Sri Lanka Newspapers Sunday 18/03/2012

JKH trades send turnover soaring
Stockmarket Review
By Elton P. Ebert
A record turnover exceeding Rs.15 billion was reported on Friday mainly due to transactions of around 75 million shares in foreign favourite, JKH. This share is also the fancy of most of the high networth individuals.

It must have been celebrations at the broker camps who handled these deals! A few more crossings in HNB and Commercial Bank were also done throughout the same day. Incidentally both these stocks have cash dividend and scrip dividends pending subject to approval.

Friday's heavy transactions helped to transform the dull sentiment which prevailed at the bourse for some time and resulted in many other good stocks being on the upside. The Autodrome rose to Rs.750 while Nuwara Eliya Hotels was at Rs.1140. Abans Electricals which was at Rs.186.80 on Thursday slipped to Rs.151. Waskaduwa Beach gained Rs 10.30 on dealings of around four million shares on Friday, while 5.8 million shares in Kalpitiya Beach Resorts were also transacted. Commercial Bank has said it has expansion plans to branch out in countries closer to Sri Lanka like Nepal, Cambodia Myanmar and Indonesia, which should boost the stock. It has got approval for the issue of 500,000 unsecured Subordinated Redeemable Debentures at an issue price of Rs.1000 each, with the option to issue a further 500,000 if oversubscribed. Sampath Bank is also planning to issue 15 million quoted debentures at a par value of Rs.100, with the option to issue a further 10 million if oversubscribed.
Access Engineering has announced the basis of its allotment of its recent IPO, and many are waiting for the initial trading of the stock. Meanwhile Mackwoods Energy has on offer 25 million shares at Rs.14. per share. The issue opens on 22nd March.

Changes in directorates: Ceylon Tobacco - Alif Hasan resigned from the board on 12th March while Ariful Islam was appointed Finance Director; Aviva NDB Insurance - Anura Siriwardena was appointed a director on 8th February; Infrastructure Developers - Prof. Ranjith Bandara was appointed a Director on 1st March; People's Merchant - Rajeeva Dias Bandaranaike tendered his resignation effective 1st May 2012.

The turnover for the week was a massive Rs. 18.1 billion due to the dealings on Friday much in contrast to the Rs. 2.2 billion last week. The All Share Price Index was 7.22 points of 0.1% lower at 5449.05 but the Milanka was 45.39 or 0.1% better to finish at 4864.25.
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Sri Lanka is now in the process of properly determining the oil and gas reservoir potential in the Mannar basin by drilling one or two wells following the discovery of gas in two of the three test wells by Cairn Lanka, a wholly-owned subsidiary of Cairn India in which Cairn UK has a minority holding, a top official said. Cairn is now conducting more seismic surveys in preparation to drill a few more wells for this purpose, Director General of the Petroleum Resources Development Secretariat Saliya Wickramasuriya told Business times. The finding of gas in two wells has confirmed an active petroleum system in the

Mannar Basin. This system now needs to be modeled further, to better understand the location, size and deliverability of the reservoirs in it. This will require substantially more seismic and drilling activity, he revealed.

Sri Lanka will call for bids for shallow water blocks in the Mannar Basin from oil exploration companies and at least one block will be offered for drilling soon, he said adding that an international licensing round for some of the remaining eight blocks is to be launched within the next three months
Mr. Wickremasooriya noted that the discovery of gas in Sri Lanka has created an opportunity for the island to step into the field of safety training which is an essential requirement for the highly regulated oil industry.

Under this set a project proposal on the setting up of a regional safety training centre relating to oil and gas industry with public private partnership has been devised, he said. The Sri Lankan government will provide the land for the building and other facilities, he said. "We will have to find foreign funding for the project," he added.
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Growing underclass: Rich gets richer, poor gets poorer
To most Sri Lankans, Singapore represents an oasis of prosperity, growth, great shopping, a high quality of life and superior wages. But social activist and opposition politicians, who are freer to speak now than decades ago during the iron-clad rule of Singapore strongman Lee Kuan Yew, the appearance of prosperity and wealth masks a hidden reality: a growing underclass of people not moving up the ladder and a subtle form of repression.

"Our per capita income is (Singapore dollars) S$63,000 per (about US$50,000 per year) which is about the 3th-4th highest in the world. However we still have local people who are earning S$500 a month as cleaners and often they tend to be very elderly people, 60 -70 years and sometimes in the early 80s," says Vincent Wijeysingha, a 42-year old social activist cum politician with Sri Lankan roots from the Singapore Democratic Party (SDP), where he functions as the treasurer.

Discussing Singapore’s success and its wealth and quality of life that has drawn admiration from across the world, Dr Wijeysingha - in Colombo to attend the annual congress of the Council of Asian Liberals and Democrats last week, said Singapore is a privatized welfare state with each resident contributing to a fund which tends to marginalize the older people, often tradespersons or cobblers who have no money and are forced to work even in their '80s.

Getting work is not easy as most employers could employ unskilled foreign workers for as low as S$450 which in any way is not a living wage.

Last year inflation was 5.5 % and inflation is mainly created by housing and transport - both of which the state controls since 86% of the population live in government flats. "This masks the growing underclass.

There are various levels of discrimination in terms of race with the Malay community suffering the worse. There are inequities in how government money is spent, one being the number of non-ASEAN foreign students being gives full scholarships to local universities which costs $36 million a year," he said adding that the reason for this spend is in the hope that they would work in Singapore after graduation and secondly to improve the university rankings internationally. There are higher marks given to universities which attract large numbers of overseas students.

He said the other resentment is government wages - that of ministers who are the highest paid in the world. "Compare a cleaner getting 20 cents an hour as against the Prime Minister earning S$1000 per hour? In fact the 10% richest (of the population) are getting richer while the 10% poorest are becoming poorer," noted the politician, who has a social work degree and worked on issues relating to low waged migrant workers before taking to politics.

In a relaxed conversation about his roots, aspirations, where he would like Singapore to be, the Singaporean politician shares his thoughts on a range of political, social and economic issues that should interest Sri Lankans:

Excerpts of the conversation:

On migrant workers

The plight of low wage migrant workers is appalling. Singapore has always been a cheap labour economy and the country's economic progress has always been based on capital inputs - labour and more money going into the production process.

Singapore's wages for domestic workers range from S$320 (US$260-270) for the lowest paid to S$600 per month at the top normally where Filipinos are the recruits because they speak English, and have experience with children and old people. There are 1.1million households in Singapore of which 1/5th have foreign domestic workers, many hired to look after children or old people while the employer-couple is out working.

A recent survey said domestic workers work up to 16 hours a day and only 12 % have a day off. The wage can be low as 20 cents an hour which is absolutely scandalous.

Sri Lankan roots
Vincent Wijeysingha's grandparents migrated from Ceylon to Malaysia (then Malaya) in the early 20th century. His grandmother – on the mother's side were Burghers from Malaysia. After the Second

World War ended, both sets of families moved to Singapore where his parents met and were married. Dr Wijeysingha was born and schooled in Singapore where his father Eugene was a highly, respected educationist, principal of Temasek Junior College later principal of Raffles Institution till 1994. "My mother has cousins in Wattala while my father's cousins are in Baddegama while there are some Burgher relatives in Nugegoda. The others are spread across the world," he says.

When he contested the May 7, 2011 parliamentary polls, unsurprisingly his party didn't win a single seat given the country's rigid, one-party political system. However, the ruling PAP vote base fell to 60.1% from 76%, 10 years ago, while the main opposition Workers Party secured six seats, up from its previous one. Dr Wijeysingha's party vote share also rose 4% to close to 100,000 votes among the two million voters.

There are one million migrants ranging from domestic workers (201,000 -who are the least paid and have little protection), to lawyers, doctors and other professionals. One out of three in Singapore is a non-resident. There are 3 types of working visas - work permits for the unskilled earning up to $2000 per month who are domestic workers and those in manufacturing, construction, cleaners, waiters, etc; the next level is those with polytechnic diploma qualifications like supervisors in factories with technical skills who earn between S$2,000-S$3,000 a month. Those above these wage levels are the professionals who are permitted to bring their families along, a concession not given to those in lower levels of employment.

This is based on the (former Prime Minister) Lee Kuan Yew theory that only the intelligentsia measured by their qualifications spawns intelligent children. These are the people encouraged to come and live in Singapore. The 'unintelligent' measured by the fact that you are a domestic worker or construction worker, are not allowed to stay longer than the contract permits. This also extends to the worry that Singapore has of domestic workers having children in Singapore. They have to undergo a mandatory pregnancy and HIV/AIDS test every six months. If they are found to be pregnant or have contracted HIV/AIDs, they are deported immediately.

Freedom and conscience

In 1993 when I went to the UK to study social sciences, I read many books that you couldn't find in Singapore which gave a totally different understanding of the country. I came back twice to Singapore during my PhD studies for research purposes, one of which was a project researching the conduct of elections. This was done with the Open Singapore Centre, of which my party leader, Dr Chee Soon Juan, was Director.

However encouraged by the overtures of the government led by Lee's son who was urging young people to return and contribute to the economy and be free to criticize government policy, I returned in 2009 with the feeling that this was the right place to be.

Nine months later I read a book by Teo Soh Lung, jailed for an alleged Marxist conspiracy to overthrow the state and in that autobiography she spoke at length of the arbitrary arrests and the repression that followed.

It shocked me but I still believed that things had changed; this was 25 years ago and the PM was encouraging people to return. About a month later (2010), a book written by a Singapore- based British journalist was released in which he looked at how the death penalty operates in Singapore and revealed several miscarriages of justice. Most worrying, according to him, was that if accused persons convicted of drugs use were poor, inarticulate and came from a backward community they were more likely to be hanged than if the accused was a urban, middle class professional. The book was published on a Thursday but on Saturday he was arrested and the books removed off bookstores. He was charged, convicted of criminal defamation and contempt of court and served a jail term. This was the turning point for me. I said to myself that in any other country if a book uncovers miscarriages of justice, the state would investigate this. In Singapore, the messenger is silenced.

Welfare and the elderly

Welfare is privatized with a portion of your earnings retained by the state under the Central Provident Fund which pays for old age pensions, healthcare and also foreign education. This often marginalizes the poor who are unable to save enough (through this scheme) to take care of their medical care when they grow old. A recent study showed that income mobility is somewhat static - people who are born poor will die poor. The resentment is not much in inequality - inequality is a fact of life. It is more in the government rhetoric and of the outcomes of policy which are skewed and out of sync with modern needs.

Media freedom

The government controls the mainstream media to suppress these issues. The main media group - the Singapore Press Holdings is majority-controlled by the state. The chairman of this group is always a government nominee. The CEO is also a government appointee and on occasion has been recruited from the once-dreaded Internal Security Department(ISD). The director of that unit when Teo Soh Lung was jailed was eventually promoted as CEO of the media group.

In the elite model of management at the top - all those in government, military, judiciary, civil service, etc, are related either by blood, political roots or social connections. They appoint one another to positions of authority.

There are no privately-owned, independent stations, no private newspapers except foreign papers. Even though these 'controlled' newspapers have a lot of revenue and readership, Singaporeans now increasingly consider this media as a mouthpiece of the state.

Living wage

The general consensus seems to be that the average wage should be around S$2700. Recent figures show that 440,000 workers earn less than S$1700. Our party position is that no one can live on less than S$6.80 an hour or S$50 a day, but probably half of the population live below this level. Of the total of 3.1 million workers (out of a population of 5.2 million), two million are local workers with the rest foreigners. The government has a schizophrenic approach in its management of the economy and the people.

It acknowledges that the country needs to upgrade the economy. Our traditional industry is manufacturing and construction, for which labour and land are required, both of which we don't have. We need to import labour while Singapore is just 720 sq km in size.

Powerful politicians
The Council of Asian Liberals and Democrats (CALD) General Assembly Conference in Colombo on March 8 -11 March drew some powerful political personalities from Asia. They included Sam Rainsy, MP Leader of the Cambodian Opposition and President of the Sam Rainsy Party who lives in exile, and his wife, Saumura Tioulong, also an MP of the Sam Rainsy Party; Kasit Piromya, former Foreign Minister of Thailand; Dato' Seri Chia Kwang Chye, National Vice President of the Parti Gerakan Rakyat - Malaysia, Son Chhay, MP - Sam Rainsy Party; Gaku Kato, MP Member of the House of Representatives Vice Director-General of the International Department Democratic Party of Japan; and Sri Lankan MP Rajiva Wijesinha (also the immediate, past chair of the CALD) from the Liberal Party of Sri Lanka.

Creativity

For a long time the government has been pushing the need for services and the creative arts. The thinking is that Singapore needs creativity and young people who think differently.

However in such a creative society, the political impact is going to be huge. Some level of social chaos will emerge since you cannot control a country and allow it to be creative at the same time. The creative element has led to an upgrading of the community with criticism growing on the Internet- people use blogs and all parties have websites. There is no control of these as Singapore is positioning itself as a knowledge economy.

The impact of the Internet and the freedom of thought and views have led to a decline in the government vote base. In 2001, the ruling People's Action Party (PAP) won 76% of the vote, by 2006 it fell to 66% and at last year's poll slumped to 60%, a drop of 16% in the last 10 years.

Information is the oxygen of democracy and this will change Singapore. More than the Internet, the Government is concerned about mass action and public protests, and its international image. Two weeks back 100 Bangladeshis struck work as they had not been paid for three months. The Government quickly moved in and within two days they were paid whereas some workers don't get paid for months and no one bothers.

Demography

Singapore has one of the highest percentages of foreigners in the world accounting for 33% of the population. Fertility replacement levels are low because of the population control programmes in the 1970s where the mindset was small families.

There is significant demographic change with a growing number of foreigners and people beginning to articulate their resentment. In population density terms, Singapore has seven persons per square metre (size of a small table) or 7200 per sq km.

While going to work or shopping, there are tensions and snide remarks often directed at the migrant workers, the lowest wage earners. There is racism on the trains and offensive racist comments on the Internet. Even some politicians jumped on that bandwagon.

So the resentment is there, it's difficult to separate these from policy issues. I won't go far as saying it's a powder keg situation but these are issues. The same happens in London, France or Australia where the rhetoric is similar.
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Sri Lanka's volatile economy will likely cause most serious issues for the local oil industry during 2012 as well as leading to the average consumer being faced with price increases for a range of goods, according to top corporate leader and Chevron Lubricants Chief Executive Kishu Gomes.
Making these comments in his company's 2011 Annual Report (AR), he also added: "The sudden depreciation of the rupee during the first two months of 2012, and the attendant jump in the cost of imported goods, including oil, will affect our industry both directly and indirectly. The steep hike in fuel prices in February (with increases of 8.75% on petrol, 36% on diesel and 49% on kerosene) has seriously affected the transport sector and could lead to a reduction in fuel usage, which in turn would result in a decline in the usage of lubricants."

Commenting on Chevron's 2011 performance, which saw a 17% year-on-year increase in turnover, to Rs. 11.03 billion, and a 33% year-on-year jump in after-tax profits, to Rs. 2 billion, both for the 12 months to end-December 2011, Mr. Gomes also noted: "Locally, while we did see positive industry growth, the high growth momentum of 12% seen in 2010 was not sustained, with growth in 2011 moderating to approximately 5%. As a result, sales volumes fell just short of our expectations.

The growth in the markets of the Northern and Eastern regions, while higher than the national growth rate, was again somewhat less than anticipated, as significant growth in the demand for consumer goods in these areas did not extend to semi-industrial products such as lubricants.

The volumes were also affected by severe weather, particularly the floods experienced in the country during the first quarter of the year. On a positive note, the vehicle population in the country grew by over 50% in 2011, as a result of the government's decision to maintain a reduced import duty structure on vehicles. While the large increase in the number of vehicles will not result in a proportionately high increase in lubricant consumption due to the longer drain intervals in newer motor vehicles, the influx of new vehicles will create more opportunities to market some of our high-end products."

Further, he also remarked: "Our exports to Bangladesh and the Maldives continued to do well, as we increased our export volume by 30% and further strengthened our ties with our distributors in both countries in 2011. In Bangladesh, we expanded our retail distribution network, and also won several new industrial accounts, particularly in the power generation sector, making us optimistic about our growth there."

On the other hand, Mr. Gomes also raised two anti-competitive practices affecting Chevron's ability to effectively compete. One was the longstanding conflict of interest wherein the Ministry of Petroleum was not only the industry regulator but also sold petrol via the Ceylon Petroleum Corporation. And the other; "Large scale projects are also allowed to directly import their lubricant requirements under special concessions granted for their projects. A mechanism should be introduced to allow local lubricant operators to supply these projects on a duty-free basis."

Meanwhile, also quoted in Chevron's 2011 AR, the company's Chairman, Farrukh Saeed, revealed that "the present land lease agreement with Ceylon Petroleum Storage Terminals Ltd. expires in July 2014. In order to sustain the long term growth of the business, the board has made a decision to relocate the plant at the expiry of the lease of the land. The board is currently evaluating the cost and benefits of several properties identified for this purpose."
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Thanks for sharing.
Good one to read.

by R.M.B Senanayake

The other day a question was asked in Parliament whether the country was in the grip of a debt trap and the Minister Sarath Amunugama replied that the there was no such trap since the Debt/GDP ratio was coming down from 106% and was now below 80%.

Debt trap is a situation where you add on a new debt in order to pay an existing debt. It means incurring a new debt to service an existing debt. But servicing a debt means both repaying a debt as well as paying the interest on the debt. In the case of a company which is over-leveraged, all the credit sources available to it for further borrowing are exhausted; but not so for a government, at least not for domestic debt.

This is because the government has the monopoly of currency issue. With a Central Bank there is the possibility of unlimited money creation (money is not only currency but includes bank deposits) and there is no possibility of a government exhausting the credit sources available to it. But economists advise against the use of new borrowings to pay interest on old borrowings for reasons which will follow. Such recourse is reflected in a deficit in the primary account of the budget. We have this situation for several years now and each year the absolute amount of the primary deficit is increasing.

Foreign Debt

But it is different with regard to foreign debt. About 60% of our foreign debt is still on concessional terms being borrowings from multilateral financial institutions. The Central Bank points out that the debt monitoring ratios show that our foreign debt is sustainable. True indeed as the debt sustainability indicators are not in a danger zone according to the report of the Public Debt Management of the Central Bank for 2010. The net present value of the foreign debt to the export earnings on goods, services and remittances is 119%.The IMF specifies 125% as maximum prudent limit.

But this refers to solvency. What about liquidity or sufficiency of dollars to repay the foreign loans as they fall due? We need to roll over foreign debt. Our monthly import bill in December 2011 was US$1,910 million. This year with higher oil prices, average monthly imports will probably reach $2,350 million. The minimum Official Foreign Reserves considered as necessary is three months imports which would amount to US$ 7,000 million So we need to maintain Official Foreign Reserve of US$ 7,000 million. We had US$ 8,000 million but it has fallen to US$ 5,000 million or so at present.

The Central Bank points out that its policies are right because the economic growth is high (8%) for two years in succession, with relatively low inflation and a benign unemployment figure below 5%. But economic circumstances can change quickly and it is the task of the economist to spotlight the risks facing the economy.

Over-borrowing by society as a whole

It is not only the government that has over-borrowed. There are many firms which are having high debt/ equity ratios. They too like the government depend on credit expansion in the economy. They too depend on the prevalent low interest rates which the Central Bank maintained by increasing the money supply and pumping liquidity to the market to absorb foreign capital inflows- a necessary step. But now the interest rates are going up. The demand for the goods of the firms is likely to come down. Exports may not keep pace if the world economy goes into recession. There are also the sanctions on Iran which have made it difficult to trade with Iran even on goods not subject to sanctions like our tea exports. The international banks will not participate in the payments mechanisms for trade with Iran.

The domestic demand will also contract for goods since real incomes will fall with the rise in prices of essential goods owing to the oil price hike. The lethargic stock market cannot recover in the short run owing to the hike in interest rates. Investors will put their money in banks and finance companies which are now offering higher rates of interest while short term capital gains in the stock market have practically dried up. With the hike in interest rates companies may find it difficult to repay debt and the banks may become reluctant to lend when they see the higher risks involved.

The growth in total credit market of the organized financial sector last year was almost 34.3%. This rate of growth in credit is excessive since the increase in Nominal Gross Domestic Product was only 20% or so. It promoted the trade deficit. This credit expansion needs to be controlled and the Central Bank wants the banks to curb their credit growth to 18%. But what about the borrowings by the Government and the State Corporations from the banking system? Will such borrowing be controlled? Rising state borrowings from the banking system will also worsen the trade deficit and hence nullify the credit restraint that the Central Bank wants to impose to correct the current account deficit in the balance of payments.

But if credit is controlled those in the private sector who operate on accumulated debt will find their finances adversely affected. Daniel O’Connor has pointed out in his article on the "Debt Trap,’’ that the "current monetary system, economic growth and debt accumulation come hand-in-hand." The reason for this is to be found in the fractional reserve banking system under which banks can create money in the form of new bank deposits when they give loans to customers. So when the commercial banks give loans to borrowers in the government, business, and household sectors, they create new money. As each new loan is given by a commercial bank a deposit is also created at the same time, expanding the money supply of the economy. (Of course each time a loan is repaid to the bank this deposit is wiped out). But the net position is that the supply of money grows over time. But when the supply of money grows over time so does the amount of debt accumulate over time. How does the growth in money and debt relate to overall economic growth?

As each new rupee makes its first appearance as a new asset on the books of some bank, a new liability on the books of some borrower be it a firm, individual or State Corporation takes place as well. But there’s a catch. The interest that the debtor will have to pay back to the bank along with the principal is not created as part of the transaction. That component must be generated from the investment of the loan proceeeds. But investments by the government do not generate a surplus to pay the interest. So money has to be created to pay the interest on the government debt.

The total supply of money currently in circulation is less than the total future debt service payments - both principal and interest. The interest that the debtor will have to pay back to the bank along with the principal is not created as part of the transaction. Both principal and interest must be paid by all government, corporate, and household debtors. Where do these debtors find the additional rupees required to pay interest on their loans? The loans must be invested in successful projects or enterprises to generate a surplus above the amount of the loan.

But this condition is not satisfied in the case of the State Corporations, the Treasury or some business firms. In the case of business firms that fail to generate a surplus to repay the principal plus the interest, they would become insolvent. But in the case of the Treasury or the State Corporations they can go on and on as long as the banking system makes new loans (create new money) on top of the unpaid outstanding loans as in the case of the CEB and the Petroleum Corporation. This doesn’t take place in the case of the private firms and hence there is a risk of default and any sudden restriction in credit could bring on a deflationary situation amounting to a recession.

So the only way to ensure a sufficient supply of money to meet the demand of today’s debtors is to systematically increase the supply of money each and every year in the future by an amount roughly equivalent to the average interest rate on all existing debt. This requires the creation of additional credit and thereby new debt is created over and above whatever debt is being repaid through principal payments. Here is the catch. Any deficit in the over-all balance of payments (as distinct from the current account) will also reduce the money supply and this will make it necessary to also make good the reduction in money supply due to the adverse balance in the balance of payments.

If the Central Bank creates all that extra money to offset such reduction and provide for interest payments, it will worsen the deficit in the balance of payments. If it doesn’t, it will cause a slowdown in growth. So excessive debt creates an economic trap not only for the government but also for the economy as a whole.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=47678

Lion Brewery (Ceylon) PLC has summoned an extraordinary general meeting (EGM) on March 28 to consider resolutions enabling the company to invest Rs.1.2 billion raised through a rights issue in 2009 for investing in the Indian beer industry on expansion of the company’s local business.

Lion obtained shareholder approval in August 2009 to issue 30 million new ordinary shares by floating a rights issue of three new shares for every five held priced at Rs.40 per share.

The main purpose of this issue was to raise funds to reduce the high gearing level of the company that had arisen as a result of investments made in South Asian Brewery Pte Limited which Lion, together with Carlsberg A/S the majority investor, floating a vehicle to invest in the fast growing Indian beer market via a fully owned subsidiary, Carlsberg India Pvt Limited.

Between 2009 and 2010, Lion subscribed to 28.125 million shares of South Asian Breweries taking 22.5% of its equity capital for a sum of Rs.2.19 billion.

"Since India is a growing market with much future prospects, the business requires substantial investments in years ahead, if it were to realize its full potential," Lion has told its shareholders.

Meanwhile Lion, in order to expand its Sri Lanka operation in order to respond to developments and growth potential in the local market, needs to prioritize available resources towards this end.

With this in mind, Lion divested its total holding of South Asian Breweries at book value, Rs.2.19 billion, which included the investment in India of Rs.1.2 billion raised through the rights issue here.

The Lion directors have recommended that this Rs.1.2 billion be now utilized towards the ongoing expansion program of the company here and seeks shareholder approval for this purpose by way of two resolutions to be moved at the forthcoming EGM.
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The top shareholder of Ceylinco Insrance PLC, Ciesot (Private) Ltd., owning 22.86% of the company as at Dec. 31, 2011, has paid off has paid off unspecified advances made to it by Ceylinco’s life fund to purchase these shares, the company’s annual report reveals.

Ciesot (Pvt) Limited was incorporated in the year 2000 "for the sole purpose of acting as Trustee of the Trust Fund established by Ceylinco Insurance PLC. The Trustees held the shares of Ceylinco Insurance and for the exclusive benefit of the employees of the Ceylinco Insurance PLC,’’ it said.

Although it is not clear how much the advance was, the report says the ``above amount was settled in full.’’

The Ceylinco Insurance Pension Fund (3.69%), another pension trust fund of the company (1.76%) and Mr. Lalith Kotelawela (0.27%, the same as a year earlier) are also listed among the top 20 voting shareholders of the company as at Dec. 31, 2011.

Three directors of the company, Messrs. W.C.J. Alwis (2.63%), Mr. R. Renganathan (0.61%) and Mr. A.R. Gunawardena (0.60%) are among the top 20 shareholders of the company.

Ceylinco which leads the life insurance segment in the country’s insurance industry, has boosted its 2011 profit after-tax to Rs.1.13 billion, up 40% from the previous year’s Rs.803.3 million.

The company’s Chairman, Mr. Godwin Perera, has commented in the annual report that the insurance industry had to contend with an uneven playing field with all government owned enterprises prohibited from giving their general insurance business to private sector companies even if they wished to do so.

The industry had also seen what Perera called "alarming price cutting" that has become a regular sales tactic by some companies making customers losing confidence in the business ethics of the insurance industry.

"Competition has increased and become much more aggressive than last year. The stock market which reached record heights and became the envy of more developed markets has now plummeted. But I am extremely pleased to report to you our shareholders that despite all these threats and challenges your company has emerged victorious," he said.

Performance highlights included gross written premiums increasing by 10.25% to reach Rs.19.86 billion with the general division contributing Rs.10.04 billion and the life division Rs.9.82 billion.

The general division had crossed the Rs.10 billion benchmark thrice in the last four years, Perera noted.

He said that SLIM-Nielsen all-island survey had placed Ceylinco as the country’s most popular insurance company and claimed that most importantly they have retained market leadership for the eighth consecutive year.

The directors have proposed a dividend of Rs.6.50 per share for the year under review which was the highest on record, the chairman said.

Two new players, one international and another local have entered the market and the Ceylinco chairman welcome them to the business hoping that their entry will help expand the insurance market through great penetration levels experienced outside the Western Province.

Commenting on the amendment to the Insurance Act requiring all companies handling both general and life business to form two separate companies for each segment, Perera said that although "the date for splitting seems a long way off’ the Ceylinco board had commenced a careful study and evaluation of the best method of implementing the legal separation.

He complained of delays in payment of claim recoveries to member companies by the National Insurance Trust Fund (NITF).

"The Insurance Association of Sri Lanka has repeatedly brought to the notice of IBSL the delays in payment of claim recoveries to member companies by NITF. With the NITF coming under the supervision of the Insurance Board of Sri Lanka (IBSL), the timely intervention of IBSL in this area will certainly help the industry to settle claims much faster. This will be a significant benefit to the insuring public," Perera said.

Ceylinco’s MD/CEO A.R. Gunawardena, heading its general insurance segment, reported that the company’s motor insurance premium topped Rs.6 billion and the non-motor premium contributed over Rs.4 billion.

The company’s profitability during the year under review was "phenomenal" with the general division contributing Rs.433 million to the bottom line, up 104% from the previous year.

Ceylinco which already serves migrant workers in the Middle East with strategic alliances in the region and also has joint ventures in the Nepal and the Maldives has added the Philippines to its growing international presence. They are helping in product development and marketing, Gunawardena said.

He too complained about public sector insurance companies being given preferred treatment to this business and said that this was an unhealthy situation for the industry at large. Price undercutting was also a hindrance to the vibrancy and growth of the insurance industry.

The life division’s MD/CEO R. Renganathan said that the segment had recorded a total income of Rs.13.7 billion and a gross written income of over Rs.9.8 billion, "once again emphatically maintaining its position as the country’s leading life insurer for the eighth year consecutively.’’

A net transfer of Rs.700 million had been made to shareholders from the profit made by the life fund last year – the highest transfer to shareholders to date.

The life division had paid Rs.2.9 billion in claims, material benefits and other benefits in 2011 with over 95% of all intimated death claims settled during the year.

Ceylinco has a stated capital of Rs.1.32 billion, a revaluation reserve of Rs.2.15 billion and revenue reserves of nearly Rs.7 billion in its books with total assets running at Rs.64.26 billion and total liabilities at Rs.53.37 billion.

The directors of the company are: Messrs. J.G.P. Perera (Chairman), A.R. Gunawardena, R. Renganathan, H.D.K.P. Alwis, E.T.L. Ranasinghe, W.C.J. Alwis, P.D.M. Cooray, K.I. Dharmawardena, P.M.B. Fernando, D.H.J. Gunawardena, P.A. Jayawardena, N.D. Nugawela, T.N.M. Peiris, D.W.P. Upali, C.S. Weerasooriya and S.R. Abeynayake.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=47693

Thanks for sharing
I heard news that sri lanka is going to face economic crises in coming months
Reasons
Rupee depreciation
High interest rate
Debt crap
Inappropriate economic plans
heavy scams in Gvt sector

The primary function of a stockmarket is to create wealth for its members.

If there are any roadblocks that may hinder the achievement of such objectives, it will be the duty of the regulator to clear those obstacles so that the path for stockmarket investors to make money would be smooth, with no man made hindrances coming in between.

Such obstacles, as said earlier may be man made and may take the form of retrogressive regulations and rules, and may even be caused by investing in inappropriate technology, as the following events appear to show.

A complaint raised by stockbrokers to this reporter is that the new automated trading system (ATS) does not facilitate trading, a serious charge, because technology should be a servant of the people, a facilitator and not the other way around, ie it should not be an obstacle.

The main grouse by brokers is the merger of odd lots with the main board which they say debilitates trading and which has come about with the introduction of the new ATS, installed towards the latter part of last month.

“Just as the Colombo stockmarket showed signs of recovering, the Colombo Stock Exchange (CSE) appeared to have had blundered by installing this controversial ATS that has allegedly helped to bring down turnover levels rapidly since the new system came live on February 24,” brokers complained.

This was highlighted on the business pages of this newspaper in its 26.2.12. issue. Inquiries made by this reporter with the CSE on this matter drew a blank.

According to brokers, the new ATS which has fused the trading of odd lots with the main board, has, as a result, seemingly paved the way for mischief makers and saboteurs to disrupt the smooth functioning of the bourse, a serious charge, if indeed that charge is true.

They said that there are occasions, since the merger of the odd lot board with the main board, of sellers who just buy one share from a lot offered for sale, instead of the whole parcel, thereby nullifying the whole purpose of the sales offer, which has more than one share on offer.

Previously a buyer had to buy a minimum of 100 shares of a particular stock, but now that requirement has been done away with under the new ATS, where a buyer may even buy just one share of a particular stock under the new ATS regime.

Sales on an “all or nothing” basis are disallowed, a buyer can procure just one share from the whole lot offered, thereby throwing a spanner to the sales process as planned by the seller, a broker said.

Earlier there was the odd lot board from which such transactions could have had been made, ie, theoretically the sale of one share only, whereas transactions of a minimum of 100 shares or more would have had to be conducted only on the main board, but after the merger of these two boards, even one share could be bought from the merged board, the flip side of which is the aforementioned aberrations.

Ie that under the new ATS version, the seller is forced to agree to the sale of even one share, if such a request has been made at the stipulated price of the seller’s. But the question is whether this practice encourages share trading or dissuades the same?

According to brokers it discourages share trading, including among foreign investors. Which investor in his right mind would want only one share of his stock bought?

Coincidentally, since the implementation of the new ATS version on February 24, of the 14 market days that followed during the period February 24-March 15 and inclusive of February 24, the bourse passed the Rs. one billion turnover mark only five times and that too aided and abetted by internal transfers on a few occasions.
But in the 14 market days that preceded February 24, the bourse crossed the Rs. one billion turnover mark on no less than 10 occasions, ie double the number over that experienced during the 14 days covering the period February 24-March 15, when the new system was installed and was operable.

Now there may be other reasons other than the new ATS version that may be responsible for the low turnover levels experienced by the bourse these days. Rising interest rates caused by depreciating rupee liquidity and buttressed by increasing inflationary levels in the economy, helped by rising prices, not least caused by last month’s fuel and electricity price hikes, coupled with the free float of the rupee that has also helped make imports dearer due to an ever weakening rupee, has made the rates offered by the fixed income market to rise, thereby making it a more attractive source of investment rather than the stockmarket.
However, the rise in interest rates didn’t happen overnight. Its genesis may have had begun after the Central Bank of Sri Lanka (CBSL) withdrew protecting Treasury (T) Bill yields from rising in the weekly auctions soon after President Mahinda Rajapaksa presented Budget 2012 in Parliament on November 21 last year, where he took the markets, not least CBSL by surprise, by announcing a 3% rupee devaluation.

T Bill yields have a cascading effect on market interest rates. Higher the yields fetched in T Bill auctions, higher will also be the interest on both bank lending and deposit rates.

In fact CBSL statistics show that within a space of a year, commercial banks’ weighted average fixed deposit rate had gone up by 123 basis points (bps) to 9.37% as at last month on a year on year basis.
But on the flip side, commercial banks’ average weighted prime lending rate (AWPR) too has had gone up, by 295 bps to 11.99% as at the week ended March 9, from a year ago. AWPR is the rate that banks charge good or blue chip borrowers on their bank borrowings.

However, the SME sector which provides the bulk of employment in this country, is charged a far higher rate on their bank borrowings. They don’t belong to the blue chip or “good borrower” category. A high interest rate regime is a disincentive for investments as it makes borrowing costs to increase. And when investments diminish that hurts job creation, as factory expansion works or the building of new factories, mean more employment opportunities to the people of this country. But if such works are stultified due to rising costs, that will naturally hurt job creation.

In such a scenario, in an environment of rising interest rates, an investor may find placing his investments in the fixed income market far more remunerative than investing in the stockmarket.

However that may be, getting back to the CSE’s new ATS and the woes attached with it to investors, a seller of stocks and shares has to pay the CSE’s Central Depository System (CDS) a commission of Rs. 10 for any transaction which is under Rs. 1,600 in value or thereabouts, according to CSE/CDS rules.

Assuming that the value of a share transacted thus is Rs. one, under the new, distorted ATS, caused by the problem of allowing a buyer to purchase even only one share from a basket of shares offered due to the merger of the odd lot board with the main board, then the seller will in fact be losing Rs. nine on such a transaction by having to pay the CDS Rs. 10 as transaction fees, excluding other charges such as brokerage fees, which, when added on, further increases his losses.

Now, the question is, did not the CSE do a proper evaluation before embracing this new system? Also, in the unlikely event that even if the vendor of the new ATS installed his system free, did not the CSE first do a feasibility study to ascertain how practicable would such an operating platform be in a market such as that of Sri Lanka’s?

The seller, when he makes an offer on the board, would not want just one share of his bought, but would expect to dispose of the whole pile, a broker said. But when this sort of unexpected intervention takes place, either due to technology or due to an oversight by the concerned authorities, namely the Securities and Exchange Commission and the CSE, of the possibility of a buyer just buying one share, or just a handful of such shares and not the whole pile, it negates the very purpose of such a sales offer, thereby discouraging investors from the market.

Previously one had to buy a minimum of 100 shares, but with the merger of the odd lot board with the main board, that requirement has had been done away with, with the buyer being able to get away with by buying just one share only.

The question is, whether the CSE, which has invested public money by installing such a system, did it by first doing a proper feasibility, a proper technical study? If not why not?

The new ATS has hampered foreign investors and other similar bona fide investors from making a sales offer, the sources said. Therefore it’s upto the CSE and other concerned authorities to rethink of the validity of the new ATS.

Brokers had brought this to the attention of CSE officials at a meeting on March 6. They had apparently accepted the brokers’ position on this matter, with the case to be heard again on March 26.

Another contentious issue brought before CSE officials was custodial banks charging a fee of Rs. 25 on a transaction, which CSE officials had agreed was unfair, and where they had said that they would take up the matter with the relevant bank officials.

Sooner an erroneous system that hinders investments is removed, the better it is for investors.

Desperate Measures
CBSL directing banks to cut down on their overnight foreign exchange (forex) positions by 2/3rds and restricting forex forward bookings by importers and exporters alike to 90 days and cutting down on banks depositing their excess cash at CBSL’s repo window to Rs. 100 million in the event CBSL holds a reverse repo auction on that day are but reactions to the disease that Sri Lanka’s economy is facing, ie a balance of payments crisis.

And sometimes the medicines prescribed do not always evoke the desired results, but in fact might worsen the patient’s condition.

What then needs to be done? Make imports more expensive as a deterrent for the consumer to buy imported goods, and thereby save the island’s precious little forex at hand?

That may be one way of tackling this crisis. But then what happens in regard to the import of life saving medicines and drugs, or for that matter imported investment and intermediate goods, so essential to keep the wheels of the economy turning, for factory expansion, for the setting up of new industries and for increasing production, all important to up output and turnover, enhance exports (thereby bringing in much needed forex into the country) and to create new job opportunities for the thousands who enter Sri Lanka’s job market annually?

If imports become dearer, either through the natural flotation of the exchange rate as is happening now, due to demand pressure for forex, mainly US dollars, thereby weakening the rupee or due to further costs imposed on such imports by the Government of Sri Lanka (GoSL), that may lead to a socio-economic crisis in the island, which is essentially an import dependent economy.

So the only way out appears to be increasing inflows, which is easier said than done, not least due to GoSL’s blunderbussings as elaborated elsewhere on these pages. Probably a courageous volte face by GoSL to set thing rights may change the equation?
http://www.thesundayleader.lk/2012/03/18/accountability-of-the-regulator/