23rd January 2000
By Feizal Samath
The overseas listing of a government stake in Sri Lanka Telecom is on scheduled for mid-year and the expected revenue from the sale would probably be even better than obtaining structural adjustment loans from the International Monetary Fund (IMF), a senior government official said.
"The overseas listing of Sri Lankan Telecom is a major event. The US $ 300 to US$ 400 million that we hope to raise from this, in my view would be even better than ESAF (Enhanced Structural Adjustment Facility)," Finance Secretary Dr P.B. Jayasundera told the Sunday Times Business.
Sri Lanka has obtained ESAF and SAF (Structural Adjustment Facility) from the IMF to offset adjustment costs in the economy for several years up to the mid 1990s. It has however not obtained this facility in recent years due to the inability of the government and the IMF to reach agreement on a series of cost-cutting exercises.
Dr. Jayasundera said the government wanted to divest 10.5 percent of its 60 percent stake in Sri Lanka Telecom last year but could not obtain the right price. "Market conditions were not satisfactory and we could not secure the price we expected.
The government, through the Public Enterprises Reform Commission (PERC), has called for proposals from leading investment banks . Seven offers are being evaluated in terms of their ability to take Sri Lanka Telecom to the international market and raise this level of capital, officials said.
Jayasundera says the government may sell off more than the expected 10.5 percent stake if the right price is offered internationally. "While Sri Lankan Telecom is trade internationally, we will use that process to list part of the stock here. It would be a kind of a dual listing. We may even go beyond 10.5 percent."
He believed current economic conditions were satisfactory to take "one of Sri Lanka's most successful privatizations to the international market." The decision as to where the stock is listed would be taken by the selected investment bank, the Finance Secretary noted.
Dr Jayasundera said that the next phase of development in Sri Lanka was the implementation of several infrastructure projects like new roads for instance.
Major donors like Japan and the Asian Development Bank (ADB) have approved the
US$ 300 million southern expressway and funding has been secured for this six-lane highway.
Dr. Jayasundera said that documentation and tender procedures was the next step in the project. Likewise the Colombo-Katunayake proposed new highway was also at the same stage of development.
"We have conceptually finalized the Outer Circular Road, which will connect all major arteries to the Colombo city. Project funding has been sought from the government of Japan and feasibility studies have been done," he said, adding that a new Colombo-Kandy highway was the fourth project in this sector.
The total investment in the four-roads project totals US$ 900 million which is "almost the size of the Mahaweli project, which was US$ 1 billion," the Finance Secretary noted "In terms of activities, these roads will connect three major provinces. The economic integration under this project is wider than the Mahaweli project", he said. Physical work on these new roads will commence towards the end of this year, reaching a peak in around 2001 -2002. "The new roads development scheme is a mega project by the government and far supercedes any previous development in terms of economic benefit," he said.
Daya, Lalith fight it out
By Dinali Goonewardene
The much hyped Blue Diamond fiasco took another twist, with the Managing Director pointing his finger back at the Chairman, claiming that the entire board of directors approved the controversial Energen investment. An Extra Ordinary General meeting has been scheduled for January 24, 2000 to remove Daya Senanayake, the Managing Director from office. Senanayake using the provisions contained in the Company's Act wrote to all shareholders explaining his side of the Blue Diamonds saga and requested shareholders to vote against a resolution to oust him from office.
Meanwhile Blue Diamonds Jewellery Worldwide Ltd has filed a case against Senanayake in the District Court of Colombo on several counts including a plaint that Senanayake fraudulently recommended the board of directors to invest a sum in excess of Rs 280 mn in Energen Holding Company Ltd, Mauritius. In a communique to shareholders, Chairman Lalith Kotelawala claimed that the most important company resolution was not signed by either himself or his wife, as he was being treated for injuries in the UK at the time.
A subsequent board resolution authorising an investment of US $5 mn has been approved by ten board members including Chairman Lalith Kotelawala, Managing Director Daya Senanayake and Mrs Sicille Kotelawala. Kotelawala defends himself to shareholders on the basis that Ceylinco Consolidated has over a hundred companies and several resolutions come up for signature and are considered upon recommendation by the chief executive officer. He adds that Daya Senanayake was a life long friend of his and a trusted colleague of the board.
However some analysts see an earlier board decision to remove Senanayake from the directorate of several Ceylinco Group companies as an calculated move to make him a scapegoat.
A barrage of explanations from both Daya Senanayake and Lalith Kotelawala in recent weeks has left shareholders bewildered. The controversy arose when Blue Diamond's auditors KPMG Ford Rhodes Thornton and Company raised questions about the US$ 5mn investment by the company in Energen Holdings.
Senanayake subsequently signed his approval of the company's annual accounts but then informed the Securities and Exchange Commission that the accounts contained incorrect statements.
Senanayake said that he was excluded from a management council formed in September 1999 which was headed by Lalith Kotelawala. Since I was permitted no role in the management of the company, the preparation of the accounts or the appointment of the management council, I refused to sign the annual accounts until I had authorisation from the management council, Senanayake explained in his statement. Authorisation was subsequently received from the management council and he signed the acounts. In response to a query by the Securities and Exchange Commission, Senanayake sought the explanation of the Finance Manager and Finance Director on certain information relating to the company and the accounts. Failure to receive a response compelled me to refuse to sign a board resolution approving the accounts, Senanayake said. A report by auditors B R de Silva and Company shows that a schedule by KPMG Ford Rhodes Thornton and Company in July 1999 details import advances of Rs 121,281,915 as being outstanding as at March 31, 1999 but the final accounts published at the AGM show a figure of Rs. 250,986. The amount payable to Blue Diamonds Ltd has been reduced from Rs. 119,262,900 as at March 31, 1998 to Rs. 30,171,442 as at March 31, 1999. "This reduction remains a mystery to me," Senanayake who is the Managing director of Blue Diamonds Ltd told shareholders.
The Central Bank on Friday reduced the daily average requirement under the Statutory Rate Requirement (SRR) from 90 percent to 70 percent. Banking sources say that the rates were brought down after the foreign banks lobbied that they were unable to maintain the daily rate at 90 percent.
The daily average rate was introduced from August 20 last year in an attempt to put a lid on volatile rates.The SRR was lowered from 12 percent to 11 percent last year, in an attempt to curb galloping lending rates. The Central Bank also reduced the bank rate - the rate at which it lends to other commercial banks as the lender of the last resort - from 17 percent to 16 percent.
The SRR was slashed for both rupee and foreign currency deposits not placed abroad. The SRR was previously cut in two steps in 1997 to 12 percent from 15 percent. Dealers said, the move will not have much of an effect, but would add a little more to the volatility in the market.
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The Central Bank is forecasting a gross domestic product (GDP) rate of 7.5 percent to 8 percent for the next decade if the government is able to achieve peace within the coming months, a top Central Bank official said last week.
The Bank had recently done a study on the macro economic trends of the country: what the forecast figures would be if the present situation continued, or if peace was achievable within the next few months.
"Even if the present scenario was to continue we can expect a GDP growth rate of 5 percent to 6 percent which is quite remarkable given the context that the economy averaged 5.2% of GDP growth during the last decade," Director Economic Research, R A Jayatissa said.
Per capita income which rose from US$ 415 to US$ 840 between 1989 and 1999, is expected to touch US$ 2,500 in year 2010, he said.
We expect foreign capital inflows to flow in within the next few years. Currently the FDI/GDP ratio is 1.4 percent. "With the necessary reforms, we can push it up in 2005 to 2.5 percent of GDP, in 2010 to 3 percent. With peace there will be significant higher inflow of around 4 percent which will help investment and support export led growth," he said addressing a seminar organised by the Society for International Development.
Continuing the government's stance of reducing inflation, Jayatissa said that the Bank hopes to reduce inflation to world inflation rates. Sri Lanka has historically had high rates. The Bank was forecasting inflation to be around 8 percent to 9 percent last year, but the rate fell to 4 per cent.
Jayatissa says that the present world inflation rate is around 3 percent. But the Bank is expecting Sri Lanka's inflation to touch 6 percent to 7 percent this year. The debt service ratio, which is presently 13 percent, is expected to be 7 percent in 2010, with a significant amount of foreign borrowings, he said.
The budget deficit is also expected to decline further, but Jayatissa did not disclose a specific figure. The fiscal deficit can be kept to 4 percent without adding inflationary pressure in the economy. We also need to have a positive reasonable interest rate, so as not to discourage savers, but at the same time encouraging investments.
We also need to reduce absolute poverty. Income distribution - people earning less that US$ 1 per day — is expected to decline further from the present 23 percent to 10 percent in 2010.
However, to achieve all this certain structural changes are necessary to improve the operational efficiency of both the private and public sector, by moving towards productivity base incentive schemes, he said.
"The private sector is moving towards it but the public sector has a long way to go," he said. There needs to be reforms in the pension system. Pensioners' real income has been eroding due to higher inflation.
With other countries moving towards contributory pension schemes, future reforms should ensure pension schemes are viable, he said. Jayatissa said that the topic of capital account liberalisation cannot be avoided.
"Gradually there have been moves towards this. The IMF has temporarily stopped pushing for it since the onset of the East Asian crisis, but it will come and some day we will have to be ready for it. If peace is achieved it will be another opportunity for us to achieve capital account liberalisation."
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