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11th June 2000

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More houses coming up

Building work on a crop of new low, mid income and apartment housing complexes is scheduled to get underway by this August taking a slice off the urban housing pressure.

The BOI called for Expressions of Interest in March and already 12 written submissions have been received by the Board of Investment (BOI) of which about half are in the process of submitting detailed proposals for a housing project called the 300 Development Housing Project (300 DHP) announced in the budget 2000, Executive Director, Regional Development and Special Projects, Mr. L. D. Dickman said. The target is 7500 houses in 25 urban districts within three years, with 300 houses in each location.

About 60 inquiries were initially made and the developers will receive a 10-year tax holiday and other concessions like duty free imports during construction period. The project has deviated from the standard housing project to garner private land for private development with the assistance of the state for large-scale housing. The BOI's commitment is to develop off site infrastructure - the area leading up to the site including roads, electricity, water, telecommunications etc.

Each development of 30 - 40 acres approximately will have 300 houses as it would be more cost effective to develop the infrastructure of a larger area.

The developers will use their own land to build and bear the cost of the infrastructure inside the complex. Among those who have made proposals are consortiums with development banks and commercial banks. Foreigners are also permitted to submit proposals. The chosen sites are in Colombo, Gampaha, Kalutara, Puttalam. Inquires have been made for similar projects in Kandy, Matara and Galle.

The project is completely market driven and the BOI's participation in providing off site infrastructure is to ensure that the end user will benefit from low to mid income affordable housing, Dickman said. "We don't want to impose any restrictions on the type of housing. It could be a township a neighborhood etc. However finding private owned land for 300 houses in one location could be difficult so we have decided to consider the development in two locations," he added.

In Colombo development proposals have been made for 400 houses in Kirimandala Mawatha, Narahenpita.

A high rise complex in Mattakkuliya, and in the greater Colombo area, low cost housing in Muthurajawela, Ja Ela, Negombo, Katunayake, and Meepe. The houses will be high-rises, single storey, twin houses or two storey houses depending on the location and the target market.

It could also be a mixture of houses. This is the BOI's second most ambitions housing project after the Horana industrial township where 8000 houses are targeted in 10 years. 1500 acres have been identified to be developed as a township and at least 200 houses are scheduled to come up in the initial phase of the project with foreign investment. Another 2216 houses will come up soon in Ekala, developed by a consortium led by Citi National Investment Bank, with the participation of M/S international Consortium Construction Ltd. , NDB and Surath Wickramasinghe Associates. The second phase of the 300 DHP is to find state land for the private sector to develop when the private sector owned land for this project runs dry. A recent report on housing and urban development says that during 1998 - 2005 the estimated housing requirement is 511,987 units of which 322,522 are in the urban sector.

The requirement will keep growing as there is a backlog in the required number of houses every year, the report adds.


Short term rates up

The Central Bank made upward adjustments to its repurchase rate, the reverse repurchase rate and the overnight call rate last Thursday, fuelling speculation of skyrocketting short term rates.

The overnight repurchase rate (repo) was raised from 9.25 percent to 9.50 percent, while the reverse repurchase rate (reverse) was raised from 14 percent to 15 percent. The overnight call rate, which was hovering around 14 percent since mid-last month, went up to 14.75 percent.

The repo rates also pushed the call rate which ended the session at 14.22%, up from 14.0% on Wednesday. The weekly treasury auction saw the treasury bill yield rate rise by 10 basis points. The three year bond auction fetched a weighted average of 13.93%.


CLL in Rs. 96.6bn securitised debt

Commercial Leasing Co. Ltd. (CLL), successfully placed a 3 1/2 year Rs. 96.6 mn in securitised debt recently.

The issue was structured by Citi National Investment Bank and Deutsche Bank AG are the trustees, CLL Finance Manager, Sanjiva Bandaranayake said.

Securitisation is the process of pooling together a group of receivables from financial assets and the issuing of fixed income instruments to investors based on the strength of the stream of cash flows.

The transaction pools together a number of lease receivables arising out of lease contracts between the lessor CLL and the lessees. CLL will act as a servicer to collect the lease rentals and deposit them on receipt to the trust.

The objective of securitisation is to create a bankrupt remote vehicle, where the lease portfolio assets are taken off CLL's balance sheet and structured in a way that the assets are sold to prospective investors.

A Special Purpose Vehicle (SPV) created for this purpose by the trustee, will break the pool (debt note) and place it with individual investors. The Trust issued instruments with tenures between three months, six months and up to 42 months, with interest rates varying from 13.5% to 16.5%.

CLC's lease portfolio is over Rs. 1.03 bn and CLC is granting around Rs. 70 mn fresh leases per month. This securitisation of Rs. 96.6 mn constitutes of about nine percent of their lease portfolio. CLL also has a good collection ratio of 92%, Corporate Advisor Citi National, Vajira Kulatilaka said.

Securitisation still remains a relatively new product, due to certain regulatory restrictions that prevent companies from investing in unquoted debt. "We may think of listing future securitisation done on large transactions," he said.


SLT IPO later this year

The preparatory work for Sri Lanka Telecom's (SLT) Initial Public Offering is scheduled to be completed by mid July.

"Once the work is done, they [the lead managers], would do a temperature check on the international markets and advice us on the timing of the issue," Public Enterprise Reform Commission (PERC) Director General Mano Tittawella said in an interview.

SLT's IPO was expected to net in US$ 400 mn (Rs. 30 bn).

The proceeds will be used to bridge the budget deficit and retire further public debt.

The issue was scheduled for mid this year. With the issue being delayed further and the downward revision of telecom stocks, there is uncertainty if the government would get the expected revenue.

"We are aware of the sentiments in the dot com market," Tittawella said. But our advisors tell us that SLT is a good issue.

We have not revised our projected revenue and our advisors tell us that there is still demand for established telecom entities," he said.

He added that the issue would go ahead as planned later this year, with the international issue preceding the local issue.


GDP growth 6.3%

GDP grew by 6.3 per cent in the first quarter of 2000

The Gross Domestic Product (GDP), in real terms, has grown by 6.3 per cent in the first quarter of 2000 over the corresponding quarter of 1999. This performance was largely an outcome of faster growth in factory industry, foreign trade, construction and telecommunications sectors. The GDP growth rate in the first quarter of 199 was 2.8 per cent. The Gross National Product (GNP), defined as GDP adjusted for net factor income from abroad, grew by 5.4 per cent in the first quarter o f 2000. A Central Bank release said.

In the first quarter, the value-added increased in manufacturing (10.6 per cent), Construction (8.0 per cent), Services (6.4 per cent), Agriculture (2.1 Per cent and mining and quarrying (13.0 per cent). The services sector contributed 53 per cent to the overall GDP per cent and 10 per cent, respectively. The contribution from Agriculture was 8 per cent while that from mining and quarrying sector was 4 per cent.


FOREX officially recognised

The Central Bank recently gave official recognition status to the FOREX Association and pledged to help in fostering the development of the market.

The Bank has expressed willingness to join hands with the FOREX Association and develop the skills of the dealers, FOREX Association President, Mangala Boyagoda said.

The Bank will help the Association to conduct the internationally recognised ACI (Association of Combaste International) exam.

The Central Bank would also maintain a register of all dealers and brokers, and convene monthly meeting to discuss issues affecting the dealing community, he said.

We will also conduct monthly discussions on various financial topics for dealers and broker community, he said.

The Association had also proposed Central Bank to bring all financial sector participants together under one umbrella organisation.

The Association hopes to maintain high integrity by way of a code of conduct for dealers/brokers and have regional affiliations to enhance Sri Lanka's presence in these markets.

In another related development, the SAARC FOREX Association is planning to publish a news bulletin semi annually.


Tea getting colder

A relatively large quantity of 8.46M kg was on offer at last week's auction - by far the highest quantity ever with the number of lots exceeding the previous record. However, this positive development has brokers concerned as a lack of demand is pushing down prices. With large quantities of tea being catalogued for up coming auctions, brokers say that prices might drop further. Prices have been declining since the highs recorded at the end of last year and the beginning of this year.

Other auction centers too have reported similar trends and are hoping that the extremely cold winter expected this year would help boost prices.

In auctions, John Keells Tea Brokers said that the quality of the teas on offer continued to be disappointing and hence prices for most varieties declined fairly sharply.

The report added that good teas continued to attract good prices.

In addition they said that with the South West Monsoon now active, that we are likely to witness moderate crops and average quality.

However, given the current price structure, John Keells brokers feel that estates should spare no pains to ensure that reasonable product quality is achieved in order to ensure that the net sale average stays above the cost of production.

Plantation Wages

Estate workers will pray to the good gods for a pay rise from their employers from today.

Union officials representing the workers conformed last week that the workers would go ahead with the prayer campaign previously postponed due to presidential intervention.

The prayer campaign will see all plantation workers report to work and then proceed to places of worship to seek divine intervention in the issue.

Industry officials say that such an action would be a devastating blow to the tea trade, as buyers would not sit around waiting for the matter to be resolved and teas to be produced. But, factory owners are adamant that they cannot afford to meet their demands, especially in the light of the recent price slide at the local auctions.

A wage rise was scheduled for the beginning of the year but due to unavoidable circumstances was put off. Many attempts have been made since then to come to a workable conclusion, but with very little success. The present demand of the unions is to raise the tea worker wage to Rs. 131 from Rs. 101, but it is understood that factory owners are not willing to pay anything more than Rs. 125. In addition, the unions have asked that back wages since January also be paid.


BOI gets buoyant

Direct exports from BOI companies have registered a 28.7% increase in the first quarter of 2000, compared to the same period in 1999.

Direct exports for the first three months of 2000 totalled Rs. 58,755 million an improvement from the Rs. 45, 648 million during the same period last year. Significant increases in leather products (87.1%) paper and wooden products (61.5%), food, beverage and tobacco (51.8%) are the main contributors to the growth according to the BOI first quarter performance release.

BOI's direct exports can be identified in about ten main sectors like textile and wearing apparel, food beverage and tobacco, chemical products, rubber, leather, paper and wood, ceramics, jewellery and diamonds, other manufactured products and non manufactured horticultural products and services.

The wide category of export products represents 85% of total industrial exports from Sri Lanka.

The report also shows a 26.4% increase in capital goods imports for the period under review. Total capital good imports have improved from Rs. 4,258 million for the first three months in 1999, to Rs. 5,381 for the same period in 2000. Infrastructure imports have increased significantly reflecting a 95.2% increase from Rs. 1.066 in the first quarter of last year to 2,082 in the same period this year.

Money market report FCL Group


Interest rates shoot up

                        91 Days             182 Days             364 Days

Last Week        11.80%              12.02%                12.57%

This Week        11.90%              12.09%                12.67%

Change              0.10%                0.07%                  0.10%

Inter bank market

The inter-bank call money rate continued to remain high due to poor liquidity conditions. The call money rate fluctuated within the boundaries of 13.75% and 14.5%. The weekly call money average surged up to close at 13.97% 11 basis points higher than the previous week. With the liquidity position unlikely to improve in the near future, the call money rate could remain at higher levels.

The overnight repo rate was increased by 25 basis points to 9.5%., while the reverse repo rate was increased by 100 basis points to 15%. The market repo rates followed suit with the inter-bank call money rate and the Central Bank reverse repo rate and ranged between 13.5% and 14.5%.

Given the persistent liquidity shortfall in the market, the market players continue to borrow from the Central Bank reverse repo window. During the week the market borrowed Rs. 34.8 bn from the Central Bank reverse repo window, averaging around Rs. 6.9 bn a day. The repo window continued to stay quit.

Tbill auction

Rs. 3.73 bn worth of treasury bills were auctioned last week. With the intention of securing the rates and pumping the much needed liquidity to the market, the Central Bank reserved and bought Rs. 1.25 bn worth of bills from the auction. Despite the auction being fully subscribed, the Central Bank intervened for further a Rs. 431 bn, as most of the bids were not within the acceptable region. Despite Central Bank's intervention the yields for all categories continued to rise.

TBond auction

Rs. 1.5 bn worth three year bonds were auctioned last week, with yeilds rose by 166 basis points to close at 13.93% the all time high for the three year category.

FOREX

The excess demand for dollars kept the dollar rupee spot rate high. In spite of the rising short-term interest rates, once again the spot rate crossed the Central Bank selling rate. Although the Central Bank may have sold some dollars to the market, the dollar/rupee spot market remained very tight. The market spot rate moved within Rs. 74.90 and Rs. 75.08 per dollar. During the week the Central Bank selling rate increased by 10 cents, while the spot rate was rose up by 13 cents. Three month forward dollars are in the range of Rs.76.10 and Rs. 76.20.


Market Report

Last minute buying into Sampath

A Rs. 63 mn deal of Sampath Bank was rushed through two minutes before closing time at the bourse, on Friday. A parcel of 630,200 shares was snapped up by the Stassens group at Rs.50 per share. This was followed by another parcel of 630,200 shares at Rs. 50. Rumour had it that this deal too was initiated by a business magnate with a prolific interest in the bank. Friday's deals saw 2.8 per cent of the banks shares change hands.

Meanwhile John Keells Holdings announced its best ever financial performance despite a gloomy economic environment, leaving analysts to infer that companies diversifying into new areas such as information technology and infrastructure development could prosper. The company's profit after tax increased 31.5 per cent to Rs.1.18 bn in the financial year 2000.

Meanwhile Tuesday saw Rs. 32 mn worth of fresh foreign buying. However this buying interest was not sustained in the latter part of the week. Net foreign sales for the week was Rs 54.7 mn.

Average turnover during the week was Rs. 41.2 mn. The All Share Price Index fell 1.3 per cent to close at 472.5 while the Milanka Price Index dropped 2.07 per cent to register 753.9. The MBSL Midcap Index slid 1.57 per cent to close at 823.6.

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