The Sunday TimesBusiness

14th July 1996




AC firms in cold storage

By Asiff Hussein

Importers, manufacturers and suppliers of industrial, commercial and domestic air conditioners have suffered a severe setback in business as a result of the ongoing power crisis.

A sales manager at Frostaire, which manufactures industrial and commercial air conditioners, said installations of industrial and commercial systems were in danger of being hampered due to the power cuts. They were forced to use generators to continue installation work uninterrupted to enable them to keep on schedule for the completion of these projects, with additional cost to the company.

An official at Built-Mech Services said his company which deals in commercial air conditioning, installation, maintenance and repairs also faced a similar problem as a result of the power crisis.

"As for repairs and servicing of air conditioners installed in most office complexes in Colombo, we have been hampered by the ban on the use of A/C's which had resulted in a decline in the overall turnover of the company. There has been about 20% drop in the overall turnover in the repairs and services sector, following the power cuts", he said.

An official at Industrial Trading Co. Ltd., which deals in industrial A/C's said the company projects which did not involve early deadlines were taxing the company due to additional labour costs. "As we do not use generators, we adjust our labour to synchornise with the periods of power supply. As a result, a project that would have taken a month would now need about 45 days. Hence the additional labour costs", he said.

An official of St. Anthony's Consolidated Ltd., said that as decision-making in big companies had suffered a severe setback lately, especially following the power crisis, there has been a steady drop in inquiries. "There has also been a considerable drop in the sales, servicing and maintenance of domestic A/C's as the government's ban has not only affected sales, but also has resulted in a concomitant drop in servicing and maintenance due to non-usage of A/C's", he said.

Mind Your Business

By Business Bug

Panic among investors

Wednesday's announcement that the Kotagala Plantations deal would be the subject of litigation, has apparently sent the wrong signals to the would-be-investors.

Fax machines and telephones were buzzing non-stop the next day as many potential investors wanted their agents here to inquire whether they too could suffer the same fate after buying a state-run venture.

With all this confusion, where else could the stock market go but down?

Another phone link

Last week saw the launch of a link between two phone companies - one a cellular network and the other a payphone operator.

Another such link may soon be in operation, if talks between a different cellular operator and payphone companies bear fruit.

Ah, more the merrier.......

Open sky worries our bird

The Bachelor Boy incharge of flying objects has decided that our skies should be open to anyone who wants to fly.

The purpose of the scheme is to promote tourism and about ten airlines would be invited to study the feasibility of including Colombo as a destination.

But these plans have also worried our own bird of Paradise, which fears that more competition will not improve its turnover......

No Action Talk Only.

"No more Talkshops", said Minister C.V. Gooneratne at the ceremonial inauguration of 'Intrad 96' Industrial and Trade Exhibition recently. Most of those present and our readers would no doubt agree. Doing rather than talking is the need of the hour. And yet we seem to do very little else

The President of the National Chamber of Commerce, Tilak de Zoyza in his opening remarks at this same function underlined the need for a selective import policy, a sustained export drive, the need to cut down on our holidays and the impending transport crisis. None of the three Ministers who spoke after him really responded in any pro active manner. They agreed that these are critical issues. Talk only no action.

The most obvious inaction has been on the holidays issue. Businessmen have made representations on this ad nauseam, committees have made studies, the press has highlighted the need to rationalise and limit our holidays. And yet, talk only no action.

A government intent on increasing productivity in this year and decade of productivity would have tackled this issue as a priority and sent significant signals to the economic workforce. But we only talk about productivity. We do not take action even on an issue such as our excessive holidays where the needed action is blatantly clear. And action must be taken quickly. What is the purpose of declaring 1996 an Year of Productivity and not take any action to reduce holidays and rationalise the system of holidays between the public, mercantile and banking sectors? If we cannot take such measures owing to political considerations, then arenÕt we guilty of making 1996 another year of talk rather than productivity. Enhancing productivity requires a multiplicity of actions, but one of the quickest ways of making at least a small dent in improving productivity and showing the resolve to take further action on increasing productivity would have been a more productivity oriented holiday system. But no action.

Similarly we wonder whether there has been much action on our current crisis power. Even with the problem being on us in such an acute way, there appears to be more talk than action. Surely the acuteness of the problem itself was a reason to act fast, relax some procedural rules and regulations, clear usual bottlenecks and demonstrate a governmentÕs resolve. Skeptics feel that come next April the problem will be with us again. It requires little political sense to understand that the people will reject a government which cannot solve this problem by next year. The mechanics of how it is resolved will be of lesser interest to them.

Mr. de Zoyza drew attention to the impending transport road crisis in Colombo. As he put it, Colombo should not get into the situation of Bangkok. We can avoid it only if we take action now. Some of that action implies a political boldness, a vision of things to come, an understanding of our requirements and imaginative and innovative approaches. We hear of a return to tramways in Colombo. Whatever the new modes of public transport, it is blatantly clear that we need a much more efficient system of public transport, a reduction of private transport, more orderly traffic systems and implementation of traffic laws. The important thing is to act now, not talk.

There is a time to think and a time to talk; there is a time to talk and a time to act. No doubt action rather than talk is what is needed in all areas of government activity. That is what the Sri Lankan business community is waiting for.

Government stake in Shell's new gas terminal company

The Sri Lankan government is to take up a 49 per cent stake in the gas terminal company to be set up by Shell Company, PERC sources said.

The multi-million dollar company will handle the bulk transportation of gas from Colombo Port.

The PERC had required the purchaser of the Colombo Gas Company to build a terminal to improve safety in gas handling as the previous arrangements were found wanting in safety aspects.

PERC sources said the taking up of an equity stake in the terminal was justified as the PERC was not merely a privatization agency but an agency charged with reforming the various institutions coming under its purview.

The sale of a large freehold landholding of the former Colombo Gas Company, which was not transferred to the Shell Gas Lanka Ltd., is expected to provide most of the finance for the venture. The terminal company would be an extremely profitable venture in the long term and the government would realise substantial gains once the venture was listed in the stock market, PERC sources said.

In order to promote competition once the monopoly ends, the terminal company would be required to serve all gas distributors in the country at that stage, sources added. In addition the PERC was also bringing in a gas regulator, with powers to regulate pricing, safety and other aspects in the gas industry.

The PERC had required Shell Gas Lanka to make an annual contribution to fund the regulatory authority.

Power cuts aggravate market misery

Market Focus by Analyst
(Review period July 1 to 11)

For the review period ending on July 11 the ASPI shed an average two points each day through the period under review. Poor company earnings and the ongoing power cuts are taking their toll on the market.

Analysts say the overall GDP growth would not be the expected 3.5% for 1996. The budget deficit is likely to be more than the predicted 8% of GDP. Reasons for this are the increase in military expenditure, exceeding the budgeted Rs. 38bn. and Revenue from taxation and privatization falling short of expectations. As a result, inflation will spiral to 14-15%, analysts say.

Devaluation/depreciation of the Rupee against the US$ to other major currencies will have an impact on Foreign Investors to prolong their buying orders. Investors are waiting till the rupee falls to Rs. 60 against the US dollar by the end of the year. Treasury Bill rates increased during the review period to 3m=15.87%, 6m= 15.92%, 12m=16.4%.

This will attract local individuals/institutions to invest in Risk-free Fixed Income. Investors who already hold shares may sell them, in preference to taking further losses. They should in all probability look for higher return Risk-free investments such as treasury bills, which are expected to reach 20-22% within two months.

The bomb attack in Jaffna, seems to be a warning to the government which now has control over the Jaffna peninsula. US $350m has been pledged by foreign governments and donor agencies for the reconstruction of Jaffna. Reconstruction may pick-up momentum from the second half of 1996, which will help local companies to perform better.

Under the Privatisation Programme, the following companies are to be privatized this year.

The Lanka Lubricant IPO which is to be opened on July 17 is unlikely to be fully subscribed by local investors, because of the Rs. 50/= price tag. But if foreign investors are persuaded to take up the shares, renewed optimism far IPO's could prevail in the market. The other drawback is that employee shares (Nett Cost) will come into the market when trading starts, even though employees are offered a loan of 60% of the value of their shares.

The market changing directions in the short term is unlikely. The ASPI and sensitive index will head downward in search of new support-levels. In the light at the low P/W ratio (based on 31/3/96 Accounts) the market seems to give a buy signal, but if P/E ratios are calculated on quarterly earnings (depressive), P/E ratios are still on the high. Therefore prices of shares should be discounted further,for a buy signal.

However investors should adopt a cautious approach and limit their investments to fundamentally strong stock with very low PBVs and resilient to economic downturn like export oriented stock.

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