news bulletin - april 2013

7/30/2019 News Bulletin - April 2013

1/13

In Economic news:

In Business news:In Consumer news:

Tourist arrivals increase 11.6% YoY in Feb as industry is impacted by unair electricity

tari structure

Vehicle registrations in March 13 ell 46.3% YoY. However SUV registrations up 99%

YoY as CBSL says tax revenue losses rom concessionary vehicle permits amount to

Rs.38.6bn in 2012.

First quarter 2013 tea export volumes down but earnings up on weaker rupee

18% estate worker wage hike to cost rms an extra Rs.250m annually

The LMD Nielsen Business Condence Index or Mar 13 rose 7pts to 147

Monthly Bul let in : Apr i l 2013

ADB lowers Sri Lankas 2013 GDP growth to 6.8% rom 7.0% as itconcerns over high budget decit

Loss making state owned enterprises burden the public with CPCand CEB losing almost Rs.150bn in 2012

Public Utilities Commission o Sri Lanka approves electricity tariamidst vehement opposition

Fitch arms Sri Lankas BB- sovereign rating but notes o upcominghigh debt repayments

Sri Lanka ranked 92nd in UNDPs Human Development Report2013 and included in the high human development category

CPCs oil stock almost ull on lower CEB demand and higheroutput

Sri Lanka 89th in Democracy Index 2012 alls to hybrid regimestatus.

CBSL guide to escaping middle income trap

Infation in Apr 13 was 6.4%YoY (-110bps MoM) on lower oodprices. CALs urban price index reaches 7.2% (-540bps MoM)

The All Share Price Index closes at 5,953.19 up 3.8% MoM, up 5.5%YTD

The rupee ended the month at 125.32/128.38 vs. the USD (rupeestronger (~0.03% MoM)

PUCSL to reduce interest rate on late

electricity payments

Fitch Ratings says demand or consumer

durables may drop on electricity tari hike

Government may consider increasing milk

powder import duty to reduce 84,000 MT

annual imports

Nielsen Consumer Condence Index

steady at 68 in Feb 13


2/132

In Economic news:


Several state owned enterprises continue to burdenthe public. Data released rom the Central Bank o Sri Lanka (CBSL) show thatcertain large state owned enterprises continue to make signicant losses rom what

we believe due to ineciency, lack o accountability and to an extent corruption.This is despite the existence o government regulators to curb and disciplineoperations.

Several agencies have already highlighted the need and urgency o reorms toimprove SOE perormance with CBSL stating that SOEs must be encouraged to adoptsustainable nancial and corporate planning, including a rational pricing policy in line

with market developments. In Feb 13 during ailed discussions to obtain $1-1.5bn o

loans rom the International Monetary Fund (IMF), it recommended reorms to thegovernment to improve tax revenue and reduce losses at SOE.

On a separate note CBSL Deputy Governor Mr. Nandalal Weerasinghe stated that SriLankas domestic savings ratio would be boosted i large losses in state enterprisesare reduced. In 2012 domestic savings were 17.0% o GDP and government currentaccount decit was about 1.4% o GDP.

Sri Lanka in UNDPs high human development category. With a score o0.715 Sri Lanka was ranked 92 out o 187 countries and classed as a high human development countryin United Nations Development Program (UNDP) Human Development Report 2013. The index measures

inequality, gender inequality and multi-dimensional poverty. Sri Lanka was ranked 53rd and 75th in the rsttwo categories. Mr. Subinay Nandy, UN Resident Coordinator and UNDP Resident Representative in Sri Lankasaid that It is the rst time Sri Lanka is placed in this category. This is a signicant achievement. Sri Lankas ownhuman development gains despite the protracted internal confict [having] continued with social investments, in

particular in the medication and health sector. In the gender inequality index, Sri Lanka is reported relatively lower

in the rankings and shows space or signicant improvement.

ADB lowers Sri Lankas 2013 growth to 6.8%. AsianDevelopment Bank (ADB) reduced the countrys GDP growth to 6.8% or 2013rom 7.0% it orecasted in Oct 12. The economy grew 6.4% in 2012. ADB notesmerchandise exports and imports to rise 4.0% and 6.0% in 2013, with current

account decit o GDP to be around 5.0% in 2013 (5.8% in 2012). Moreover, itexpects GDP to grow 7.2% in 2014, in line with Standard Chartered Banksprojections but lower than CBSLs 7.5%.

ADB raised concerns over the need to address the budget decit by improvingtax eciency and widening the tax base, and high cost o power generation bymoving away rom thermal power generation and exploring a cost refective tari

mechanism. As at December 2012, ADB had approved 169 loans in Sri Lanka withcumulative lending o $5.8bn.

The United Nation Economic and Social Commission or Asia and the Pacic(UN-ESCAP) orecasts Sri Lankas economy to grow by 6.5% in 2013 rom easingmonetary and scal policies and improving perormance in major sectors, mainlyagriculture. It commented on the countrys high budget decit (6.4% o GDP in

2012) but acknowledged its continuing reduction in recent years.Sources: BMI, IMF, UN-ESCAP, Fitch Ratings, Standard Chartered Bank, ADB, WB, CBSL

SL GDP 2013E , CBSL most optimistic

Source:CBSL

Loss making SOEs (Rs.bn)


3/133

In Economic news:

Electricity tari hikeapproved. The PublicUtilities Commission o Sri

Lanka (PUCSL) approvedthe revised electricity tariproposed by the CeylonElectricity Board (CEB) amidst

vehement opposition.However PUCSL rejectedRs.40bn in estimated costs and

enorced a tari o Rs.34 perunit on consumption higherthan 900 units which CEB hadwanted to maintain at Rs.32.

New proposals remove theper slab tari structure and

now charges a block rate based on the rate applicable or the last unit

consumed. Based on public views PUCSL imposed several conditions onCEB to improve its transparency and eciency.

According to the new tari structure, revenue rom the non- domestic

segment would increase to Rs.126.1bn (+11.1% rom current revenue).Revenue rom domestic users is expected to increase a signicant 72%to Rs.69.9bn. Despite tari increases CEB expects losses o Rs.41bn in2013 (Losses in 2012 were Rs.61.2bn).

Government ocials claim new hydro and coal power plants to addcapacity rom Jan 14 thus enabling the removal o the uel adjustment

surcharge due to lower cost o coal power generation. However Mr. Tilak

Siyambalapitiya an energy consultant noted that commencing Jan 14loans repayments on the Chinese unded Lakvijaya coal power plantall due thus limiting CEBs ability to ully pass on the benet rom coal

power generation.


Moreover debunking the theory that hydro power generation is cheaper;

it was noted in a consultation document released by PUCSL that cost opower generation at several combined cycle power plants were higherthan those using internal combustion plants (diesel engines). Unit costsat private power plants such as Heladanavi and ACE Power Embilipitiya

who generate power through internal combustion engines was justover Rs.20 a third cheaper than combined cycle driven West Coast Plantin Kerawalapitiya, AES Kelanitissa and CEBs plant in Kelanitissa whichcosts about Rs.30.

On a positive note hydro power generation in Jan 13 was 593 Gwhsignicantly higher than the 163 Gwh generated in Jan 12. This led to a21.5% YoY reduction in CEBs own thermal power generation

Source: CBSL

Source: Dailyft.lk

Source: PUCSL

Taking advantage o the current electricity tari situation severalcompanies began introducing innovative energy savings productsand services. BAM Green, a subsidiary o BAM holdings introduced net

metering systems. The system connects the power line directly througha meter with the excess solar power generated exported to the nationalgrid. The remaining energy is used to power households at night (known

as power imports) and consumers pay the dierence between theimports and exports. The return on investment o this venture is a pointo contention with many opinions or and against being discussed inthe media.

Separately the Lakvijaya Norichcholai coal power plant broke down dueto a deective protective device in the boiler system. Since its inception

in July 11 it is claimed that the plant has suered 19 technical ailuresbut the government ocials puts the gure at only ve. EngineersAssociation blamed lack o maintenance or latest ailure.

2013E Projections


4/134

In Economic news:

CPC tanks almost ull onlower CEB demand andhigher output. CPCs oil stocksare high as CEB reduced its purchasesor thermal power generation onhigher rainall and CPC rening Omancrude (against Iranian crude) leading

to greater domestic uel oil output.The glut in uel oi l supplies caused CPC to look or overseas buyersto sell 20,000MT o 180 CST uel oil or early-May loading. Further CPC

cancelled an oil tender to buy 35,000MT o 180 CST LSFO or April 25delivery.

Separately, the Czech Republic is to loan $2.2bn to modernise the

Sapugaskanda renery. CPC noted that the renery currently producesonly 30,000 to 35,000 barrels a day despite having a 50,000 capacitydue to the use o old equipment.

Moreover, LankaIOC is to establish a $17m bitumen handlingacility and reurnish 30 oil tanks in Trincomalee it bought rom thegovernment in 2003. The reurbishment expected to cost over $40m

is being planned despite uncertainty surrounding governmentsplans to partially take back any unused tanks.


Fitch afrms SriLankas BB- sovereignrating but notes oupcoming high debtrepayments. Fitch Ratings

(Fitch) armed countrys long-term oreign and local currencyIssuer Deault Ratings (IDRs) at BB- with Outlooks deemed stable.The ratings agency opines Sri Lankas ratings balanced resilientgrowth perormance, healthy level o human development and

strong payment record against the weaknesses o its scal andexternal balance sheets and moderate domestic savings relative toinvestment needs.

While commenting that tighter monetary and scal policy shouldimprove external liquidity position, Fitch noted that high externaldebt renancing to aect oreign reserves reaching a higher level

and that external nances will remain vulnerable to any spike inglobal risk aversion. It stated that on average $1.9bn in sovereigndebt is projected to mature annually rom 2013 to 2015 (vs. $1.3bnin 2012). Fitch orecasts Sri Lankas GDP to grow 6.5% in 2013 and

7.0% in 2014.

Source: CBSL

Source: CBSL

Source: CBSL

Borrowing continues but clear signs o slowing.InFeb 13, government borrowings increased 15.0% YoY to Rs.1,115.4bn.However credit granted by CBSL to the state reduced to Rs.245.1bn romRs.266.3bn a year earlier, in what is seen as an eort by the monetary

authority to reign in money supply and control infation by avoidingprinting money. Borrowings by the private sector grew at a slowerpace o 13.3% YoY to Rs.2,386.1bn (vs. +15.5% YoY in Jan 13). Ceylonpetroleum Corporation (CPC) and CEB are the largest borrowers with

combined loans in 2012 up a crushing 52.6% YoY to Rs.245bn. FitchRatings Lanka noted that CPC borrowings amounted to about 20% oBank o Ceylons lending portolio.


5/135

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6/136

In Economic news:


Sri Lanka 89th in Democracy Index 2012 allsto hybrid regime status. As per Democracy Index 2012compiled by UK based Economist Intelligence Unit (EIU), Sri Lanka wasranked 89th out o 167 countries with a score o 5.75, lowest score overthe past six years. The index is based on a country status with regards toelectoral process and pluralism, civil liberties, unctioning o government,political participation and political culture; and placed within a regimetitle o ull democracies, fawed democracies, hybrid regimes andauthoritarian regimes.

Overall Sri Lanka was only one o two countries to be downgraded, allingrom a status o fawed democracy regime to a hybrid regime. Mali wasthe other country to be downgraded also re-classed as a hybrid regime.As per EIU in hybrid regimes;

Elections have substantial irregularities that often prevent them from

being both ree and air Government pressure on opposition parties and candidates maybe common

Serious weaknesses are more prevalent than in awed democracies--inpolitical culture, unctioning o government and political participation

Corruption tends to be widespread and the rule of law is weak Civil society is weak

CBSL guide to escaping middle income trap. CBSL GovernorMr. Ajith Nivard Cabraal suggested ways in which Sri Lanka can avoid alling into the dreadedmiddle income trap. According to IMF, the middle income trap is a phenomenon o previously

rapidly growing economy stagnating at middle-income levels and ailing to graduate intothe ranks o high-income countries.

1. With external sector becoming more dynamic, active managemento oreign currency fows

2. Lowest unemployment rate will pose challenges yet must bemaintained or improved

3. Poverty alleviation and inclusive growth has been given prioritybut this eort needs to be improved constantly and consistently

4. Serious commitment by the Government towards sustainablescal consolidation must be continued

5. Favourable management o public debt with a target o 65% oGDP by 2016

Typically there is harassment of and pressure on journalists and thejudiciary is not independent.

Norway was ranked number one and classied as a ull democracy withNorth Korea placed last and classed as having an authoritarian regime.

6. There is greater space or signicant improvement in the domesticinvestment and national savings ratios

7. Developing alternative sources o unding amidst expandingnancial sector

8.Greater improvement in labour productivity and innovation

9. Continued ocus on massive inrastructure projects to help enhance

capacity

10. Further improvements to investor condence levels

Source:Foundation for Economic Freedom in Sri Lanka

Source: EIU

Democracy Index 2012


7/137

In Economic news:


Infation in Apr 13 was 6.4% YoY(-110bps MoM), with the Colombo ConsumerPrice Index alling 0.5% on lower ood prices. Food andnon-alcoholic beverage segment (~40% o the index)ell 1.4% MoM. Current infation is only 30bps higherthan Apr 12 infation o 6.1%. Moreover, Capital Alliancesurban price index was 7.2% YoY without considering theApril 20 eected electricity tari hike.

The All Share Price Index closed at5,953.19 up 3.8% MoM, up YTD 5.5%.Best perorming sectors in the month were land andproperty (+17.7% MoM), healthcare (+16.9%) andootwear (+12.2%) whilst worst perormers were motors(-0.09% MoM), telecommunications (-0.08%) and storesand supplies (-0.07%).

During the month the ASPI broke through the 6,000level hitting a seven-month high. Retail investors areactive in the market with many expecting a reductionin interest rates in the coming months as indicated byTreasury Secretary Dr. P.B. Jayasundera. In Apr 13, oreigninvestors were net buyers o Rs.3.9bn and have been netbuyers o Rs.8.3bn in 2013.

Interest rates unchanged or ourth consecutive

month. CBSL let repurchase rate and reverse repurchase rateat 7.5% and 9.5% stating the need to urther stabilise the economy,

The rupee ended the month at125.32/128.38vs. the USD (rupeestronger ~0.03% MoM).Rupee strengthenedslightly on dollar infows rom inward remittances andexporter conversions

Source:CBSL

Source:CSE

Source: CBSL

maintain a balance o payments surplus and keep infation at singledigits. CBSL expects reduction in public sector debt requirements in

the coming months to provide the necessary credit growth to stimulateprivate sector activity.


8/138


In Business news:

Vehicle registrations continue to all. Overall registrationsin Mar 13 declined 46.3% YoY but was slightly higher 7.9% MoM. Motor

cars and motor bikes regitrations were down 55.2% and 42.5% YoY. Motorvehicle registrations have declined since 2011 due to increased importtaxes and rising uel prices with low capacity motor cars and motor bikesthe most aected.

In contrast SUV registrationswere up 99.4% mainly due tothe utilisation o concessionarypermits which are regularlyissued. CBSL estimate that in2012 such permits to result inRs.38.6bn o tax revenue losseswhich obviously compromisesgovernments scal discipline.

Moreover, Micro cars is to establish a $20m assembling plant in the

Hambantota EPZ. To be completed in 2016, it comes as a relie on manyronts as it is expected to provide about 600 jobs, source parts and sparesrom local companies and original equipment manuacturers and wouldalso be exempt rom heavy import taxes thus being more aordable tolower income amilies.

Tourist arrivals increase at a steady pace. Touristarrivals in Feb 13 increased 11.6% YoY. While this is a slight reduction romthe 13.4% YoY increase in Jan 13, tourists visiting the island in 2013 standsat over 190,000, (+12.5% YoY). In 2013 India accounted or 14.0% o arrivalswith UK (11.2%), Germany (7.9%), France (6.3%) and Australia (4.1%).

In Feb 13 arrivals rom India dropped 2.1% YoY whilst China increased89.1% YoY. (Indian market is about 3.5x the Chinese market). Moreoverit is claimed that Chinese tourists include those working on largeconstruction sites in Sri lanka.

Source:Sri Lanka Tourist Board

The tourism industry is in the midst o mass expansion projectsplanned by local brands and global chains such as Marriot and CrownCasinos. However the industry is adversely aected by the recentelectricity tari increase and is seeking ways to absorb or mitigate itsimpact. Tourist Hotels Association (THASL)s past-president Mr. SrilalMiththapala stated that the hotel industry has been categorised undera special tari scheme thus being charged a higher rate than otherindustries. Further hotels are not in a position to increase revenue perroom to cover costs given Sri Lankas already high rates.

The Jetwing group is to construct hotels in Ward Place, Colombo,Dambulla, Trincomalee and renovate Yala Saari. The group is alsoplanning a Rs.300m reurbishment o its St. Andrews hotel in NuwaraEliya. The projects expected to cost about Rs.5bn is to be undedthrough a private placement and an IPO.

Source: JB Securities

Meanwhile a special gazettenotication on April 11th

allowed the import o motorbikes with a capacity o upto 1000cc. The previous limitwas 350cc. The importation osuch high value vehicles wouldurther eect countrys tradedecit.


9/139

In Business news:


Tea exports earnings up but volumes lower in rstquarter 2013. Export earnings were Rs.42bn during Jan Mar 13higher 5.1% YoY, mainly due to signicant Mar 13 exports. Howevervolume o tea exported dropped approximately 6.5%YoY to 71mkgsresulting in a price per kilo o Rs.595.8, higher 13.2%YoY. Earnings arehigher due to the depreciation o the rupee as the approximate dollarvalue o exports only grew by 1% against the same period last year.

In 2012 Sri Lankas tea exports earnings ell 5.3% YoY due to continuedunrest in the Middle East and adverse weather conditions aectingproduction; down 1.3% YoY to 327.5m kg. The fuctuation experienced inthis industry over the last two years and the start o this year is worryinggiven that tea exports accounts or about 15% o oreign currencyearnings.

Source: CBSL and John Keells Limited

Estate sector workers receive 18%wage hike. Tea and rubber estate workers dailywage rate was increased to Rs.450 up 18.4% romRs.380. This took eect rom April 13 and would be inplace or two years. The attendance allowance, payableto those who attend more than 75% o days wherework is oered, was also increased to Rs.140 romRs.105. Lbo.lk citing industry sources stated that thewage increase may cost rms over Rs.250m annually,increasing cost o production by about Rs.30-50 per kgto between Rs.360-380 per kg.

Planters Association Chie Mr. Lalith Obeysekera statedthat the increases were reasonable given that theunions had also agreed to an increase in productivity.The wage increase pushes cost o production to its

highest levels and many industry ocials are callingor the unions to deliver the agreed productivityand eciency targets as the only way to oset theincreased costs.

Sri Lanka invites China to invest in mineral miningand processing sector. Furthering countrys dependenceon China, Sri Lanka extended an invitation or increased Chineseinvestment into mineral mining and processing or export. Sri Lanka

exported $42.7m o mineral sands in 2012 (+30% rom 2011) o this$15.4m was exported to China. On average total imports rom Chinais about $2bn while total exports are only about $100m, around 1% oSri Lankas exports. China is Sri Lankas biggest buyer o mineral sandsollowed by India.


10/1310

In Business news:


First Capital to buy DNH Financial Ltd.First Capital Holdings PLC (FCH)announced plans to buy stock broking rm, DNH Financial Ltd. or about Rs.180m. FCH isa subsidiary o Dunamis Capital PLC. DNH Financial ormally known as HNB Stock Brokers(Pvt.) Ltd had been a subsidiary o Environmental Resources Investment PLC sinceOctober 2009. According to lbo.lk, Mr. Jehan Ismail, group director said It is a strategicacquisition. We are very strong on debt, but we do not really have an equities business.

Bansei Securities investsin Pan Asia Bank. BanseiSecurities Ltd a member o the Tokyo StockExchange bought a 15% in Pan Asia Bankor Rs.930m. Sellers were to have includeda oreign und, Royal Ceramics Plc and PanAsia Bank Chairman Mr. Nimal Perera whoreportedly divested his personal stake.Previously Mr. Nimal Perera and RoyalCeramics bought a stake in New WorldSecurities.

Separately Laugs Group announced plansto enter the nancial sector through LaugsCapital. It was reported that the companywould oer leasing, business loans, hirepurchase, personal loans and actoringservice. Despite the sector considered to behigh growth, current saturation o companies

would prove an interesting challenge or Laugs Capital. According to CBSL there are 45 licenced nancecompanies and 13 special leasing companies with 836 branches island wide, o which 132 branches wereopened during Jan-Sep 2012. On track to be o one the most diversied companies in Sri Lanka, Laughsgroups recorded revenue o Rs.21.8bn in FY12.

BOC top brand in Sri Lanka.Brand Finance Lanka named Bank oCeylon (BOC) as the top brand in Sri Lankawith a 62% YoY increase in brand value toRs.24.2bn. BOC was ollowed by the otherstate bank Peoples Bank who was placedahead o Dialog Axiata. It reported thatthe banking sector accounted or 37% ocumulative valuations at almost Rs.106bnwith the telecommunications sector beingvalued at Rs.33.5bn.

Dialog Axiata purchases a 10MHz portion o the 1800MHz

band.The purchase o the Long Term Evolution (LTE) mobile spectrum also knownas 4G rom the Telecommunications Regulatory Commission o Sri Lanka (TRCSL) wasor Rs.3.2bn. This allows Dialog roll out the ull set o its 4G services to its consumerbase o nearly 8m.

The bid and nalisation o the spectrum sale came on the heels o the GlobalInormation Technology Report released by the World Economic Forum upgrading SriLanka to 69th rom 71stin the Network Readiness Index.

The index measures the ability o world economies to use their ICT inrastructure toenhance competitiveness and progress. Sri Lanka scored high on aordability andskills but poorly on individual usage and inrastructure & digital content . Sri Lankais just one place behind India and is well ahead o the next SAARC nation, Pakistanranked 105.


11/1311

In Business news:

In Consumer news:

The LMD Nielsen Business CondenceIndex or Mar 13 rose 7 points to 147 romits disheartening slump o 18 points the previous month.According to Mr. Shaheen Cader, business people are becomingincreasingly concerned about the investment climate, infationand interest rates, and the volatile political culture which isbecoming a signicant cause or concern.

While 48% o those polled, up rom 47% in Feb 13 expect theeconomy to get better over the next 12 months, 28% (Feb 13 24%) believe it will get worse. 60% (Feb 13 43%) believe that

their sales volumes will improve over the next months whileonly 18% elt it will get worse.


Reduction in electricity bill late payment ees.PUCSL decided to reduce the interest rate charged on latepayment o electricity bills. PUCSL Commissioner Dr. JayatissaDe Costa in a press release stated that the interest rate would bereduced rom 2.0% to 1.24% and that interest charged on latepayments would cease i the supply was disconnected. Previouslyinterest was charged on outstanding payments that had alreadybeen disconnected till the bills were paid.

Source: lmd.lk

Companies continue raising unds viadebentures.Continuing the March 13 trend three more companies laidplans to issue debentures. Subsequent to the removal o the withholding tax oninterest income rom corporate debt securities, debt nancing is a avourable option.

Bank o Ceylon sells second $500m bond.Bank oCeylon (BOC)s $500m ve year US dollar denominated bond issue with a 5.325%

coupon was oversubscribed 6.8x. BOC had only planned to raise $300m throughthe oer which was rated BB-(EXP) by Fitch Ratings Lanka and marketed only in Asiaand Europe. In 2012 BOC raised $500m at a yield o 6.875%. Representatives rom thebank said that it was encouraging to have captured such a strong market with just itssecond issuance and to have received such broad participation which saw the Asian

and European market buying 74% and 26% o the oer.

Company Type of Debenture Amount RatingHayleys PLc Unsecured Redeemable Rs.2.0bn AA-Hatton National Bank Unseured Subordinated Redeemable Rs.4.0bn A+ (EXP)Singer Sri Lanka Plc Senior Unsecured Redeemable Rs.1.5bn A (EXP)

Source:Fitch Ratings Lanka, RAM Ratings Lanka

Prospective issuances o Hayleys Plc, Hatton National Bank (HNB) and Singer Sri LankaPlc received strong ratings. Fitch Ratings Lanka stated that HNB is to strengthen their

Tier 2 capital base with Singer Sri Lanka to lengthen the maturity profle o its existingdebt, which would improve liquidity and reduce its interest rate risk.


12/1312

In Consumer news:

A possible increase in milk powder import duty. SundayTimes newspaper notes that the government may consider increasing the current15% import tax rate. The objective is to reduce the annual 84,000MT o milk

powder imports, valued at approximately Rs.36bn. Locally produced liquid milkis now guaranteed a price o Rs.50 per litre and production has increased to 1.6mlitres a day. The government is also considering an eective marketing campaignto promote the consumption o liquid milk over imported milk powder.


Consumer durables demand to all on electricity tarihike. Fitch Ratings Lanka believes that the demand or consumer durables maydecrease ollowing the electricity tari hike even with the continued electricationo rural areas opening up new markets. As electricity consumption increases theimplicit cost attached to such items would make them less attractive.

Nielsen Consumer Condence Indexremains condent increasing 1 point to 68 romJan to Feb 13. However there appears to be reversalin momentum compared to Jan 13 with many o thecategories surveyed expressing comparatively highernegative sentiments. 32% eel job prospects will be betterover the next year. While this gure is up rom last months29%, those who say job prospects will be bad have risen to19% rom 10%. The same is true regarding the expectationo personal nances and purchase o essential items over

the next 12 months

Feb-13 68

Jan-13 67

Dec-12 62

Nov-12 60

Oct-12 59

Sep-12 59

Aug-12 57Jul-12 59

Jun-12 58

May-12 60

Apr-12 65

Mar-12 72

Feb-12 77

Jan-12 85

Dec-11 87

Nov-11 85

Source: lmd.lk

NielsenConsum

erIndex

Although Fitch Ratings Lanka notes that the eects are notexpected to be elt immediately they could result in lowerrevenues and prots i the trend continues or a lengthy periodo time. It urther commented that hire purchase schemesmay work in the short term to induce customers but is not

considered a sustainable model, leading to unnecessary creditrisks should the economy worsen.


13/13

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news bulletin - april 2013

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