Sri Lanka Newspapers Sunday 04/03/2012

Returning to the days of high turnovers
Stockmarket Review
By Elton P. Ebert

A week brimming with action!!
That's what it was this week ending February with a small dose of margin calls, unlike the usual month-end destruction that takes place at the bourse. The turnover for the week was very impressive due to hyper-activity in Aitken Spence, Hayleys and L.B. Finance, as well as a few strategic deals like 1.8 million shares in Ascot Holdings and the 59.7% stake equivalent to 3.6 million shares in Sathosa Motors which transferred control to Access Engineering. It is now mandatory for the company to make an offer for the remaining shares at Rs. 235 per share. Would-be subscribers to the Access IPO are now asking some brokers as to why the company is effecting these new developments after it launched its IPO, and whether it is a confidence building exercise. Many have got burnt with some of the IPOs like Softlogic Holdings, Free Lanka Capital Holdings, People’s Leasing and Textured Jersey, and hence the various queries posed by investors.

Sampath Bank which rewarded its shareholders with a massive dividend and a scrip dividend had more good news with its success in its syndicate loan of Rs.7.5 billion. This is its second offshore fund, the first being the US$45 million which it received in 2007. Its price was up to Rs 186.30 earlier this week but eased to Rs.181 on Friday. Another significant and of greater economic benefit is the agreement which Laugfs Holdings signed with the Sri Lanka Institute of Nanotechnology to produce titanium oxide from mineral sands. Laugfs is aggressively venturing out into all branches of the economy eg -the leisure sector. From the leisure sector Beruwala Walk Inn had its share price rise steeply to Rs.157.80 with news that the hotel received Rs.210 million as a compensation claim. It however lost ground to end at Rs.150. In a different tone Watawala Plantations passed its resolution for the sale of its subsidiary Watawala Marketing amidst controversy at its recent EGM. Foreign interest was visible in Ceylon Tobacco, Sampath Bank, Aitken Spence Royal Ceramics JKH and Chevron, all stocks with heavy growth potential.

Analysts believe that the all share index should hold ground around the 5400 mark. It started the week in discomfort but managed to finish at 5460. There should be some interesting movements as the quarter draws to a close, with a variety of portfolio adjustments and window dressing.

Changes in directorates: DFCC Bank - J.E.A. Perumal was appointed independent Director on February 27; Lanka Hospital Corporation PLC -Dr. N. Bandula Chandranath Wijesiriwardena, nominee of Sri Lanka Insurance Corporation PLC, was appointed to the Board on 27th February; C.W. Mackie - Mangala Perera was appointed Executive Director effective 2nd April; Walkers PLC - P. Amaratunga, Niranjan Deva-Aditya, and H. R. Srilal Wijeratne were appointed to the Board on 29th February; Bukit Darah PLC - Ralph De Lanerolle was appointed Non Executive Independent Director on 28th February 2012.
Turnover for the week was satisfying at Rs.11.1 billion against Rs.6.8 billion the week before. Both indices were lower, the ASI losing 106.11 points or 2% to close at 5460.19, while the Milanka lost 57.49 points or 1% to end at 4745.19.
http://sundaytimes.lk/120304/BusinessTimes/bt27.html

The government is being misled by a “cartel” that is looking towards making higher earnings without assisting the industry’s overall growth, a tourism industry expert said. Sri Lanka Inbound Tour Operators President Nilmin Nanayakkara has said that the country and the local tourism industry were not reaping the benefits accrued to them due to the minimum rates structure imposed by the government.

He told the Business Times that this led to unfair competition and closed windows for job opportunities thereby reducing sales opportunities for hotels suppliers. At a time when Sri Lanka was losing on Meetings Incentives Conventions and Exhibition (MICE) tourism from India and Pakistan to others in the region, he said this was a growing trend.

Minimum rates have caused a stir in the industry as city hotels were looking at making a fast buck by limiting occupancy and keeping rates competitive, he said explaining that this resulted in hoteliers restricting employment.

With employment maintained to provide for a limited number of visitors, hotels are not passing on the benefits gained from the industry to the country, he said. In this respect, city hotels were charging higher rates while maintaining occupancy at around 50%, Mr. Nanayakkara pointed out.

On the other hand, it was believed that another position taken by the city hotels was in offering ad hoc discounts during low occupancy periods thereby undermining prospects of new opportunities within the industry.

Increased occupancies would inevitably result in an increase in business opportunities for restaurants, three wheelers, bars, shops, and a host of other stakeholders. In this regard, he opines that a move towards allowing for demand and supply to take hold within the market would enhance occupancy levels in city hotels thereby providing space for job placements and better prospects for hotel suppliers within the sector.

On the contrary, it is however, likely to impact on the profit margins of the hoteliers, Mr. Nanayakkara observed adding that these hoteliers “have schemed for personal gains and benefits” and have undermined government plans of offering more jobs.
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The economy of the country is expected to get over-heated because of extensive credit in the recent past, said Sarath Amunugama, Minister of International Monetary Cooperation. Deputizing for President Mahinda Rajapakse as the Chief Guest at the inauguration of the 30th Annual Sessions of the Sri Lanka Institute of Architect (SLIA) in Colombo, he said the country’s growth momentum was among the four growth centres in the world.

He said the growth rose because of investments and in the past four to five years it has been investing in the infrastructure in the country. He said that the construction industry was also reflected in this growth for which the talents and skills have been well contributed.

He said economic growth is taking off in the Northern and Eastern Regions. He said that in the Eastern region many new hotels are coming up. Last year banks expanded their credit by 35% of which a large portion has gone into the construction sector. Thus, the economy would be heated up, because of the credit in the coming years. He said that modernizing major cities in the country is underway and architects services are felt very much in transforming them into modern cities.

Ranjan Nadesapillai, President, SLIA said to make Sri Lanka the wonder of Asia, built environment needs to be properly organized, designed and built. He said that in addition to aesthetics or beauty, there are so many other aspects such as safety and peples’ psychological, cultural and sociological needs have to be considered.
http://sundaytimes.lk/120304/BusinessTimes/bt35.html

Amidst the hullabaloo over the US-backed resolution in Geneva, street protests opposing the move and concern over cost of living after the fuel price hike, an important national event went unnoticed and didn’t receive the attention it deserves.

This is the island-wide, national census, the first in 30 years, which began on Monday, February 27 and goes on till March 21. Enumerators are already calling at homes and either taking the information or advising residents the date on which they would be returning if residents are unavailable in the first visit.

As expected and not unusual for an exercise of this magnitude of getting data of more than 20 million people, there are teething problems. One newspaper reported how enumerators had gone to the home of a Tamil resident and couldn’t either speak in English or Tamil, while the residents had a poor knowledge of Sinhala. The questionnaire was also not available in the Tamil language, which is a Constitutional right.

While more issues are expected to arise as the census process goes on, one hopes the Department of Census and Statistics would be quick in responding to these issues and correcting them. On the part of Sri Lankans, it is a vital exercise that is being undertaken and the responsibility for everyone to provide information as accurately and honestly possible as it sets the course of history in the next decade or so in terms of an accurate population and economic assessment, education and health status, the needs of the people and changing life-styles.

It is essential that the department and its representatives (enumerators) are people-friendly in their visits particularly handling residents in the North who have gone through a traumatic period during the conflict.
The information being collected in this census is much more comprehensive than during previous times owing to vast changes in the political, social and economic landscape in the country, a key element being a large segment of Tamils living abroad and many more Sri Lankans overseas as migrant workers.

These two segments alone would provide vital clues to chart the future progress of the country. Current figures show that there are some 500,000 Tamils who reside abroad while the migrant worker population is said to be over a million, which together totals 1.5 million or more. The 2012 census should provide a more accurate assessment of these numbers which is important for a variety of reasons not only to the government and policy planners but also to the private sector.

The profile of a population, particularly in the new development paradigm at the end of the conflict, is what the private sector would be keen to get their hands on, particularly the consumer goods sector. Such a profile will provide the needs (food, clothing, housing, etc) and aspirations (education, skills, jobs) of the people.

While the questionnaire has basic questions on name, sex, marital status, etc there are also responses sought on location of residence and or migration to other places. Physical and mental difficulties are also being checked in addition to educational qualifications, ability to speak, read and write and in what language, use of computers, economic status (working or unemployed), whether persons have been abroad for six months or more, and housing and what type of housing.

An interesting part of the census is the request for fertility information. It was the Business Times (then Financial Times) in an August 23, 2009 editorial that drew attention to the importance of the national census, which we re-iterate today.

Headlined, “Census key to assess population shifts”, the editorial said: “A comprehensive survey like this will provide valuable clues about Sri Lanka’s production, output, growth, employment and unemployment and other social indicators which haven’t come to the data collection process apart from a ‘bits-and-pieces (information at an ad hoc level)’ gathering process. The recent Jaffna Municipal Council elections was also an illustration of the lack of proper data when of the 100,400 registered voters less than half were physically present to vote – either being abroad or gone to reside outside the province.

The comprehensive census will be a boon to policymakers, economists and sociologists and provide valuable information for Sri Lanka’s social and economic progress in the next decade.” While Sri Lankans are most likely to voluntarily furnish the information required, there undoubtedly would be concern, fear and worry whether the information used could be accessed by security agencies for their ‘own needs’. How the government uses this data also needs to be clearly defined and explained, to reassure the people.

The state has access to a lot of information from the people, particularly through the banking sector which has a stringent ‘Know Your Customer’ form which is required from customers. In addition, data is collected by mobile companies and others. An element of trust must prevail between the enumerator and resident in the collection of the data to make the census process trouble-free. It is incumbent on the Department to ensure that such information and the identity of individuals are kept confidential and not released to any party, state or otherwise, if for an ulterior motive.
http://sundaytimes.lk/120304/BusinessTimes/bt07.html

Special report
Land prices are rising for hotel and real estate developments in Colombo, according to a January 2012 report on Sri Lanka's Real Estate market published by locally-based Research Intelligence Unit (RIU). This is also the case with regard to any beach-front properties island-wide.

RIU's report indicated that these increasing land prices were a result of an unprecedented boom in the leisure sector. The report says, "The increase in demand for Sri Lanka as a tourist destination has resulted in an increase in investment since 2009 that continues today. Tourist arrivals rose by 40% in 2010 and a similar percentage increase is observed this year as well. Sri Lanka hit 750,000 tourists in November 2011, causing the government to revise the total expected number of tourists to 800,000 as a year-end target (which was surpassed). The growth in arrival numbers of tourists is higher than previously anticipated by the government of Sri Lanka."

Meanwhile, this leisure sector boom has also led to "over 32 projects already approved in 2011 and a further 17 pending approvals", and this situation has, in turn, has also positively impacted growth in the local construction industry.

Further, the report also stated that, as of December 2010, "the official number of hotel, guest house and villa rooms across the island is 22,735. The total number of rooms required from 2016 to 2020 has been set for 48,775 rooms in order to fill the capacity gap that Sri Lanka currently experiences, especially during peak tourist seasons."

Additionally added; "There are a total of 170 ongoing hotel sector projects and developments that are currently taking place. Colombo, Galle, Kalutara, Trincomalee and Puttalam are the top five cities that are set to add the greatest number of hotel rooms with ongoing developments. The arrangement of rooms across the island today focuses on these major cities and tourist destination points."

In the meantime, the report also noted that, by 2016, "the major concentration of hotel rooms will still be developed in the Western and Southern province, a significant shift can be noted to the spread of hotel room development across the island. Areas north of Colombo on the West coast will see their hotel rooms expand from just over 2,000 rooms currently, to over 7,000 rooms from 2016 to 2020. In addition, the Central province, which is known for its tea estates, hill country and Sri Lanka's Cultural Triangle, will experience a rejuvenation of hotel rooms, with concentrations in the city of Kandy and towns like Habarana, Anuradhapura, Polonnaruwa and Giritale."

Even more avenues for leisure development have also been outlined by the government: "Three geographical areas to which the government has paid special consideration for tourism, leisure property development and investor purposes are Kuchchaveli, Passikudah and the Kalpitiya Islands. In Kuchchaveli, an eight kilometre beach stretch from the Irakkandy Bridge of approximately 245 hectares (600 acres) has been identified for tourism development; the UDA has already prepared a zoning plan for this beach strip and it is forecasted that 500 rooms could be accommodated in this beach zone.

The Passikudah National Holiday Resort (NHR) will hold around 700 rooms; 13 blocks of land have already been allocated to prospective investors for its development. The Kalpitiya Integrated Resort area is located on top of the Puttlam Lagoon along the Dutch Bay and Portugal Bay, comprising 14 islands all allocated and designated for tourism development... There is great international and domestic demand in these areas from investors, driving land and property prices to increase." As such, and in keeping with future requirements for hotel rooms well in 2020, RIU's report also commented that the research agency was "bullish on the short-medium terms growth prospects for the leisure properties market in the island." In fact, it went as far as adding that, considering the government's keenness to attract foreign investment into the local leisure sector by way of tax holidays and unrestricted profit repatriation, "investors and developers will be hard pressed to find a better investment opportunity than what Sri Lanka has to offer."

To put some figures to the scope of leisure investments by international chains already underway across the island, RIU's report highlighted the following: "Sri Lanka is in talks with a number of international hotel chains including Sheraton, Raffles in Singapore and the Doubletree hotel. In Colombo city, the sale of land to international hotel chain Shangri La in 2011 for US$125 million was the biggest single contributor to FDI inflows for the island in 2011. The outright purchase for the Galle Face property land enabled Sri Lanka to achieve the highest ever quarterly FDI inflow in the country's history of $236 million. The corresponding participation from the tourist industry in this period was $132 million.
Shangri La also purchased a property in Hambantota for a smaller 300 room villa, compared to the 500 rooms for its Colombo property. The US-based Sheraton hotel group has confirmed a $300 million dollar investment into the country; the mixed development project will be built on five acres of land, given on a 99-year lease for $73.5 million."

In addition, the report also signalled that several local hotel developers, as well as other conglomerates, were also entering the country's leisure sector, sometimes in collaboration with international partners: "John Keells and Sanken Lanka are currently building a city hotel in the heart of Colombo 03. Lankem Ceylon recently bought control of the Galle Fort Hotel, a boutique hotel in Sri Lanka's southern port town of Galle. Lankem's Rs. 772 million purchase indicates a popular trend of domestic firms moving into the real estate sector for leisure properties.

Hemas Group, another reputed local conglomerate also has plans to invest in the hotel industry on the East coast of the island. In partnership with Thailand's Minor International, the group has re-opened and re-branded Serendib in Bentota.
http://sundaytimes.lk/120304/BusinessTimes/bt33.html

The NDB Bank managed to grow its net loan book by 8.5% during the last quarter and 43.4% year on year to Rs 101 billion as at December 31, 2011, the bank said this week.

Analysts said that NDB's loan book was primarily driven by small and medium enterprise lending where it entered into an agreement with the Sri Lankan government to promote small and medium enterprise development facility projects. They said that NDB also has the best quality loan book in the industry.

"Prudent underwriting policies and well-defined risk acceptance criteria helped the bank to maintain its high quality loan book despite the impressive growth in bank's lending portfolio," an analyst said. According to the bank statement, its gross non-performing loan (NPL) ratio stood at 1.3% during the last quarter (compared to 1.9% in the same period last year) and the net NPL ratio was at 0.3% against 0.5% in the same period last year.

Non-interest income of NDB grew 134% year on year to Rs 1.1 billion. Bank's commission and fee based income recorded an impressive growth of near two folds. A loan growth of 43.4% year on year and higher contributions from its investment banking arm supported the growth. Further the bank's foreign exchange income is also up 88% year on year to Rs 279.5 million (Government devalued the rupee by 3% in Nov '11). Despite the competition in the private commercial banking industry, NDB is expected to maintain its interest margin around 3.8%, having the best quality loan book whilst continuing to benefit from its diversified exposure into financial services sector we remain bullish on NDB.

Analysts noted that NDB remains well capitalized despite a 43.4% year on year credit growth with Tier I capital at 14.4% (Regulatory limit is at 5%) and Tier II capital at 16% during the last quarter. The NDB Group's net profit for the year was Rs 2.94 billion which is a growth of 35% over the previous year. The profit attributable to shareholders for the year was Rs 2.7 billion and compares with Rs 2.1 billion for 2010, a growth of 29%. This significant increase in group profits was attributable to the growth in the core banking income of NDB by 13% over the previous year and the improved performance of the fee based group companies, according to the NDB statement.
http://sundaytimes.lk/120304/BusinessTimes/bt44.html

By Bandula Sirimanna
Lanka Tractors Ltd plans to institute international arbitration at the Washington-based International Center for the Settlement of Investment Disputes against the state over its properties under recent expropriation laws, lawyers for the company said.

It has already given notice to the government prior to the legal action over the acquisition under the Revival of Underperforming Enterprises and Under-utilized Assets Act, they said.

The company has written to Treasury Secretary Dr P. B. Jayasundera, saying moves to take possession of the property is illegal, unlawful and contrary to international agreements. The company has strongly objected against the government’s move to offer its block of land in Narahenpita to a private consortium which has expressed interest, the lawyers said. The plan to hand over the land for a hospital project was reported in last week’s Business Times.

They noted that the property was not owned by the government or a government agency ‘within a period of 20 years prior to the date of this Act coming into operation’, a requirement under the new law.
According to documents filed at the Registrar of Companies, on September 20, 1991, Lanka Tractors Ltd was registered as a public company and incorporated under the Companies Act, No. 17 of 1982. In 1992, 60 % of the shares of the company were unsuccessfully offered for sale on the Colombo Stock Exchange. In 1993 the shares were re-offered for sale on tender, and on this occasion four offers were received.

After having examined the offers, the Cabinet-appointed Committee for the Divestiture of Shares of Lanka Tractors accepted the bid of Globe Commercial Trading Co. Ltd. In addition 10 % of the shares were given to the company’s employees, while it was agreed that the remaining 30 % of shares would be sold publicly. However the government had failed to publicly issue the remaining 30 % of the company shares, the lawyers said.

In 1998, Lanka Tractors Ltd and Globe Commercial Trading Co. Ltd. instituted action in the Commercial High Court of Colombo against the Attorney General (as a representative of the state) for the failure to honour its obligations undertaken in the original agreement.

The High Court then issued an order in favour of Lanka Tractors and awarded the company damages as appealed for. The lawyers said that the Secretary to the Treasury had failed to obey the court ruling, despite it being over a year and a half since the verdict.

They added that the company has not been able to develop its business due to prolonged litigation.
Owing to this delay, the company lost the opportunity of attracting foreign investors who had expressed willingness to implement projects ranging from hospitals and housing schemes to universities at the Narahenpita site.

The appeal against the verdict given by the Commercial High Court of Colombo filed by the Attorney General at the Supreme Court was also dismissed, they said, adding that the present action was a violation of the Supreme Court verdict.
http://sundaytimes.lk/120304/BusinessTimes/bt05.html

Pegasus Hotels of Ceylon PLC has summoned an EGM on March 20 to seek shareholder approval for a rights issue of slightly over 3 million ordinary shares to be offered to existing shareholders in the proportion of one share for nine shres held at a price of Rs.36.50 per share.

The directors have said that the board was of the opinion that this was a fair and reasonable price to all existing shareholders.

Pegasus owes its parent company, Carson Cumberbatch Rs.109.6 million advanced for the acquisition of Equity Hotels Limited, owners of Hotel Giritale in Polonnaruwa, Rs.78.9 million to Carsons Management Services that had funded operational losses of Pegasus and capital expenditure and Rs.35.7 million to the Commercial Bank on account of a concessionary loan granted for tsunami rebuilding.

These debts totaled Rs.224.2 million.

The proposed rights issue will raise Rs.111 million of which the debt of Rs.109.6 million to Carsons will be settled in full and the remaining Rs.1.3 million applied to part settle the debts to Carsons Management Services, shareholders have been told.

This will leave an outstanding balance of Rs.77.7 million owed to Carsons Management which is expected to be settled by utilizing future cash generation from the operation of Pegasus and/or via bank borrowings if required.

The Pegasus directors explained to shareholders that given the resurgence of the tourism industry and its development, the Carsons group believed that its leisure sector would be best controlled by a holding structure that will facilitate business growth and create value to the shareholders of the company.

Accordingly, they deemed it important to consolidate the two hotels of Carsons group under one sector holding company to create synergies by sharing common resources enabling cost savings.

It was in this backdrop that the company acquired 99.98% of the shares of Equity Hotels Limited, owners of Giritale Hotel, in December 2010 from Carson Cumberbatch and its subsidiaries at a price of Rs.109.7 million.

Giritale Hotel is located at a picturesque site overlooking the Giritale tank in Polonnaruwa within the Cultural Triangle. The hotel operates 40 rooms on 14.9 acres of leasehold land obtained from the Sri Lanka Tourism Development Authority. The property has ample room for further development.

Giritale lost nearly Rs.8 million in the year ended March 31, 2009 and has been profitable thereafter earning Rs.2.7 million in the year ended Mar. 31, 2010 and Rs.11 million next year. In the nine months to December 31, 2011, it has earned Rs.13.4 million and had net assets of Rs.10.7 million against negative net assets in preceding years.

Similarly Pegasus has been profitable for the last three years earning a profit of Rs.58.3 million up to December 31, 2011. The group profit for this same period was Rs.86.2 million.

The Pegasus share has traded at a high of Rs.67 and a low of Rs.50.10 in November 2011, a high of Rs.64.60 and a low of Rs.56 in December and a high of Rs.59.90 and a low of Rs.55 in January this year. It was last transacted on February 21 at Rs.41 per share in the context of the current share market slump.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46631

There was divided opinion on the success or otherwise of the new automated trading system installed recently at the Colombo Stock Exchange with some brokers praising the system while others expressed a different viewpoint.

"Markets lost steam over the week as macro economic conditions and lack of investor confidence in the new trading system dampened sentiment," Acuity Stockbrokers said in a market report.

It noted that transaction volumes had peaked mid-week amid two large deals – the sale of SLIC’s 11% stake in Aitken Spence to a Distilleries subsidiary and Access Engineering’s acquisition of 59.7% of Sathosa Motors.

However, the brokerage said that overall market perception was low "as investors struggled to adopt the trading system which has not been user-friendly."

"Given this and the shortened trading weeks ahead, we expect markets to remain subdued," Acuity said.

The report said that corporate earnings had been "moderately strong" up to now with sectors such as banks and financials, hotels and travels, manufacturing, motors and health services recording year-on-year growth.

Official inflation figures for February had indicated a further moderate decline to 2.7% yoy from 3.8% in January.

According to the Acuity report both indices slipped marginally last week with the All Share Price Index down 1.91% (106.11 points) and the Milanka down 1.20% (57.59 points).

Aitken Spence, L.B. Finance and Hayleys contributed 66.77% of the week’s turnover aggregate with the daily average turnover value up 30.29% to Rs.2.23 billion against Rs.1.71 billion the previous week.

Market capitalization however declined week-on-week to close at Rs.2,001.99 billion, down 1.9% from the previous week’s Rs.2,040.84 billion.

John Keells Stockbrokers said in its weekly report that the indices dropped during the week with activity primarily driven by large trades in Aitken Spence, L.B. Finance, Hayleys and the sale of a controlling stake of Sathosa Motors resulting in a foreign outflow of Rs.620.7 million.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46632