Ceylon (EFC), adding that Sri Lankans appear to have got their priorities wrong.

Another senior private sector official related how the chairman of a public organisation was preoccupied with cricket during the 1996 tournament, while a key business meeting was on. "We were discussing some important deal when I noticed that he appeared to be disinterested and was looking at the space between myself and another colleague as we sat on the other side of the table."

"Finally unable to contain his excitement, the high official asked me whether I could check out the score from the television that was just behind us," the private sector official said.

Many are of the view that hopes of Sri Lanka becoming an industrialised nation in the new millennium could turn out to be a distant dream as growing losses in productivity and too many holidays continue to plague this country.

Sri Lanka has the highest number of holidays in the world. According to several studies, her people work less than half the year helped by generous public holidays, leave allotments and cultural norms.

Repeated strikes in the public and private sectors and other natural calamities have contributed to falling productivity.

No wonder editorial writers "fondly" call the Indian Ocean nation of 18 million people as the land of lotus-eaters.

"We have been left far behind in the race for development. It is only due to the resilience of the private sector that the country has achieved some kind of growth despite losses in productivity and the malady of too many holidays," says Patrick Amarasinghe, former President of the Federation of Chambers of Commerce and Industry (FCCI).

Sri Lanka has been able to achieve an annual average growth rate of five percent in the past few years in spite of low productivity or a 17 year old ethnic conflict that is squeezing the country's resources. Last year however, economic growth fell to below five percent for the first time in many years.

Government planners have often expressed concern over low productivity and too many holidays but politicians are reluctant to trim holidays or convince people to be more productive as they risk turning voters away.

Some studies show that workers in the public sector enjoy a total of 172 holidays inclusive of 26 days of national and religious holidays plus 104 weekends per year, leaving just 198 days for work. This is not counting the annual leave allotment of about 40 days which most people take.

In the banking sector, employees put a little over 200 days of work per year while in the private sector, people work for about 250 days.

In both these sectors, employees often don't take their leave entitlements, preferring to take advantage of cash-for-leave schemes.

Adding to low productivity is the fact that banks are normally open to the public for only six hours per day - 9 a.m. to 3 p.m and work for only five days per week.

When the ruling People's Alliance government assumed power in mid-1994, a committee headed by Deputy Minister Lakshman Kiriella, was appointed to review the holiday structure and recommend cuts.

The committee recommended reducing national holidays to 19 from 26 and rationalising the structure.

But protests from trade unions and other worker organisations blocked these proposals. "The committee has died a natural death," said Amarasinghe, a committee member.

Sri Lankans love the holidays-filled month of April, which is the worst in terms of productivity. This year it was particularly bad in view of elections and three days of floods in the capital. Elections were held on April 6, a Tuesday. But since workers are entitled to half or a full day holiday to enable them to vote, most people - particularly those who live far away from their offices - did not come to work from Saturday to Wednesday.

The traditional Sinhala and Tamil New Year holidays on April 13 and 14 and intervening weekends, meant workplaces continued to be empty till around Monday, April 19. Most shops were also closed during the entire week.

From that Monday to Thursday, torrential showers in various parts including the capital, flooded many roads and caused serious disruptions in public transport and attendance in workplaces. Nouzab Fareed, a researcher at the Mercantile Merchant Bank, reckons the country would have lost billions of rupees worth of productivity during the 8-10 days of the New Year season. "In addition to the holidays during this period, most people stay away from work or take leave to go to cooler hill stations to escape the heat in Colombo," he added.

Lal de Mel, FCCI's current president, says that focus on productivity has been poor and despite requests from the private sector, the government has not put into place, a proper productivity measurement standard.

"In any other country, management is able to say at what level productivity has improved in a particular segment and by what percentage salaries have increased, and whether that segment is becoming more competitive or not. If salaries go up faster than productivity, we then become less competitive, " he said in a recent interview.

De Mel said that low productivity was making Sri Lanka less competitive. "In the past, even if industries did not do well they were protected by tariff barriers. But that era is over with globalisation and dismantling of protective tariffs. We have to be productive to stay competitive. Otherwise we lose out."

Dr Anila Dias Bandaranaike, an economist at the Central Bank, says that as long as wages are linked to productivity, Sri Lanka will suffer a low rate of productivity. "We are paying high wages, for instance in the plantation sector, where workers are assured of a minimum daily wage irrespective of how much they produce."

She said costs of local commodities like vegetables and fruits have also risen due to high wage costs, making it much cheaper to import these items from countries where wages are linked to productivity.

Like Sociology Professor Siripala Hettige, Amerasinghe from the EFC looks at Sri Lanka's problem in a slightly different context. They believe loss of productivity reflects a wider issue in society than holidays alone.

"The problem is that we are not being rationale in terms of dividing work and leisure. This is a reflection of our own society and culture where we don't try to separate things," says Hettige.

He said that shops or offices close suddenly for people to attend a funeral, wedding or some other social function and this is part and parcel of Sri Lankan society. But in most developed countries, work is separated from leisure or social happenings.

Chronic absenteeism in the public sector and workers having to spend a minimum of five to six hours to travel to their offices are problems that could be resolved with good planning, said Hettige, head of the Department of Sociology at the University of Colombo.

He believes absenteeism is often due to people being compelled to stay at home because they or their children are ill. "You can't expect a man to come to work if there is some serious problem at home."

Sri Lanka's poor public transport system is also the cause of absenteeism or latecomers to work. Though there is old public service rule that employees must live within a certain radius of the office, many people travel long distances - some as far as 100 or 150 km - to their offices by bus or train.

This is due to the exorbitant cost of living in the capital while land prices are also beyond the reach of public sector workers. Hettige says that it was counterproductive to live far away and in a country where public transport is poor, employees should be living close to their offices. In the west, due to an efficient and speedy transport system people don't take that long to come to work even if they have to travel long distances.

EFC's Amerasinghe believes Sri Lankan workers have an inborn desire to devote more time to their family and leisure than work.

He cited the case of how Great Britain, during the industrial revolution, moved from an agriculture economy to an industrialised economy but found the going hard at the beginning. "People were accustomed to working at odd hours in the field and initially found it difficult to adjust to a set working hour schedule," he said, adding that Sri Lanka also needed to move into an industrial mode.

A recent productivity survey done by the EFC showed that while the younger generation of employers was prepared to accept the need for increased productivity and try out various changes, the older generation of employers were reluctant to change.

He says the path to high productivity lies in the need for a social partnership between employers and workers. "There is a need for mutual trust between these two parties. Often there is a misconception by workers that when productivity goes up, the gains won't be shared equally by the employer."

Banking crisis: call money up, money supply low

By Dinali Goonewardene

The Current Situation

Private commercial banks: Employees resorted to trade union action including boycotting overtime work from April 28 1998.

They also began taking simultaneous lunch intervals from 12 moon to 1 pm from May 3 1999.

Lunch intervals were previously on a staggered basis to avoid interruption to business.

State Commercial Banks: Boycotting overtime work since April 6 and taking simultaneous lunch intervals from the May 3.

State Bank's demands: Arrears of an 8 per cent allowance be paid from 1994 to all categories of employees. This dispute arose out of a collective agreement in 1994.

The People's Bank paid arrears of this allowance in 1999 to a section of its top grade officers, which caused the union to demand that it be paid to all categories of employees.

Private bank's demand: A 35 per cent salary increase.

The collective agreement: A collective agreement details wages, medical benefits, bonuses, leave entitlements and disciplinary procedure negotiated and agreed upon by the bank and its employees.

The agreement's present status: The collective agreement signed by private banks in 1995, was not renewed in March 1998, as the bank's could not agree to employees initial demand for a 50 per cent salary increase which was later brought down to 35 per cent.

Banks are willing to concede only a 20 per cent increase. A 25 per cent increase, which was suggested by the Labour Minister, was rejected by the employees.

How does this affect the money markets? The bank strikes have affected interest rates. Call money rates are relatively high, due to a shortfall in available money supply. A decline in bank deposits are contributing to the high rates.

There is no other explanation at this point in time other than pressure across the yield curve, money brokers said. They said the liquidity shortfalls were being met through the reverse repo window.

A contradictory viewpoint was that insecurity regarding balances held was causing increased borrowings and thereby causing rate volatility in as liquid market.

State Intervention: Acting Labour Minister Janaka Bandara Tennakoon has referred the matter to Industrial Court as per order made on April 23.

Legal Angle: Both parties are legally required to abide by the ruling of the Industrial Court, Minister Tennakoon said.

If the court rules in favour of the banks, employees will be forced to work according to this ruling.

If the ruling is in favour of the employees, banks will have to comply with the conditions imposed by the industrial court.

Rating firm to squeeze Sri Lanka banks -analysts

The planned launch of Sri Lanka's first rating agency is expected to boost the local corporate debt market, but analysts said interest earnings and loan growth of commercial banks could suffer.

"Banks could see corporate customers raise funds by issuing debt instruments. This will be positive for the local debt market but could be a threat to the banks," said Rienzi Wijetilleke, managing director of Hatton National Bank, the country's largest listed commercial bank. Duff & Phelps Credit Rating Co (DCR) is joining hands with the Central Bank of Sri Lanka, the International Finance Corporation and various local commercial banks, state funds and finance companies to start a credit rating agency from July.

Sri Lanka has been keen to set up a rating agency to enable private companies to raise long-term debt as the equity market has stagnated since last year.

The government has proposed several incentives to encourage corporate debt listings, among them the removal of a 10 percent withholding tax levied on interest paid on listed debentures and debt securities.

Tiny Sri Lanka currently has only eight debt securities listed on its Colombo exchange. "There will be disintermediation because companies won't have to go through banks for funding," said Feroze Cader, banking sector analyst at John Keells Stock Brokers. "With heightened competition, banks will also have to lower their interest rates." The average prime lending rate of Sri Lanka's commercial banks has hovered around 16 or 17 percent in recent months.

Analysts said the ratings would help distinguish the better managed banks from the weaker players, and push some banks into more fee-related operations.

"A positive spillover will be that some institutions will have to raise their standards to gear themselves to competition. This augurs well for the economy as a whole," said an official of the Central Bank, who declined to be identified. `Other analysts agreed. "Banks should be prepared to face the measures of performance," Wijetilleke said. (Reuters)

TRC clamps down on SLT

The telecom watchdog has ordered Sri Lanka Telecom (SLT) to pay a Rs. 1000 per week compensation to customers who have paid installation charges but failed to receive a connection after 90 days.Customers, who pay installation charges on an installment basis, will now be eligible to a compensation of Rs. 300 per week, if they fail to receive connections after 90 days, the Telecommunication Regulatory Commission (TRC) said.

Frustrated customers are alleging that SLT has been collecting the total Rs. 13,000-installation fee, but fails to give connections within the stipulated 90-day period.

Some customers have waited for as long as 5 to 6 months for their connection, they allege.

Customers seeking SLT connections, are permitted to pay the installation fee in installments. They were also eligible for Rs. 300 compensation if they did not receive their connections within 90 days.

However, telecom sources allege that SLT very often refrains from collecting the initial fee in installments, instead collects the entire fee up front.

While SLT is liable to compensate those paying in installments, there is no recourse for those who have paid the entire connection fee up front.Instead, SLT has been trying to make use of this loophole by paying Rs. 300 compensation to customers who have paid the full installation fees, industry sources said.The TRC order, which came into effect from May 15, gives SLT 15 days to comply with.

Vanik Index and Income Funds open for business

Vanik Asset Management Co. Ltd launched Sri Lanka's first ever Index Fund together with an Income Fund last week.

The two funds, Vanik Sashrika Index Fund and Vanik Sashrika Income Fund, aim at attracting medium and long-term savers who can invest a minimum Rs. 1000.

"Both funds have a minimum investment of Rs. 25 mn, and we are confident that both funds can mobilise around Rs. 200 mn within the first two months," Chairman Vanik Asset Management, Justin Meegoda said addressing a media briefing last week.

Unlike other Unit Trusts, an Index Fund does not depend on individual judgement. Instead the Fund will invest in companies which comprise the Milanka Price Index (MPI) with the objective of tracking the MPI's performance.

The annual returns would be between 18% and 21%, based on how the companies in the MPI performed last year, Mr. Meegoda said.

"We offer investors one of the low risk investment channels into the stock market. In addition to being diversified over the 25 high market capitalised, liquid and popular shares comprising the MPI, the 'passive' fund management style avoids the additional risk of bias and speculation", he said.

The Index Fund will charge a management fee of 1.5% per annum. The exit fee will be 2% within one year of purchase.

The Vanik Shashrika Income Fund will invest in Treasury securities, bank guaranteed debt instruments, commercial paper, quoted debentures, asset backed securities and bank deposits.

The strategy will be to model the portfolio taking into account the shape of the yield curve and expected interest rate movement with the objective of deriving the maximum return, Vanik Asset Management CEO Ranil Pathirana said.

"We hope the Income Fund would get a return of about 13 per cent," he said.

The Income Fund will levy a 1 per cent management fee per annum.

The two funds are open-ended, offering units on a continuing basis.

The investor has the option of requesting distributions to be re-invested.

Both funds have no front-end fee during the initial offer and exit fee is beyond one year since the purchase.

The results of both funds would be published on a daily basis in the media like in the case of Unit Trusts.

Hongkong & Shanghai Bank will act as the trustee for both funds.

The two funds will be marketed through a network of 14 outstation Vanik "Windows" in Kurunegala, Matara, Galle, Ratnapura, Chilaw, Anuradhapura, Nuwara Eliya, Badulla, Dambulla, Matugama, Hingurakgoda, Embilipitiya and Dehiattakandiya.

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