Sri Lanka Newspapers -10/01/2012

Laugfs takes year to start Rs. 500mn hydropower project
* Three ventures at Balangoda

By Ravi Ladduwahetty

Laugfs Power Ltd, a subsidiary company of Laugfs Holdings and Laugfs Gas PLC, will finally commence construction of a Rs. 500 million hydro power plant at Balangoda which will add 3 Megawatts of power to the national grid.

A year ago, the company announced that it would invest Rs. 500 million to construct this plant, but it had taken a complete year to obtain all the approvals required for the project to take off the ground.

"This is the first one of three which will be off the same stream at Pinnawela in Balangoda where we have signed the Power Purchase Agreement with the Ceylon Electricity Board for the first one and the construction will begin next month, Laugfs Group Chairman WGH Wegapitiya told the Island Financial Review yesterday.

The funding for the first project will be in the region of Rs. 500 million which will be financed by a part of the proceeds of the Rs. 2.5 billion Initial Public Offer that the parent company had in 2010.

He said that there were two others which will be also added with the passage of time where they are at the survey stage where hydrological study studies were being done which will determine the capacities and the financial inputs needed. "We are yet to determine the capacities of these two projects and the funding which will be needed and those logistics are being worked out," he said.

Funding for the other two mini hydro power will be partly from internally generated funds and the remainder will be from bank loans. There are quite a few opportunities to raise funds for hydropower generation projects through various credit lines and we will be making use of them," he said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42845

* BOP under siege: Rupee expected to depreciate by 2Q
* IMF unlikely to change stance on exchange rate intervention

The uncertain policy environment regarding the exchange rate with the Treasury and Central Bank pulling in opposite directions, and the recently passed expropriation law, could deter investors from making their crucial inputs to the economy which is expected to see slower growth this year, Standard Chartered Bank says.

A research report titled ‘On the Ground: Sri Lanka – A Challenging Year Ahead’, authored Standard Chartered Bank Colombo Office Economist Samantha Amerasinghe said the economy would grow 7.5 percent this year, down from 8.3 percent in 2011, largely due to weak global economic environment.

Commenting on the Road Map: Monetary and Financial Sector Policies for 2012 and Beyond released by the Central Bank last week, the report said it (the road map) disappointed in not addressing the external-sector challenges posed by the deepening current account deficit and falling foreign currency reserves.

The Central Bank said the economy could expect an inflow of US$ 25 billion this year. Central Bank Governor Ajith Nivard Cabraal told The Island Financial Review last week that a significant portion of these would materialise within the first quarter and significantly reduce the pressure on the balance of payments. However, Standard Chartered Bank does not seem to share this optimism, as do most other market players (see The Island Financial Review January 5, 2012).

"Sri Lanka’s balance of payments is likely to come under significant pressure this year. The year-to-date trade deficit widened to US$ 7.73 billion as of end-October 2011, surpassing the record full-year deficit of US$ 6 billion in 2008. With investment and intermediate goods dominating the country’s import basket due to the strong post-conflict infrastructure push, the Central Bank is under mounting pressure to further depreciate the Sri Lankan rupee (LKR) to curtail rising import demand. However, it maintains that ‘a large volume of foreign currency inflows" are expected soon. We have factored in one more currency devaluation, taking the LKR to 115.8 against the US dollar in Q2-2012, in response to the bleaker trade outlook. Since most of Sri Lanka’s imports are necessary items, further LKR depreciation could potentially deter growth; hence, the central bank is likely to hold off on such measures unless capital inflows fall short of expectations," Standard Chartered Bank said.

"The central bank has been criticised for its current strategy of defending the LKR at the expense of its FX reserves in the face of rising import demand. Foreign exchnage reserves are estimated to have fallen sharply to US$ 6 billion (four months of imports) as of end-2011 from US$ 8.2 billion as of end-August.

"In its policy roadmap, the Central Bank of Sri Lanka (CBSL) estimated US$ 25 billion of foreign inflows in 2012. This appears optimistic given the gloomy external environment, in our view. Projected foreign capital inflows are comprised of US$ 12.5 billion of export revenues (up from an estimated US$ 10.5 billion in 2011), US$ 2 billion of FDI (doubling from 2011), US$ 6.5 billion of remittances (a 25% y/y increase), and US$ 1.2 billion of tourism inflows.

"The CBSL’s export growth projection of 19% for 2012 appears ambitious given that the US and Europe are Sri Lanka’s key export markets, and that competitor countries have also depreciated their currencies. Our export revenue growth forecast is more conservative, at c.10%; we expect FDI to fall short of the CBSL’s forecast by US$ 0.5 billion amid the prevailing global uncertainty. The passage of the expropriation bill in November 2011, which nationalised certain assets of underperforming private enterprises, may also deter investors, as it undermines policy consistency.

"Remittance inflows should continue to grow at trend levels, despite current tensions in the Middle East; the central bank estimates a 27% y/y increase by end-2011. A greater focus on migration of skilled workers, government negotiations to increase the average wages of overseas workers, and a diversification of overseas employment markets seem to be paying dividends. Given the estimated US$ 850 million of tourism earnings generated in 2011, we believe the CBSL’s US$ 1.2 billion projection for 2012 is realistic, particularly since Sri Lanka will host the International Cricket Council (ICC) Twenty-20 cricket tournament this year. However, to achieve this target, tourist arrivals from Asia must also offset the potential decline in arrivals from Western Europe.

"The central bank announced in its roadmap that it was keen to negotiate a follow-up surveillance programme with the IMF after its existing USD 2.6bn loan programme ends in May 2012. In our view, such a programme would be positive for investor sentiment and would appease the private sector. However, the central bank’s stance of continuing foreign exchange intervention may not be viewed favourably with the IMF. Furthermore, the central bank?s view that BoP pressure is temporary contradicts the Treasury Secretary’s view that external imbalances must be addressed, and highlights policy differences that have emerged since the 3% LKR devaluation in November 2011. This concerns us, as an uncertain policy environment could negatively affect investor sentiment," the Standard Chartered Bank report said.

"The global challenges of a faltering US recovery and the ongoing euro-area debt crisis continue to undermine confidence in global financial markets and remain the biggest impediments to Sri Lanka’s growth in 2012. While the key growth drivers of tourism, remittances (now Sri Lanka’s biggest foreign exchange earner, estimated at USD 5.2bn in 2011), and construction continue to underpin the economy, we believe sustaining growth at 8.0% levels will be challenging. We maintain our 2012 growth forecast of 7.5%. We highlight key concerns below that support our weaker growth outlook:

(1) The US and Europe are Sri Lanka’s biggest export markets and together account for c.56% of exports. Reduced demand from both markets in 2012 is likely.

(2) Given the debt crisis in Europe, growth in tourist arrivals (close to 35% y/y as of end-November 2011) is likely to slow unless increased arrivals from Asia compensate. Western Europe currently accounts for 37% of tourist arrivals to Sri Lanka, followed by India (20%) and East Asia (11%).

(3) The ongoing political turmoil in the Middle East may have longer-term implications for remittance inflows via lower migration of Sri Lankan workers to the region. It could also affect Sri Lanka’s main agricultural export, tea, due to faltering demand in 2012. Tea exports to the Middle East and North Africa comprise 55% of Sri Lanka’s total tea exports.

(4) If the EU decides to ban crude oil imports from Iran, this could put upward pressure on global crude oil prices and have severe repercussions for Sri Lanka’s balance of payments (BoP), as petroleum makes up c.25% of the country’s import bill. We are leaving our crude oil forecasts for 2012 unchanged for now – ICE Brent at 95 USD/barrel (bbl), NYMEX WTI at 85 USD/bbl, and Dubai at 93 USD/bbl in Q1 – as we believe Iran’s exports will continue to reach the global oil market. As a result, we maintain our Q1-2012 forecast for Sri Lanka’s GDP growth at 7.5%," Standard Chartered Bank said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42844

The rupee closed unchanged at Rs. 113.89/90 to the dollar on Monday with the Central Bank continuing to sell dollars to keep the exchange rate stable while Interbank interest rates inched up as pressure keeps mounting on interest rates as liquidity tightens on account of the dollar sales, dealers said.

The overnight call money market rate for interbank borrowings without security inched up to 8.68 percent on Monday from 8.53 percent on Friday. Money market repo rates for gilt-backed borrowings inched up to 7.94 percent from last week’s close of 7.91 percent.

The Sri Lanka Inter Bank Offered Rate was flat at 8.62 percent, with Friday’s close being 8.61 percent.

The Central Bank had to pump in Rs. 7 billion to the system at 8.03 percent, at a slightly higher yield than 7.95 percent at which Rs. 10 billion was infused to the system on Friday.

In the face of severe import demand, the Central Bank continued to sell dollars despite a three percent devaluation of the rupee in November 22, 2011. According to Reuters, the bank has sold US$ 820 million since the devaluation.

It sold US$ 1.1 billion during the three month period July to end September 2011.

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42846

The Colombo Stock Exchange fell 0.97 percent on Monday on thin volumes as retail activity continued to be subdued as the expected January rally is yet to materialise, brokers said.

The All Share Price Index fell 0.97 percent down 57.58 points to close at 5,872.94 points while the Milanka Price Index of more liquid stocks closed at 5,050.43 points, down 1.23 percent or 62.72 points.

Volume was a little more than 11.5 million shares changing hands during the day with turnover amounting to Rs. 434.5 million dominated by traded in JKH and COMB. Around 37 counters ended the day on a positive note against 130 counters closing in the red.

Net foreign sales amounted to Rs. 43.51 million.

The stock exchange while fell by 8 percent in 2011 continued its downward slide to decline by 3.32 percent year-to-date on Monday.

Commercial Bank saw 1.41 million shares change hands before closing at Rs. 99.9 down 0.10 percent from the previous close while John Keells Holdings closed 0.48 lower at Rs. 167 on 568 thousand shares changing hands during the day. Environment Resources Investments PLC generates interest as well with 712.7 thousand shares changing hands during the day. The counter closed at Rs. 29.9, down 6.56 percent.

"The market opened flat and remained range bound for the early part of the day, but later succumbed to selling pressure and closed 58 points in the red. The rally that we saw in the last week of December, that raised hopes of further upside has now given back, and the markets have reached the levels from where it all started, leaving behind the level of 6,140 as an important technical resistance level, which the markets need to surpass for any meaningful upside to happen. The trend for the markets have become bearish, we have support at 5,800 if that holds then there can be some hope for the bulls, else if that is broken then we will see levels of 5,686 that the markets witnessed on 25 November. The immediate support for the markets is placed at 5,800 and the resistance is at 6,000. Volumes continue to be on the lower side indicating lack of retail participation in the market," Bartleet Religare Securities said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=42848

The gorilla in the room: State sector in domestic
aviation industry dampens investments
* Millennium Aero makes strategic investment in Deccan Aviation Lanka
* Jaffna domestic scheduled flights to resume
* Mulling international operations

With the government targeting to establish an aviation hub in the country, state-sector involvement in the domestic aviation sector with the Air Force launching commercial services is dampening private sector appetite to invest.

"One extra plane or helicopter used for commercial purposes by the Air Force crowds out space available for private investment in the sector," said Suren Mirchandani, a local investor who was instrumental in putting together a deal which saw a 48 percent stake in Deccan Aviation Lanka being bought over by Singapore based Millennium Aero for an undisclosed amount.

Mirchandani said it was encouraging that the government was focused on creating an aviation hub in the country, but heightened state-sector involvement in the domestic sector was dampening private sector investments.

He said the company has invested US$ 1 million to import a new GA8 aircraft.

"The government has always maintained that existing players would be given priority over new entrants, and this is a good thing but more private sector investments are needed and state-sector involvement is the gorilla in the room, discouraging investments," he said speaking to The Island Financial Review.

Mirchandani said there was already a huge mismatch between capacity and demand, and that the more the state got involved, the more prices would be driven down making the sector unattractive to the private sector.

Domestic helicopter and aircraft operator Deccan Aviation Lanka yesterday announced that Millennium Aero had acquired a 48 percent shareholding in DAL held by Bangalore based Deccan Charters Ltd. the agreement was signed October 30, 2011 and the deal was concluded a few weeks ago.

Additional working capital has also been infused in to the company, the amount was not disclosed.

"Deccan’s Sri Lanka venture was put together in 2004 by local investor Suren Mirchandani in partnership with Indian aviation mogul Captain Gopinath. Regarded in industry circles as a pioneer who played a key role in re-building the domestic airline sector, Mirchandani’s family holding company Favourite Investments will continue to

have a significant equity stake in the venture," a statement from the company said.

"After starting out with a single Bell Jet Ranger helicopter, Deccan inducted a Beech 1900 in 2007 to operate the Colombo-Jaffna route and regional operations to destinations such as Male’, before replacing it in 2011 with a brand new commuter aircraft built by Gipps Aero of Australia. The airline operates helicopters to all parts of the country and flies to all local airports. In addition to its own operations the airline maintains and provides services for a number of private aircraft owners. Widely acknowledged as the market leader, the airline has a strong pipeline of new business bolstered by the entry of Millennium Aero of Singapore.

"The airline has announced firm plans to commence daily scheduled operations to Jaffna in 2012 and is also said to be looking at international operations out of BIA and Mattala.

The new board of the company comprises Kevin Pocock (Chairman), Suren Mirchandani (Vice Chairman), Harsha Amarasekara, Denham Schokman and Yeo Sock Hwa.

"When asked whether Deccan Lanka would rebrand, Mirchandani stated that "There’s no doubt that the airline has a strong brand presence in the corporate and travel industry, but the new shareholder group may look at rebranding in the medium term" and did not comment when asked to reveal the growth plans of the company only saying "that would be giving away too much to our future competition, I can only say we intend to maintain and further cement our market leadership position."

"Deccan India can be very proud of the role they played in re-starting the domestic aviation industry in 2004 after it had been suspended for security reasons in 1995. We

thank them for the pioneering role they have played in the emergence of domestic aviation in the country", Mirchandani said.

"Until recently, Deccan Lanka was the only private helicopter company in the island, and has also operated a Beech 1900 on local and international routes, and maintained a vital air bridge to Jaffna. Measured by years-of-operations, engineering expertise, our

unique capability of both helicopters and planes, customer base and guest experience, Deccan is undoubtedly the market leader when it comes to flying leisure or corporate clients to any part of the country," he said.

"Let me also say that Deccan India have been amazing partners, and we look forward to continuing to build on the excellent relationship we have developed over the years. We thank Capt Gopinath for the role he played as Chairman, investor and mentor to us. We will continue to operate the Bell Jet Ranger belonging to them, and we can also choose from their large fleet of helicopters and business jets on short notice. We will continue to do what we do best, flying our guests in exquisite comfort and safety to where they want, and when they want."http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=42847

Pan Asia Bank sets sights on higher growth in retail banking

With over 16 years the Pan Asia Banking Corporation PLC has no thoughts of slowing down. Although the initial entry of Pan Asia Bank to the Sri Lankan banking sector was mild, in the last couple of years the Bank has launched an aggressive marketing approach to meet the needs of the banking population in Sri Lanka.
“We realised that the banking landscape, in terms of the future of the country, is now wide open with the ending of a 30 year old war,” says Pan Asia Bank Deputy General Manager of Retail Banking Irishad Ally.
“We looked at where the biggest potential is, in terms of growth and it goes without saying it is the retail and SME segment which would benefit the most out of this opportunity. So we wanted to join the party as an aggressive player in this segment,” he explains.
Pan Asia Bank increased its focus on retail banking and small and medium scale enterprises as it stabilises a bank’s portfolio and it makes perfect bottom line sense. “This is why we pitched ourselves in retail banking.”
Ally believes that retail banking would be a key area in the future growth strategy of PABC, as it provides a solid foundation on which the Bank can stand, enabling it to capitalise on opportunities that arose in Sri Lanka with the end of the war and further enhance the growth of the country.
“It is this solid foundation that has helped us achieve greater results,” Ally adds. He further comments on the ‘pillars of stability’, as he calls them, that have ensured the success of the Bank throughout the years.
(T)ogether (E)veryone (A)chieves (M)ore. A primary pillar of an organisation is its people. “People are an organisation’s biggest asset and you can create a difference with people. The best performing organisations have the best performing people working for them and when you have a great team, you can easily differentiate yourself from the rest. The biggest challenge in building a business depends on building a culture that would take on the challenges in the right spirit,” Ally comments.
Make sure your engine is perfect. Systems, Processes and procedures are an operational necessity to any successful establishment. However, as Henry David Thoreau (an American philosopher) once said, “Our life is frittered away by details. Simplify, Simplify.” Recognising the importance of this, Pan Asia Bank has simplified all its processes and procedures in order to appeal to the masses.
Customer is king. A vital pillar of stability is a bank’s customer base. Taking it one step further from offering customer service, Pan Asia Bank strives on appealing to its customers’ emotional and rational aspects, ensuring a high-quality ‘customer experience’ each and every time you visit the Bank along with a range of products and services which adds value to their customer’s day to day banking. It is this end to end customer experience that has made them a preferred banking option.
The time is here and now! The final pillar of stability lies in the aggressive marketing and sales approach of a company. The most important thing is to craft out a unique brand proposition with consistency in the strategic marketing makes an organisation easily recognised in the cluttered market place. Every bank caters to the same banking population; however, recognising several niches in this populace, PABC has thus been able to go out into the market and acquire a fare portion of the banking pie.
“Aside from these pillars, we also wanted to create value for all our product and service offers,” Ally continues. As a new entrant, Pan Asia Bank introduced some innovative products which made a significant impact in the market,” he explains, naming some of Pan Asia Bank’s products from the Champion Saver Account and a leasing offer that could reduce your interest rate down to 1%, to the Ran Loan offer (a gold related product akin to pawning). The Bank has continually put its customer needs first. A highlighted product was also the Ranaviru Harasara, a loan scheme set up for the soldiers of the three forces, appreciating them for their services. “Phase two of this project is also underway, to grant facilities to the families of soldiers disabled, missing or killed in action, as a part of our social responsibility,” he added.
“Understanding that you cannot serve every customer in one plate, we have come to realise that customers, base a lot of their banking decisions on recognition and convenience; and so, we have given them what they require,” he says.
In keeping with this, Pan Asia Bank has changed the look and feel and the layout of its branches, so that every branch will make the customer feel as if it is their home branch. “It is important to create an emotional link with the customer,” Ally explains.
Likewise, in order to provide convenience for its customers, Pan Asia Bank has expanded its business and increased its reach, with its current branch number standing at 64. “As it takes awhile for us to open branches in all parts of the country, we have entered into a strategic alliance with Sampath Bank, to enable Pan Asia Bank customers to use Sampath Bank ATMs and vice versa,” he reasons, adding, “However, having successfully opened 23 branches in 2011, we look to increasing our branches to 100 in 2012.”
Looking into 2012, Ally reveals that more products that will make an impact in the market are up PABC’s sleeve, while a dynamic sales and service culture, efficient business conduct, revenue optimisation and cost containment are values to be upheld in the coming years as well.
Speaking of the Bank’s successful ventures in 2011, Ally comments that all of it was possible due to the performing culture at Pan Asia Bank. “The entire team was driven towards one common objective with passion, by giving them a purpose. The year 2010 was devoted to building this culture, which paid rich dividends in 2011,” he commended.
Speaking about Internet and mobile banking, Ally commented that the Bank is keen on investing in technology. “More and more people are learning about Internet banking, and awareness is being created. Technology is a vital part of an organisation’s services, so we hope to take Internet and mobile banking to a high level in 2012,” he says. Ally admits to the competition in the banking sector in the country being intense. However, he said, “Our advantage is that we are a manageable size. In terms of implementation, it is easier for us to do it right now, rather than for a bigger bank (in terms of numbers). We have understood this concept and changed appropriately to become a better bank in terms of giving the best to our customers. We believe that, if the foundation is laid right, growth will follow.”http://www.ft.lk/2012/01/10/pan-asia-bank-sets-sights-on-higher-growth-in-retail-banking/

Global regulators signal leeway on new bank liquidity rules

Reuters: Global regulators vowed on Sunday to press ahead with tough new liquidity rules for banks from 2015, but in a move to head off opposition from industry, also said lenders can tap into safety buffers in times of stress.
The Group of Governors and Heads of Supervision, chaired by Bank of England Governor Mervyn King, said the “central principle that a bank is expected to have a stable funding structure and a stock of high-quality liquid assets that should be available to meet its liquidity needs in times of stress.
“Once the Liquidity Coverage Ratio has been implemented, its 100 per cent threshold will be a minimum requirement in normal times. But during a period of stress, banks would be expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement,” the GHOS said in a statement following a meeting on Sunday in the Swiss town of Basel.
GHOS, made up of central bankers and top supervisors from nearly 30 countries, oversees the Basel Committee on Banking Supervision, which authored the new Basel III bank capital and liquidity accord that will be phased in from 2013 to make banks able to withstand shocks without taxpayer bailouts in the next crisis.
Many banks already meet the tougher Basel III capital requirements, but the liquidity standards are new and lenders argue that building up such buffers by buying government and corporate bonds in times of market stress is expensive and could force them to crimp lending to the economy.
The Basel Committee has been asked to clarify that liquid assets accumulated in normal times are intended to be used in times of stress and provide additional guidance on the circumstances that would justify the use of the liquidity pool, the GHOS statement said.
But the global regulators and central bankers refused industry calls to push back the introduction of an LCR from 2015.
“Members fully supported the (Basel) Committee’s proposed focus, course of action and timeline to finalise key aspects of the LCR by addressing specific concerns regarding the pool of high-quality liquid assets as well as some adjustments to the calibration of net cash outflows,” GHOS said.
Most of the liquidity buffer has to be in the form of top- rated government bonds, with the remainder in highly rated corporate debt.
Lenders want greater flexibility, such as the use of securitised debt but GHOS said “the modifications currently under investigation apply only to a few key aspects and will not materially change the framework’s underlying approach.”
Peer reviews
The aim of the LCR buffer is to ensure banks have enough liquid assets to survive 30 days of outflows at times when it is difficult to find funding on wholesale markets.
Banks like Northern Rock in Britain had to be nationalised during the financial crisis because of liquidity problems.
The GHOS said it has asked the Basel Committee to publish its recommendations by the end of this year.
“The aim of the Liquidity Coverage Ratio is to ensure that banks, in normal times, have a sound funding structure and hold sufficient liquid assets such that central banks are asked to perform only as lenders of last resort and not as lenders of first resort,” GHOS Chairman King said.
“While the Liquidity Coverage Ratio may represent a significant challenge for some banks, the benefits of a strong liquidity regime outweigh the associated implementation costs,” King said.
Britain has already unilaterally decided to push ahead and force its banks to build up liquidity buffers ahead of Basel III.
Hector Sants, chief executive of Britain’s Financial Services Authority, has said banks currently can tap into these buffers because of difficulties in the funding market for lenders.
GHOS also backed moves by the Basel Committee to begin reviewing how countries, which include the world’s top 20 economies (G20), are implementing the Basel bank accord. Stefan Ingves, Chairman of the Basel Committee and governor of the Swedish Riksbank, said “The Committee’s rigorous peer review process is a clear signal that effective implementation of the Basel standards is a top priority.”
The review will also look at how countries have implemented so-called Basel 2.5 that was introduced at the end of December to force banks to set aside far more capital to cover risks of complex securitised instruments held on their trading books.http://www.ft.lk/2012/01/10/global-regulators-signal-leeway-on-new-bank-liquidity-rules/

November tea exports higher than 2010

Tea exports in November were 26.9 million kgs, a marginal gain of 0.5 million kgs from 2010. Revenue was Rs. 13.9 billion, a gain of Rs. 0.5 billion compared to Rs. 13.4 billion in 2010.
CIS continues to be the largest importer followed by Iran and Syria and despite being placed fourth exports to the UAE showed a significant decrease year on year.
While there was a decline in demand for tea in bulk and tea in packets exports of tea in bags have shown growth year on year.
Cumulative exports for the period January to November 2011 were 292.4 million kgs, a gain of 6.5 million kgs compared to 285.9 million kgs in 2010.
Total revenue for the 11 month period was of Rs. 149.5 billion, a gain of Rs. 8.5 billion compared to Rs. 141 billion for 2010. While demand for tea in bulk and tea in packets have shown growth year on year, tea in bags show a decrease from 2010. Other noteworthy importers included Iraq, Turkey and Japan.http://www.ft.lk/2012/01/10/november-tea-exports-higher-than-2010/

Acting CEO at MBSL

Merchant Bank of Sri Lanka has announced yesterday the appointment of Lakshman Kaluarachchi as the Acting CEO with effect from 1 January.
This is following long standing CEO Gamini Karunathilake retiring on the same day. Kaluarachchi is Deputy Director Leasing and is a holder of a B.Com Special Degree from the University of Kelaniya and has over 26 years experience in a wide range of Finance activities including 17 years experience in Merchant Banking.
He presently head the Leasing Division, branch operations and also the Micro Finance Division.
Retiring Karunathilake is a professional banker with over 33 years of experience in both commercial banking and merchant banking.
He obtained a B. Com (Hon) Degree from the University of Sri Jayawardenapura and MBA from the Post Graduate Institute of Management (PIM) of Sri Lanka.
He is a fellow member of the Institute of Bankers of Sri Lanka, and was a visiting lecturer on Law and Practice of Banking for Bachelor of Commerce and Economics Degree programmes and on ‘Banking and Finance’ for MSc. Management Programme at the University of Sri Jayawardenapura. He also served as a lecturer and Chief Examiner on Law and Practice of Banking and Practice of Banking’ at the Institute of Bankers of Sri Lanka.http://www.ft.lk/2012/01/10/acting-ceo-at-mbsl/

Eraj steps down, Dharma new Chairman at Bartleet Finance

Longstanding Chairman Eraj Wijesinghe has stepped down as the Chairman of Bartleet Finance Plc with effect from 31 December 2011.
The new Chairman is K.G.D.D. Dheerasinghe following his appointment to the Board of Bartleet Finance as a Non Executive Director with effect from 4 January 2012. Dheerasinghe is the former Senior Deputy Governor of the Central Bank. He is also the new Deputy Chairman of Commercial Bank.
Wijesinghe was first appointed Chairman on 7 February 2003 whilst he joined the Bartleet Group in 1963 as is one of the founding members of the Bartleet Finance.http://www.ft.lk/2012/01/10/eraj-steps-down-dharma-new-chairman-at-bartleet-finance/

SCB checkmates cameo CB

The Standard Chartered Bank (SCB) has opined the Central Bank’s forecast of $ 25 billion foreign inflow as “optimistic” given external headwinds whilst cautioning that pressure was mounting on the rupee given the rising import demand.
This view along with weaker GDP forecast is contained in SCB's latest country update titled 'A challenging year ahead' following the presentation of the roadmap for 2012 and beyond by the Central Bank.
SCB acknowledged the robust outlook for the economy by the Central Bank forecasting 2012 growth at 8.0% and achievement of 8.3% growth in 2011.
“However, the roadmap disappointed in not addressing the external-sector challenges posed by the deepening current account deficit and falling FX reserves,” opined SCB.
It argued that the global challenges of a faltering US recovery and the ongoing euro-area debt crisis continue to undermine confidence in global financial markets and remain the biggest impediments to Sri Lanka’s growth in 2012.
“While the key growth drivers of tourism, remittances (now Sri Lanka’s biggest foreign exchange earner, estimated at USD 5.2bn in 2011), and construction continue to underpin the economy, we believe sustaining growth at 8.0% levels will be challenging,” SCB said. On account of this and other concerns, SCB is maintaining its 2012 growth forecast of 7.5%.
To back its weaker growth outlook SCB listed key concerns.
(1) The US and Europe are Sri Lankas biggest export markets and together account for c.56% of exports. Reduced demand from both markets in 2012 is likely.
(2) Given the debt crisis in Europe, growth in tourist arrivals (close to 35% y/y as of end-November 2011) is likely to slow unless increased arrivals from Asia compensate. Western Europe currently accounts for 37% of tourist arrivals to Sri Lanka, followed by India (20%) and East Asia (11%).
3) The ongoing political turmoil in the Middle East may have longer-term implications for remittance inflows via lower migration of Sri Lankan workers to the region. It could also affect Sri Lanka’s main agricultural export, tea, due to faltering demand in 2012. Tea exports to the Middle East and North Africa comprise 55% of Sri Lanka’s total tea exports.
(4) If the EU decides to ban crude oil imports from Iran, this could put upward pressure on global crude oil prices and have severe repercussions for Sri Lanka’s balance of payments (BoP), as petroleum makes up c.25% of the country’s import bill. We are leaving our crude oil forecasts for 2012 unchanged for now – ICE Brent at 95 USD/barrel (bbl), NYMEX WTI at 85 USD/bbl, and Dubai at 93 USD/bbl in Q1 – as we believe Iran’s exports will continue to reach the global oil market. As a result, we maintain our Q1-2012 forecast for Sri Lanka’s GDP growth at 7.5%.
SCB also said that CB’s estimate of foreign capital inflows appears optimistic
Sri Lanka’s BoP is likely to come under significant pressure this year. The year-to-date trade deficit widened to USD 7.73bn as of end-October 2011, surpassing the record full-year deficit of USD 6bn in 2008. With investment and intermediate goods dominating the country’s import basket due to the strong post-conflict infrastructure push, the central bank is under mounting pressure to further depreciate the Sri Lankan rupee (LKR) to curtail rising import demand. However, it maintains that “a large volume of foreign currency inflows” are expected soon. We have factored in one more currency devaluation, taking the LKR to 115.8 against the USD in Q2-2012, in response to the bleaker trade outlook. Since most of Sri Lanka’s imports are necessary items, further LKR depreciation could potentially deter growth; hence, the central bank is likely to hold off on such measures unless capital inflows fall short of expectations.
The central bank has been criticised for its current strategy of defending the LKR at the expense of its FX reserves in the face of rising import demand. FX reserves are estimated to have fallen sharply to USD 6bn (four months of imports) as of end-2011 from USD 8.2bn as of end-August.
“In its policy roadmap, the CBSL estimated USD 25bn of foreign inflows in 2012. This appears optimistic given the gloomy external environment, in our view,” SCB said.
Projected foreign capital inflows are comprised of USD 12.5bn of export revenues (up from an estimated USD 10.5bn in 2011), USD 2bn of FDI (doubling from 2011), USD 6.5bn of remittances (a 25% y/y increase), and USD 1.2bn of tourism inflows.
The CBSL’s export growth projection of 19% for 2012 appears ambitious given that the US and Europe are Sri Lanka’s key export markets, and that competitor countries have also depreciated their currencies. Our export revenue growth forecast is more conservative, at c.10%; we expect FDI to fall short of the CBSL‟s forecast by USD 0.5bn amid the prevailing global uncertainty. The passage of the expropriation bill in November 2011, which nationalised certain assets of underperforming private enterprises, may also deter investors, as it undermines policy consistency.
Remittance inflows should continue to grow at trend levels, despite current tensions in the Middle East; the central bank estimates a 27% y/y increase by end-2011. A greater focus on migration of skilled workers, government negotiations to increase the average wages of overseas workers, and a diversification of overseas employment markets seem to be paying dividends. Given the estimated USD 850mn of tourism earnings generated in 2011, we believe the CBSL’s USD 1.2bn projection for 2012 is realistic, particularly since Sri Lanka will host the International Cricket Council (ICC) Twenty-20 cricket tournament this year. However, to achieve this target, tourist arrivals from Asia must also offset the potential decline in arrivals from Western Europe.
The central bank announced in its roadmap that it was keen to negotiate a follow-up surveillance programme with the IMF after its existing USD 2.6bn loan programme ends in May 2012. In our view, such a programme would be positive for investor sentiment and would appease the private sector. However, the central bank’s stance of continuing FX intervention may not be viewed favourably with the IMF. Furthermore, the central bank’s view that BoP pressure is temporary contradicts the Treasury Secretary’s view that external imbalances must be addressed, and highlights policy differences that have emerged since the 3% LKR devaluation in November 2011. This concerns us, as an uncertain policy environment could negatively affect investor sentiment.http://www.ft.lk/2012/01/10/scb-checkmates-cameo-cb/

Jan. 10 (Bloomberg) -- Lanka Orix Leasing Co., backed by Japan’s Orix Corp., is seeking 4 billion rupees ($35 million) to refurbish a coastal resort complex that will become Sri Lanka’s biggest, said Chief Executive Officer Kapila Jayawardena.

The 350-room resort that comprises three of Lanka Orix’s hotels on the island’s southern coast will open by mid-2013, said Jayawardena. The Colombo-based company is seeking “long- term project” funding from both domestic and foreign banks, and is in the process of finalizing a 10-year agreement with “one of the largest hotel operators in the world” to run the complex, he said, declining to elaborate.

Sri Lanka’s $50 billion economy has rebounded, as peace prompts companies including Shangri-La Asia Ltd. and Sheraton Group to build resorts. Arrivals in the South Asian island, one of Conde Nast Traveler’s top five destinations to watch in year 2012, rose 31 percent to a record 855,975 last year. Thailand estimates tourist arrivals to have reached as many as 19 million in 2011.

“We see huge potential in leisure, similar to Thailand,” Jayawardena said in an interview yesterday. “There is now a different economic landscape in Sri Lanka after peace.”

The end of the island’s 26-year civil war in May 2009 has also boosted infrastructure development, consumer demand and agriculture businesses, leading to an economic growth of 8.3 percent estimated for 2011 and 8 percent forecast for 2012, according to the Central Bank of Sri Lanka.

Record Profit

The LOLC group, as the company is locally known, is poised to report record profit in the year ending March 2012, as its core financial services units grow with the economy’s resurgence, Jayawardena said. LOLC, whose businesses include leasing, insurance, micro-credit, agriculture, trading and construction, posted an unprecedented net income of 7.02 billion rupees in the previous financial year.

Orix, a Japanese financial services provider based in Tokyo, is the Sri Lankan firm’s single-largest investor with a 30 percent stake, according to Jayawardena.

Jayawardena said the island’s north and east, which were once the main battle grounds in the war, would contribute to 20 percent of business volumes in the next 24 months, up from 4 percent before peace. LOLC also plans to increase its island- wide network of offices to 200 from 160 in the next 18 months, he added.

“At the moment we feel we have a very comprehensive set of investments in line with economic growth,” he said.

LOLC fell 1 percent to 77 rupees at 10:07 a.m. in Colombo. The shares are down 6.3 percent so far this year, compared with a 3.3 percent drop in the benchmark Colombo All-Share Index.

Hong Kong-based Shangri-La plans to invest $500 million to build a hotel in the island’s capital and $130 million in a second resort in Sri Lanka, Chief Financial Officer Madhu Rao said July 4. The Sheraton Group will invest $300 million in a leisure project in Sri Lanka, the nation’s information department said Dec. 1.

--Editors: Tomoko Yamazaki, Andreea Papuc

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net