The Sunday TimesBusiness

4th August 1996



Hambantota saltmen express monopoly fears

Hambantota salt related industrialists are calling for assurances that Lanka Salt would continue to supply them with salt after it is privatized and called for an opportunity to be shareholders in the company.

“We fear that Lanka Salt would stop the supply of salt to us after it is privatized”, the president of the Hambantota District Salt Related Industrialists Association, K. Nihal Dhammika said.

The association is made up of 150 entrepreneurs in the southern province of which 136 are from Hambantota district itself. Their major product is iodized salt, which is said to be a very profitable business. At present Lanka Salt is unable to produce sufficient iodized salt and a number of private entrepreneurs are running factories making iodized salt.

“Several of the larger factories were ceremonially opened by Industries Minister C. V. Gooneratne in October 1995, but after the privatization we would have to close down these industries”, Mr. Nihal Dhammika claimed. The association fears that a private party would completely

halt salt issues to outsiders as it would refer to make all the profit for himself.

Even at present the supply of salt to the industrialists has fallen sharply after a new government directive required salt to be crushed before it was issued from Lanka Salt, he said. Lanka Salt was unable to crush enough salt to fulfill their orders, Mr. Nihal Dhammika said.

“We have bought trucks with borrowed funds and if salt issues are stopped we will not be able to pay back these loans”, he said.

He said the association was pushing for a formal assurance that salt issues would be continued after privatization.

Though they were not opposing the government policy of

privatization, the association strongly opposed government move to sell Lanka Salt to a single investor.

The Association says its members too would like an opportunity to hold a stake in the company, not only because they were from the Southern Province but because they would then be able to safeguard their interests.

“We would prefer it if the salt company, which had been here for such a long time was not sold to one businessman. Its shareholding should be broad based”, Mr. Nihal Dammika said.

Time for long-term investment

Market Focus by Analyst

With the first two trading days of the week being holidays the market was stabilizing at ASPI 550 levels. Trading was charaterised by minimum foreign activity and bargain hunting by local investors.

It seemed the worst is over for the CSE. But, any major adverse development in the war front and the economy could have serious repercussions at the CSE. It may even cause a 100 points slide.

Those who have the capabilities to invest for a long term (five years) should concentrate on the CSE than any other investment (TB, FD, CD's etc.), as no other investment could achieve a return of a weighted average of 30-40 percent per year (over 5 years).

In the short-run (two months), Treasury Bill rates are on the upward climb (16 to 16.25 percent) and should reach 20-22 percent before the end of the year. For investors who are risk averse it is an ideal investment.

Top fund manager optimistic of Lanka’s economic growth

By Asantha Sirimanne

Despite mounting political risks and a weakening economy a top international fund manager has expressed confidence in the long-term prospects of the country.

“As an organization which takes a very long term view on our activities, we believe that these problems will be resolved in due course”, Flemings Head of Global Capital Markets, James Bruce told The Sunday Times Business. Even today there were opportunities in Sri Lanka. “Where there are risks there are opportunities”, Mr Bruce said.

Jardine Fleming, a joint venture between Jardine Matheson of Hong Kong and Robert Fleming of UK, has been one of the most active investment banks in emerging markets, especially in Asia.

He says it is still possible for Sri Lankan companies to raise equity internationally.

“The key word is quality Ò Mr, Bruce said. “Investors are willing to invest in high quality Sri Lankan companies despite the political problems provided the pricing of such issues is seen to be attractive”.

He was upbeat about the plantations and garments sectors, which were doing quite well even now.

“So its not all gloom and doom and its not going to be all blue skies tomorrow either” he said. Given time he believed the economy would pick up. “We want to establish our presence now and start to help companies in Sri Lanka with their financing needs”.

Jardine Flemings speciality lay in helping companies raise equity or equity related finance as opposed to straight debt finance. “That could either be private sector or public sector and could include helping PERC with its privatization plans”, Mr. Bruce said.

The company has been active in privatization of utilities elsewhere in Asia. Two years ago the company was engaged in the international flotation of an equity stake in Pakistan Telecom raising nearly a billion dollars.

The company was also instrumental in privatizing a power generation company in Thailand. The actual privatization involved the setting up of a new company with 15 per cent of the generating capacity of the country.

The company was then financed with debt. Unlike in Sri Lanka where the government is intent on finding a strategic, preferably foreign investor to hold the majority of the equity, the Thai government has chosen to strengthen the existing management.

“Staff was allowed to volunteer to transfer from the existing industry” says Jardine Fleming Capital Markets Director for Asia, Rupert McCowan. “As in Sri Lanka staff problems relating to privatization are an important part of the whole. People who wished to enter the private sector where they got higher salaries without the security of a job for a lifetime were allowed to volunteer”.

Jardine Fleming has sold 51 per cent of the company in a combined domestic and international offering .There had been 95,000 allocations to the retail sector in Thailand and to more than 200 international institutional investors.

The Thai government was now planning to float the rest of the power facilities by setting up three separate entities.

Mr. Bruce says there is no general formula for privatizing utilities. Individual governments would have to decide which way they wanted the privatization to proceed.

“If you do not break it up into competing entities, then you have to think about how to regulate pricing and related issues” he said.

Jardine Fleming Director Mark Bullough who was involved in setting up JF’s Indian operations says, the privatization process in India has been somewhat slow though equity has been sold in a number of large companies, with the most recent being a state steel authority. JF is now involved in the flotation of the Indian telecom firm VSNL.

JF believes that the new Indian government would accelerate the process substantially. The government was looking for over US $ 2bn from privatizations to finance the budget.

James Bruce says upcoming privatizations such as AirLanka, Sri Lanka Telecom, and further sales of NDB shares are of interest to foreign investors.

According to Rupert McCowan the concept of having a central authority is a good one.

“To some degree India suffered from having no central authority”, he said. “In difficult circumstances I think the PERC has achieved a good degree of success”

For example the transfer of the majority of the plantation sector employing a large share of the country’s work force was viewed as a major achievement. “What would be very good is major stock market floats in companies that which we just mentioned to crown that success” he concluded.

UN report warns of “inhuman” disparities

The wealth of the world's 358 billionaires is greater than the combined annual incomes of countries with 45 per cent of the world's people. This is said in the United Nations' Human Development Report 1996 which is briefly reviewed in the Guardian Weekly by Victoria Britain and Larry Elliott, who point out that the statement highlights the growing gulf between rich and poor countries.

The report warns that the disparity threatens an instability "which can only be tackled by a new international solidarity" and observes that 1.6 million people in 100 countries have lower living standards now than in the 1980s.

The study calls for a three-pronged strategy to reverse the trend: a target of 3 per cent per capita growth in the poorest countries, an emphasis on making expansion sustainable and more equitable, and action to avoid the five forms of undesirable growth. These are described as jobless growth, ruthless growth (where only the rich benefit), anti-democratic voiceless growth, unsustainable futureless growth and rootless growth (which "tramples on cultural identities").

A further observation in the report, cited by the reviewers, is that, whereas the richest 20 per cent of the world's population are 30 times better off than the poorest twenty per cent in 1960, they are now 61 times wealthier. The report quotes James Gustave Speth, who heads the UN Development Programme, as saying, "if present trends continue, economic disparities between industrial and developing nations will move from inequitable to inhuman.

The reviewers say that the report does not put economic growth on the top of the agenda: instead it ranks countries according to a human development index measuring life expectancy, education and real income - rather than by gross national product. The report goes on to say, according to the reviewers, that economic growth has failed for a quarter of the world's population leading to a global polarisation. Eighty-nine countries are now worse off than they were 15 years ago, while 15 countries, mainly in Asia, have experienced a dramatic surge in economic growth over the same period.

One of the most important findings of the report, say the reviewers, is that east and south-east Asian countries which have grown fastest have been the most fair in the division of income and assets such as land and credit. They invest heavily in education and social services. The high-performance Asian states are also among those which have successfully tackled the worldwide problem of unemployment. The reviewers mention that Robort Solow (the Nobel economics prize winner) in a "provocative essay" in the report describes as a paradox the fashion for sustainable development and the lack of interest in the inequalities of today. He says, "Those who are so urgent about not inflicting poverty on the future have to explain why they do not attach even higher priority to reducing poverty today. "

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