Sri Lanka Newspapers Monday 05/03/2012

Sri Lanka power utility main source of petro losses: Treasury

Giving subsidized furnace oil to a state-run power utility was the main main source of losses at a petroleum utility, while the private firms also made higher profits due to cheap power, the finance ministry said.

The finance ministry said state-run Ceylon Petroleum Corporation lost 90 billion rupees in 2011 mainly due to selling furnace oil to the Ceylon Electricity Board at 40 rupees a liter when its cost was around 110 to 116 a litre.

"Thus, it seems that the majority of the loss of the Petroleum Corporation has occurred mainly due to the Electricity Board," a finance ministry statement said.

"The private sector could raise their profit volumes because they buy fuel at concessionary prices.

"The general public of the country also could enjoy a low inflation rate as the Petroleum Corporation was supplying fuel at concessionary prices while incurring losses."

Sri Lanka raised fuel prices steeply and slapped a surcharge on power tariffs after credit taken by state enterprises contributed to pressure on a dollar peg, with the rupee falling from 109 to 120 rupees so far.

CPC sells petrol at a large profit with the Treasury also charging a 25 rupee excise tax in addition to port and airport levies. Diesel was also sold below cost but there is a 2.50 rupee excise tax.

The finance ministry statement said that the CPC was not even able to pay the Treasury receive taxes from petrol or diesel Petroleum in January.

The utilities had borrowed from state-run banks to cover losses.

"No matter how much the price goes up, the country still needs fuel," the finance ministry said.

"Thus, the Bank of Ceylon and the People’s Bank faced a huge crisis by supplying loans to the Petroleum Corporation.

"The crisis in the Petroleum Corporation and the Electricity Board became worse. Raising the fuel prices is the only alternative that the Government could take at this juncture.

"The Electricity Board incurred losses even from the hydro-electricity which is generated profitably in our country."

The CEB sold power to some consumers at 4.50 a unit when even hydroelectricity, which was the cheapest source of power, cost 6.50 a unit, the statement said.

The finance ministry said 60 billion rupees due to banks from CPC settled from a 60 billion rupees transfer to the firm from the budget.

If prices were not raised, the CPC would have lost 200 billion this year, the statement said. Sri Lanka imports 60 percent of its oil requirements as refined products.

A refinery at CPC also produces less light distillates and more furnace oil, which are slightly cheaper than diesel or petrol. -LBO

Champika denies accusation

According to a recent report Power and Energy Minister Champika Ranawaka Had denied the accusation levelled against Ceylon Electiricty Board that it was the cause of Ceylon Petroleum Cooperation suffering loses and he claimed it was due to the two airlines backed by the government.

According to Ranawaka Sri Lankan Airlines and Mihin Air owed CPC a sum of Rs. 18 billion which he recognized as the primary cause of the loses.

The Minister assured that all the outstanding dues had been settled on time by the CEB.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46678

By Hiran H. Senewiratne

Sri Lanka’s construction industry is now in a crisis due to increase of building material costs by 10 to 15 percent in the recent past owing to the depreciation of rupee against the dollar along with the hike in transport cost due to recent fuel prices increases.

"It is sad that 90 percent of raw materials for the construction industry are being imported and the devaluation of rupee has resulted in the increase of the cost of raw material by 10 per cent to 15 per cent. In addition the recent fuel increase also adds insult to injury," President of the Chamber of Construction industry of Sri Lanka Surath Wikramasinghe said.

He said that due to the increase of construction cost would mainly affect those contractors who had already contracted at early prices, in which case they had either to renegotiate with their clients or go for litigation to avoid losses.

Wickramasinghe said that contractors now had to adjust their future projects by 10 per cent to 15 percent, which was a major increase when it comes to massive construction projects in the country.

He said that fixed price contractors were now going through a difficulty due to the price escalations in raw materials and such contracts cover considerable number of such projects in the country. Therefore, some workable solution was needed to protect them from financial ruin.

To cushion the blow from the cost increase the Chamber was now in the process of suggesting a workable solution for the government by also taking bank interest rates also into consideration, because the most of construction projects have raised funds through bank loans, he said.

Cement which was one of the main components in the construction industry has gone up price due to the increase of the dollar against the rupee. The current increase would be between Rs. 5.00 and Rs. 10.00 per bag and added that a further price hike would take place after the next consignment of cement was imported into the country, industry sources said.

According to the 2011 International Construction Cost Report India and Sri Lanka share the 13th position for the most expensive countries in Asia to build, and are placed 55th in the World.

Japan, Hong Kong, Singapore, South Korea, Macau, Thailand, China, Malaysia, Philippines, Vietnam, Indonesia and Taiwan are ahead of India and Sri Lanka.

The report released by built asset consultancy, EC Harris has named Japan, Hong Kong and Singapore as the most expensive places in Asia to build and are amongst the world’s top twenty most expensive countries.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=46679

Most market analysts tip the Rs. 500 million Initial Public Offering (IPO) of Access Engineering Ltd., which officially opens on Tuesday 6 March, to be comfortably fully oversubscribed, whilst several brokers too have recommended it.

Lanka Securities, which recommended the Access Engineering IPO as Subscribe, said the forecasted EPS for FY12E is Rs. 1.7 and BVPS stood at Rs. 11.7. Accordingly, the forward PER and PBV for FY12E are 15.0x and 2.1x respectively (at IPO price of Rs. 25.0).

Heavy construction sector is currently trading at a PER of 10.2x, while close peers such as Colombo Dockyard and MTD Walkers are trading at PERs of 9.3x and 14.3x respectively.

Lanka Securities also said based on a complete valuation carried out using discounted free cash flow, the calculated total equity value for the group is Rs. 27.7 billion at the end of FY12E.

Accordingly, the derived value per share of AEL is Rs. 27.70, an upside capital gain of 11.0% over the issue price of Rs. 25.00. “Hence, for a rational investor with a long-term perspective, AEL’s IPO price is justifiable and we recommend Subscribe,” Lanka Securities said.

It is forecasting a net profit of Rs. 1.7 billion (+43.0%) and Rs. 2.1 billion (+25.2%) for FY12E and FY13E respectively. The increase in net profit is mainly driven by the accelerated infrastructure development activities in the country.

The revenue is anticipated to grow at a rate of 76.9% and 37.3% in the next two years supported by the booming construction industry. The construction industry which saw a sluggish activity in recent years is now facing a 9.3% (in 2010) upturn with the mega infrastructure projects undertaken by both government and private sector.

LSL said key risk factors would be possible inflationary economic conditions (e.g. rupee devaluation, increasing interest rates, increasing inflation, etc.) and it may affect the construction cost to increase over the period.

Given AEL’s sound business relationships and impressive track record, Arrenga Capital expects the Group to thrive on future prospects in the construction industry in line with infrastructure development in the country. “Hence, we expect AEL to record net earnings of Rs. 1.8 billion for FY13E and Rs. 2.6 billion for FY14 featuring a PER of 14.0X and 9.7X respectively,” it said.

The counter, which is in a high growth industry, is offered above market valuations at a price of Rs. 25 per share on FY13E earnings (4Q Trailing Market PER of 11.0X), Arrenga added.

Asia Wealth Management forecast AEL earnings to be Rs. 1.58 billion for FY12E whilst FY13E earnings would remain at Rs. 1.99 billion.

“We expect the company to perform much better with the upcoming construction projects in the pipeline coupled with significant potential in the high-geared construction industry in the country,” Asia Wealth said.
AEL on a forecasted net profit of Rs. 1.58 billion for FY12E, accounts to a PE multiple of 15.8X. Furthermore Asia expects 12.5X and 9.7X on its FY13E and FY14 earnings respectively.

In addition the counter currently trades on a PBV of 5.5X, which we anticipate would improve to 2.1X by the end of FY12E. As opposed to the Construction sector PE of 10.6X and PBV of 1.6X.

“It is noted that based on the financial analysis and the forecast we have done, AEL is clearly a fundamentally strong counter that we could recommend to “SUBSCRIBE”,” Asia Wealth Management said.
However, the broking firm said if gifted shares to employees are sold in the secondary market subsequent to initial trading there could be downward pressure on the share price.

Access Engineering, which made its foray into the motor business with a Rs. 846 million acquisition of a 60% stake in Sathosa Motors, is offering 20 million voting shares at Rs. 25 each.
http://www.ft.lk/2012/03/05/brokers-recommend-buy/#more-75080

Select companies in the financial services sector have led the way with the early release of 2011 annual reports, with some of the multinational firms in other sectors with a December-ending financial year lagging behind.

Aviva NDB Insurance, HNB, Seylan Bank, Pan Asia Bank, HNB Assurance and Asian Alliance are some of the first to release their 2011 annual reports.

Multinational companies such as Ceylon Tobacco, Nestle, Chevron, Singer and Dialog also having December financial year-ends are however yet to release despite straightforward operations as against the compliance-ridden financial services sector.

They were among the first to release interim/audited results for 2011. The first in the plantation industry to release the 2011 annual report is Talawakelle Tea Estate Plc.

The first-ever listed firm with a December-ending financial year to release its 2011 annual report was Property Development Plc (PDL), a subsidiary of Bank of Ceylon, on 24 February.

By end last week around 210 companies had released their December 2011 quarter ended results as well.
http://www.ft.lk/2012/03/05/financial-services-firms-lead-in-early-release-of-2011-annual-reports/

The Sri Lankan government has decided to privatize the state-owned farm in Polonnaruwa, Ministry of Livestock and Rural Community Development officials said.

Accordingly, the 2000-acre farm which is under the purview of the Livestock Development Board will be given to two Israeli companies.

Under the agreement, the two Israeli investors should bring 2,000 dairy cows to Sri Lanka within two years and US $ 31.7 million needs to be invested within 18 months according sources said.

The investors need to pay 1.25% of income of the farm to the government within the first ten years. From then up to 30 years they should pay 1.5% of the income to the government.

The investors are also required to guarantee the employment of the workers.
http://www.colombopage.com/archive_12/Mar04_1330848548CH.php