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28th February 1999

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South of the border in kalu dodol land

Kalu Dodol

Hambantota is synonymous with fisheries and curd. Not that the two necessarily go together, depending entirely on individual taste. While fish and curd keep the rather prosperous town of Hambantota alive, a Portuguese legacy has lingered on, providing some of this coastal town's inhabitants a steady source of income. Nobody sells Kalu dodol like in Hambantotoa and nowhere does the sweet meat taste as good.As tourist traffic increases to the southern coast the unpretentious cottage trade has reached competitive proportions. Several qualities are offered at varying prices in smartly decorated shops. While selling has now become a fine art of marketing, the kalu dodol traders make about Rs. 2000/- on a good day.Many small towns have micro industries, small businesses, which are the sole income for those who engage in them. For Hambantota it is kalu dodol. See full story, Part 11 of the Informal Economy series on page 10. Picture by Gemunu Wellage. IPOs boost hungry bourse

IPOs boost hungry bourse

By Mel Gunasekera

The IPO starved Colombo bourse will get a long overdue boost with three new listings already approved for 1999.

Metropolitan Resource Holdings Ltd and Ruhunu Hotels are scheduled to open their IPOs in March while Sampath Bank is expected to list their debenture also in March.

Less stringent regulation has attracted the newcomers to the secondary board which is awaiting the approval of another entrant Nations Trust Bank (NTB) , a CSE official said.

Ruhunu Hotels, owners of Club Horizon, will issue Rs. 45 mn shares at par opening March 10th. "We want to make use of the investment relief given to the hotels sector which expires by the end of March," Uddaka Tennakoon, Chairman Ruhunu Hotels said.

This investment relief would enable individual investors who subscribe to the issue to get an income tax deduction of up to 1/3rd of their assessable income, he said.

Club Horizon, managed by the Confifi Group, is a 71=room hotel with 22 chalets. Since the Confifi Group took over, the hotel was converted into a 3=star hotel on an all inclusive club project.

The IPO would increase the hotel's 58 mn issued capital to 103 mn. While Mercantile Merchant Bank Ltd (MMBL) owns 78 per cent of the hotel, the IPO would reduce their holding to 43 per cent.

Since November 1998, the hotel's after tax profit has risen from Rs. 800,000 to Rs. 2.6 mn in February 1999.

Mr. Tennakoon said the MJF group would underwrite 23 per cent of the issue. In the event of a shortfall in subscriptions, MMBL would ensure sufficient funds are available for the hotel.

Incidentally, the MJF Group also underwrote the IPO of Royal Palm Hotel last year.

The CSE has also provisionally approved the application for the IPO of Metropolitan Resource Holdings Ltd for a listing on the secondary board.

6,285,111 ordinary shares of Rs.10 are to be offered to the public at Rs. 25 per share and the subscription is to open on March 12.

Metropolitan Resource Holdings Ltd. an investment company, also manages Bogawantalawa Plantations. The company is part of the Metropolitan Group leaders in office equipment and computers etc.

While the managers to the issue are Waldock Mackenzie, John Keells Stock Brokers are the sponsoring brokers.

Sampath Bank is offering a Rs. 500 mn five year unsecured redeemable debenture in denominations of Rs. 1,000. The bank hopes to utilise the funds to expand long term credit facilities for their customers and help create and develop a secondary market for listed financial instruments, an official from Sampath Bank's Treasury Division said.

The debenture would carry three interest rates: 13.5 per cent per annum paid for quarterly interest, 14.2 per cent paid on annual interest, and a floating rate of a 3 month treasury bill plus 1 per cent with a floor of 12 per cent and a cap of 16 per cent.

The debenture would increase Sampath Bank's capital adequacy ratios from 12.4 per cent to 16.6 per cent.

While Vanik Incorporation are the managers to the issue, Deutsche Bank is the trustee.

The NTB's IPO for Rs. 200 mn is also due this year. A minimum of 1,000 shares would be sold for Rs. 12.

NTB will have an initial paid up capital of Rs. 500 mn of which John Keells Holdings have 25 per cent, Central Finance 20 per cent and the International Finance Corporation 15 per cent.

Last year apart from the six plantation companies only one new company Royal Palms was listed on the main board.

Five year bonds out in March

The Central Bank will start issuing five-year treasury bonds from next week, in a bid to boost the long term debt market, a senior Central Bank official said.

With a six year bond also to be issued mid year, we want these long term bonds to be used as a benchmark for long term borrowings, Superintendent, Public Debt T. S .N. Fernando said.

Initially, Rs. 1 bn worth of treasury bonds would be issued in March, followed by a further Rs. 1bn to Rs. 2 bn expected to be issued in April, he said.

However, in the absence of a scripless system to replace the issue of certificates, the maturity period of bonds will be limited to six years for the time being, he said.

Incidentally, the first tranche of Rs. 1 bn worth of two year bonds would mature in March this year.

With the government increasing long term debt, the issue of two-year bonds issued is to be reduced, and four and five year bonds increased. This would contribute to sustaining a low interest rate regime and also reduce volatility in short-term rates.

Most local investors are guided by the short-term money market and tend to keep away from long term instruments. However, a stable exchange rate and stability in the short term money markets prevailing at present is expected to lure investors towards long term treasury bonds.

Long term bonds would also provide the private sector with medium-term benchmark interest rates and provide a risk free yield curve beyond the 12-month treasury bills, thus making the government's medium term debt instruments more market oriented.

Last week, the 4-year bond carried 13.45 per cent interest while the 3-year bond carried 13.32 per cent.

The Sri Lankan government intends to borrow around Rs. 60 bn this year, through treasury bonds and rupee loans. Treasury bills amounting to Rs. 120 bn would also be re-issued this year. The composition of the borrowings is changing with the government increasingly borrowing from treasury bonds as against rupee loans, Mr. Fernando said.

The government turned towards treasury bonds in March 1997, in an attempt to finance their long-term capital expenditure projects. Todate, the government has depended on treasury bills, government loans and other guilt edged securities to finance its operations.

Primary dealers while welcoming the new long term bonds, were sceptical whether they would be subscribed by investors other than the government captive sources. Dealers say that most four-year bonds issued so far were subscribed to by the EPF and NSB, and said it would be a fruitless exercise if the five and six year TBonds are also subscribed by the same institutions.

IMF increase quota for Sri Lanka

The International Monetary Fund (IMF) has increased Sri Lanka's quotas from SDR 303.6 to SDR 413.4 as part of the Fund's overall strategy of increasing its members' quotas, an IMF release said.

The IMF's Executive Board passed a resolution proposing a 45 percent increase in the total IMF quotas to approx. SDR 212 bn (about US$288 bn) from SDR 146 bn (about US$199 bn).

The overall quota increase reflects the changes since the last quota increase in 1990 in the size of the world economy, the scale of potential payments imbalances, and the rapid globalisation and liberalisation of trade and payments—including the capital account. The Executive Board also considered current and prospective liquidity needs and the adequacy of the IMF's borrowing arrangements, the IMF said.

Members' quota subscriptions constitute the largest source of money at the IMF's disposal.

Members pay 25 per cent of their quota subscriptions in hard currencies, the rest in their own domestic currency. As of July 1998, the IMF's currency holdings through quota subscriptions amounted to US$ 195 bn.

The IMF conducts a quota review every five years to see whether they need to be adjusted in light of the growth of the world economy and changes in individual country's economic positions.

Mind your business

Lady 'mail' gets cold feet

Punctuality we know is not the order of the day with the executive lady leading the way. But has common courtesy gone out the window too?

Lady mail was to meet a timely scribe last Monday at 2.30 p.m. At the doorstep to the mail domain the scribe was turned away because lady mail was too busy that afternoon.

Now we know that the mail types went on strike that morning and threatened to take the token a step further. But this appointment was given 10 days earlier!

Couldnt's she have called to cancel ( now that the phones are working).? Dropping a line we know was out of the question.

Too busy or cold feet lady mail?

In the doldrums

March may be the month of updating company books before the end of the financial year but in 1999 it also happens to be the month before crucial polls in five provinces.

Stockbrokers report many foreign investors putting a hold on buy orders, awaiting the outcome of the polls. And, if the blues manage to perform creditably at the hustings, the market is in for a boom period, they say.

But, for the moment, March is likely to be a dull month for the market......

Perks go first

It is not Sri Lankan hospitality anymore in the bird of paradise despite a change at the top after the strike.

They are into cost cutting in a big way and the first to suffer are the various perks.

So, in keeping with this delusion, a club that rewarded frequent fliers on Serendib's airline is having it's membership pruned.....

Captain Cool's charity cap

We must applaud Sri Lanka's cricket captain Arjuna Ranatunga, for lending his sponsorship for the sale of a cap to raise funds for a much needed MRI scanner for the National Hospital. Equally, we must recognise the role played by the financial institutions in proposing the idea and organising the campaign. We have little doubt that it would be a great success.

There are two reasons why we thought we should comment on this project. First, it brings out a rare instance of corporate social responsibility. Second, it raises important questions regarding the government's prioritisation of expenditure.

The country has seen considerable progress in the expansion of private enterprise and the emergence of large corporate entities. With such a development it is reasonable to expect large and profitable enterprises to apportion some part of their profits for the social good.

If one takes the case of the United States, large corporations are responsible for funding research, education and socially useful projects.

They set up foundations and trusts for socially desired objectives, including the promotion of the arts.

We do not expect Sri Lanka's corporates to be able to finance causes in the same way and extent as in America, but we can expect a little more social responsibility than we have seen in the past. We hope the success of raising funds for the medical equipment will lead to further efforts to fund more much needed causes.

The second issue is why such an important expenditure could not be undertaken by the government itself. The standard response to this would be that war expenditure is of such a magnitude that we do not have funds. This is indeed a very sloppy approach to government expenditure and perhaps more specifically to health expenditures as well.

Sixty million rupees may appear to be a large sum to an individual, but it is a pittance to a government. Even a poor government like ours. After all we have funds to import luxury cars and Pajeros each of which costs so much.

The cost of the equipment we are discussing is only the value of a few such vehicles.

It is certainly a fraction of the travel expenditures of ministers and the President for conferences which bring no benefits to the country.

We do not want to labour the point as readers too are fully aware of the conspicuous consumption of the government which is only a fraction of the expenditure we are discussing.

So it is not the scarcity of funds which has prevented the government incurring the expenditure to buy this equipment, it is the lack of a proper scale of prioritisation and poor allocation of funds. We must be clear about that.

Not withstanding the guilt of the government in failing to equip the hospital with an MRI scanner, which private hospitals have been able to finance, the initiative of the banks to spearhead this campaign augurs well for future acts of corporate social responsibility as well.

Ranil plans new vision for Lanka

Now as the party prepares for a long period of elections, including provincial councils, parliamentary and presidential polls in the next 12 to 18 months, the opposition leader says the UNP is looking at a programme of "massive economic changes within a short period of time together with changes in the education system and social structures", in its bid to regain national power. In a wide-ranging interview, Wickremesinghe said the party has planned a new vision for the country and hopes to divulge its contents soon. He believes in a radical transformation of the economy to make it more efficient, competitive and attuned to global needs

By Feizal Samath

Sri Lanka's main opposition United National Party (UNP) may have trampled on the rights of people during the final turbulent stages of a 17-year old reign in power between 1977 to 1994.

But no one can deny the fact that it turned the country around in 1977 from an inward-looking, subsistence economy and restricted imports, to open market strategies that instantly paid off.

Ranil plans new vision for LankaForeign investment and tourist arrivals were up and the country was heading for a rosy future until the bloody ethnic riots in 1983, which sparked the Tamil insurgency, shattered all hopes. "We could have been on par with Thailand or ahead of Indonesia before the 1998 democracy movement, if not for July 1983," UNP leader Ranil Wickremasinghe told The Sunday Times Business last week.

Now as the party prepares for a long period of elections, including provincial councils, parliamentary and presidential polls in the next 12 to 18 months, the opposition leader says the UNP is looking at a programme of "massive economic changes within a short period of time together with changes in the education system and social structures", in its bid to regain national power. In a wide-ranging interview, Wickremesinghe said the party has planned a new vision for the country and hopes to divulge its contents soon. He believes in a radical transformation of the economy to make it more efficient, competitive and attuned to global needs.

Wickremesinghe, a former prime minister who once held the portfolios of employment, education and industry - says economic growth will slow down this year. Extracts of the interview relating to business, industrialisation and the economy:

1) The business community's role in the peace process. Aren't they late starters? They have been reluctant to get involved for various reasons in the past. They are an influential group, fund political parties and can bring a lot of pressure on parties. Your comments?

They want to be a corridor between the government and the opposition. But the only people who can influence political parties are their supporters.

2) Despite the war, Sri Lanka's economy has done quite well - five percent average growth over many years while other countries in the region have actually slowed down.

-When you translate that five percent growth in terms of increasing incomes and the situation of employment, you get a very negative answer. If you look at a low base scenario, then any growth will look quite good, quite respectable. But there are non-garment manufacturing sectors that have dropped.

-Our basic earnings come from the export of tea and garments and remittances from Sri Lankan workers in the Middle East.

All these areas have been affected. Garments have been hurt by the devaluation in Southeast Asia, tea prices have been affected by the Russian crisis while Middle East earnings of workers will also come down as a result of the major economic crisis faced by these countries owing to lower oil prices and higher national debts which are coming close to annual GDP levels. Of course we have the benefit of lower oil prices but the government has not passed this benefit to the consumer. All signs show that the economy will not perform that well this year. The best person to ask these figures is the person on the street.

3) What about industrialisation and the sad plight of agriculture?

We require a radical modernisation of the economy if we are to merge into the global economy. We have to acquire the technology that is needed, find new markets, new products for manufacture and have a new look Sri Lankan economy. We have to design platforms for competitive value addition as we compete in many markets.

I have always maintained that Sri Lanka cannot be a low wage economy. We must compete with India or Bangladesh, improve skills, have a better paid workforce and different types of manufactured products. Some of these products would have to look at niche markets. Agriculture itself has to turn away from subsistence agriculture.

This requires a lot more capital and advanced technology. The land-man ratios of Sri Lanka are coming down and we have less land to set aside for agriculture. While agriculture is being made commercial and modernised, we must also look at protecting the environment. These issues are complex.

We are looking at massive economic and social changes within a short period of time. We call this a radical, modernising revolution that would put the state into the 21st century.

4) The free trade deal with India has come in for some serious criticism, particularly from industry. What are the UNP views on this?

-We have been studying this but unfortunately the provincial council elections has taken a lot of our time. In the long term Sri Lanka and India has to be one marketplace but then it must be one of equal treatment. Both sides should have equal treatment. There were some issues that have arisen like the non-tariff barriers in the Indian market. We will have a further statement on this later, where we would look at some of the problems Sri Lanka would face.

5) Political funding of parties.

How are elections funded by parties and in the current case what would be the UNP's cost at the next round of provincial polls?

My views are basically on public funding of political parties. There should be a change in the electoral system where in the case of donations, there should be a maximum limit placed on donations and these should be declared. This should also go hand in hand with modern party structures where the party leadership is accountable to the members. The fund raising process should be transparent.

6) If not for the July 1983 riots, where would Sri Lanka be today?

- We would have certainly been ahead of Indonesia - prior to the 1988 problems in that country - and on par with Thailand.

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