10th October 1999

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Expenditure estimates presented

Governments ministerial appropriations for the first financial year of the new millennium was tabled in parliament last week. The estimates totalled Rs. 291.9 billion. Estimates for most ministries recorded marked increases.

Defence Ministry appropriations shot up by 10.7 percent to approximately Rs. 52 billion, while Finance Ministry appropriations went up by 26.45 percent to Rs. 32 billion.

Industrial Development Ministry's appropriations grew by 3.1 percent to Rs. 1.18 billion, while Transport and Highways Ministry's and Post and Telecom Ministry's appropriations increased by 43 percent and 48 pecent to 25.2 billion and 11.2 billion respectively. The budget hearing is scheduled to be presented in parliament on November 1.

DFCC, NDB neck and neck into diversification

By Mel Gunasekera

DFCC Bank is making plans to enter the lucrative insurance business, launch an investment bank, apply for a securities broking licence and strengthen its strategic alliance with Commercial Bank, a senior DFCC official said.

Following the trend of its rival National Development Bank, DFCC is scouting for a strategic alliance with an insurance company. "We would like to go for an alliance with a local insurance company," Executive Vice President, Dayantha de Mel said addressing last week's fund managers' conference.The strategic alliance with its associate, Commercial Bank is in progress. "Certain working arrangements have been put in place, but not formalised yet," he said. "Joint venture teams will explore what areas we should work together and how we could share businesses."

Work on Sri Lanka's first investment bank dedicated to dealing in debt market activities is in progress and the bank is scouting for a foreign technical partner with similar experience.

DFCC Bank is the main promoter of the project, which will also include the International Finance Corporation (IFC), the National Savings Bank, and a technical partner, de Mel said.

The new bank hopes to deal in both government and corporate debt.

The debt focused investment bank, yet to be named, would work closely with companies to issue debt (with a credit rating from the rating agency), list the debt on the stock exchange, and find investors to buy and sell debt. The same would apply to government debt as well.

Sri Lankan government debt secondary market activities are now in the process of being re-structured with the setting up of subsidiaries for primary dealership. However, banking analysts feel the Central Bank's guideline may pose a problem for the new bank's activities.

Meanwhile National Development Bank (NDB) will diversify its activities into commercial banking and debt trading and also launch an Employee Share Option Scheme (ESOP) as part of its future strategies, a senior NDB official said.

With intense competition among the commercial banks, NDB hopes to take 'a different course from other banks,' NDB Director/General Manager, Ranjith Fernando said addressing last week's fund managers' conference.

NDB has already laid the ground work for its ESOP scheme. Fernando says, with the last sale of the government's stake, the bank purchased 900,000 shares and formed it into a separate trust to create an ESOP scheme.

The scheme will be linked to the share price movement to enable employees to benefit from price movements.

"The trust deed has been formulated and we will be issuing the shares on the date of the issue," he said.

NDB hopes to downsize its equity portfolio this year which has always been market. As at end 1998, NDB's quoted portfolio stood at Rs. 1.15 bn and accounted for 3.5% of total assets. It is heavily weighted towards the hotel sector, which accounts for 33% of its total cost. The portfolio also has substantial exposure to the banking and finance (17.5%) and manufacturing (17%) sectors. The portfolio has continued to decline in 1H99 has resulted in a further Rs. 141 mn provisioning requirement.

Fernando says the bank plans to add another two branches to its nine branch network in key provincial towns. In the long term, NDB is planning a 20 branch network, enabling it to compete more effectively with commercial banks in the retail banking segment.

Last week, NDB sealed its entry to the competitive housing lending market with a tie up with India's giant Housing and Finance Development Corporation (HDFC) and the International Finance Corporation (IFC). NDB will hold the controlling stake of the Rs. 600 mn new company NDB Housing Ltd while HDFC and IFC will hold a 15% stake each.

Tea in the dark

Frequent unannounced power outages in plantation regions are affecting profits and productivity of tea factories. Secretary, Planters' Association, (PA) S. K. Seneviratne in a letter to the Chairman of the Ceylon Electricity Board (CEB) has said that ad-hoc power failures of long and short durations and power fluctuations was adversely affecting quality of tea and rubber.

According to a schedule of power disruptions compiled by the Planter's Association, Ramboda, Yatiyantota and Hatton were the worst affected. The Planters' Association has requested CEB to ensure that estates are informed of impending power interruptions and that maintenance of power lines be carried out on Sundays or holidays to minimise any damage that may be caused to quality of the end product, productivity or machinery.

CEB officials said they regretted the inconvenience, but added that they had in fact informed the estates prior to scheduled disruptions. The scheduled disruptions were part of the CEB's efforts to provide better service to the estates, officials said. However, they said that they could not give prior warnings for disruptions caused because of the mountain terrain and strong winds. They added that generally factories had back up power supplies like many organisations concerned about continuous production.

In addition the PA said illegal tapping of electricity by villagers had increased the factories over head costs. The Association said Nakiadeniya Estate in the Galle District on average paid electricity bills of over Rs. 100,000 per month due to the illegal tapping. "It appears that the CEB is turning a blind eye to these illegal connections," the Association said in a press release. CEB officials however, said they were not aware of such a situation, but said they would look into it.

"This situation causes us great concern, especially at a time when spiralling cost of production and other problems such as additional tax and debt burdens and unliveable wage formulas are affecting the industry," Mr. Seneviratne, said.

"It is disappointing to note that despite the high price paid for electricity, (when compared with prices paid by our competitors in India, Africa and Indonesia) the companies are not assured of a satisfactory service for their money. Although the plantations are privatised, key support sections such as power remain in the control of the state sector hampering the smooth functioning of the so-called engine of growth".

Positive unp signals

The Opposition (UNP) Leader, Mr. Ranil Wickremesinghe's promises of liberalising capital markets at the Fund Managers conference last week, was hailed as one of the most positive signals in the future macro economic picture: Excerpt from his talk:

Financing industry:

We want to deal with the urgent need to create avenues for financing industry (infrastructure and housing) from domestic and foreign savings. We will also promote the mechanisms for creating an asset owning democracy such as housing finance, employee share ownership schemes and a liquid bond market for small investors.

Liberalising insurance:

Sri Lanka's gross premia/GDP rato is 1.2 per cent versus India (2.0 per cent), Kenya (3.2%) and Malaysia (4.4%). An extra 1% of GDP of premia income puts in Rs. 10 bn into circulation.

Proposal: Eliminate inefficiencies in the insurance sector and reduce premia.

Allow foreign participation of about 30%-40% in insurance companies.

Offer health insurance policies.

Replace Exchange Control Act:

The present Act is obsolete and gives too much discretionary powers to the Central Bank.

Proposal: Replace present Act with an Act that emphasises monitoring of capital flows.

Allow gradual liberalisation of foreign investments in debt market.

Allow local listed companies/fund managers to invest overseas.

Debt securitisation:

Under existing laws, debts cannot easily be assigned, this has to be changed. Consequently, housing mortgage loans cannot be securitiesed and sold to investors. In 1998, Rs. 2.6 bn housing loans were disbursed. This can be increased rapidly.

Strengthening and consolidating domestic financial institutions

Encourage universal banking concept. In the medium term we will have to consider bank mergers reducing the numbers to around three to four.

Proposal: Initially short term bank spreads to be brought down to three percent.

Application of prudent banking practices.

Enhance bank supervision capabilities.

Further liberalise foreign ownership rules in banks.

Broadbasing of debt/equity in existing listed companies

Present fiscal incentives only focus on new listings. We are encouraging existing listed companies to broaden their free float.

Develop human resources equipped with skills and technology

The UNP government will sponsor a programme to make at least 50 per cent of the population proficient in English and computers.

Create a fund to assist students financially to follow professional services.

The party plans to develop five economic zones in five selected are Western Province, North Western province. Southern province, central province, uva and north central province and finally in the North and East.

Mind your business

By Business Bug
Her way your say

There has been a lot of lobbying against a boss of a big state bank and some very important people wanted the boss removed.

The matter went to the highest levels of government where representations were made against the boss.

But the lady there was equally adamant: 'The boss is my choice and it will remain that way', said she. So, the others had their say, but the boss had her way!

Greens don't like emirs

The emirs who bought over the management of the "Dandu Monara" are a worried lot these days, often pondering what their plight might be if the greens take over the reins of power.

There were attempts to discreetly find out what the greens' thinking on the issue and gentle feelers were sent out through mutual friends.

But the answer was disappointing, nevertheless. The agreement would be abrogated and the emirs would be sent back, the greens have told the messengers.

Now, the emirs are thinking long and hard before making any long term investments, they say...

Third time lucky

The TV station which earned more brickbats than bouquets by telecasting a recent cricket tournament will be doing the honours again this week.

And now comes the news that a consumer group wants to go to courts against their monopoly rights, accusing them of incomplete and improper coverage with too many commercials.

But the group had a problem: they had no footage to prove their case. Now, they will be monitoring the forthcoming telecast, hoping that they will be third time lucky!

Beginning of corrections

Last week's auctions saw the beginning of market corrections and is expected to continue as the sale quantity improves. The auction also witnessed the smallest quantity on offer at a sale this year at 4.38 mn kilos, only second to the one day sale on November 4, 1998 at which 3.9 mn kilos was up for sale.

Significant changes at last weeks auctions included declines in low growns, which were selling at higher rates than high and mid growns. Brokers said low grown prices were higher on account of additional pre-winter buying by Russia and added that it would gradually stabilise.

It was also reported that for the first time this year, the monthly averages for September '99 recorded a gain over September last year. High growns gained the highest with a 6 pecent gain while medium and low growns recorded modest gains of 3 percent and 0.1 percent respectively.

Officials said though the market recorded a 'little' dip, overall the market was healthy. They continued on the healthy lines and said the recently concluded Food and Agriculture Organisation (FAO), Intergovernmental Group (IGG) meeting in Ottawa, which was aimed at promoting tea as a health drink could not have come at a better time.

They said in a Sri Lankan perspective it was most favourable since many companies were moving into marketing a health drink rather than the traditional thirst quencher.

Brokers and officials also commented on India's continued interest in developing its value added tea market. While this has some officials worried, others remained very optimistic and said India should not be considered a threat, but taken up as a challenge and look for prospects of tapping into their market. Some companies are already said to be looking at the possibility.

Market update By Dinali Goonewardene

More sell orders than buy orders: Colombo faces further slide

Market update by Dinali Goonewardene

Trading at the Colombo bourse remained lacklustre last week. Foreigners remained net sellers with net foreign outflows of Rs. 85.18 million. Average turnover for the week was Rs. 66.4 million. The All Share Price Index declined by 1.2% to close at 561.79, the MBSL Midcap Index fell 1.22 % closing at 1000.61, while the Milanka Price Index fell 1.49 % to register 909.64.

The market is likely to be flat next week,' Head of Research, NDBS Stock Brokers, Chanaka Wickramasuriya predicted. "There are more sell orders than buy orders and if these are executed it will bring the market down further. Tea prices are also likely to be flat and there will be no retail push," he said.

"Last weeks tea market was mixed due to large quantities being on offer," Director Research, John Keells Stock Brokers, Nandakumar Nair said. "There will be pressure on price appreciation in the tea market next week due to volume increases. This will reflect on the market," he said.

"The market will remain subdued next week," Head of Research, Asia Securities, Dushyanth Wijaysingha said. "We don't expect any buying interest from any quarter. Last week saw profit taking on the plantations and there may be some retail buying in that sector," he said.

"The under performance of the Colombo Stock Exchange and the lack of foreign interest has caused much concern among local investors. We attribute this to the markets poor liquidity rather than micro concerns," strategist, Jardine Fleming HNB Securities, Amal Sanderatne said. He said the lack of interest in small markets seen for most of this year, was not specific to the CSE. Most emerging markets of similar size have fallen this year. "This category of small markets is known as frontier markets. The International Finance Corporation's frontier markets index has fallen by 7.5 per cent this year." Sanderatne said.

Cathay Pacific wins Readers' Award

Cathay Pacific Airways has been named "Best Long-Haul Airline for Business" in Conde Nast Traveller's second annual Readers' Travel Awards which recognises the highest achievers in the travel industry. Cathay Pacific scored 89.1% to rank first out of the airlines included in the U. K. survey. The survey asked readers to name and rate their favourite travel destinations, airlines and hotels. The criteria for the Best Long - Haul Airline for Business category included the range of routes; convenience of scheduling; punctuality and efficiency; pre and post flight facilities; service and staff; catering; inflight entertainment and loyalty award schemes.

ANZ arranges $25m to complete Shell Terminal

ANZ Grindlays Bank recently arranged a facility agreement for Shell Terminal Lanka (Pvt) Limited (STLL), a fully owned subsidiary of Shell Overseas Investment BV. The agreement is for the Sri Lankan Rupee equivalent of USD 25m. and covers STLL's medium term financing requirements says a company release.

ANZ Grindlays Bank was the arranger of the facility and is the lead bank in the consortium. Other members of the consortium are Standard Chartered Bank and National Development Bank.

The facility will enable STLL to source funds through the issue of Promissory Notes, which are guaranteed by the Consortium or to borrow directly from the Bank. Citi National Investment Bank is the placement agent for the Promissory Notes. STLL will be utilising the proceeds to complete the LPG Terminal at Muthurajawela that is expected to commence operations by December this year. Shell have invested in excess of USD75m. in the project as part of the landmark agreement signed with the Board of Investment in 1996.

Tecalemit now in Sri Lanka

A new venture, a new company, Tecalemit is not new to the automotive industry. A top of the range garage equipment and service company, now in Sri Lanka to provide service and general maintenance along with Vehicle Analysing for Exhaust Emission, Brake testing, A/C Station and state of the art Wheel Alignment Service, using the very latest in technology, by personnel factory trained by Tecalemit in the UK.

Mr. Mahinda Bandusena Secretary to the Ministry of Industries and the Fiscal Incentives committee menders and Deputy Director Mr. Sirisena Jayawardene also of the Ministry of Industries persuaded Mr. Fred Elias the Chairman/ Managing Director of Tecalemit Lanka (Pvt) Ltd of the importance in providing a service to the automotive public of this country.

The need to control exhaust pollution which has been a major hazard in Sri Lanka was confirmed by Mr. Lionel Jayasinghe Director General of the Central Environmental Authority who has also been extremely helpful and co-operative in explaining and confirming the need for such facility to be provided. Ms. Padmini Premaratne of the British High Commission in Sri Lanka provided all details connected to vehicle tests done in the UK and Mr. Nick Pyle of the British High Commission made it possible for personnel to be trained in the UK.

The Central Environmental Authority which is doing all its power to educate the general public of the importance of clean air not just on vehicle exhaust pollution but on general environmental pollution, needs all the co-operation it can get in improving the quality of living in Sri Lanka. The Government alone cannot solve this problem of pollution without the co-operation of the general public.

Here is the opportunity now being made available to the entire motoring public to have their vehicles checked and tested periodically, accordingly helping the generations to come and our beautiful Sri Lanka once referred to as the pearl of the India ocean.

Being Sri Lankans it is our duty to love our country and protect our environment.

SLSI to test imported timber

On the advice of the Institute for Construction Training and Development (ICTAD) of the Ministry of Housing & Construction, all timber imports to the country will be brought under the Import Inspection Scheme of SLSI from early next year.

SLSI has convened a meeting of all timber importers to explain the procedure that would be adopted to control the quality of timber. Timber is one of the imported items used in the building industry extensively.

Although the importers claim that the timber has been treated with chemicals to preserve its quality and durability the user is not given any assurance of its quality as no inspection is carried out at the point of entry to the country.

The extent of chemical impregnation,strength properties will be checked by SLSI. A colour code will be used to identify different classes of timber.

A consumer education programme will be undertaken to help the user to identify different classes of timber at the market place using the colour code.

Since 1986 SLSI has implemented an Import Inspection Scheme for 56 items, covering food, household electrical items, building materials, as well as other important consumer products such as bicycle tyres, vacuum flasks, mosquito coils and helmets etc. ~Since the commencement of this scheme, over 10,000 consignments have been checked against the relevant Sri Lanka Standards and permitted to enter the country if they conform to the standards.

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