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05th October 1997

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Watt pulls out of Asia Capital

By Asantha Sirimanne

The Hong Kong based investor David Creighton Watt has sold out of Asia Capital Ltd., and resigned his directorship of the company.

Mr. Watt's Asian Investment Management Services (AIMS) had been a conduit through which a number of large portfolio investors came to Sri Lanka, including the Malaysian investors who bought the Asian Hotels Corporation.

"The focus of David's strategy has now shifted to South America and Eastern Europe," Asia Capital Director Viren Perera said.

Chief Executive Ian Hardy, long regarded as Mr. Watt's man at Asia Capital has also resigned.

Mr. Perera said there had been a 'schism' between the Sri Lankan promoters and Watt, mainly due to different views held on how aggressive their investment strategy should be.

Mr. Watt had disposed of a 13.8 per cent stake in Asian Capital connected to him, during the course of last week. Asia shares traded under Rs 12.75.

Some of these shares had been purchased by Rusi Captain and Dirk Flamer-Caldera two of the original promoters of Asia Capital increasing their holdings to 8.8 per cent and 4.8 per cent, respectively.

Nigel Austin, Ajith Fonseka and Brian Brown had been brought in as directors. Mr. Brown is the Managing Director of W. I. Carr (India) Pvt. Ltd.

Mr. Perera said W. I. Carr was not planning to sell its stake in the company.

Another Director James Rheinmuth from USA who originally came with an investment from a US investment bank is also expected to resign in the near future.

Mr. Perera has also decided to relinquish his executive positions at Asia Capital and pursue other personal projects, though he would stay on as a director.

"It had always been my intention to relinquish my executive duties, that was partly why Ian Hardy was brought in the first place," Mr. Perera said.

He had stayed on to see the company through its transition period, but now the company had returned to profitability and was more stable, he said.

The company had also had discussions with the DFCC about a possible equity partnership.

"But it is too premature to say whether anything will come out of it," Mr. Perera said.

A possible sale of Asia Capital would include the subsidiary Asia Securities, which has been the group's core revenue earner. In fact the holdings of the original promoters of Asia Capital, which included Thilan Wijesinghe, came from the sale of Asia Securities valued on an earnings basis, into Asia Capital, with their holdings being consolidated through an investment vehicle - the Asia Core Investment Company.

However with the downturn in foreign investment, the performance of Asian Securities had plummeted, in addition the expected revenue from fund management and fund based activities had also failed to materialize.

One of the key fund based activities, providing mezzanine finance to new companies and later bringing them to the equity market, had also suffered a setback with the failure of Dimo Auto Assembly.

But now with the market looking up Asia Securities was getting some of its old fire back.

Mr. Perera said Asia Securities had been the number one broker in 93/94v when foreign investment was at its highest, and had remained among the top three during the depressed period of 95/96.

"So far this year we have retained the number one position," he said.(A.S)


Redlight for new hotels

By Imran Vittachi

A senior entrepreneur from the hospitality trade has cautioned that the government may be boosting the number of hotel rooms in Sri Lanka too far.

"Already we have over-capacity," Gilbert Jayasuriya, Chairman of the Tourist Hotels Association of Sri Lanka, told Sunday Times Business. "Till the tourist arrivals improve radically, we don't need new hotel rooms, in addition to the 5000 that are on-stream."

According to industry sources, approximately 12,000 hotel rooms are available in Sri Lanka, and close to 5,000 have been approved for construction by the Ceylon Tourist Board and other state agencies. But the CTB has plans in the pipe practically to double the current capacity, so that the country will be able to absorb as many as one million tourists annually by the turn-of-the-century.

"Now in 1998, the maximum we'll have is about 500,000 tourists, and we will get about another 100,000 in '99, and another 100,000 in the year 2000, so we have the capacity to absorb all the tourists who will come here up to 2000," added Jayasuriya. "And there are 5,000 other rooms that have been approved, and which will come into production in the next two to three years."

Yet CTB's Chairman, H.M.S. Samaranayake, argues that Sri Lanka is facing a resurgence in tourist arrivals in years to come. And, although current occupancy rates are low around 45 percent on average Sri Lanka mustn't dissuade investors who are willing to sink millions into the island-wide development of hotels and resorts.

"There is no need, we can go slow," Samaranayake told the Times on Wednesday. "But if the investors are enthusiastic and ask for your approval, do you say No?"

"Although it is a discarded [economic] theory, in tourism supply creates its own demand. If you have a good product, if you have enough capacity, then, of course, the operators the airlines, the tour operators will look at the destination and try to promote that destination."

Samaranayake stressed that CTB doesn't have to look far to attract tourist investment offers, because they are landing on his desk in large numbers.

"There are more and more people coming with proposals with local and foreign collaboration to build hotels, to build resorts, golf courses," he said. "Why is that? People have confidence in the future of tourism in this country, and people come with proposals."

However, Gilbert Jayasuriya, who also heads a private company, International Enterprises Ltd., is not so certain that investors feel safe about investing in the local tourist trade, especially in conflict-ridden Sri Lanka.

"If I were an investor, I wouldn't immediately invest money until the situation here improves," he said.

Building new hotel rooms, in his opinion, signify "a wastage of scarce capital in Sri Lanka, unless we are very sure that the security situation is no longer a sensitive situation, and we have some peace."

Tourism, after all, is a capital-intensive industry. In Sri Lanka, it costs up to Rs 50mn to equip a three-star hotel with just one room, Jayasuriya noted.

Before embarking on risky plans to build many more hotels in Sri Lanka, the government should also bear in mind that the more reputable hotels have been incurring heavy losses for years, he said.

Pointing to an industry survey conducted in 1994, Jayasuriya noted that out of 44 hotels surveyed, 22 had failed to pay dividends to stockholders since 1983, and 18 had accumulated losses amounting to about Rs. 3.5 bn. The losses of the Colombo Hilton alone totalled nearly Rs. 2.5 bn, he added.


High flyers on show

Jardine Fleming chases US money

Several local companies from high performing sectors in the Colombo market will be participating in Jardine Fleming's annual conference on Asia and Pacific, to be held this week in New York.

"We have got some very good time slots to reach and persuade some of the largest fund managers in the US to invest here," Jardine Fleming HNB Securities Managing Director Anura Wickremasinghe said.

National Development Bank, Sampath Bank, Ceylon Breweries Group and Hatton National Bank will make presentations at the 'Flemings Asia Conference' from October 6 to 8.

In addition PERC Director General Mano Tittawella, Ceylon Chamber of Commerce Chairman Mano Selvanathan are also in the delegation.

"This will give an opportunity for PERC to talk about the privatisation programme past present and future," Mr. Wickremasinghe said.

Breweries have been identified as a key growth areas by Jardine Fleming who helped underwrite the public issue of Lion Brewery which was one of the rare successes in a depressed market.

Jardine Fleming also played a key role in the recent international placement of National Development Bank shares.

"It is not sufficient to just sell the shares, we have to provide after sales support to keep up investor interest," Mr. Wickremasinghe said.

A number of US investment funds, who had invested in Sri Lanka for the first time by buying into NDB are expected to join the presentation by local companies and PERC.

This is the third time, Sri Lanka is taking part in the conference. Though last year's participation in Fleming's Asia had lured new investors to the country, the response had not been as good as the first year. This year however the conference is expected to be overshadowed by the East Asian market crashes which are expected to dominate proceedings.

"But I expect a more favourable response this year due to improved macro-economic conditions here," Mr. Wickremasinghe said.


Continue to Business page 2 * Call for SAARC fund flow * Excise men fall short of resources * MIND YOUR BUSINESS

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