news bulletin-april 2012

7/31/2019 News Bulletin-April 2012

1/7

BI- Gradient

AllianceM o n t h l y B u l l e t i n : A p r i l 2 0 1 2

In Economic news:

In Business news:

The Central Bank of Sri Lanka (CB) raised interest rates by another 75bps citing credit growthcontinuing at an undesired pace. In February 2012, rates were raised by 50bps to curb credit

growth. The IMF released $427m of its $2.6bn SBA loan facility. Plans are in place to obtainthe nal $400m tranche in June 2012 to shore up foreign exchange reserves. Ination rose toa seven month high 6.1%, up 60bps MoM mainly due to a 1.0% rise in food prices.

US sanctions to be imposed on Iranian oil imports caused Sri Lanka to enter into agreements

with Vietnam and Oman and start discussions with Saudi Arabia.

The Rupee hit an all-time low of Rs.133.50 against the dollar on strong importer demand. CBintervened selling $5m and $6m on consecutive days. The Rupee depreciated approx. 1.5%in April.

The Sri Lankan economy grew 8.3% YoY as per the CBs 2011 Annual Report. The scal decit

dropped to 6.9% of GDP from 8.0% (2010), but was marginally higher than the target of 6.8%.

The Bank of Ceylon issued US$500m ve year bonds priced at a yield of

6.875%. The issue was reportedly oversubscribed 7.7 times drawing bidstotalling $3.86bn.

Adverse weather conditions caused tea production in March 2012 toreduce to 27.3mkgs, down 22.6% YoY. First quarter production was

73.2mkgs also down 6.7% YoY.

Vehicle imports are to be routed through the Hambantota port fromMay 31. Prompt berthing of vessels and ample and secure parkingfacilities are to enable the quicker clearance of vehicles. Increased

vehicle taxes have resulted in about 1,400 vehicles to be stuck at theColombo port without being cleared.

The LMD-Nielsen Business Condence Index dropped 19 points MoM to

135. Devaluation of the Rupee and global downturn, impacting localeconomic growth, were noted as reasons for the negative sentiment.

The Ceylon Electricity Board reported a loss of Rs.25.5bn in 2011 againstRs.4.8bn prot in 2010. Reduced rainfall (20% YoY) aecting hydro

power production and higher crude oil prices aggravated losses.

The Nielsen Consumer Condence Index was 72in March 2012 (77 in February 2012 and 64 in

March 2011). As per Ceylon Grain Elevators percapita consumption of chicken is to rise to 8kgs

within the next ve years (5.7kgs in 2011) due toincreased purchasing power.

The price of one kg of wheat our was increasedby Rs.8.50 to Rs.98.50, resulting in the price of a

normal loaf of bread (450g) rising Rs.3 to Rs.58.

In 4Q11, the total number of credit cards in usewas 862,340 (+10.8% YoY), below the 3Q08 high

of 947,640.

$

In Consumer news:


2/7

BI- Gradient


The IMF released $427m of its $2.6bnSBA loan facility. Previously CBs currency interventionist policycaused the erosion of foreign exchange reserves; estimated at $3.7bn in

mid-April. Additionally CB plans to obtain the nal $400m tranche in July 2012to further support foreign exchange reserves. Moody's Investors Service

stated that the resumption of a loan program with the International MonetaryFund is regarded as a positive for Sri Lanka's 'B1' credit rating, as it would help

boost investor condence. Further in October 2012, Sri Lanka's maiden$500m sovereign bond falls due. The Treasury plans to roll-over the bondconverting its tenure to 10 years.

The CB further raised interest rates by 75bps citing credit growth at licensed commercialbanks continuing at an undesired pace. Previously in February 2012, rates were raised by 50bps. However heavy stateborrowing and lack of a material correction in the balance of payment decit forced the April rate hike. As per CB data, net

credit to the government by February 2012 was Rs.970bn (+50% YoY).

Ceylon Petroleum Corporation(CPC) to import oil from Vietnam

($500m) and Oman and looking tostrike a deal with Saudi Arabia.Alternative oil arrangements were made necessary as Sri Lankaplans to stop reduce imports from Iran by 20.0% ahead of theJune 28th US sanction deadline. A 20.0% reduction would makeSri Lanka eligible for a concession from a total ban on Iranianimports (93% of the countrys crude oil imports are from Iran).Moreover, CPC is searching for donors or investors to refurbishthe oil renery to enable the processing of alternative grades ofoil from other locations. As per the Petroleum Industries ministerthe refurbishment is to cost no more than $500m.

In 2011, CPC lost Rs.94bn up from Rs.27bn (2010) and higherthan the forecasted Rs.89bn. Losses continued to rise as the CPCwas compelled to buy oil at market prices and sell at below costto the CEB. Further several state enterprises continue to be

provided oil FOC, with no possibility of reclamation.

In Economic news:

Inflation in April rose to a seven month high6.1%. The CB reported a 60bps MoM increase (March 5.5%) as food prices rose1.0%, furnishing, household equipment and routine household maintenanceprices rose 1.5%, along with recreation and culture, and transport prices rising 1.0%and 0.5% respectively. Food and beverages has a 41.0% weightage in the

consumer price index whilst furniture and households weightage is only 3.6%.

Crude Oil USDm, 1,323

973

1,064 1,653

Refined Products USDm, 2,069

1,212

1,977

3,142LP.gas USDm, 142

98

142

184AVERAGE PURCHASED PRICE OF CRUDE OIL

US$ PER BARREL,97

63.93

79.52

108.59

CPC losses (Rs.bn), 17.312.3

24

89

10

20

30

40

50

60

70

80

90

100

110

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2008 2009 2010 2011

Sources: Central bank of Sri Lanka and Ceylon Petroleum Corporation

GDP GROWTH

8.3%

2012E 7.2%

2013E 8.0%

Sources: The Central Bank of Sri Lanka


3/7

On April 25th the Rupee hit an

all-time low of Rs.133.50/US$

on strong importer demand. Thisforced the CB to intervene, selling $5m on April 27th andanother $6m April 30th to support the Rupee. The Rupee

depreciated approx. 1.5% in April. The currency has lost 12.2% since the 9th of February 12 when CB stopped intervening todefend a specic rate and 15.2% since 19 November 2011, when the government allowed a 3% devaluation. CB has not rule outfurther intervention. However speaking to journalists on April 30, the Treasury Secretary, Dr. P.B. Jayasundera said that the recent

high exchange rate was due to speculation more than on fundamentals, reiterating that the rate will stabilise below Rs.125.

The Sri Lankan economy grew 8.3% YoY as per the CBs annualreport for 2011. Segmental growth: Agriculture (+10% YoY), Industry (+19% YoY) and Services (+17% YoY). Shareof the above three segments remained constant at 12%, 30% and 58%, respectively. The scal decit in 2011 dropped to 6.9%

GDP from 8% of GDP in 2010, marginally higher than the original target of 6.8% of GDP. Record high import levels osetsignicant export increases and caused a balance of payments decit of $1,060m (9.3% of GDP).

Realised foreign investments rose to Rs.657,686m (+23% YoY). Investments in services (mainly hotels) accounted for 70.4% oftotal foreign investments. Total investments rose 19.9% YoY to Rs. 1,032,613m. India was Sri Lankas largest trading partner at

$4bn. Incidentally the largest trade decit of $3.9bn was also recorded against India

Sino-Sri Lanka Rich Investment (SSLRI), a Beijing-basedprivate investment group stated that a $50bn HambantotaTrade City Project on a public private partnership model is in the pipeline. The 1015 year project,pending approval from the Sri Lankan government would attract investors from Singapore, Hong Kong and the US.

Bid-ask spread (LKR per US$)

Midpoint (LKR per US$)

6.000

5.000

4.000

3.000

2.000

1.000

0.000

135.00

130.00

125.00

120.00

115.00

110.00

105.00

100.00

1-Jan-12

8-Jan-12

15-Jan-12

22-Jan-12

29-Jan-12

5-Feb-

12

12-Feb

-12

19-Feb

-12

26-Feb

-12

4-Mar

-12

11-Mar

-12

18-Mar

-12

25-Mar

-12

1-Ap

r-12

8-Ap

r-12

15-Apr

-12

22-Apr

-12

29-Apr

-12

M o n t h l y B u l l e t i n : A p r i l 2 0 1 2

BI- Gradient

AllianceIn Economic news:

Source: Oanda.com

MT 000

Source: Central bank of Sri Lanka

(4000)

(3,000)

(2,000)

(1,000)

-

1,000

2,000

2008 2009 2010 2011

USA

INDIA CHINA SINGAPORE IRAN JAPAN

UK ITALY RUSSIA GERMANY


4/7

BI- Gradient


Adverse weather conditions caused teaproduction in March 2012 to drop 22.6% YoY.First quarter production was down 6.7% to 73.18mkgs. Additionally, the tea industryis experiencing volatile conditions due to the unrest in the Middle East. Notably, Iran

and Syria account for approximately 25% of all tea exports, thus causing increasedpressure. Tea exports were expected to earn over $1.5bn in 2011.

Separately, Merril J. Fernando resigned as Chairman of the Tea Council in oppositionto the governments proposal of importing tea, blending and re-exporting it. The

proposal is opposed by those who believe this to aect the countrys position andreputation as a single-origin tea manufacturer; marketed as a "Pure Ceylon" product.

CIS

34%

IRAN13%SYRIA

12%

U.A.E.9%

IRAQ9%

TURKEY8%

LIBYA3%

JAPAN5%

KUWIAT4%

JORDAN3%

2011

Vehicle imports to be routed throughthe Magam Ruhunupura MahindaRajapaksa (MRMR) Port, Hambantota from May 31,2012. The Sri Lanka Ports Authority (SLPA) stated that prompt berthing ofvessels and ample and secure parking facilities would enable the quicker

clearing of vehicles. In a bid to encourage trade at the port, parliamentamended the Finance Act, granting BOI registered companies engaged

in trade involving import, minor processing and re-export, exemptionsfrom customs, exchange control and import-export regulations. In 2011,526,421 vehicles were imported, up 46.5% YoY.

Separately SLPA cargo ocials stated that for over two weeks four ships

carrying about 2,000 vehicles have been anchored in the outer harbourof the Colombo Port, due to lack of capacity to unload cargo. Capacity

constraints have arisen due to the April 1st vehicle tax increase causingdelays in importers clearing their unloaded cargo. An SLPA spokesperson

stated that to date after the tax increase 1,400 unloaded cars are yet to becleared.

The LMD-Nielsen

Business Confidence

Index was 135,

down 19 points

MoM and down 15

points YoY.The Nielson Company reported thatthe drop was a result ofconcerns over the Rupee

devaluation and the globaldownturn impacting local

economic growth.Moreover, the company

noted that businesses areconcerned that thedevaluation would

u n d e r m i n ef o r e i g n - i n v e s t o r

condence. In the latestsurvey, only 32% of the

respondents believed thatthe economy will improveover the next 12 months,

against 53% in February2012.

LMD- Nielsen

Business Condence

IndexMar-12 135

Feb-12 154

Jan-12 151

Dec-11 149

Nov-11 158

Oct-11 153

Sep-11 162

Aug-11 173

Jul-11 160

Jun-11 148

May-11 168

Apr-11 170

Mar-11 150

Feb-11 134

In Business news:

Source:http://www.forbesteaportal.com/Insidepages/

Statistics/TeaExportsByCountryAndCategory.html

TEA EXPORT BY COUNTRY 2011

Sources: Central bank of Sri Lanka and Department of Motor Trac

2008 2009 2010 2011 (Jan-Nov)

Petrol oil imports (MT) 349,976 325,884 455,772 462,144

Diesel oil imports (MT) 1,197,165 1,104,955 1,262,279 1,313,557

Total oil imports (MT) 1,547,141 1,430,839 1,718,051 1,775,701

YoY% -8% 20% 3%

Vehicle population 3,390,993 3,595,068 3,954,311 4,479,732

YoY% 6% 10% 13%


5/7

BI- Gradient

AllianceM o n t h l y B u l l e t i n : A p r i l 2 0 1 2In Business news:

Sources: Central Bank of Sri Lanka and Ceylon Electricity Board

2008 2009 2010 2011

Thermal (GWh) 5,662 5,889 4,995 6,785

Hydro (GWh) 4,128 3,881 5,636 4,608

Other (GWh) 111 112 83 128

Total power generation (GWh) 9,901 9,882 10,714 11,521

YoY% -0.2% 8.4% 7.5%

Share of power generation

Thermal 57.2% 59.6% 46.6% 58.9%

Hydro 41.7% 39.3% 52.6% 40.0%

Other 1.1% 1.1% 0.8% 1.1%

Fuel bill at CEB (Rs.bn) 25.2 16.4 25

Average cost of production (Rs.) 18 14.1 13.01 16.21Average selling price (Rs.) 12.5 12.0 13.16 13.22

Rainfall in Sri Lanka (mm) 16,517 14,277 18,426 14,826

YoY% -14% 29% -20%

Annual average import price of

crude oil by CPC (US$ per barrel) 97.0 63.9 79.5 108.6

CEB Net prot/(Losses) (Rs.bn) (7.4) 4.8 (25.5)

Fuel used at CEB (litres in millions) n.a 538 349 n.a

During April the Colombo StockExchange (CSE) ended at 5419.20losing 0.02% MoM and down 25.46%YoY. The worst performing sectors in the month were motors(-19.7%), beverage, food and tobacco (-16.7%) and construction and

engineering (-13.1%). During the month, foreign investors were netbuyers of Rs.929m and have been net buyers of Rs.21.2bn in 2012.

The Securities and Exchange Commission (SEC) lifted the 'price band'

imposed on volatile stocks. However, the SEC stated that it will continueto monitor the market and would re-impose the price band if required.

In 2011, the SEC introduced a 'price band' based on stocks that movedmore than 10% a day.

CEB reported a loss of

Rs.25.5bn in 2011 cf. Rs.4.8bn

profit in 2010.Reduced rainfall and higher crude oil prices resulted inthe aggravated losses. A 20% YoY drop in rainfall

resulted in the share of thermal generation increasingto 58.9% (46.6% in 2010), thus increasing the CEB fuel

bill to Rs.25bn (+54% YoY).The average cost of

production per unit rose to Rs.16.21 from Rs.13.01 a yearearlier. The selling price per unit of Rs.13.22 in 2011 isstill below the cost of production. Power generationrose 7.5% YoY to 11,521 GWh. Data reveal that

household electricity consumption rose 7.6% due tohigher utilisation of domestic appliances in rural areas

as access to the electricity grid and disposable incomesincreased.


6/7

BI- Gradient


Sri Lankans to consume morechicken. Ceylon Grain Elevators, countrys largestchicken producer stated in its annual report that per capita

consumption of chicken is to rise to 8kgs within the nextve years from its current level of 5.7kgs due to the

increased purchasing power of citizens. The company plans to increase capacity in 2012to cater to the improving demand. However high import costs and high cost of maize

for chicken feed (Reduced supply from adverse weather conditions) are impacting theindustry. Regional per capita consumption; India 3.0 and Pakistan 7.0.

Source: http://www.indexmundi.com/agriculture/?commodity=broiler-meat&graph=per-capita-consumption

The Nielsen Consumer Confidence Index was 72 inMarch 2012 versus 77 in February 2012 and 64 in March 2011. The index revealed thatthe number of consumers who consider job prospects to be not so good and bad over the next

12 months had risen to 70% (54%, 16%) versus 64% (56%,8%) a month ago and was higher than

the 66% (46%, 20%) recorded in March 2011.

In Consumer news:Nielsen Consumer

Index

Mar-12 72

Feb-12 77

Jan-12 85

Dec-11 87

Nov-11 85

Oct-11 75

Sep-11 69Aug-11 77

Jul-11 77

Jun-11 69

May-11 65

Apr-11 62

Mar-11 64

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

0

5

10

15

20

25

30

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

TRANSACTION VALUE (RS. BN) LHS NO OF CREDIT CARDS (RHS)

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

9,000,000

9,500,000

10,000,000

10,500,000

11,000,000

11,500,000

12,000,000

12,500,000

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

TRANSACTION VALUE (RS. BN) LHS

CHEQUE CLEARANCE VOLUME (RHS)

Prima and Serendib flour mills increase wheat flour prices.Citing increasingoperational costs from high electricity and transport expenses, and a depreciating Rupee the price of one kg of wheat our wasincreased by Rs.8.50 to Rs.98.50. This resulted in the price of a normal loaf of bread (450g) being raised by Rs.3 to Rs.58. InFebruary 2012 bread prices were raised by Rs.5.

Consumer and business cheque clearances and credit cardtransaction values and volumes are on the rise. As at December 2011 the total numberof credit cards in use were 862,340 (+10.8% YoY) but was still below the 3Q08 level of 947,640. Cheque clearance volumes in3Q11 appear to be at a recent high of 11,891,021 (+5.1% YoY). Latest CB data is only available for 4Q11. However as per data

released by dailyft.lk approximately 7,000 credit cards were issued in January 2012 and 5,000 credit cards were issued in February

2012. The drop in February card issues were attributed to rising cost pressures, ination and economic downturn.

Source: Central Bank of Sri Lanka Source: Central Bank of Sri Lanka


7/7

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news bulletin-april 2012

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