Sri Lanka Newspapers 26/01/2012

Bourse stabilizes, indices up
*JKH continues to generate turnover

The Colombo bourse stabilized yesterday after two days of steep falls with both indices gaining modestly – the All Share by 20.20 points (0.36%) and the Milanka by 26.03 points (0.55%) on a turnover of Rs.628.9 million, down from the previous day’s Rs.1.28 billion, with 106 gainers ahead of 85 losers.

JKH, Asia Asset Finance and Swanamahal were the big business generators in that order.

"Turnover wasn’t very much," a broker admitted. "But at least the market held its ground without falling further."

JKH topped the turnover league with over 0.4 million shares done between Rs.159.20 and Rs.162 closing flat at Rs.160 contributing Rs.70.7 million to turnover followed by AAF which gained 40 cents to close at Rs.6.60 on nearly 8.4 million shares done between Rs.6.10 and Rs.6.70 generating a turnover of Rs.53.6 million.

Swarnamahal gained Rs.1.10 to close at Rs.114.90 on over 0.4 million shares done between Rs.107.10 and Rs.116 contributing Rs.49.3 million to turnover.

Other stocks that showed quantity and price gains included Fortress up a rupee to close at Rs.20.30 on nearly 1.7 million shares, ERI up 30 cents to close at Rs.27.80 on over 1.3 million shares and Ceylinco Finance up 30 cents to close at Rs.11.50 on nearly 1.9 million shares.

"We saw some activity on Ceylon Leather controlled by ERI which gained Rs.4 to close at Rs.102 on nearly 0.2 million shares done between Rs.92 and Rs.102," a broker said.
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The trade deficit for the period January to November 2011 more than doubled, expanding 111.3 percent to US$ 8.8 billion from US$ 4.18 billion a year earlier, as export growth was outpaced by the growth of imports. Official reserves which stood at US$ 6.2 billion as at end November 2011, fell 30.6 percent, down from US$ 8.1 billion as at end July 2011, data released by the Central Bank yesterday (Jan. 25) showed.

Export earnings during this eleven month period grew 22.2 percent to US$ 9.58 billion. Tea export earnings grew 1.9 percent to US$ 1.34 billion and apparels grew 24.6 percent to US$ 3.8 billion. The import bill grew by 53.2 percent to US$ 18.4 billion. The petroleum bill grew 54 percent to US$ 4.1 billion.

"The trade deficit for the first eleven months of 2011 stood at US$ 8,835 million, a significant portion of which was on account of imports of infrastructure related to projects of the government that have been funded mainly by foreign loans. In that context, the total inflows to the government, including the proceeds of the International Sovereign Bond issue, amounted to US dollars 4,027 million, during the first eleven months of 2011," the Central Bank said releasing the External Sector Performance report for November 2011.

"During 2011, earnings from tourism grew at a healthy rate of 44.2 per cent to US$ 830 million in 2011 compared to 2010. The tourist arrivals in 2011 increased by 30.8 per cent to 855,975 compared to that of 2010. The cumulative inflows on account of workers’ remittances grew at 23.8 per cent to US$ 4,639 million for the first eleven months of 2011. The expansion in exports of services and increased workers’ remittances helped contain the impact of the trade deficit, thereby sharply reducing the deficit of the current account to approximately US$ 3,999 million for the first eleven months of 2011. Inflows on account of short-term foreign financing obtained by commercial banks and funds to be secured from abroad as Tier II capital of banks are expected to further strengthen inflows to the country, as noted by the fact that banks have already contracted US$ 490 million as short-term facilities extending up to one year. Meanwhile, several banks have also already negotiated Tier II capital which could potentially reach about US$ 1 billion this year.

"By end November 2011, gross official reserves, excluding Asian Clearing Union (ACU) balances, amounted to US$ 6,201 million. By end November 2011, total external reserves, which includes gross official reserves and foreign assets of commercial banks amounted to US$ 7,541 million. In terms of months of imports, gross official reserves and total external reserves by end November 2011 were equivalent to 3.8 months and 4.6 months, respectively," the Central Bank said.

"Expenditure on imports in November 2011 was mainly driven by increases in imports of intermediate and investment goods. The intermediate goods imports increased year-on-year by 81.1 per cent, led by petroleum, textiles and clothing and fertiliser imports. The import expenditure on petroleum increased mainly due to higher average import price of crude oil of US$ 113 per barrel in November 2011 compared to US$ 84.85 per barrel for the corresponding month of 2010. Fertiliser imports grew in terms of both prices and volumes, by 326 per cent and 99.9 per cent, year-on-year, respectively, and the sharp increase of volume were mainly due to expansion of fertiliser subsidy to cover all crops. Expenditure on imports of investment goods increased substantially by 91.9 per cent while the non-food consumable imports increased by 48.2 per cent, year-on-year, in November 2011.

"In cumulative terms, for the first eleven months of 2011, earnings from exports increased by 22.2 per cent to US$ 9,581 million while the expenditure on imports, driven by substantial increase in investment goods and the sharp increase in price and volume of petroleum imports, increased by 53.2 per cent to US$ 18,417 million, compared with the corresponding period of 2010. In addition, gold and motor vehicle imports contributed to the overall increase in import expenditure. The gold imports increased more than six fold to US$ 553 million while the expenditure on imports of motor vehicle almost doubled to US $ 913 million during the first eleven months of 2011, compared with the same period of 2010," the Central Bank said.
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*Interest rates under pressure as rupee defense continues
* Treasury Sec. says economy would be resilient like in 2008/09; but that was a different time and we still needed IMF support

While the Central Bank continues to defend the exchange rate, with the International Monetary Fund review mission in town likely to contend this stance as reserves continue to diminish and domestic interest rates come under pressure, Economic Development Minister Basil Rajapaksa called for a realistic exchange rate regime.

"We must have a realistic exchange rate which would reflect the situation in the trade deficit, but we must not have wide fluctuations going either way," Rajapaksa said in response to a query raised by The Island Financial Review regarding the pressures on the balance of payments and domestic interest rates at a media briefing yesterday (Jan. 25).

The Central Bank has sold US$ 1,560.22 million in four months (July to October 2011) to keep the exchange rate stable amidst severe import demand. The government announced a 3 percent devaluation of the rupee on November 21, 2011. Since then, dealers say the Central Bank had sold over US$ 1 billion to keep the rupee at Rs. 113.89/90 against the dollar.

Treasury Secretary Dr. P. B. Jayasundera who was also present at the briefing taking up the question raised by The Island Financial Review, said there was no immediate threat to the balance of payments. He recently told foreign newswire services another rupee-devaluation was necessary along with a tightening of interest rates.

"We do not see a threat to our balance of payments at the moment. We have to watch oil prices closely and this is our only worry because we have no choice but import oil, unless we find our own source by 2015. But we can substitute a significant portion of some of our other imports in order to ease the pressure," Dr. Jayasundera said going on to add that there was no justification of importing certain food items which could be produced here. He even suggested that farmers must be convinced to grow chillies.

"I believe our economy is resilient and we could withstand any shock like we did in 2008 and 2009," Dr. De Silva said, discounting the need to take drastic measures to ease the negative pressures on the balance of payments. But what he did not say was that at that time the country was facing a balance of payments crisis and had to approach the IMF for assistance, which came late.

The end of the war had buoyed the economy which attracted foreign investment and the Central Bank was buying the dollars and building up reserves which resulted in the money market holding an excessive rupee positions, sometimes over Rs. 140 billion overnight.

Yesterday excess rupee liquidity amounted to Rs. 19 billion and some banks are unable to maintain liquidity positions because high credit growth and Central Bank selling dollars to prop-up the rupee were eroding liquidity. This is in turn putting pressure on domestic interest rates.

Treasury bill yields across all tenures stayed flat at yesterday’s primary market auction because the Central Bank has a degree of control. Interbank borrowing rates have continued to inch upwards.

Call money interest rates for interbank borrowings without security reached 9.07 percent yesterday from 8.96 the previous day and the highest since reaching 9.12 percent on January 11. Market repo rates for interbank borrowings backed up by security inched up to 8.20 percent from 8.13 percent the previous day.

The Sri Lanka Inter Bank Offered Rate rose to 9.09 percent from 8.98 percent the previous day.

The Central Bank also pumped in Rs. 4 billion in to the system to ease some of the liquidity pressures.
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By Steve A. Morrell

Buoyancy in the Tea market, after the Middle East upheaval last year, sustained price levels irrespective of crop short fall. The Sri Lanka Tea Board said production fell 9 percent in 2011 compared with the previous year.

Tea brokers said total crop intake in 2011 was 328.3 million, recording a decrease of about 3 million kilos comparing 2010. All elevations recorded decreases but the worst hit was the mid growns. The mid grown shortfall was about 30,000 kilos. negligible though it was, contributed to the overall crop deficit.

Generally, shippers said their profits were ‘not too bad’, but the formal plantation sector was worst affected while small holders continued to make money.

So too the private tea factory owners. Questioned how this was achieved they said this sector did not have to worry about all sorts of commitments the Estate sector was subjected to. Would there be new thinking this year? ‘That you would have to ask the Planters’ Association (PA)

Export volumes increased for Bio, Instant, reclaimed, and Orthodox green Teas up 22,5 million kilos, from 18.3 million kilos the previous year.

Western quality influenced most Western marks at last week’s tea auction. Brokers reports said cold nights and dry winds enhanced wide hygrometric differences. Ideally good quality weather ensuring bright infusions, and quality liquor. Crops were down, which was to be expected at this time of year.

There was no panic situation in most hill country stations. Some private tea holders we spoke to were also in good humour. Mostly in the Maskeliya sub – district. Prices were good they said. Some said they fell in line with the wage structure for Plantation workers, but were not weighted down by most plantation company commitments. Profits were not too bad and tea continues to be good business, they said.

The threat that war would break out in the Middle East because of the US blockade, ended with Iran falling in line.

Members of the Private Tea Factory Owners Association too echoed these views,. They said their origins were from Tea Small Holders, who fell in line supplying good leaf. Two such owners we spoke to said they were not prepared to compromise on leaf standards because prices they paid for green leaf was around Rs.70 per kilo. ‘At that price they were making money, because profit margins were substantial. Small holders maintained good leaf standards, else I turned their leaf away," said a private tea factory owner in the Hatton District.

Meanwhile the Company that stood firm on productivity, and plucking norms, said workers had now adhered to what was required and had agreed to increase their norms. Work has now returned to normal, but the company is reportedly not taking any chances.

Kenya and the extreme frost situation there would influence Ceylon Tea. These comments gleaned from Broker’s reports. It would take at least three months for growth to be normalized after frost affectation. Tea areas in Nuwara Eliya too would take that long to recover. But thankfully, despite of extreme cold weather in those climes, just a small area had frost bite.

Westerns sold at price variances of about Rs. 20 above last weeks gains. Nuwara Eliya averages were Rs.10 above last prices.

Low growns sold well. Here the Middle East origins were exceptionally active.

At this week’s auction about 6.8 million would be on offer. Brokers said this sale too would be good. Prices would move up.
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With intensifying strains in the euro area weighing on the global outlook, the International Monetary Fund (IMF) has sharply cut its forecast for world growth this year, saying prospects have dimmed and risks to financial stability have increased.

In an update to its World Economic Outlook(WEO), the IMF said that the euro area would fall into a mild recession in 2012 after the euro area crisis entered a "perilous new phase" toward the end of last year, affecting other parts of the world including the United States, emerging markets, and developing countries.

Overall, activity in the advanced economies is now projected to expand by just 1.2 percent in 2012—a downward revision of ¾ percentage points relative to the forecast last September—picking up to a still tepid 1.9 percent the next year. The global growth outlook for this year is 3.3 percent.

"Given the depth of the 2009 recession, these growth rates are too sluggish to make a major dent in very high unemployment," the IMF said.

With the revised forecast, the IMF also released updates on January 24 to itsGlobal Financial Stability Report (GFSR), which tracks issues in banking and capital markets, and its Fiscal Monitor, which tracks government debt and budgets.

Europe is epicenter

"The outlook for growth is mediocre, and it could be worse," said Olivier Blanchard, the IMF’s Economic Counsellor.

At a press conference in Washington D.C., Blanchard said that "the world recovery, which was weak in the first place, is in danger of stalling.The epicenter of the danger is Europe, but the rest of the world is increasingly affected."

He told reporters there was an even greater danger if the European crisis intensified. "In this case, the world could be plunged into another recession," he said.

But Blanchard said that with the right set of measures, "the worst can definitely be avoided, and the recovery can be put back on track. These measures can be taken, need to be taken, and need to be taken urgently."

In a speech in Berlin on January 23, IMF Managing Director Christine Lagarde laid out the main elements of a policy path forward. Europe, which is at the center of global concerns, needs stronger growth, larger firewalls, and deeper integration, she said, but added that other economies also have an important role to play to restore balanced global growth. As for the multilateral component, Lagarde said that the IMF was ready to help and was seeking to increase its lending resources by up to $500 billion.

Asia still strong

The report said in 2012–13, growth in emerging and developing economies is expected to average 5¾ percent—a significant slowdown from the 6¾ percent growth registered in 2010–11, and about ½ percentage point lower than projected in the September 2011 WEO. This reflects the deterioration in the external environment, as well as the slowdown in domestic demand in key emerging economies.

Despite a substantial downward revision of ¾ percentage point, developing Asia is still projected to grow most rapidly at 7½ percent on average in 2012–13.

Economic activity in the Middle East and North Africa is expected to accelerate in 2012-13, driven mainly by the recovery in Libya and the continued strong performance of other oil exporters. Most oil-importing countries in the region face muted growth prospects due to longer than expected political transition and an adverse external environment.

The impact of the global slowdown on sub-Saharan Africa has to date been limited to a few countries, most notably South Africa, and the region’s output is expected to expand by about 5½ percent in 2012.

The adverse spillover effects are expected to be the largest for central and eastern Europe, given the region’s strong trade and financial linkages with the euro area economies.

The impact on other regions is expected to be relatively mild, as macroeconomic policy easing is expected to largely offset the effects of slowing demand from advanced economies and rising global risk aversion. For many emerging and developing economies, the strength of the forecasts also reflects relatively high commodity prices.

Europe key to restoring confidence

Blanchard said that growth in the euro area in 2012 was now forecast at -0.5%, a decrease of 1.6% relative to the IMF’s September 2011 projection. "In particular, we predict negative growth of 2.2% in Italy, 1.7% in Spain," he said.

The IMF said the most immediate policy challenge is to restore confidence and put an end to the crisis in the euro area by supporting growth, while sustaining fiscal adjustment, containing deleveraging, and providing more liquidity and monetary accommodation.

In other major advanced economies, the key policy requirements are to address medium-term fiscal imbalances and to repair and reform financial systems, while sustaining the recovery. In emerging and developing economies, near-term policy should focus on responding to moderating domestic growth and to slowing external demand from advanced economies.

Financial sector risks rise

In its GFSR update, the IMF said global financial stability has moved deeply into the danger zone as sovereign bond spreads in the euro area have widened, and the European Central Bank has been forced to play an increasingly vital role in sustaining the euro area financial system. Despite the efforts of European policymakers to contain the euro area debt crisis and related banking problems, a comprehensive and decisive policy response is still needed, the IMF said.

"European policymakers need to promptly put in place a comprehensive package that restores confidence, and need to implement the policy measures agreed at the October and December euro zone summits," said José Viñals, the IMF’s Financial Counsellor and head of the Monetary and Capital Markets Department.

The IMF said officials should create a large firewall designed to protect sovereigns that are solvent but facing financing strains. Although institutions intended for this purpose exist, they currently do not have the size and flexibility required to be fully credible.

Banks need to increase their capital to restore financial markets’ confidence in their ability to weather the downturn. Wherever possible, this should be done by raising capital from private sources, but public funding should be available for this purpose when needed. There should also be a pan-euro-area facility with the capacity to take direct stakes in banks.

Officials need to monitor the adjustment of bank balance sheets in the face of the crisis, and act to prevent "bad" deleveraging—asset sales that have the effect of reducing the supply of credit to the economy. Officials should aim to limit deleveraging of their banks not only in home markets but also abroad.

The IMF added that despite the resilience demonstrated in recent years by emerging markets, they face risks from deleveraging by euro area banks, particularly in emerging Europe countries.

Progress on fiscal side

Fiscal deficits in many advanced economies fell significantly during 2011, and most plan substantial adjustment this year. Continued adjustment is necessary for medium-term debt sustainability, and should ideally occur at a pace that supports adequate growth in output and employment, according to the latestFiscal Monitor.

"The pace of fiscal consolidation in advanced economies in 2012 is already high," said Carlo Cottarelli, head of the IMF’s Fiscal Affairs Department, which produced the report. "Too rapid consolidation, if economic growth slows, could exacerbate risks."

Most countries should allow automatic stabilizers, such as unemployment insurance payments that rise as jobs are eliminated, to work if growth slows. When economic conditions deteriorate they can cushion the impact on demand.

Countries that have the fiscal space, including some in Europe, could consider slowing the pace of consolidation this year. Some countries, notably the United States and Japan, need to clarify their plans to reduce debts and deficits in the years ahead.

Some emerging economies with low debt and deficits and declining inflationary pressure have room to make policy more supportive of economic activity. Others have little space for more than the operation of automatic stabilizers if growth slows.

Emerging economies highly dependent on commodity revenues and external capital inflows also need to consider the risk of a large and protracted decline in these flows.

(Courtesy IMF Survey)
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*Downgrading five stars to attract more guests would hurt SMEs
By Harischandra Gunaratna

Colombo City Hoteliers Association President M. Shanthikumar yesterday said that no five star hotel should attempt to have the property down graded to four stars as it would adversely affect the four stars.

When a hotel with five star facilities is marketed at four star rates it would be a distinct disadvantage to the existing four stars and they also will be forced to seek permission to be downgraded to the next category from the relevant authorities, he said. (Please see The Island Financial Review of Wednesday 25, January: Galadari sinks, mulls shedding status to stay afloat – Treasury holding it down with 13% EPF stake).

Shanthikumar was of the opinion that it will have a detrimental effect on all other hotels and hence it should not be done."If it is done, the move will badly affect Small and Medium Enterprises in Tourism and kill that segment of the industry ," he warned.

The veteran hotelier asked what would happen to the four stars, they would then have to down grade to three stars and the three stars to two stars and where would the lowest category be placed.

"If a hotel is not doing well with its occupancy it will lead to loss o revenue and the hotel will have to launch an effective and aggressive marketing campaign," he said.

The current minimum room rates for City Hotels are as follows.

If this trend would be followed it would become a precedent and eventually the country would not be able to achieve the expected 2.5 million tourist arrivals target in 2016, he said.

Five stars US$ 125 ++ , Four stars US$ 95 ++, Three stars US$ 75 ++ and Two stars US$ 55 ++.

Shathikuamar said that the City Hotels are enjoying an average of 75 percent occupancy this month and it would be 70 percent in February. The highest number of visitors are from India, followed by UK and Germany.

When asked whether the government has no plans to launch an aggressive marketing campaign at this hour, Shanthikumar answered in the affirmative and said that Treasury Secretary P.B.Jayasundara has planned to promote the country with the help of stakeholders such as Sri Lanka Tourism,Sri Lankan Airlines, SriLanka Tea Board, Sri Lanka Export Promotion Board, Sri Lanka Gem and Jewellery Authority etc. and said it is a good move.

Leading international chains Shangrilla and Sheraton will construct two five stars at the Galle Face which together would have a total of around 800 rooms he said.

"Shangrilla will be a five star and not a seven star as speculated by some," he stressed.

In addition a four star by the well known hotel chain Movenpick and a three star by John Keells-Sanken Lanka, both in Colombo -03 is being constructed.

The building constructed by Ceylinco at the Cornels Super market for the proposed five star Hyatt Regency has been taken over by the Urban Development Authority and would decide on the fate of it, he said.

"There would be more two and three star hotels coming into operation in the coming months in the metropolis and the latest trend is that some entrepreneurs are investing on apartments for tourists where the latter could hire them for week or a longer period," Shanthikumar, pointed out

It is heartening to note that some five stars are upgrading the properties investing large sums of money as they are confident of the future.

This augurs well for Sri Lanka’s tourism industry said the veteran hotelier.
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Shirajiv SIRIMANE
Qatari investors have expressed their willingness to build a expressway from Katunayake to Kalpitiya. This is an extension of the Colombo Katunayake highway which would be opened this year.

Investors from Qatar are looking at building this 140 km highway on a build operate and transfer basis.

Minister of Economic Development, Basil Rajapaksa said the main reason behind the building of this highway by Qataris is to accommodate traffic to the Kalpitiya Tourist Zone.

They have expressed interest to build three hotels in the Kalpitiya Tourism zone and most likely both projects would compensate each other, he said.
http://www.dailynews.lk/2012/01/26/bus04.asp

To be second next year:
Lanka to get four NANO patents:
Shirajiv SIRIMANE

Sri Lanka’s current economic growth rate of around 8.3 percent would rank the country among the top four performing economies in the world.

Minister of Economic Development, Basil Rajapaksa said that an IMF study had predicted that Sri Lanka would remain as the second best performing economy in the world next year, after China.

The minister said that war-torn countries such as Vietnam, Germany, Japan and Korea had taken many years to return to normalcy while in just two years after the war Sri Lanka could be among the top four economies in the world.

He said that Sri Lanka still has to narrow the export and import gap. The main reason for such a gap to exist is the dependency on essential items that could be produced in Sri Lanka.

“This is the reason the last budget provided so many incentives for investors to start businesses in cement, steel, iron, manufacture of drugs and other similar ventures.”

The minister said that the annual milk import bill of the country was around US $ 330 million, sugar US $ 450 million, chilies US $ 50 million, fish US $ 120 million. This was a sad situation as they could be produced in Sri Lanka.

He said that a few years ago over 90 percent of ingredients to make Thosai and Indian foods were imported and today Sri Lanka is almost self sufficient in this sector mainly with supplies from Vavuniya.

Due to global recession investors were prompted to save money last year and this year they are likely to invest and this would open opportunities to Sri Lanka.

He also disclosed that the country is very serious in perusing Nano technology and scientists at the Biyagama zone have invented a fertilizer that could bring far reaching results. “We are currently in the process of obtaining a global patent for this product and several other similar global patents are on the way,” he said.

He also said that Sri Lanka Insurance Corporation would be rebuilding the abandoned Ceylinco Celestial residences at Colombo 3, and then they would go in for a joint partnership with global hotel chain, Hyatt to start a joint venture hotel project in it.

Secretary to the Treasury Dr P B Jayasundera said that the country is on the right economic path and this was the reason for global giants like Holcim, Nestle, Shangri-La, Dialog Axiata to reinvest in Sri Lanka.

He said that the government had decided to increase the number of home economic units for each Grama Niladhari division from 15 to 25 in 2012.
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United Motors December net up 71%

Jan 26, 2012 (LBT) - Agency for Mitsubishi automobiles in Sri Lanka, United Motors PLC, said profits grew 71% to 622 million rupees in the December 2011 quarter from a year earlier.
In a filing to Colombo Stock Exchange its earnings indicated 9.26 rupees for the quarter in interim accounts. It also reported earnings of 23.59 rupees on profits or 1.58 billion rupees for the nine months ending December 2012http://www.lbt.lk/news/business/1075-united-net-up

Maldives is considering setting up an investment promotion agency in Sri Lanka

Jan 26, 2012 (LBT) - At a business forum organised by the National Chamber of Commerce of Sri Lanka, Maldivian Deputy High Commissioner Hussain Niyaz said the foreign policy of the new government elected in 2008 is to attract as many foreign direct investments to the Maldives as possible, and in order to do this the government is ready to provide facilities to attract and facilitate new investments.
Aitken Spence and John Keels were held in high regard by Maldivians. The Maldives is considering setting up an investment promotion agency to help foreign investors similar to Sri Lanka's Board of Investment where they can channel investors to the right partners through chambers of commerce.http://www.lbt.lk/news/business/1074-maldivian-investment

HSBC announced the launch of HSBC Visa Signature

Jan 26, 2012 (LBT) - Sri Lanka's HSBC has launched an exclusive credit card called the HSBC Visa Signature, for frequent international travelers. The card offers its customers an enticing and exclusive travel, dining and lodging privileges both locally and globally.
The card offers discounts on seven top airlines such as Cathay Pacific Airways, Jet Airways, Kingfisher Airlines, Malaysia Airline, Qatar Airways, Singapore Airlines and Sri Lankan business class airfares. Online ticket purchases will also earn extra airlines, the banks said.
Head of cards at HSBC Mr. Nadeesha Senaratne stated, existing platinum card holders earning above 200,000 rupees a month will be upgraded to the new card.http://www.lbt.lk/news/business/1073-visa-signature