19th March 2000

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London Stock Exchange votes to go public

Members of the London Stock Exchange voted on Wednesday to demutualise the 200-year-old institution. The proposal was approved at an extraordinary general meeting. It could value the exchange of about £300 ($471m). "Today's vote moves the exchange into a new era, providing a structure that will allow it to compete more effectively in the rapidly developing environment in which stock exchanges now operate," said chairman John Kemp Welch. Technological change and greater competition have revolutionised share dealing worldwide. Now, instead of being owned and run by members, the exchange will be run by a limited company. It will lead to windfalls of £1m for the 298 brokers and other institutions that currently own the exchange, each of which will get 100,000 shares.

LSE shareholders will be allowed to trade the shares on a "matched bargain" basis through brokerage Cazenove & Co, but none will be allowed to own more than 4.9%. Dealing in the shares is expected to start in late April or early May. Demutualisation also raises the question of a flotation

The exchange said further decisions would depend on the views of its new shareholders.

Mind Your Business

By Business Bug
Costly feelers

The state telecom giant- now partially privatized- has already announced its intentions of raising tariffs yet again by about June this year.

But the feelers it put out to the public may have cost them in the long run. Its competitors in the private sector are now reviewing their tariffs, and they feel the market leader's price hike would be a golden opportunity for them to cash in- by not raising their charges and thereby enticing new subscribers.

More the merrier

The recently concluded cricket series in Pakistan saw a bitter battle between two bottlers in the advertisements in between the TV commentary.

One claimed they marketed the real thing and the other said the smaller bottle was better. Now however, a third bottler is set to enter the fray, marketing soft drinks of the same flavour. As the contest becomes three-way tussle, consumers can hope that it will be more the merrier…

Bridge over troubled waters

Local motoring circles are concerned at what appears to be shabby treatment meted out to one who pioneered the sale of a top lubricant in Sri Lanka.

With the liberalisation of the oil industry, a recent appointee hailing from a not too distant shore has chosen to ride rough shod over the local distributorship. Motor trading circles are keeping a wary eye on this big brother approach or otherwise much oil will have to be poured on troubled waters, they say...

Colombo will catch up say Compaq bosses

International computer giant Compaq called on the local computer community last week to demonstrate how South Asia could exploit the latest Compaq IT enabled technology to drive the internet economy.

Compaq officials said that the company's latest solutions specialise in e-Business strategies for the fast growing internet world.

The latest range of products that include the Multi Document Printer family is only the beginning of more internet enabled equipment to come. Compaq South

Asia's MD, Andy Chan has said in a press release that Compaq's objective was to radically simplify computing for consumers and businesses.

Compaq officials said that e-Business was the way to go as it was a cost effective and efficient marketing channel, which happens to be two of the very important criteria in today's highly competitive market place.

Officials told the media that they would continue to market their products through their regional channels, but added that they were keen on developing their on-line channels. They said that customers would benefit immensely from their on-line store as the latest technology enable the customer to pick and choose to their whims and fancies.

The company's Director of e-Commerce for the Asia Pacific Division, Edwin Huang said that it was only a matter of time before Sri Lanka caught up with the rest of the world. He said that the region's technology adoption rate was phenomenal and in a few years we would be fully internet enabled, down to every day appliances.

Forecast 2000

Tourism to battle bombs, violence and GST

Analysts have forecast a gloomy year for tourism in Sri Lanka.

The looming bomb scare and anticipated violence during the upcoming general elections is expected to drive last year's record tourist arrivals down a few points.

This in addition to the hotel sector being liable to GST from April 1, is expected to squeeze profit margins further.

Industry officials feel that hotels would not burden their customers with GST and as a result would cut costs to maintain the present room rates.

Last year's accounts show a dismal performance by the Colombo hotels while most resort hotels performed satisfactorily.

Analysts said this trend would continue this year but see a drop over the last year.

Analysts say that although cancellations following the frequent bomb explosions were negotiable considered in isolation, they would add up to make an impact at the year end.

Moreover, hopes of a decent first quarter went down the drain with the latest terrorist attack in Rajigiriya.

Adding to the hotels' worries are the recent fuel hike, the increase in the price of meats and other commodities.

Officials say that to be competitive they needed to keep prices static.

However, they said that slight increases would be made so as not to burden customers too much.

In addition, the anticipated drop in tourist arrivals, especially in Colombo hotels, will also affect the financial performances of corporates who own hotels this year.

Most hotel companies with exposure to resort hotels recorded marginal profits for 1999.

The industry forecasts that such companies might record marginal profits but said that it depended on the country situation.

Tea update

Tea board tours India and Pakistan

Sri Lanka tea promotion bureau will tour neighboring India and Pakistan next Tuesday, Tea Board officials said.

The Indian market is a virtual uncharted territory for Sri Lanka. Pakistan has been a traditional market for Sri Lanka, and the team hopes to tap the lucrative Egyptian market as well.

Industry officials fear that a backlog of tea would build up in April.

Asia Siyaka Tea Brokers reported that the 600,000 kilos of tea that was shut out of last week's sale and the fact that only three auctions would be held due to the intervening holidays in April would snowball creating a backlog of tea.

Officials fear that this would result in lower prices in future auctions.

The 600,000 kilo backlog was created due to catalog restrictions. However, the last sale in March is reported to be relatively smaller at 5.5 million kilos.

Therefore, officials hope that the backlog and that loss of one auction in April would not disturb prices too much.

Production figures for January on the other hand show an eight per cent drop to 22.75 million kilos YoY.

This is also lower than the production figure for December. The drop was mainly attributed to dry cold weather in the south that prevailed during the beginning of the month. Conditions in February though have been reported to be comparatively favourable.

In auctions last week, a disappointing feature was the continued lack of support for Nuwara Eliya teas and for the other light liquoring teas. John Keells Tea Brokers said they hoped that a little more interest would be shown in the next couple of sales since the characteristics of tea will decline once the southwest monsoon begins.

Overall, most teas gained over the previous prices.

Forbes and Walker Tea Brokers reported that the quality of teas on offer were irregular and consequently, prices for teas in the best and below best category tend to fluctuate resulting in significant price variance between consecutive varieties from the same estate.

Stock Market Report

Foreigners continue to sell out

The All Share Price Index bounced off a twelve month low of 512 to pick up marginally on Wednesday.

The blue chips continued to swim in a whirlpool, losing ground at the beginning of the week to resurface later on.

Foreign selling which was high during Monday and Tuesday waned down mid week only to increase on Friday. Net foreign sales for the week were Rs.90 mn.

Average turnover for the week was Rs.45.6 mn. The All Share Price Index fell 0.3 per cent to close at 519.8 while the Milanka Price Index rose 0.4 per cent to register 850.3. The MBSL Midcap index dropped 2.05 per cent to close at 907.58.

"Though we have seen a recovery in corporate and economic growth the market is expected to remain sluggish due to the heightened level of uncertainty linked to the security lapses and upcoming elections," Head of Research, Asia Securities, Dushyanth Wijaysingha said.

"Foreign selling is still very much on the cards," Head of Research, NDBS Stock Brokers, Chanaka Wickramasuriya said. "Though local institutions seem to be absorbing foreign selling there is not enough purchasing power to sustain prices. If foreigners continue to sell, the market will weaken," he said.

"The market's direction next week will depend on how much foreign selling there is. After that the market may bounce back," General Manager, Forbes ABN Amro Securities, Alistair Corera said.

'Hong Kong' superstop promotion relaunched by Cathay Pacific

Cathay Pacific Airways relaunched its very successful "Hong Kong SUPERSTOP" promotion for visitors travelling to Hong Kong between now and 31st December 2000. For its second year, the Hong Kong SUPERSTOP offers passengers a choice of seven deluxe hotels in Hong Kong for as little as US $ 25 per person for the first nights stay, a release said. Passengers travelling on Cathay Pacific to and from long-haul destinations via Hong Kong can choose to make a SUPERSTOP at any of the deluxe hotels on offer. They include the Hong Kong Hotel, the Marco Polo, the Prince Hotel, the Excelsior Hong Kong. The Royal Plaza, Grand Tower or the Grand Plaza. The stay could be extended for up to five nights at a discounted rate.

In addition to the discounted room rate, passengers are entitled to the entire range of benefits offered under Cathay Pacific's "Yum Sing" promotion which includes 50% off sightseeing tours, a 25% discount at selected restaurants and a selection of two-for-one entertainment options. Cathay operates three flights a week out of Colombo on Sundays, Tuesdays and Fridays arriving into Colombo on Saturdays, Mondays and Thursdays.

Better earnings help DPL

Dipped products pre-tax profits for the nine months ending December 31, 1999 , was Rs.73 million, compared to Rs. 22 million for the first six months of the year, a company press release said.

This was attributed to improved tea and rubber prices in the third quarter of the year.

Group turnover for the period under review was Rs. 1.6 billion, a marginal drop from the Rs. 1.7 billion recorded in the corresponding period of the previous financial year.

However pre-tax profits in this period, when compared with the first nine months of 1998-1999 , have declined by 70 per cent, from Rs. 248 million to Rs. 73 million, due largely to the losses incurred by the plantation sector.

The glove-manufacturing sector, was able to maintain its export volume, but reported a reduction in its earnings due to difficult trading conditions.

The reduction in earnings was attributed to under - utilization of production capacity due to weaker sales.

The company officials were of the view that the worst of fierce competition from the South East Asian manufacturers is over as the economies in that region have improved.

An increase in DPL's manufacturing capacity by a further 20-25 per cent will be in place by the end of the financial year. Three of the group's glove-manufacturing operations, Dipped Products, Venigros and Neoprex have been granted thrust industry status with a ten year tax holiday effective from the year under review. The Group expects a similar status to be granted to a fourth factory, Grossart during the year. This would considerably improve future prospects, the press release added.

ANZ enters into financing agreement with JKH

Anz Grindlays, Sri Lanka - Corporate Bank recently extended a medium term financing package to John Keells Holdings Limited (JKH).The credit facility is for Sri Lanka Rupees. 1.8 Billion over a period of 9 years.

The facility is structured to enable JKH to source funds either through the issue of Commercial Paper which are guaranteed by ANZ Grindlays Bank, direct bank borrowing or through a combination of the two, says a Bank news release.

JKH will be utilizing the credit facility for its equity investment in South Asia Gateway Terminals (Pvt.) Limited (SAGT). The investment will be in excess of USD 25M, thus making it the largest shareholder. The SAGT project is for the development of the Queen Elizabeth Quay of the Colombo Port and is the single largest privately funded investment project in Sri Lanka, valued at US $ 240 million.

This is the first BOT project to be undertaken for the development of port infrastructure in the country which will result in a substantial increase in the operational capacity as well as the efficiency of the Colombo Port and is expected to significantly benefit the country's economy.

The credit facility distinguishes itself as the single largest provided by a foreign bank to a private sector Sri Lankan corporate for the given tenor and will be a boost for the local debt securities market.

Sydney 2000 ANZ VISA launched

Tying up with the Olympic Games this year ANZ Grindlay's Bank has launched a promotional campaign for their visa cards called the Sydney 2000 ANZ VISA Olympic promotion.

This latest co-branding campaign represents a partnership between ANZ and VISA in countries such as India, Pakistan, Bangladesh, Dubai, Indonesia and Sri Lanka. A special Visa card is being provided to all Visa cardholders with an attractive visual of Sydney - the venue of the next Olympic Games - illustrated on the card, a bank release said.

The promotion will be effective until July 31 with the grand draw held in August 2000. It will offer the first 4000 individuals who purchase a VISA card, an Olympic commemoration gift such as a pen, cap, a T-shirt or a bag especially flown in from Australia.

New and existing visa cardholders will also get the opportunity of winning the grand prize- a fully paid trip for two to Sydney with tickets to the Olympic Games - through the points they accumulate on all transactions made with this card, the release adds.

No revolution from American insurance giant

Among the other key operations of the multi disciplined AIG is financial services, fund management, aircraft leasing and investment in the public and private sectors.

By the Business Editor

When top international insurer AIG (American International Group) opens for business next month, they would be expected to flex their muscles and make their presence felt in Colombo's small world of insurance.

Not so, says AIG's Colombo chief who arrived here last week.

"We are not looking at revolutionising the industry, " Alan Brown AIG's CEO, Colombo told the Sunday Times Business in an interview. "We run our business in a very disciplined fashion and we have businesses with international companies, some of which are BOI companies here," he added.

We are also not going to discount anyone else's premium, but are targeting a mid market clientele, Brown added.

A very modest target from a, A+++ rated group (by Moody's and Standard and Poor) which is also no. 15 in the US and NO. 26 globally on the Fortune 500 ratings for the highest market capitalisation. AIG's current market capitalisation is US$ 170 billion.

AIG signed up an equity partnership joint venture with a local blue chip Hayley's Ltd. to initially set up an insurance company. The local company has got a licence for general insurance and will be ready to open its doors for business by the Sinhala and Tamil New Year at the Merchant Towers, in Colombo 3 right next door to competitor Union Assurance, who operates from their own building.

Nothing auspicious about the targeted launch dates but just that I am told to get all the work done before the workers take the longest ever holiday for the year, a well informed Brown said. Taking a cue from its competitor, the company does not seem to be too worried about starting up in a high security zone too close for comfort to Temple Trees. There is limited parking facilities and those who want to do business with us will come to us, said a confident Brown.

Among the other key operations of the multi disciplined AIG is financial services, fund management, aircraft leasing and investment in the public and private sectors.

Recently AIG appointed Qureshi Roth Group ( an emerging markets partnership) to manage funds in excess of US$ 5 billion in Asia. Of this fund, US$ 1 billion has been allocated to South Asia towards infrastructure programs like power plants, telecommunications, port and roads.

With a presence in 130 cities worldwide, AIG has cemented its strength in South Asia with the opening of operations in both Colombo and India.

They already have businesses in Pakistan and Bangladesh. The Group is strong in both life and general insurance worldwide but in Colombo, the AIG Hayley's venture called Hayleys AIG Insurance Company Ltd. will concentrate initially on general insurance with special focus on health and accident covers.

We have a range of policies in this line we hope to introduce, including a weekly income benefits policy for accident and sickness covers, Brown said.

In addition to the claims covered under the policy the accident and sickness policy will pay the daily wages of the insured after the first seven days of absence from work.

While we are not shutting the door to individual policies these high premium covers are mainly targeted at corporate groups, Brown said.

The new company is also strong on energy infrastructure insurance where for example a power project or a dam is insured by a construction policy.

The company is also looking at property insurance, which is generally called fire insurance here but covers a wide range of disasters like lightning, impact, flood etc. Casualty insurance is another area to tap where liability covers are sold to large building owners who are sued for various accidents that occur in their building.

The company is also looking at partnering with banks for housing insurance. We have also observed that the consumer market is growing in Sri Lanka with people spending more on consumer durables and we see a definite market in that for warranty insurance, Brown added.

Another mainline of business for the company will be inland and overseas marine cargo insurance. Value addition on corporate and individual covers from a top international insurer is only to be expected and Brown confirmed that the service comes in many forms. For example the company offers risk engineers to industrial property covers who could be hired when necessary. This would eliminate the necessity of hiring a full time employee for the job, Brown explained.

Re-insurance is placed partly with local and partly with overseas insurers in keeping with local regulation. Plainly the company perched from its top rung in international insurance is aiming at the heavy-duty business.

Brown says that inspite of their international image the local company will look at a top end, bottom end focus and individual products will also be offered.

There will be some product-based advertising for the commercial sector, Brown said. AIG will bring in their computerised accounting system used internationally in all offices.

Staff will be recruited locally with an experienced executive top level and a fresh and young support staff. AIG is the second international insurer to set up business in Colombo. Last year Zurich Financial Services tied up with Eagle Insurance as a result of British American Tobacco (BAT) shedding its financial services arm which included insurance. While BAT decided to concentrate on its core business only, their insurance company Eagle Star of UK was snapped up by Zurich.

Since Ceylon Tobacco Company (CTC) BAT's local arm owned 62% of CTC Eagle Insurance, Zurich Financial Services automatically walked in here, in a tie up with CTC Eagle.

Sri Lanka's insurance penetration ratio, i.e premium income as a percentage of GDP was low at 1.2% in 1998. India in comparison was 2.6%, Malaysia 4%. In contrast developed countries like Switzerland have a penetration ratio of 12.6% and US 8.7%. The situation has not changed much in the past two years.

Traditionally the state corporations have controlled insurance with a few private insurers playing the field. Recently however the insurance sector has seen sweeping reforms caught in the tide of overall financial sector reforms.

Last month the People's Alliance government's sixth budget liberalized the insurance sector so that a foreign company can now buy up to 90% of equity in a local insurance company.

Industry players are wary of this development and CEO Union Assurance , Mr. Hydery Rehmanjee pointed out that the Insurance Regulation Bill passed by the Indian parliament recently permitted foreign equity of upto 26% only.

" The only rationale I can think of for opening up the sector to foreign equity is to facilitate transfer of technology. To achieve this there is no need to permit majority ownership in insurance companies.

The insurance business generates huge funds and substantial profits. If the industry is controlled by Sri Lankans the funds and profits will be used locally to Sri Lanka's benefit, " Rehmanjee told the Sunday Times Business.

The Insurance Act is going through reforms to bring it on par with international legislation and to facilitate the setting up of an insurance board with a Director General of insurance for better regulation.

The government is planning to sell the two state run insurers the National Insurance Corporation (NIC) and the Sri Lanka Insurance Corporation (SLIC) as part of its privatisation programme. SLIC is regarded as the insurance giant with 50% of the general insurance business. But industry analysts say that at least 20% of this is business from the government. Already an advisor for the sale of the smaller NIC, Arthur Anderson has been appointed by the Public Enterprises Reform Commission (PERC) the authority in charge of the privatization process.

Of the private sector insurers Ceylinco Insurance, Union Assurance and Eagle Insurance and Co-operative Insurance were set up in 1988. Janashakti Life and Janashakti General are relatively new players and newcomers Asian Alliance are the only other contenders in the market.

Recently Hatton National Bank requested a license to operate a separate insurance company. But analysts say the Banking Act may have to be amended to permit commercial banks to go into insurance.

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