News Bulletin - March 2014

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  • 8/12/2019 News Bulletin - March 2014

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    In Economic news:

    In Business news:In Consumer news:

    Tourist arrivals in Feb 14 continued its impressive growth, rising 24.5% YoY

    to 141,878, as core markets East Asia, India and Western Europe increased

    trac

    Vehicle registrations were down 2.7% YoY in Feb 14 to 23,130 as three

    wheelers numbers come in at a 32 month low

    Sri Lankas tea export volumes in Jan 14 dropped 1.0% YoY causing export

    earnings to decline to Rs.16.2bn. However production volumes increased

    9.6% YoY to 25.4m kg.

    Trade decit in Jan 14 narrows to $755.9m (-5.9% YoY) as exports increase to

    $898.0m and imports reach $1.6bn.

    LMD-Nielsen Business Condence Index drops to 124 in Feb 14 (-15 points

    MoM).

    Monthly Bul let in : March 2014

    Sri Lankas economy grows 7.3% in 2013 with fourth quarter 2013 rising

    8.2% YoY, as industrial and services sectors make solid contributions

    BOI says investment amounting to $3.6bn approved in 2013 with

    domestic investments accounting for $1.3bn

    Thermal electricity generation increases as rains continue to fail

    resulting in about Rs.24bn in losses during Jan- Mar 14

    Sri Lankas issue of $60m development bonds oversubscribed 3.1 times

    As unsolicited project approvals come to the lime light Sri Lanka Port

    Authority forced to defend itself, issues clarication

    Job retrenchment unavoidable in Sri Lankas banking and nance

    sector consolidation, industry professionals say

    Private sector credit growth in Jan 14 was just 5.2% YoY as interest rate

    cuts clearly fail to lter; while government borrowing rose a staggering26.0% YoY to Rs.1,369.7bn

    Ination remained at 4.2% YoY in Mar 14 (0bps MoM) a 23 month low

    The rupee ended the month at 129.29/132.17 vs. USD (rupee stronger

    ~0.23% MoM)

    The All Share Price Index closed at 5,968.31, up 0.47% MoM

    Sri Lankan operations hurt Fonterra results,

    as local sales volumes drop 33% YoY

    Nielsen Consumer Condence Index in

    Feb 14 reduces to 65 (-4pts from Jan 14)

    as those responding Not so good to

    How do you think the next 12 months

    will be for people to buy the things

    they need , rise 15%

    GDP GROWTH

    2014E 8.2%

    7.3%

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    In Economic news:

    Monthly Bul let in : March 2014

    Sri Lankas economy grows 7.3% in 2013.Department of Census and Statistics of Sri Lanka reported that the SriLankan economy grew 7.3% year over year (YoY) in 2013. Growth was

    in-line with Central Bank of Sri Lanka (CBSL)s revised forecast of 7.2-7.3%(Nov 13) but ahead of all other external institutions forecast. GDP in thefourth quarter of 2013 grew an impressive 8.2% YoY on strong industrial

    (+10.7%), agriculture (+10.4%) and services sector (+6.5%) growth.

    For full year 2013, the industrial sector (~30% of GDP) comprising mainlyof textiles and garments, construction and manufacturing grew 9.9% YoY

    (vs.10.3% YoY in 2012), driven by construction (+14.4% YoY) and mining(+11.5% YoY).

    Services sector (~59% of GDP) of trade, tourism, transport, nancialservices etc. grew 6.4% YoY (vs. 4.6% in 2012). Underlining the strength of

    the tourism industry, hotels and restaurant grew a staggering 22.3% YoY.However its contribution to the overall economy still remains at a low of

    around 0.8% of GDP.

    Agriculture sector grew a sedate 4.7% YoY (vs. 5.2% YoY in 2012) withpaddy cultivation growing 19.5% osetting decline in coconut (-16.1%)and rubber (-9.1%) crops.

    Agriculture sectors contribution to GDP continued to decline and is nowis only 10.8% of GDP with GDP per agriculture sector worker continuing tounderperform the national average. The low sector contribution is despite

    government incentive schemes such as fertiliser subsidies (Rs.60bn in2012 for paddy), guaranteed prices for selected crops, low interest loansetc. The government is compelled to oer such substantial support as thesector employs about 31% of the countrys workforce.

    Source: Department of Census and Statistics Source: Department of Census and Statistics

    Investment up as BOI

    tax breaks works.According to Mr. LakshmanJayaweera, Chairman, Board ofInvestment (BOI), $3.6bn worth

    of investment projects had beenapproved in 2013. Infrastructureand mix development, tourism

    and construction were the clearlyfavoured sectors, with almost$1.3bn of the projects coming fromdomestic investors.

    He stated thatI find that local investors are coming very actively now signingagreements with the BOI. The agreements that we signed will not come

    everything this year. It will come stage by stage. We target over two billionUS dollar worth of investment will come this year. Actual Foreign DirectInvestment (FDI) ows during Jan to Nov 13 were only about $1.3bn.

    Moreover, BOI stated that 12 projects presented at the 2013Commonwealth Heads of Government Meeting (CHOGM) held in

    Source: CBSL and Gradient analysis

    Colombo had received keen investor interest and that two preliminaryagreements had been signed. The two projects amounting to $550m are

    to establish transit hotels, parking facilities and shopping complexes atthe Katunayaka and Mattala airports. Both projects were awarded to ChinaHarbour Engineering Company.

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    In Economic news:

    Thermal electricity generation

    increases as rains continue tofail. According to Mr. Shavindranath Fernando,General Manager, Ceylon Electricity Board(CEB) water levels at reservoirs used for hydro

    power generation had reduced to a low of 26%. Moreover ,The Sunday

    Times newspaper quoting a letter written by Mr. Fernando said that thecurrent high reliance on thermal power had caused the CEB to lose asmuch as Rs.24.0bn during Jan-Mar 14. In a bid to curtail losses the CEB

    was reportedly seeking more liquidity and is tightening on overdues fromcustomers, especially the state institutions.

    According to CEBs power generation mix as at 30th March 2014, only

    4.4Gwh (14.3%) were generated from hydro, whereas 26.3Gwh (85.3%)were from thermal (including coal) and 0.1Gwh (0.4%) from wind.

    Mr. Fernando further stated thatthe The total hydro power capacity of theCEB is 1,257 Gwh and it has now come down to 328.3 Gwh and is further

    declining by 4.51 Gwh per day. No significant rain has been reported in the

    Monthly Bul let in : March 2014

    Sri Lanka issues another batch of development bonds. Sri Lanka issued $60m of Sri Lanka Development Bonds (SLDB) at4.3318%, 400 bps higher than US dollar six month LIBOR rate. The issue was oversubscribed 3.1 times with the CBSL accepting all the bids ($187m).

    Unsolicited projectapprovals come tothe lime light. SriLanka Port Authority (SLPA)

    had to defend itself over theunsolicited awarding of the

    $1.3bn Colombo Port Cityproject. Moreover it wasrevealed that the contract

    had been awarded to the World Bank blacklisted China CommunicationConstruction Co. Ltd (CCCC). These revelations caused an uproar inparliament, with opposition legislator Mr. Eran Wickramaratne statingthat as many as 45 projects were approved during a 45 minute cabinet

    meeting.

    The Colombo Port City is to be built on 233

    hectares of reclaimed land o the coast ofthe Galle Face Green in Colombo. It will have

    oces, luxury hotels, apartment complexes,shopping malls etc. SLPA said that the project

    is not funded by the Sri Lankan government orthe SLPA and issued a statement clarifying itsposition, stating that;

    catchment areas of

    the reservoirs. There

    will be no power

    cuts and we expect

    rain to start soon.According toindustry sources

    the unit cost ofthermal poweris ~Rs.24.00, coalpower ~Rs.6.50-7.00

    and hydro power~R s .1 .50 .H igh erreliance on thermal power generation has led to Sri Lankas electricity

    taris being among the highest in Asia.

    On a separate note a deputy secretary of the Treasury, speaking toAdaderana Biz , stated that the Finance Ministry is encouraging the

    CEB, Ceylon Petroleum Corporation (CPC), the National Water Supplyand Drainage Board (NWS&DB) to obtain international credit ratings. Hestated that Our aim is to push these state institutions to obtain international

    credit ratings. Then they have to maintain these institutions as profit making

    ventures.

    Source: CEB

    As per an unsolicited proposal forwarded by M/S China HarbourEngineering Company Ltd; a partnership of the CCCC which falls underFortune 500 Companies of the world, has been granted permission todevelop the Colombo Port City Project.

    Proposal was primarily submitted for Standing Cabinet AppointedReview Committee (SCARC) through the Department of Public Financefor approval. On instructions by the SCARC, SLPA also entered into a MoU

    with CCCC and obtained the detail proposal which was expressed at theTechnical Evaluation Committee appointed by SLPA to evaluate the projectproposal. The nal approval has been granted thereafter, subjected to the

    agreement by the Attorney General.

    SLPA responsibly states that it is totally irresponsible for anyone to statethat this is a hidden project implementation in Sri Lanka

    Mr. Wickramaratne alleged that almost $5bn worth of unsolicited contractshave been awarded by the government in contravention of the Ministry of

    Finance circulars 444 and 444/1 which states that the government should

    make no decisions on unsolicited proposals except with cabinet approvalin exceptional circumstances. He noted that But unsolicited proposals are

    the norm rather than the exception today. This means that the Sri Lankan

    taxpayer is denied the benefit of companies competing for Government projects

    and quoting the best prices.

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    In Economic news:

    Monthly Bul let in : March 2014

    Job retrenchment unavoidable in Sri Lankasbanking and finance sector consolidation.According to Mr. Aravinda Perera, Managing Director, Sampath Bankand President, Association of Professional Bankers of Sri Lanka the CBSLled consolidation of the banking and nance sector is to cause loss of

    Dr. Chandana Aluthge, senior lecturer at Department of Economics at the University of Colomboalso speaking at the forum stated

    jobs and streamlining of costs. CBSL proposes to reduce the number of

    Non-Banking Financial Institutions (NBFI) to about 20 from the current58 to better regulate the industry following high prole structural issuesat a few NBFIs.Speaking at a forum organised by the Sri Lanka EconomicAssociation to discuss the initiative Mr. Aravinda Perera stated;

    Weve talked about not having to retrench and having a very low unemployment ratio in the country, and thepolitical reality is such that this cannot be changed but the private sector reality is that when two entities merge

    there will be many positions that will be duplicated, therefore retrenchment is the only way.

    NDB, DFCC and Vardhana have three CEOs and the reality is after the merger there can only be one, that cannotbe avoided.Cost eciency is already a problem in terms of the Non-Banking Finance Institution sector, and if we

    cant retrench jobs in the sector that it will take a long period of time,

    Many people retire from our organizations every year, so its a question of two years that you will have to ease on

    recruitment. Many of the people who retire from the banking sector go on to be consultants at NBFIs and whilethese people should be allowed that route, there will likely be some redistribution there as well but in a few yearsI believe we can achieve cost eciency.

    The condition of no retrenchment advanced by the Central Bank seems a bit articial. A bigger institutiondoes not necessarily mean a stronger one and there are many complex questions related to eciency and cost

    structures and salaries that must be explored carefully.

    While I support reform and consolidation, the implication of this process is that the entities that we have noware not strong enough and the point of this process is to make them stronger by making them more ecient,

    Given the complexity of such a drastic reorganization within the banking and NBFI sector, rushing to consolidatethe sector in an oversimplied manner, could trigger a larger-scale crisis in the sector.

    Merchant Bank of Sri Lanka, a unit of state-run Bank of Ceylon ismerging with its subsidiaries, MBSL Savings Bank Limited and MCSLFinancial Services Ltd.

    According to Union Bank of Colombo it is in talks with TGP Asia VIL.P, for a possible sale of shares. The bank had received a non-bindingindicative term sheet governing further negotiations over a share sale

    from TGP Asia.

    According to a research report by Capital Alliance (CAL), 4Q13 protsat commercial banks reduced by about 16% YoY mainly due to losses in

    the gold loan portfolio as world gold prices continued to be volatile. It

    In related banking and finance newsreported that the loan loss charge had risen to Rs.4.7bn in fourth quarter

    up from Rs.3.5bn a year earlier. Despite the loan portfolio rising 16.0%YoY net interest margin had decreased to 4.4% (-30bps YoY).

    In a joint stock exchange ling, the board of directors of DFCC Bank and

    NDB Bank stated they have signed a Memorandum of Understanding(MoU) to explore the possibility of merging. It stated that the MoU wasonly an initial step to look at the possibility of combining the two banks

    and that a denite decision on any aspect of such consolidation hadnot been taken.

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    In Economic news:

    Monthly Bul let in : March 2014

    Trade deficit in Jan 2014 narrows to $755.9m(-5.9% YoY). As per the CBSL exports in Jan 14 rose a signicant23.2% YoY to $898.0m with imports rising 7.9% YoY to $1.6bn. The

    r e s u l t i n g

    trade decitof $755.9mwas nancedby $555.5m

    of workerremittancesand $161.2m

    of tourismearnings.

    Agricultureexports (~22%of exports)

    were $203.2m, up 21.6% YoY mainly driven by tea exports of $116.1m

    (+14.9% YoY). Industrial exports (~77% of exports) were $691.6m up23.6% YoY on impressive apparel exports to the European Union andthe United States ($412.0m,+23.4% YoY).

    Consumer goods imports (~18% of imports) were $253.6m, up 2.7%YoY, with growth in other consumer goods $143.7m (+8.4% YoY)osetting decline in food & beverage imports, $109.9m (-3.8% YoY).

    Government borrowing continue to increase.Government borrowing in Jan 14 reached Rs.1,369.7bn up a signicant26.0% YoY and now accounts for 32.5% of the total net credit granted.Reduction in tax revenue has compelled the government to keep

    borrowing to sustain its heavy expenditure.

    Source: CBSL

    Private sector credit growth slumped to 5.2%YoY Jan 14, a historic low,with total private sector borrowings reaching Rs.2,491.6bn. Month overmonth private credit contracted by Rs.42.7bn the rst since thebalance

    of payments crisis in 2011. Private sector credit growth is still to respondto government stimulants over the last several months including areduction in the main interest rate.

    Intermediate goods imports were $1.0bn, up 22.3% YoY, as fuel importsrose to a crushing $489.6m (+68.1% YoY). This was mainly due to theincrease in imports of rened petroleum products (+85.4%) and coal(+79.4%) as low rain fall increased dependence on thermal and coal

    power generation.

    Investment goods imports were $366.3m, down, 16.8 % YoY; onreduction in imports of machinery & equipment, $196.9m (-21.3% YoY)and building materials, $121.9m (-11.0%YoY).

    On a separate note, Dr. P.B Jayasundera, Treasury Secretary stated that Sri

    Lanka and China had nalised a joint feasibility study on the Free TradeAgreement (FTA) between the two countries. He mentioned that theproposed FTA would bring substantial economic and trade benets toboth countries while strengthening the friendly relationship that both

    countries have been maintaining from historical time. Trade between SriLanka and China rose to over $3.5bn in 2013 from $1.1bn in 2006.

    Source: CBSL Source: CBSL Source: CBSL

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    In Business news:

    Monthly Bul let in : March 2014

    Inflation remained at 4.2% YoY in Mar 14 (0bpsMoM) a 23 month low.The annual average also reducedto 5.7% (-30 bps MoM). CBSL attributed the slow rise in ination to amoderation in prices of food (0.1% MoM) and non-food categories (0.1%MoM).

    The All Share Price Index closed at 5,968.31, up0.47% MoM. Best performing sectors were oil palms (+15.9%MoM), healthcare (+6.2%) and chemicals & pharmaceuticals (+1.2%).Worst performing sectors were information technology (-8.7%MoM),footwear & textiles (-5.3% ) and investment trusts (-3.3% ).

    Key events during the month:

    Alumex Limited, the aluminum extrusions makers Rs.838m initial publicoer (IPO) was oversubscribed. According to the company Rs.250m ofthe proceeds is to construct a powder coating plant and acquire diemanufacturing equipment, doubling its powder coating capacity to3,600 metric tons per year. The remaining Rs.588m is to existing majorshareholders (via oer for sale of vendor shares).

    Source: CBSL

    Source: CBSL

    Source: CSE

    The rupee ended the month at 129.29/132.17vs. USD (rupee stronger ~0.23% MoM)

    Softlogic Capital (SCAP) announced a 13 for 10 rights issue to raise

    approximately Rs.1.3bn at Rs.3.40 a share. SCAP notes the proceedswould be utilised to strengthen the balance sheet and pay down selectoutstanding debt.

    Asiri Central Hospitals Plc (ACH) is to delist at Rs.275 per share.The lasttraded price of ACH was Rs.250.10. Asiri Hospitals Holdings Plc owns99.31% of ACH.

    Bansei Royal Resorts Hikkaduwa Limited is to list its 53.7m shares on thesecondary board (DiriSavi) through an introduction.

    The Colombo Stock Exchange requested all listed companies to submittheir current distribution of shares as at Jan 1st by Mar 31st. This followsthe Securities and Exchange Commission directive relating to rules onminimum public oat as a continuous listing requirement.

    IFL Holdings of India completed the sale of its 76% stake in the SriLankan unit IIFL Securities Ceylon to its joint venture partners.

    Richard Peiris and Company plans to raise Rs.3.5bn through debentures.The oer comprising of 30m rated, unsecured, redeemable debentureshas an option to increase the size by another 5m.

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    In Business news:

    Monthly Bul let in : March 2014

    Russian arrivals grew 91.8% YoY to 9,723, while North America touristtrac increased to 5,489 from 5,235.

    In related tourism news

    Browns Investments increased its holding in LOLC Leisure to 100%, with

    a 70% acquisition for Rs.2.8bn from Lanka Orix Leasing Company (LOLC).As a result the company now manages about 1,000 rooms.

    Beruwala Walk Inn is to be delisted as it fell short of the 20% minimumpublic oat. Banyan Tree who controls 79.8% of the company said in astock exchange ling that the company was in need of fresh capital torebuild the hotel.

    Best Western is partnering with Elyon Hotels to develop about 700 hotelrooms in the country. US based Best Western manages or has franchised4,000 rooms around the world. The rst 60 rooms, a four star hotel is toopen by Jun 14, located on the Baseline Road closer to Kirulapone.

    Vehicle registrations were down 2.7% YoY in Feb14. According to JB Securities total vehicle registrations were only23,130 in Feb14.

    Three wheeler registrations continued to slide, down a signicant20.8%YoY to 5,257 in Feb 14, lowest level since Jun 12. JB Securities notesThe slowdown in more noticeable in Bajaj models, either they have reduced

    production or there is a significant pull back from the leasing industry forleasing volumes have also dropped.

    Motor cars registrations were 1,994 up 34.2% YoY. Pre-owned carsincreasedto 1,022 units (583 in Feb 13). Premium cars registrationsdecreased to 75 (vs. 85 in Feb 13). According to JB Securities Althoughmuch publicized we could not find any trace of Lamborghinis registeredin the RMV stats, finally in Feb one unit has been registered LamborghiniGallardo LP 550.

    Motor cycle registrations grew to 13,659 (+13.7% YoY).

    Overall truck registrations declined to 1,293 (-38.4% YoY) in Feb 14, withmini trucks (payloads

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    In Business news:

    Monthly Bul let in : March 2014

    Source: Forbes and Walker

    Sri Lankas tea export volumes in Jan 14 dropped1.0% YoY. Export volumes reduced to 21.9m kgs(-1.0% YoY) causedexport earnings to decline to Rs.16.2bn.However production volumes inJan 14 increased 9.6% YoY to 25.4m kg.

    LMD-Nielsen Business confidence Index dropsto 124 in Feb 14 (-15 points MoM). Mr. Shaheen Cader,LMD, Managing Director, is of the view that while perceptions towardseconomic growth remained the same as in December, lower optimismseems to be the result of lower-than-expected business volumes inJanuary sales or in the latest company quarterly nancial results.

    There was a signicant decline in the share of respondents who expectcompany sales to get better over the next three months and 12months, reducing to 28% from 42% in Jan 14, and to 46% from 57%in Jan 14. The share of respondents who believe the economy will getbetter in the next 12 months dropped to 34% from 36% Jan 14. Source: LMD

    In related tea news;

    Tea Sale Averages in Feb 14 reached Rs.481.83 (+Rs.59.15 from Feb13 and Rs.72.19 from Jan 14). According to John Keells PLC Signicantgains have been recorded for the month from Low Grown at 17.4%,

    Medium Grown at 9.4% and High Grown at 7.5%.

    Strathdon Estate equalled the all-time record price of Rs.480 per kg forits BPS tea. This tea was purchased by Van Rees Ceylon Ltd. and the saleconducted by Forbes & Walker Tea Brokers Ltd.

    Watawala Plantations Plc ended its management agreement withEstate Management Services (Pvt)

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    Monthly Bul let in : March 2014

    Sri Lankan operations hurt Fonterra results.Fonterra took a signicant hit to its volume and prots during the sixmonths to Jan 14, following the Sri Lankan governments decision totemporarily suspend milk power imports during the third quarter of2013. The suspension was due to the allegation that imported milkpowder contained dicyandiamide (DCD). Sri Lanka accounts for 27% ofFonterras Asian volumes. Releasing interim nancial results;

    Volume growth of 3% was constrained by Sri Lanka business, whichwas signicantly impacted by a temporary suspension of its marketoperations. Excluding Sri Lanka, volume growth was 10% across Asia.

    Normalized EBIT (earnings before interest and tax) from Asian marketsfor the six months was US$ 32 million, 68% lower from a year ago onsignicantly higher dairy commodity prices, negative currency impactand challenging market conditions in Sri Lanka.

    Sales volume in Sri Lanka fell 33%.

    Nielsen Consumer Confidence Index in Feb 14reduced to 65, down four points since Jan 14. The key movementwas a 15% increase in those responding Not so good to the questionHow do you think the next 12 months will be for people to buy the

    In Consumer news:

    things they need. Moreover, those considering employment prospectsto be Not so good over the next 12 months also increased to 69% (60%in Jan 14).

    Source: http://lmd.lk/2014/03/01/consumer-confidence-4/

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