News Bulletin - November 2013

8/13/2019 News Bulletin - November 2013

1/13

In Economic news:

In Business news:In Consumer news:

Tourist arrivals reaches 102,805 in Oct 13 (+27.9% YoY) driven by

increasing Chinese and South Asian visitors

Vehicle registrations at a 17 month high in Oct 13 (+8.9% YoY) as all vehicle

categories bar three wheelers record growth

BOI rms to be taxed on expiration of tax-free regime

Record breaking tea prices as production reaches a four month high

Trade decit in Sep 13 rose 41.1% YoY to $723.6m with years decit reaching

$6.7bn (-2.1% YoY).

LMD-Nielsen Business Condence Index increases 11 points to 130 in Oct 13

Monthly Bul let in : November 2013

Budget 2014: Mix of ambitious targets and protectionism for

local industries as borrowings continue to plug decit

Sri Lankas GDP expands 7.8% YoY in the third quarter as

agriculture, industrial and services sector records solid growth

Jan- Sep 13 budget decit shrinks to 5.6% of GDP on higher tax

revenue and limited public investment

FDI boost with almost $2.0bn of investments being discussed

CEB and CPC in encouraging turnaround story reduces

operating losses and pays o debt

Ination drops to 5.6% YoY in Nov 13 (-110bps MoM) a 20

month low

Sri Lankan rupee at 129.58/132.84 vs. USD (rupee weaker

~0.18% MoM)

All Share Price Index closes at 5,775.09, down 3.0% MoM, up

2.3% YTD

Coca Cola operations under spotlight as a

contentious bottle label causes uproar

Singer Sri Lankas quarterly results aected

by high electricity costs, value added tax

and high interest costs

84% of Sri Lankans not feeling too healthy

AIA research shows

BUDGET


2/132

In Economic news:


Budget 2014: Mix of ambitious targets andprotectionism for local industries.Budget 2014 took afamiliar path of an ambitious revenue target, increased protectionism forselected local industries and borrowings expected to meet the shortfall.

Most tax levies of the budget were introduced through a series of gazettenotications which were published after the budget speech. This leftmany people unclear as to the impact of such taxes at the time of itsannouncement.

As in 2013, tax revenue would be expected to contribute about 88%towards 2014 revenue target. However the lack of a large tax population

base and continuance of granting lengthy tax holidays for new investmentsoften lead to actual revenue being wide of the mark.

Overall expenditure is to increase to Rs.1,985.6bn (+16.0% YoY) with public

investment up 32.7% to Rs. 668.5bn, infrastructure spending up 32.6% toRs.594.4bn and debt interest payments amounting to Rs. 441.0bn (-0.9%YoY). Despite removing some fertilizer subsidies overall subsidies and

transfer are to increase by 11.0% YoY to 284.7bn.

The resulting budget decit is forecasted at 5.2% of GDP versus 2013

forecast of 5.8%. The decit is to be nanced through domestic borrowings

(Rs.280.6bn) and foreign borrowing (Rs.235.5bn) of which Rs.97.5bn isexpected to come from foreign commercial borrowing indicating a returnto a sovereign bond issuance.

The government continued oer incentives to selectlocal industriesincreasing import taxes on several food items, building materials and evenboats.

Other notable comments from the budget speech

Finance companies which are subsidiaries to be merged with the parent

$150m provided to SriLankan Airlines and $50m to Mihin Lanka

Rs.1,000m to Sri Lanka Transport Board to purchase 2,000 buses andRs.500m to meet operating losses

Urban Development Authority to borrow $750m from overseas to buildhouses

State workers cost of living allowance increased by Rs.1,200

Source: Ministry of Finance and Planning


With the intention of reducing budget decit to 5.2% of GDP thegovernment outlined plans to increase overall revenue to Rs.1,437.4bn. This is a staggering 21.5% YoY increase from 2013s revised forecast

revenue of Rs.1,183.1bn. The government expects 2014s higher revenueto come from;

2.0% National Building Tax on banks and nancial institutions

Valued Added Tax free threshold on supermarkets retail revenuereduced to Rs.250m from Rs.500m

Increase in telecommunication levy to 25% from 20%

Increase in export taxes on selected goods

Reduction in the depreciation value on vehicles with a production dateover one year and less than two years

And a series of tax on goods introduced through gazette notications


3/133

In Economic news:

Sri Lankas GDP expands 7.8% in the third quarter.The Department of Census and Statistics reported that the Sri Lankaneconomy grew 7.8% YoY in 3Q13 (vs. 6.8% in 2Q13 and 4.8% in 3Q12).Signicantly there was growth across all sectors as industrial, services and

agriculture categories grew 7.0%, 8.1% and 7.9% YoY.


Budget deficit shrinks to 5.6% of GDP on highertax revenue and limited public investmentspending.As per the Department of Fiscal Policy countrys budgetdecit during Jan- Sep 13 shrank to 5.6% of GDP from 6.4% a year earlier.

The improvement was on revenue growth of 2.7% YoY to Rs.780.2bn,driven by 4.2% YoY increase in tax revenue to Rs.706.7bn. However totalrevenue is almost 16% o the nine month target meaning annual target

of Rs.1,183.1bn is sure to be missed.

During the period expenditure grew just 1.4% YoY to Rs.1,275.1bn.However signicant recurrent payments such as salaries and interest

payments amounting 52% of total expenditure increased a combined13.7% YoY. The slight growth in expenditure was largely due to reduced

public investment (Rs.369bn, -4.0%YoY) and other expenditure (Rs.261.7bn,-14.8% YoY). Delay in incurring public investment is often used as a tool toportray a picture of scal soundness which otherwise would not lookedso rosy. If 2012 (9 months) public investment sum had been spent thisyear the budget decit would have increased to 5.9% of GDP higher than

annual target of 5.8%.

The budget decit was nanced by Rs.396.5bn of domestic nancing andRs.95.4bn of foreign nancing.

Despite remaining condent after second quarter results, the CentralBank of Sri Lanka (CBSL) revised 2013 GDP to between 7.2%-7.3% downfrom previous estimate of 7.5%. CBSL Governor speaking to Reuters statedthat The fourth quarter growth will be led by the construction and tourismsectors.

Sources:BMI, IMF, UN-ESCAP, Fitch Ratings, Standard Chartered Bank, ADB, WB, CBSL

SL GDP 2013E , CBSL most optimistic


Agriculture GDP is affectd by seasonal crop production especially paddy

Source: CBSL

In agriculture the paddy sub sector grew 56.5% YoY osetting decreases

in tea, rubber and coconut production which were aected by adverseweather conditions in the wet zone and coconut triangle.

Growth in the industry sector was mainly in mining and quarrying (+12.5%

YoY), electricity generation (+12.1% YoY) and construction (+10.0% YoY).The service sector was up 7.9% YoY on strong growth from hotels andrestaurants (+13.6% YoY), transport (passenger and goods) 11.7% YoY and

telecommunications (+14.7% YoY).

BOI firms to be taxed.Regulations are being set to tax Board of

Investment (BOI) companies from 2014.Mr. S.R. Attygalle, Deputy Secretary tothe Treasury stated that There will bearound 216 BOI approved ventures which

have enjoyed tax free regime for 10 to

15 years coming in to the tax net from

2014. We have declined request for any

extension of the tax-free period because

their time to pay up has come.

He further went on to say given the relatively low rate, the government hasmade a firm decision that there will be no more tax holidays except on select

investments including those coming under the Strategic Development Act,.


4/134

In Economic news:


CPC and CEB in turnaround story? Under pressure fromthe International Monetary Fund to eectivelymanage Ceylon Electricity Board (CEB) andCeylon Petroleum Corporation (CPC) it was

announced that CEB had made a net prot ofRs.17.8bn during the rst nine of months 2013(versus net loss of Rs.61.1bn in full year of 2012).

While corresponding periodical nancial datawas not made available the turnaround was

largely attributed to the increased use of hydro power. Hydro powerversus thermal power

generation reached animportant mix of 61:39versus 30:70 in 2012,

thus reducing averagecost per unit to Rs.15.75from Rs.22.13 in 2012.

Moreover tari increasesin April 13 resultedin average revenue

per unit increasing toRs.17.60 from Rs.15.66

in 2012. The improvedperformance also meant CEB paid down its loans to CPC and independent

power providers (IPP) with amounts outstanding reducing to Rs.15.4bnfrom Rs.49.7bn in 2012. However CEB still owes mostly state nancialinstitutions a staggering Rs.51.7bn and has a mountain of Rs.278.1bnowed to the government.

FDI boosted with three mega projects on the

cards. Mr. Lakshman Yapa Abeywardana, Investment Promotion

Minister stated that three investment agreements amounting to $2.1bnwere on the cards. He noted the projects as;

1. $1.3bn by China Communications Constructions Company (CCCC) inthe proposed Colombo Port City. Port City is to be built on reclaimed

land opposite the Galle Face Green in Colombo. CCCC would construct

breakwater systems, seawater tunnels and develop the land. The eightyear project would be nanced by $390m of equity and $910m of

loans.

2. $450m by Property Alliance Capital (Pvt.) Ltd. The Australian companyis to construct a shopping mall and a condominium complex on Sir

James Pieris Mawatha, Colombo 2.

3. $250m by Hong Kong based Avic International Engineering and NiceView Investment Companyto build 539 apartments and 4,175 sq. metres

of commercial space in Colombo 3.

Separately, China Harbhour Engineering Company is to invest $500m to

build a golf course and two hotels in Hambantota and Katunayake. Theresort in Mattala, Hambantota would include a 250 room hotel and atax free shopping complex. The Katunayake investment would include a200 room transit hotel and tax free shopping facilities.

Ceylon Petroleum Corporation (CPC) also

improved its performance during therst nine months of the year recordingan operating prot of Rs.3.9bn versus anoperating loss of Rs.89.7bn for the full

year 2012. However after adjusting for theblundered hedging transaction (Rs.7.6bn)adjusted operating loss of Rs.3.8bn was

recorded.

Performance improved on retail priceincreases (Feb 2013)

on kerosene, heavyfuel and aviationfuel. Cost of sales in

2013 was 14.7% YoYlower than 9 monthsof 2012 cost of sales(apportioned). This

is made all themore signicant asthe price of a barrelof Brent crude oil

averaged around

$109 during thisperiod (~$112 in 9 months of 2012). Improved operations also meant

Rs.341.4bn of debt was paid and now remains at Rs.203.7bn (Rs.201.1bnin 2012).

Source: Ministry of Finance and PlanningSource: Ministry of Finance and Planning

Artist impression of Colombo Port City

Netprofit, Rs.17.8bn

Expenditure,Rs.125.0bn

Revenue,Rs142.8bn

Net

Loss, Rs.3.7bn

Expenditure,Rs.394.0bn

Revenue,

Rs.390.3bn


5/135

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6/136

In Economic news:


Inflation dropped to 5.6% YoY in Nov 13 (-110bpsMoM) a 20 month low.The annual average also reduced to 7.3% (-30 bps MoM). CBSL attributedthe signicant decline in ination to a moderation in prices of food and

non-food categories.

The Capital Alliance (CAL) Urban Price Index was 4.3% YoY (vs. 10.6% YoYin Oct 13). According to CAL, food and beverage prices decreased 1.1%

MoM, while transportation, communication and energy increased 1.6%.

The rupee ended the month at 129.58/132.84 vs.USD (rupee weaker ~0.18% MoM)

The All Share Price Index closed at 5,775.09,down 3.0% MoM, up 2.3% YTD.Best performing sectorsin the month were information technology (+16.0% MoM) and power &energy (+6.5%). Poor performing sectors were oil palms (-8.5%), storesand supplies (-8.1%) and services (-7.9%).

Source: CBSL

Source: CBSL

Source: CSE

Key market news

Expolanka Holdings Plc sold Expolanka Commodities (Pvt) Ltd andLanka Premier Foods (Pvt) Ltd to Aberdeen Holdings (Pvt) Ltd for

about Rs.500m. Mr. Hanif Yusoof, Group CEO of Expolanka HoldingsPLC stated that As a part of restructuring our portfolio we decided todivest these two companies. This move will enable us to concentrate even

more on our core businesses and free up capital for the future growth of

the organisation.

Dunamis Capital PLC, to invest Rs.200m in Premier Synthetic LeatherManufacturers (Pvt.) Ltd. The BOI registered company manufactures

leather and related products for the local market

Amna Bank is to list on the Colombo Stock Exchange via an IPO on

11th Dec 13. The bank is issuing 214,300,000 new ordinary shares atRs.7.00 per share with an option of issuing a further 71,500,000 of newordinary shares.

JB Cocoshell Ltd. sold its 18.0% stake in eChanneling Plc to TradingPartners Ltd for Rs.221m. The transaction increased Trading Partnersholding to 26%.

Debenture News

LB Finance Plc. to issue Rs.2.0bn in debentures initially oering 10m

debentures at Rs.100 with an option of a further 10m debenturesshould the rst tranche be oversubscribed

National Development Bank PLC to issue Rs.10.0bn in listed rated

unsecured subordinated redeemable debentures. Initially Rs.5.0bnwould be issued with an option to increase to Rs.8.0bn and then toRs.10.0bn subject to regulatory approval.

MCSL Financial Services to issue Rs.500m in subordinated redeemabledebentures. Fitch Ratings Lanka rated the issue BBB-(lka). According toFitch the ve year debt instrument would help boost Tier 2 regulatory

capital, expand lending and reduce maturity mismatches.


7/137


In Economic news:

Sri Lanka 60th in Legatum Prosperity Index. SriLanka gained 11 places in the annual ranking of 142 countries developedby Legatum Institute. The ranking is based on factors including wealth,

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82%

SAY THEY CAN RELY ONOTHERS IN TIMES OF NEED

BELIEVE ITS A GOOD PLACETO LIVE FOR IMMIGRANTS

57%

THINKS ITS A GOODTIME TO FIND A JOB

58%

BUSINESS STARTUP COSTS% OF GNI PER CAPITA

TEACHER TO PUPIL RATIO

1:24

BELIEVE BUSINESS/

GOVERNMENT CORRUPTION

IS WIDESPREAD

66%

19.1%

-

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economic growth and quality of life. According to the report Sri Lankahad made signicant progress in the Social Capital sub-index, dueto increases in willingness to help strangers and trust levels and theEconomy sub-index as a result of increases in capital per worker, gross

domestic savings, perceived job availability, and satisfaction with accessto adequate food and shelter.

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8/138

In Business news:


Tourist arrivals on overdrive.

Tourist arrivals in Oct 13reached 102,805, up a signicant 27.9% YoY driven by increasing Chineseand South Asian visitors.

Indian tourists continue to be the largest segment of visitors reaching20,307 (+15.1% YoY). Despite the re-introduction of visas by Sri Lankanauthorities Indians travel to Sri Lanka due to the steep depreciation ofthe Indian rupee making the country an attractive value propositionthan regional destinations. In Oct 13, there were 5,798 visitors (163.1%YoY) from China and 3,598 visitors from Maldives (+86.6%).

Source: Sri Lanka Tourism Development Authority

Vehicle registrations up a significant 8.9% in Oct13. According to JB Securities total vehicle registrations were 29,035(+8.9% YoY) in Oct 13 the highest in17 months. Excluding three wheelersall major vehicle categories recorded growth. The stock broking rmnoted that;

Main contributors to pre-owned car volumes were hybrids (902registrations of Prius, Aqua and Fit)

2-wheelers volumes at 15,805, the highest for the year BMW 5-series accounted for 40 of the 118 registered in the prestigecar segment

Brand new segment recorded the second lowest monthly volumes forthe year at only 645 registrations, small car segment remained weak

Tourist arrivals from United Kingdom were 9,375 (+6.9% YoY), Germany6,812 (+26.5%), France 4,208 (+21.1% YoY) and the Netherlands 1,578(+31.4%). Middle Eastern arrivals also increased 45.7% to 7,624.

The much hyped Commonwealth Heads of Government Meeting

(CHOGM) in Sri Lanka failed to drive guest trac to Colombos hotels, as

Source:JB Securities

many chose to stay away from the three day biennial event. Occupancyrates were reportedly lower than previous years. Mr. M. Santhikumar,Chairman, Colombo City Hotels Association stated that At the peak,from November 15th to 16th, the average occupancy rate was 55%. Theaverage occupancy during 10th to 13th was at 30% and during 13th to 14thit was around 40%. This was far below our expectation.

He also noted that a minimum of 4,000 city hotel rooms were expectedto be occupied but in the end only 2,000-2,100 were actually occupiedduring the event. Room rates which were signicantly increased mayalso have contributed as ve star accommodation were charged $571and one star rooms going for as high as $159 per night.

Aitken Spence group announced that it is building a 500 room luxuryhotel in partnership with RIU Hotels. RIU Hotels will be the managingpartner and is a Spanish chain was founded in Mallorca in 1953. Thedevelopment project would cost $100m and be located in Ahugalle.According to the company the hotel will have a business model ofgetting 200-300 long-stay guests who will arrive in Boeing Dreamliner

charter ights.


9/139

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10/1310

In Business news:


Tea prices continues flourish as production

reaches a four month high.

According to Ceylon TeaBrokers at the Colombo tea auction tea prices reached the highest everaverage price of Rs.494.88 per kg a signicant Rs.86.71 increase (+21.2%YoY) from the previous year. Low grown teas average for the month ofRs.530.51 was also a record Rs.118.83 higher than in Oct 2012.

However high growns prices declined to Rs.435.03 having peaked inSep 13 (Rs.451.43). Moreover tea production broke through to 30.3mkg (+13.4% YoY). Higher production volumes contributed to tea exportsalso increasing up 13.6% YoY to 28.9m kg.

Trade deficit in Sep 13 rose 41.1% to $723.6m,as years deficit reaches $6.7bn (-2.1% YoY). Exportswere up an encouraging 11.1% YoY in the month, the fourth consecutive

month of growth, whilst imports increased a staggering 22.8% YoY.The resulting trade decit was plugged mainly by worker remittances$588.7m (+15.2% YoY) tourism earnings $98.7m (+43.5% YoY)

In Sep 13, agriculture exports (~22% of exports) increased 6.0% YoYdriven by higher exports of sea food (42.1% YoY) and spices ($41m)oset by tea exports reducing 0.6% YoY. Industrial exports (~77% ofexports) increased 12.4% YoY on strong apparel exports to the EuropeanUnion and US and rubber exports.

Imports were $1.6bn up 22.8% YoY. Consumer goods imports (~18%of imports) grew 13.1% YoY. Intermediate goods imports grew asignicant 61.5% YoY to $1,044.8m mainly on fuel imports of $516.7m(+61.5% YoY). Investment goods imports were also up 19.7% YoY to$335.3m as imports of machinery & equipment rose 37.6%, buildingmaterials rose 20.6% osetting reduction in transport equipmentimports (-30.9% YoY).

At a forum organised by the Exporters Association of Sri Lanka severalleading personalties oered insight into how Sri Lanka can furtherimprove the performance of its exports. See comments below;

Source: CBSL Source: CBSL

Saman Kelegama,Head of the Institute of Policy Studies

Hilmy CaderCEO, MTI Consulting

Arul SivagananathanDirector, Sri Lanka Association ofSoftware and Service Companies

Lalith KahatapitiyaChairman, KIK Lanka

To sustain the export

competitiveness, the country has todevelop a comparative advantageby improving productivity andinnovation. 99 percent of our

products are simple products

Firms should change their mindset

and become part of internationalsupply chains

Old labour laws were also

hindering the services exportsector. For instance, women cantwork after 8o clock, number ofholidays in Sri Lanka is another

issue

In Sri Lanka, if I produce a product in

a zone (export processing zone), I amnot allowed to pay duties and sell intothe country. But the same product can

be produced somewhere else can bebrought here. These kinds of laws are

still prevailing.


11/1311


Accenture with Brandix to offer businessprocess services. Accenture a global management consultingand outsourcing is to collaborate with Sri Lankas Brandix Mercury Asia indelivering business process related services to the retail apparel sector.Accentures solutions would be provided through Brandixs back oceprocesses. Mr. Ashro Omar, CEO, Brandix stated that Accenture will bringits extensive global experience, proprietary assets, software and analytics

LMD-Nielsen Business confidence Indexincreases to 130 in Oct 13 (+11 pointsMoM). Mr. Shaheen Cader noted that The upward swingseems to be influenced strongly by the stabilisation of the SriLankan Rupee in the last few weeks, after creeping devaluationin the previous three months,

Those who believe the economy will get better in the next12 months increased to 42% from 31% in Sep 13. Thosewho believe the economy will get worse over the sametime period dropped to 34% from 40%. Moreover thosewho expect company business (sales) to get better over

the next 12 months increased to a signicant 45%.

capabilities, helping to create more efficient and cost effective businessprocesses,

According to Mr. Anoop Sagoo, Senior Managing Director, BusinessProcess Outsourcing, Asia Pacic at Accenture In delivering these servicesfrom Sri Lanka, we will be able to combine the existing processes andindustry knowledge from Brandix with Accentures scale and cross-industryexperience,

Source lmd.lk

Source: www.ft.lk

In Business news:


12/1312

In Consumer news:


Coca Cola operations under spotlight as incorrectbottle label causes uproar. Operations at Coca-ColaBeverages Sri Lanka bottling plant was ordered to be suspended by acourt order for three months. The suspension was on the discovery bya public health inspector that a bottle of at the plant was distributedwithout a label mentioning the date of production or expiry, or thebatch number as required by the Article 18 (2) of the Food Act No. 26of 1980. Issuing a statement the company said it operations have not

Consumer durables affected. Quarterly (Jul- Sep 13) revenue at Singer (SriLanka) Plc, a leading consumer durables seller in the country, declined to Rs.5.9bn fromRs.6.0bn a year earlier. The company was aected by tight economic conditions with highelectricity charges aecting demand. Moreover value added taxes on the retail sector andhigher interest costs caused net prot to decline 62.1% YoY to Rs.62m.

Sri Lankans not feeling too healthy. Accordingto research conducted by AIA Group Ltd. 84% of adults in Sri Lanka

consider their health to be poorer than it was ve years ago. Theresearch was conducted across 15 countries with Sri Lankas comingonly second to Hong Kong having a worse opinion of their health.

Selected ndings

61% in Sri Lanka admitted to exercising regularly (regional averageof 68%). The number of hours exercised per week in Sri Lanka was 2.1hours below regional average of three hours. 95% of Sri Lankans admitted there are denitely things they can do toimprove their own health 79% agreed they do have unhealthy behaviour

Mr. Shah Rouf, CEO, AIA in Sri Lanka stated that Forour part, we are keen to use the findings of research onhealthy living constructively to improve the lives of ourcustomers and the community. Across Asia AIA has beenfocusing on healthy living and we in Sri Lanka believethis is a vital area for us as an insurer to promote, aswe also offer comprehensive health insurance solutionswith options of surgical cover for the whole family.

been suspended stating Coca-Cola Beverages Sri Lanka Ltd would like toinform that there is no impediment in law, for the Company to continue withits production, distribution, and sales.

Source:AIA


13/13

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News Bulletin - November 2013