Vanik Incorporation's second debenture issue was oversubscribed upto Rs. 172.8 million, when it closed last week after a month long run on the Colombo Stock Exchange, officials said.
The issue of 1.5 million shares of unsecured redeemable debentures, bearing an 18 per cent per annum interest rate, was sold at a par value of Rs. 100/- per debenture.
An option to retain upto a further one million debentures was also included in the event of this issue being oversubscribed.
This Debt Instrument introduced to Sri Lanka carries an interest of 18% per annum payable half yearly and is redeemable in 3 years.
The issue was mainly to raise funds to enhance Vanik's fund-based activities, most importantly, Leasing, Discounting of Bills and Factoring.
One of the salient features of these debentures is that it is tradable. Debentures are traded as the Secondary Market for the unsecured Redeemable Debentures on the CSE.
The benefits are many amoug which are a fixed income for three years and the ability to use the debentures as a collateral.
The risks include interest rate risk, re-investment risk and call risk.
The Trustees to the Vanik debenture holders is the Hongkong and Shanghai Banking Corporation Ltd., whilst the Managers to the issue was Vanik Corporate Services Ltd.
This newcomer to the market will be a major boost in the Sri Lankan Capital Market in general and the Share Market in particular once it is sold in the secondary market, in addition to being an attraction to the foreign investors and the overseas-based Trust Funds.
Retail profit taking was responsible for the marginal declines in the ASPI from the 850 levels. Foreign activity recorded during the week was minimal as investors were cautious in coming into the markets from the Fridays crash on Wall Street.
These sentiments were brushed away as Wall Street picked up from Monday to wipe out these losses, which would help to keep fund managers in an optimistic frame of mind thereby investing in the CSM.
Prospectus was available for the sale of 9 million odd NDB shares to the public by the Treasury at Rs 250. (P/E 12). It seems to be a promising offer, and is expected to be fully subscribed. More plantation IPO's are expected to be offered to the public, in the course of next month.
Most of these IPO's are to come in the region of Rs 15 to Rs 30 thereby enabling a wide shareholder base. Lighthouse Hotel share certificates have been received by applicants, and it is expected to be traded in the market in the very near future. The initial trading prices of Lighthouse Hotel would indicate the trends for investments in IPO's.
Corporate focus:
Dipped Products Ltd: First quarter results for EY 97/98 have recorded an increase of 8% in turnover to Rs 464m., while operating profit has increased by 8.8% to come in at Rs 75m. (YOY).
Ceylinco Insurance Co Ltd: First quarter 97 results released indicate a net profit growth of 5.5% to Rs 24.8m. Turnover has also increased 17.7% to Rs 1,031.9m. (YOY)
Richard Pieris & Co Ltd: Turnover has increased by 12.2% to record at Rs 499. 9m. while operating profit has increased by 35.4% to Rs 40.85m., mainly due to the plantation investments.
Macro outlook for the country seems to be very promising with growth in the apparel industry having had a significant impact on the economy, improvements in tourism, reduced interest rates due to reduction in the statutory reserve ratio infusing 10 billion into the banking sector, the successful divestment of NDB and Telecom all contributing towards 5%-6% growth for 1997.
Recommeded: On fundamental factors: NDB/Sampath/Ceylon Cold Stores/DFCC
Speculative: Veytex/ Magpek/CSF/ K.Tyre
Milk food sales
New regulations governing the sale of milk foods will be enforced from the first of next month.
All producers are expected to comply or face hefty fines.
But, a last minute appeal by one leading producer to have the deadline deferred by two weeks was turned down, we hear....
Footwear pinches
A diversified trading house which recently took over a troubled footwear company is facing the crunch.
The company's losses have been significant, leading to rumours that it was to be sold yet again.
But that is not the plan, we hear. Instead of a sellout, a planned restructuring of the company is being contemplated....
Small soft drink
Market researchers of a popular soft drink have come up with a new finding-the smaller bottle is twice as popular as the regular size.
So the market leader in the industry will increase production of the smaller size from next year, they say.
And even their arch rivals in the trade are contemplating a similar move.....
There is considerable anxiety regarding the impending inauguration of the South Asian Free Trade Area (SAFTA). Some have doubts that Sri Lanka would be a net gainer from free trade in the SAARC region. This is mostly based on the perceived capacity of India to produce both agricultural and industrial goods at a cheaper price than us.
Many fear that industries in Sri Lanka would not be able to face competition from Indian products. They have even greater fears that the lower costs of production of agricultural produce would wipe out Sri Lankan farmers.
Sri Lanka has always been an import export economy. Our earlier liberalisation of trade has resulted in a number of internationally competitive industrial products being developed. Sri Lankan industrialists have faced a fair degree of competition since the liberalisation of trade.
Therefore the winds of international competition have already swept the Sri Lankan industrial scene and the growth in industrial exports is an indication that many of Sri Lanka's exports could not only face international competition domestically but also produce for the international market.
In fact the country appears to have fared better in catering to the international market than in import substitution. The country also imports a number of commodities which it could produce, as the imported product is preferred.
The story with respect to agricultural produce may be somewhat different. It is well-known that Indian agricultural commodities are sold at considerably lower prices. The costs of production for most agricultural produce appear to be much less in India than in Sri Lanka. Some attribute this to a number of subsidies for Indian agriculture and higher labour costs in Sri Lanka. Higher labour productivity could also account for this.
What is important as a preparation for the impending agricultural competition from SAARC countries is to explore the reasons why Sri Lankan agricultural products are more costly.
Is it because we do not have the correct high yielding varieties? Is it because our production is on a smaller scale? Is it because many agricultural inputs cost more and labour costs are higher?
It is vitally important that we find out the real cause for higher costs of production and take measures to reduce these. Otherwise our farmers may be faced with enormous problems of selling their produce and their capacity to shift to other livelihoods may not be a real option.
Whether Sri Lanka would benefit from SAARC depends on efficiency. The key to survival in a competitive free market is efficiency. Efficiency means that the unit cost of producing a commodity is reduced. The lower the unit cost the greater the competitive capacity. With respect to a number of exports, there is no doubt that Sri Lanka is competitive. Otherwise Sri Lankan industrial exports cannot find markets and grow as they have for some years now. The Free Trade Area provides Sri Lanka with a larger market in South Asia which was hitherto protected.
It is important for Sri Lankan industrialists to exploit this market by expanding their production and producing their commodities at much cheaper prices. The large Indian market in particular would be a boon to Sri Lankan industrialists.
In order to make the best of it Sri Lankan industrialists must be willing to invest in larger units and ensure lower cost of production. Some industrialists have already responded to these signals and are gearing themselves to increase production of their goods.
Now that a decision has been made to join SAFTA there is no need to argue about the advantages and disadvantages of such an involvement. What is most important is to accept the reality and for industrialists and agriculturists to meet the challenges and opportunities that the larger market offers. No doubt some producers will have to give way to products from other South Asian countries. That is in the nature of liberal trade.
On the other hand, new industries can emerge to make use of the larger market. No longer will Sri Lanka be constrained by a small domestic market. It is vital for Sri Lanka to think big and achieve greater heights in its industrialisation by producing to the huge market.
Continue to Business page 3 * Tourism, despite setbacks, a major exchange earner * Bank with common touch
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