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29th August 1999

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NIC privatisation process begins

By the Business Desk

The government approved the long overdue privatisation of the giant state insurance sector, offering 39 per cent of National Insurance Corporation (NIC) to a strategic investor.

As the initial steps towards NIC's privatisation, PERC last week called for selection of a financial advisory group to assist in the privatisation.

NIC's privatisation scheduled to take place last year, was postponed due to poor economic sentiment.

The financial advisory group should have extensive re-structuring and advisory experience in the insurance sector and be associated actuarial, legal and audit/accounting expertise, PERC said.

In addition to advising the government on NIC's restructure, the financial advisory group should also possess the ability to market this transaction and assist the government to select a reputed and suitable strategic investor.

Meanwhile the draft insurance bill is scheduled to be tabled in parliament later this year. Insurers will have to get a quotation on the stock exchange within one year of registration.

A statutory insurance board will replace the controller of insurance with powers to register, supervise and regulate the industry.

The board of seven appointed by the minister will be initially financed by the treasury and at a later stage from a maximum 0.5% cess of each insurance companies net premium income.

The board's top function would be to monitor the financial liability of insurance companies to ensure they would be able to meet the legitimate claims of policy holders.

Accordingly the regulators will raise the present share capital (amount not specified) to keep pace with inflation. All insurers operating in Sri Lanka would have to be registered and licensed by the board. To qualify for registration, an insurer should be a public company and fulfil other requirements yet to be determined by the board.

Annual license fee will be charged under the new act though there are no such provisions in the present act.

Government is not likely to sell the controlling stake of Sri Lanka Insurance Corporation (SLIC) but will continue its ownership to maintain a level playing field as private insurance companies, market sources said.

SLIC has book value of Rs. 2.7 bn and a turnover of Rs. 5.2 bn while it has 2,750 employees the IMF 1998 country report states.

The market hailed NIC's re-structuring as a timely move. One of the key objectives of privatisation was to help the equity market, Panduka Ambanpola, Head of Research Jardine Fleming said, adding that if interest rates are maintained at the present low levels, such a move would be good for the market.

"I think the government has jumped the gun by allowing a foreign investor to come in so soon," Rajiv Casie Chitty, Director CT Smith Stockbrokers said. NIC's had been ready for privatisation pending the amendments to the Insurance Act. But this has not taken place so far, he said.

GROWING UP FAST HVA Lanka Exports MD, Rohan Fernando getting a taste of his own tea at the organization's tea room. Pic. by Lakshman Gunathileke

From a silver medal last year to the Most Outstanding Exporter this year, this exporter has grown up fast. HVA Lanka Exports exporters of tea and commodities won this year's gold award for the Most Outstanding Exporter in addition to three other gold medals from the National Exporters Association. In an interview with The Sunday Times Business Fernando said that his achievement was an effort and wanted to be "not one of them, but unique among them."

" The Company's next goal is to obtain ISO 9000 certification and the Japanese 5S standard. "With the right approach and commitment we can promote another brand of tea," he said. With an annual growth of over 35% in 1998, Fernando is very confident of the growth of the industry.

His company is currently marketing its own brand Heladiv in Russia and the CIS in addition to 30 other countries. Fernando said the company was in discussions with a European company to manufacture ready to drink tea (RTD).

Govt. restrictions hamper growth

By Shafraz Farook

Branding and value addition is the only way to take tea into the next level, but government policy is hampering this direction, industry officials say.

Tea Promotion Bureau chief, Hasitha de Alwis told The Sunday Times Business that we could add to the existing 20% to the 22% market share we now control, if we build up our value added tea.

Statistics on the industry show that Sri Lanka has been controlling around 20%to 22% of the world tea market for most of the last two decades. Industry officials feel it is time Sri Lanka cater to a larger market.

Government's policy in 1994 to control imports of tea came at a point when local officials started to realise the potential for value added tea. Value added tea which accounted for less than two mn kg a decade ago went up to 12 mn kgs in 1998.

Industry officials say that this figure could be much higher if the government had not restricted tea imports to 6 mn kgs.

The restriction seems to have been imposed because of misconceptions founded in importing tea, thus dividing the industry. By importing tea and re-exporting it after blending, we would be catering to a market that we are not catering to at present, de Alwis said.

"What has to be restricted is the neutral fillers and off grades which could affect the prices of the same grades in Sri Lanka and in any case they could be sourced from Sri Lanka."

Asia Siyaka Commodities Vice President Anil Cooke said, this debate had to be resolved quickly and conclusively. "We are talking of the industry that we will be handing over to the next generation. It is a far too important issue to be resolved inconclusively," he said.

Another misconception in the industry is that Ceylon tea will lose its identity when blended with imported teas. But according to industry officials the bulk teas sold at the local auctions go to another country and get blended anyway. Hence, why not do the same here. "If we do the blending here, we automatically will tend to source the requirements from Sri Lanka. Now, this is sure to help the industry," de Alwis said.

Vanik to get Rs. 225 million up front

Vanik Incorporation will get Rs. 225 mn up front for its sale of Forbes and Walker Ltd. (F&W) to the Mercantile Merchant Bank Ltd. (MMBL).

Vanik President, Justin Meegoda told The Sunday Times Business that of the up front money, Rs. 100 mn has to be paid up within 30 days of the agreement signed last Thursday, August 26.

The balance Rs. 125 mn has to paid up within 60 days, after an asset and liability verification.

The remaining Rs. 400 mn of the total consideration of Rs. 625 mn will be paid in Rs. 50 mn half yearly installments over four years beginning year 2000.

On the other side Milinda Moragoda, CEO, MMBL confirmed to the Sunday Times Business that he would borrow the Rs. 625 mn locally. Meanwhile Meegoda said that the investment bank will record a loss for the first half of 1999, mainly due to the significant losses recorded in their exposure to two plantation companies Watawala and Kahawatte. He however added that the second half figures should improve with the sale of F&WL, which includes the loss making plantation Kahawatte.

"There is also some money due to us from these companies which will be settled and the MMBL will take over our bank guarantees so that our exposures will be taken out," Meegoda said.

MML ties up with insurance giant

By Mel Gunasekera

The Mercantile Merchant Bank Ltd. is diversifying its activities and moving into the insurance business with a joint venture with Aetna International, a U.S based company.

Aetna International, a wholly owned subsidiary of Aetna Inc. is one of the world's biggest insurance companies, specialising in life insurance and pension funds. The Sri Lankan operation will be focused on life and pension funds, Mercantile Merchant Bank Ltd. (MMBL) Chief, Milinda Moragoda said.

"Initially, we want to start on a small scale. Aetna being one of the biggest in the business does not want to rush into things either, so we want to test the waters and see," he said.

Aetna International and its affiliates operate in 16 countries and have more than 16 mn customers insured or covered through group plans or direct, individual sales. Through strategic alliances, Aetna operates in more than 68 countries. Operating earnings for the 1998, was US$ 165.7 mn and total revenues from wholly and partially owned businesses were US$ 5 bn.

With state-of-the-art technology and professional management, Aetna focuses its operations in the emerging markets of Asia Pacific and Latin America. The company's product offerings include group and individual life and health insurance, pension management and a limited book of property/casualty coverage.

Aetna has been very successful in managing pension funds in Latin America and Eastern Europe. In addition, Aetna Global Benefits, licensed in Bermuda, provides a full range of insurance coverage to expatriate, third-country national and key local employees.

Moragoda is very enthusiastic about the local insurance market and sees a great potential in it. It's like the banking sector, the state banks had to keep huge spreads to cover their overheads. Private banks offered the same thing with slightly lower spreads. Insurance is similar, he said.

MMBL is exploring possibilities of jointly marketing some insurance products with its commercial bank, the National Mercantile Bank. "We are even looking at off shore possibilities."

For instance, there are a number of Sri Lankan's working in the middle east. An insurance product can be sold with a banking product to service that market. We are keen to give a good return in the financial service area. We know we cant compete with the large players. So we want to go into niche areas where we can package tailor-made products, he said.

A taste of blood for foreign funds

The Colombo Stock Exchange is inviting foreign fund managers to taste the blood on the streets, in a bid to attract much needed foreign capital.

CSE said that around 350 invitations have been sent out to fund managers for an all expenses paid two-day conference in Colombo beginning October 4.

Colombo was the only market yet to recover from the effects of the East Asian crisis as well as from India and Pakistan's nuclear tests last year, CSE Director General, Hiran Mendis said, at a media conference to announce the event. The net outflow of foreign money has continued this year and the Colombo bourse is now regarded as one of the worst performing emerging markets. Back in 1994 it was considered the world's best performer.

Foreign participation still accounts for 50% of the bourse's trading, whose market capitalisation is a mere US$ 1.5 bn, Mendis said.

"Better-informed investments by foreign fund managers would help reduce the volatility of the market," he said adding that Sri Lanka was streets ahead of neighbouring countries in terms of technology, accounting standards and regulatory framework.

CSE hopes at least 50 key foreign fund managers would attend the conference.

"We are interested in funds who are already investing in Asia and funds who are investing in the region and not looking at us at the moment," he said.

Most investment funds are based in the west though the regional source of the investment is Hong Kong and Singapore. East Asia attracts more, around 11% - 14% of the funds, while South Asia attracts 2%.

India is the focal point of South Asia, the bulk of the 2% of interest goes there, then they diversify their risk by looking at Pakistan, Bangladesh and Sri Lanka, Mendis said.

When they are abroad they look at figures. We want to expose them to some of the listed companies for them to get a better informed decision, Mendis said.

At present, the bluest of the blue chips are selling at prices below book value, CSE Director, General Manager NDB Ranjith Fernando said. "All regional markets are doing well and why is Sri Lanka in this state?" Fernando asked.

"There is misinformation about Sri Lanka and if we get the fund managers down here we can show the positive aspects and admit the negatives."

Sri Lanka's misfortunes began in May 1998 when the nuclear tests by India and Pakistan that led to a flight of foreign capital from the entire South Asian region.

Between May and September last year the Colombo market fell 41 percent. More than Rs. 2.5 bn in foreign capital has left the country in the past year.

Fernando said even if only two foreign funds decided to invest 0.5% of their money in Colombo it would immediately turn around the market. "If I can I will try to reduce the foreign influence on the market," Mendis said adding "we are dependent on foreign investment. If we want to increase our growth rate to 7%-8% of GDP we need around 30% in foreign investment."

While we should try to decrease the dependency of foreign participation, we should try to increase the value of their investment, he said. The CSE is spending Rs. 10 mn on the two-day conference with another two days thrown in for a holiday in Bentota or Nuwara Eliya.

Around Rs. 4 mn will be funded through sponsorships from NDB, Aitken Spence, Hatton National Bank and John Keells.

The Unemployed - Facts and Figures

The rate of unemployment has fallen below 9 per cent. In fact the rate of unemployment has kept decreasing in recent years. In 1993, unemployment, as a proportion of the labour force, was estimated at 13.8 per cent. In 1994 it declined to 12.1 per cent. It continued to decrease thereafter till it reached 10.3 per cent in 1997. Last year it fell by a further 1.5 percentage points to 8.8 per cent.

Unemployment was never so low in the last several decades. In fact in 1973/74 it was estimated as high as 24 per cent. On the face of it, the country appears to be on the way to resolving one of its most serious problems. Reduced unemployment implies less poverty and perhaps more equitable income distribution. Social tensions should also ease. A more fully employed society is a healthier one in a political and social sense too.

Has there been an easing of social tensions and any of the benefits of improved employment conditions? There is very little conviction that the country has in fact reduced its unemployment appreciably. Why? There are too many circumstantial contradictions which require explanation.

There is a question of correct statistical estimation. Unemployment statistics are extremely difficult to gather correctly in the best of circumstances. In the Sri Lankan type of situation, where the bulk of employment is in informal, unregistered and small private enterprises, the task of collecting employment statistics is a difficult one. The definition of unemployment itself poses considerable difficulties. The responses of individuals could be deficient. So let us recognise that there is a serious problem of collecting statistical data on unemployment.

The problem of statistical data does not end there. The integrity of our statistical agency keeps cropping up every now and then. The root cause for this skepticism about data produced by the Department of Census and Statistics is that it does not function as an independent agency. It comes directly under the government. The general perception is that the Department is used for churning out data favourable to the government. Though we have no evidence of it happening at present, gerrymandering occurred in the past, especially with respect to the Colombo Consumers' Price Index.

There is circumstantial evidence to suggest that there could be a statistical bias. How come there is a need for vast expenditures on income support in a country where unemployment has fallen to less than 9 per cent. We refer to the expenditure of over Rs. 9 billion on the Samurdhi Programme. Nearly 2 million families received payments under the programme. This is over one-half the number of families in the country! Surely there is an inconsistency if only 9 per cent of the labour force is unemployed and over 50 per cent of the population receive welfare benefits?

The only rational explanation for a decline in the unemployed over the years is that the decreasing rate of population increase implies a decreasing rate of increase in those entering the labour force. This together with the number joining the defence forces and incresing numbers seeking employment abroad would have assisted in the reduction of the unemployed.

The situation with respect to the country's unemployment is complex. This is especially so as most of the unemployed are the educated youth who seek the kind of employment for which there are no vacancies. In fact the government has taken on the burden of employing more persons than necessary into public services to appease this category of persons. This is counter productive in the long run as it increases the government's expenditure, while not resulting in a commensurate increase in production. Employing persons for the sake of reducing unemployment is costly and a fruitless exercise. Such employment creation is likely to increase in the next year as a means of procuring votes for the government. This is hardly the way to solve unemployment as it heaps burdens on the poor and reduces the capacity of industry to absorb labour in the long run through its adverse fiscal impact.

Despite the favourable statistical picture that has emerged recently, there is little doubt that unemployment continues to be a serious problem. This is especially so as the highest rate of unemployment is among the educated. Graduate unemployment is very high and the country continues to spend large amounts on educating unemployable graduates. The complexity of the problem should be recognised and an effective strategy adopted to resolve the problem in the medium term. The solution would require to address a number of factors such as skill development in required areas of activity and a reduction in the mismatch between the available and emerging employment opportunities and the skills and training opportunities. Let us not be lulled into complacency by favourable statistics. There could be a gap between the figures and the facts.

Is it economical to fertilize rubber?

Natural rubber has been passing through one of its worst crisis in recent history. International prices of natural rubber (NR) have declined mainly due to currency devaluation in major rubber producing countries such as Thailand, Indonesia and Malaysia which together accounts for over 70% of world production. There is every possibility that this adverse trend may continue at least for several months. It has seriously jeopardize the local rubber output and Sri Lankan rubber producers have been at the receiving end. They have faced severe price declines, lost their markets and forced to cut down the production levels.

Historical evidence suggests that the prevailing currency crisis is likely to be a short to medium term phenomenon and we must therefore not let our rubber industry suffer a permanent damage owing to it. The NR industry should also be viewed in relation to its forward linkages with the fast growing manufacturing sector.

The government has already taken certain steps to help rubber producers. The cess on raw rubber exports has been removed. The depreciation of the rupee (7.4% in 1997 and 12% in 1998) has also helped rubber growers to withstand the sharp decline in prices to some extent. At the same time rubber producers were compelled to take certain extra measures to cut down the expenditure. These include; delaying of replanting, crop diversification and cut down in the use of inputs such as fertilizers, fungicides, rainguards etc. This article attempts to highlight the importance of applying fertilizers for rubber plantations even in a crisis situation and explains some economic measures that could be adopted to cut down the cost of fertilizer application to a bare minimum.

By Dr. Lalani Samarappuli
Head, Soils and Plant Nutrition Dept. -Rubber Research Institute
1. Reasons for Fertilization

Rubber plantations are generally situated on sloping lands in high rainfall districts of the low country wetzone. Soil degradation and impoverishment, therefore, occurs at a much faster rate in rubber soils, if proper attention is not paid to soil management and conservation practices. It has been observed that certain rubber estates have already shown signs of nutrient deficiencies due to the negligence of above agronomic practices.

1.1 Replacement of Depleted

(a) A certain quantity of nutrients get removed from the mature rubber lands almost every other day through the harvest (latex). However, the quantity of nutrients removed could vary from one crop to another. A comparison of nutrient outflow in major plantation crops is presented in Table 1. It is evident that the outflow of nutrients via harvest is lower in rubber plantations compared to tea, coconut and oil palm.

The Table 1 further suggests that the level of fertilizer required to supplement 1000kg of harvest removed from a plantation is much lower for mature rubber compared to tea, coconut and oil palm.

(b) Most rubber plantations have completed three planting cycles of approximately 30 years per cycle. As a result, a large amount of nutrients have been removed away from the land along with timber or fuelwood at the end of each planting cycle.

1.2 Earn Higher Returns on Investment

Long-term experiments carried out in rubber plantations have clearly demonstrated the importance of fertilizer application for mature rubber. Note:

(a) The commercial yields of rubber plantations have shown a marked increase over the years from about 250 kg/ha to the present level of about 2000 kg/ha. with the introduction of new high yielding clones in particular. The performance of high yielding varieties depends on the presence of certain additional inputs or a "package" of agro-management practices. In such circumstances the emphasis given on proper soil management and fertilizer application is far too greater to be ignored in achieving the targeted yields (Table 2).

(b) N, P, K and Mg have a direct impact on latex production (Table 3).

(c) Rubber yields could be increased by 15-20% due to fertilization. The Table 4 signifies the average net benefit of fertilizer application under different rubber prices.

(d) Latex yield is primarily dependent on the tree girth and to attain economic yields, the general health and girthing of the tree must be maintained at a satisfactory level during maturity.

(e) The application of fertilizers during maturity could be minimized by considering the following.

(i) The residual effect of the soil management practices carried out during the immaturity period.

(ii) The likely levelling off in nutrient immobilization that takes place within the tree along with maturity.

Accordingly it is only a "maintenance" dressing that has been recommended for rubber plantations during its mature stage (up to five years before uprooting).

2. The Present Recommendation

2.1 The recommended fertilizer levels of N, P, K and Mg are much lower for rubber compared to tea and coconut (Table 5).

2.2 Fertilizer inputs are further optimized by the application of soil and foliar based discriminatory manuring procedure. Under this site specific fertilizer recommendation programme implemented by the RRI each estate is surveyed once in every 3 years and only the required fertilizer quantities are recommended for each field accordingly. The Table 6, (compiled by using soil and foliar survey data of last 15 years) indicates the advantage of using soil and foliar survey based fertilizer levels compared to the conventional (general) recommendation of a blanket application.

2.3 Experiments laid down to investigate the impact of fertilizer on the performance of mature rubber have further confirmed that, even though the leaf nutrient status responded quickly, the effects on yield took a longer time to response. The studies also suggests that the response shown in annual yields were largely due to N, sometimes expressed only in the presence of K and Mg, becoming evident at 3-6 years after commencement of fertilizing, and reaching a maximum of 10-58% after 8-10 years.

Accordingly, a complete stoppage or any further reduction in fertilizer quantities could result in decline in yields after a period of 3-10 years. It also implies that it may not be possible to increase the yield levels within a short period of time even with a higher dosage of fertilizers (when the rubber prices become attractive) because of the time lag required to response. It is therefore not at all advisable to curtail fertilizer application specially during the early mature phase when trees been tapped on virgin panels: A and B, even in a crisis situation.

3. Economic measures to reduce the cost of fertilizer application in a crisis situation

The RRI has proposed the following economic measures to reduce the cost of fertilizer application to a bare minimum by considering the present crisis situation faced by the rubber industry.

3.1 Selection of urea based mixtures (instead of SA mixtures) during immature period

Urea has been further subsidized according to the revised fertilizer subsidy scheme. As as result, urea based rubber fertilizer mixtures have become much cheaper compared to SA based mixtures. The Table 7 indicates that a sum of Rs.

18,500 per hectare could be saved during the immature six year period by strictly adhering to urea based mixtures.

3.2 Use of Dolomite (instead of keiserite) during immature period

If urea based fertilizers are used there is an option available to use either kieserite or Dolomite as the source of Mg during the immature period, from the second year onwards. A sum of Rs. 8,180/ha could be saved by using Dolomite (instead of kieserite) for immature rubber from 2nd year upto tapping .

3.3 Market Intelligence

A wide variation in the price of fertilizers can be observed in the market ie the same fertilizer mixture is sold at different prices by different companies. For instance, a recent study reveals that the rubber fertilizer mixture, R/U 12:14:14 (with IRP) is sold at different prices by five different companies ranging from Rs. 8,110 to Rs. 9,350 per MT (Table 9). Hence, it is advisable for the estates to be aware of the difference in fertilizer prices at the factory-gate level.3.4 A Revised Soil & Foliar Survey Fertilizer Recommendation

3.4 A revised fertilizer programme has been recommended by the RRI as a temporary economic measure. It is based on the prevailing latex prices as well as on the results of soil and foliar survey carried out in the previous years. The criteria followed in this revised scheme is outlined below.

Panel A - Full dosage of the recommended fertilizers as per the soil & foliar survey

Panel B - Revised programme (a cut down in fertilizer)

Panel C - Fertilizer application to be discontinued

In the case of Devalakanda Estate, it has been possible to save a sum of Rs. 318,000 from 428 ha of mature extent (Rs. 734 per ha.) by adhering to the revised soil and foliar survey fertilizer recommendation introduced by the RRI

Similarly, the RRI has taken steps to provide a revised fertilizer recommendation for all the rubber estates for year 2000 on the basis of the samples collected in 1998 and before. In this exercise, the estates will receive a cost-effective and site specific revised fertilizer recommendation from the RRI free of charge. As a result, the estate sector will not incur any expenditure in carrying out the soil and foliar survey programme for this year 1999.

Table 1. {tc "Table 1. "} Impact of different levels of soil management & fertilizer application on rubber yield by clones Clone Yield (kg/ha/year1) Minimal Optimal Difference inputs inputs PB 86 780 985 205 RRIC100 948 1,215 267 RRIC 102 982 1,340 358 RRIC 121 877 1,155 278 1 Yields in "panel A" with s/2, d/2 tapping system Table 2. {tc "Table 2. "} Recommended nutrient levels of some selected plantation crops during mature period Crop Yield Amount of Nutrients (Kg/ha/yr) (Kg/ha/yr) N P K Mg Rubber 1,400 32 4 35 3 Tea 1,300 160 12 67 5 Coconut 2,000 55 11 120 22 Table 3.{tc "Table 3."} Average quantity of recommended fertilizers for mature rubber: conventional vs. soil & foliar survey based method Method Amount (Kg/ha/yr) Urea RP MOP Kieserite Conventional 70 35 70 18 S & F based 70 - 70 - Table 4.{tc "Table 4."} Savings on fertilizer by using urea based mixtures (instead of SA mixtures) during immature period Year Cost of Cost of Difference Urea based SA based (Rs/ha) (Rs/ha) (Rs/ha) 1 1,894 2,450 556 2 2,705 4,900 2,195 3 3,916 7,351 3,435 4 3,916 7,351 3,435 5 5,360 9,801 4,441 6 5,360 9,801 4,441 Net Saving 18,500 Table 5.{tc "Table 5."} Savings on fertilizer by using Dolomite compared to keiserite during immature period Year Cost of Cost of Difference Dolomite Kieserite (Rs/ha) (Rs/ha) (Rs/ha) 2 150 938 788 3 200 1,777 1,577 4 200 1,777 1,577 5 250 2,369 2,119 6 250 2,369 2,119 Net Saving 8,180 Table 6.{tc "Table 6."} Price of R/U 12:14:14 mixture (with IRP) by different companies Fertilizer company Price per MT (Rs) A 9,350 B 9,290 C 8,980 D 8,910 E 8,110 Table 7.{tc "Table 7."} Savings from revised fertilizer programme for 1999: The case of Davalakanda Estate : 428 Fertilizer S & F Revised Difference Savings Rec. (MT) Rec. (MT) (MT) (Rs) Urea 23.1 14.6 8.5 57,600 MOP 11.6 6.5 5.1 67,655 ERP 46.2 19.8 26.4 108,100 Kieserite 10.2 5.0 5.2 84,720 Total 318,075 (Rs. 734/ha)

Mind Your Business

By Business Bug
Green for danger

The announcement by the greens that they will do away with two major deals entered into by the blues- regarding the airline and the port- has sent shock-waves through the business community.

Among those who were especially worried were those who liked matters to be on an even keel, we hear.

So, emissaries and intermediaries were dispatched to the green camp to find out whether the green leader really meant what he said, reminding the greens that they once had very good relations with them.

The reply however, was disappointing: yes, they were told, the deal will be scrapped if and when the greens came to power...

Well Buoyed

A neat little announcement from the 'boy's last week said that the big boy will continue in his post and that there was no attempt whatsoever to replace him.

He will indeed continue in his post but it is not quite true that some people did not want him out.

The Lady at the helm had to take the final decision and it was her opinion that one should not rock the boat at this stage, what with polls due and the greens probing many an investment deal that the boy helped to put through...

After You

The reduction in interest rates by the big bank was not entirely unexpected but the timing took many by surprise and the other banks are wondering what to do next.

A flood of announcements reducing the current rates is expected shortly but most banks are playing a waiting game, reluctant to make the first reduction, we hear.

In this scenario, the big state banks will be asked to take the plunge initially...

MIDCAP index from Merchant Bank

In a pioneering move, the Merchant Bank of Sri Lanka Limited (MBSLL) has launched a stock market index which will measure the aggregate price level and price movements of medium size companies in the Colombo Stock Exchange (CSE). The MBSL MIDCAP index will supplement the All Share Price Index and the Milanka Price Index, a company release says.

The All Share Price Index measures the share price movements of all the stocks listed in the Colombo Stock Exchange whilst Milanka Price Index measures the price movements of high capitalized companies listed in the CSE and there was a need to measure the price movements of mid size companies, the release adds.

The new index will provide an indication of the price movement of the less sensitive, medium size companies. The market prices of stocks in the index, except for two, are below Rs 60.00. Hence, this index will reflect the aggregate price performance of stock which are of more interest to local retail investors in the CSE, the release added.

It can be used as the benchmark index for individual and institutional investors who prefer growth, but are prepared to withstand only conservative levels of volatility in their equity investments.

It can be used as the benchmark index for the introduction of Midcap linked index funds in the future, the release says.

The MIDCAP Index, together with the Milanka Price Index (MPI) can generate valuable signals for portfolio managers for switching between large-cap more sensitive stocks, and the mid-cap less sensitive stocks in response to changing capital market conditions.

This Index comprises 25 stocks selected on the basis of size, liquidity and profitability.

The size is measured by the market capitalization as at 31 December 1998. Liquidity is measured by a composite index of liquidity which consist of three indicators. The three indicators considered were, the number of trades in 1998, the number of shares traded in 1998, and the number of shares traded in 1998 as percentage of the average issued share capital during 1998.

In selecting the companies for this index, the 25 companies in the Milanka Price Index as well as the companies that made net losses in the previous two financial years were excluded. The remaining companies were ranked in the descending order of size and liquidity, separately and the top 25 companies in this ranking were selected to be included in the Index.

On this basis, the companies included in the Index are:

Central Finance Company, Seylan Bank, Lanka Orix Leasing Company, Union Assurance, Tea Small Holder Factories, Bairaha Farms, Haycarb, Aitken Spence Hotel Holdings, Walkers Tours, Royal Palms Beach Hotels, Ceylon Guardian Investment Trust, C T Land Development, Dipped Products, Tokyo Cement Company (Lanka), Pelwatte Sugar Industries, Lanka Ceramics, Royal Ceramics Lanka, Bogala Graphite (Lanka), United Motors Lanka, Balangoda Plantations, Madulsima Plantations, Kegalle Plantations, Asiri Hospitals, Singer (Sri Lanka), Richard Peiris Exports.

These 25 companies represent approximately 10% of the 239 stocks listed in the Colombo Stock Exchange and captures stocks in 11 of the 16 sectors of the CSE and represents 12% of the market capitalization as at 31 December 1998.

Ceylinco Swift Care launched

Ceylinco Swift Care Ltd., an emergency mobile medical service was launched by the Ceylinco group last week. "Ambulances in Sri Lanka are just a mode of transport. They should be equipped to give immediate medical attention," Head of Medical division, Ceylinco Swift Care, Dr. Naomal Balasuriya said.

The mobile service maintains a 24 hour ambulance service and ambulances are fitted with emergency medical equipment. Doctors will accompany ambulances. A centre is maintained which is the hub of operations. It is fully computerised and designed to ensure that medical records are verified, doctors briefed and hospitals informed and ambulances dispatched within a short time of receiving an emergency call. Individual membership costs Rs 2500 while corporate membership packages are also available. Family membership for corporate employees is also available and costs Rs. 1500 per household for groups of ten members.

Membership entitles clients to a free medical check up on registration. Channelling of doctors on behalf of patients will also be undertaken. Discounts for tests carried out at hospitals may also be obtained at hospitals Swift Care is affiliated to.

Tie ups with Asiri hospital, Asha Central hospital, Nawaloka hospital, Durdans and Sri Jayawardenapura hospital are maintained.

Three Acre farms incorporates subsidiary

Three Acre Farms Limited has incorporated a subsidiary, Millennium Multibreeder Farms (Pvt) Ltd. The hundred per cent subsidiary is expected to provide tax benefits.

The company intends to acquire more land and build modern hatcheries which will operate in an artificially controlled environment. Funds for this purpose will be generated internally.

Construction of the hatcheries is expected to be complete by the second quarter of 2000 and operations conducted in a controlled environment are expected to increase production yields.

Market update{tc "Market update"}

Market expected to fall further next week

The Colombo Stock Exchange witnessed sluggish trading during a restricted week of three days trading. The market fluctuated within narrow margins. The All Share Price Index declined 0.02 per cent to close at 564.6 while the Milanka Price Index rose 0.18 per cent to register 924.3.

Corporate results released contributed to a bleak picture in the market. Hayleys Ltd lost 12.85 per cent following the release of its corporate results for the quarter ending 30 th June 1999. Profit before tax had declined 44 per cent YOY. Meanwhile Vanik lost 11.11 per cent while Kelani Cables declined 11.06 per cent.

Kapila Heavy gained 53.85 per cent following the release of its annual report after two years. The company which had previously been suspended commenced trading. Walkers Tours rose 8.64 per cent while Lanka Lubricants gained 8.33 per cent following the release of its accounts for the 1st half, which showed an increase in profit before tax of 27.7 per cent YOY.

"The market will mirror its current performance next week," Head of Research, CDIC Sassoon Cumberbatch Stock Brokers, Diluk Desinghe predicted. "Activity levels are low due to the forthcoming elections in India and will remain the same till results are released in India as investment is directed towards the region," he said.

"Corporate performance was worse than expected and sentiment will remain damp as even 3rd quarter results will compare unfavourably with results of the 3rd quarter 1998," Head of Research, CT Smith's stock brokers, Rajiv Casie Chitty said. "However 3rd quarter results will be an improvement on 2nd quarter results. The performance of companies is lagging behind other countries. The economy is performing poorly. This is the after shock of the East Asian crisis," he added.

"The market will fall further next week but will remain range bound within the 550 and 560 mark," Head of Research, Asia Securities, Dushyanth Wijayasingha predicted. "There will be a phase of consolidation during the next two weeks," he said.

Tea Update {tc "Tea Update "}

What is India upto?

Saudi Arabia's demand for best leaf varieties weakened this week while prices of plainer varieties declined further, painting a gloomy picture for tea. Low growns continued their rally with the below best and bottom end of the market attracting strong demand.

The overall market changed very little from last week. Asia Siyaka Commodities reported that there was little or no differentiation between below best and planer teas. This has been a very discouraging factor for producers striving to achieve a superior price by providing value, they said.

However, recent Kenyan tea export figures show a drop in Kenyan tea exports to Sri Lanka. Though this could be attributed to the low demand in traditional markets, the cause for concern is that India is increasing its Kenyan tea imports.

Sri Lankan tea imports from Kenya dropped 87 per cent from 1 million kilos last year to 139,000 kilos.

While India increased its imports from 528,000 kilos in 1998 to 610,000 kilos. Industry sources say that it was possible that India is trying to get into the value-added market. This could adversely affect Sri Lankan tea exports if immediate action is not taken.

Sri Lanka continues to be the largest exporter of tea having shipped 131 million kilos for the first seven months of 1999.

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