news bulletin - february 2014

8/12/2019 News Bulletin - February 2014

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In Economic news:

In Business news:In Consumer news:

2.5 million 2016 target is awed as tourist arrivals on the up on revised

denition

Tea on high alert as dry weather aects production with fertiliser problems

also cropping up

Vehicle registrations down 1.5% YoY in Jan 14, growth in motor cars and

three wheelers oset continued decline in three wheelers

Trade decit in 2013 sharply narrows to $7.6bn (-19.2% YoY) as exports

increase to $10.4bn with imports declining to $18.0bn

LMD-Nielsen Business condence Index rises to139 in Jan 14(+9 points MoM)

Monthly Bul let in : February 2014

Sri Lanka to experience marginal growth in 2014 Standard

Chartered Bank says, mainly from private consumption

Sri Lankas focus on ve hubs + tourism is taking on too much,warns Parth Shri Tewari

Financial sector consolidation to lead to benets: Fitch and S&P

Revision to Sri Lankas prosperity index leads to higher growth

Sri Lanka fell to 165th in the Annual World Press Freedom Index in

2014 from 163rd in 2013

Consumers remain in the dark about Sri Lankas high cost of coal

imports

Ination drops to 4.2% YoY in Feb 14 (-20bps MoM) a 23 month low

Rupee ended the month at 129.59/132.47 vs. USD (rupee weaker

~0.18% MoM)

All Share Price Index closed at 5,940.31, down 4.9% MoM

Potato levy up, to protect local farmers

Health warnings on cigarette packets

approved but court case puts

implementation on hold

SLT rings in the prots with Mobitel

subscribers reaching ve million


2/122

In Economic news:


Sri Lanka to experience marginal growth in2014. Standard Chartered Bank (SCB) in a report titled On the Ground:Sri Lanka Waiting for the Rebound noted that Sri Lankas economy willrise to 7% in 2014 from its 2013 forecast of 6.8%. This is signicantly lowerthan the Central Bank of Sri Lanka (CBSL)s forecast of 7.8% for 2014. Keycomments from the SCB report;

Private consumption should be the biggest contributor to growth (~70%of GDP), driven by healthy remittance inows, stronger asset prices, range-bound ination and easier credit conditions

Total investment to grow by 7.5% in 2014 from 5.0% in 2013, on the back

of higher infrastructure spending

Net trade (-14% of GDP) should provide marginal support to growthgiven an expected improvement in Sri Lankas main export partners.

Credit cycle may take some time to turn, resulting in lower domestic

demand growth than in 2010-12 when credit growth was stronger. This isbecause the banking sector is weighed down by higher non-performingassets, risk of higher losses in pawning loans, and the extension of theNation Building Tax.

CBSL is likely to be on hold [rates] for now, waiting for the lagged eectof monetary easing on credit growth. If private-credit growth does notpick up or ination continues to fall by end-Q1-2014, this could predicatea further rate cut.

Revision leads to higherprosperity in Sri Lanka.According to CBSL, Sri Lankas revisedprosperity index in 2012 rose to 66.8

points, 6.8% higher than 2011. Thenew index which expands the numberof parameters to 42 from 26 broadlymeasures the countrys economy

and business climate, well-being of

Banking sector consolidation to lead to benefits, says Fitch and S&PFitch Ratings and Standard & Poors sounded apositive note on CBSLs forced marriage between the good and the bad nancial institutions. CBSL intends to reduce the non-bank nancial institutions

to 20 from the current 58,for the restructured institutions to establish a regional presence thus improving access to funds. CBSL targets to have at leastve major banks with an asset base of more than Rs.1.0trn and the reaming to have a minimum asset size of Rs.100bn.

Sri Lankas plan to bring about nancial sector consolidation is a strong statement ofintent of raising systemic stability and boosting long-term economic development

Improves the credit prole of nancial institutions, strengthen franchises, and

reduce supervisory burden.

Benets for the Non-Bank Financial Institution (NBFI) include enhanced capitalbuers, ability to attract cheaper and longer-term funding, and improved costeciencies

If realised, should support the credit prole of the NBFI sector more broadly in light

of its lending focus on sub-prime customer segments

Establishment of one large development bank to provide an impetus to policy-driven development banking

Sri Lankas banks could benet from a regulatory movefor consolidation, despite heightened short term risks

Positive implications for the industry over the long term with

the creation of fewer but larger and stronger players.

It cautioned Not a panacea for all the sectors woes

Signicant investment in risk management, infrastructuretechnology, capital, and human resources are essential

May not get the full benets of a merger without employee

Transition could be bumpy and lead to diculties in integration

the people andsocio economic

in f ras t ruc t ure .As per the CBSLThe new variables

introduced have

been in the areas of

economy, business climate, health, education and economic infrastructure and

have resulted in the index becoming even more representative of the countrys

conditions than previously.

Sri Lanka Prosperity Index 2011 and

2012Source: CBSL2011 2012 YoY%

Sri Lanka Prosperity Index 62.5 66.8 6.8

Economy and Business Climate 66.4 69.9 5.3

Well-Being of the People 56.1 59.9 6.9

Socio Economic Infrastructure 65.1 70.4 8.2


3/123

In Economic news:

Sri Lankas focus on five hubs + tourism is taking

on too much, warns Tewari. Speaking at a forum organisedby the DailyFT and the Colombo University MBA Alumni Association,Mr. Parth Shri Tewari, a private sector development specialist of the

competitive industries practice, at the World Bank, concerned if SriLanka is over stretching itself by focusing on Five hubs plus tourism for itsdevelopment drive.

He commented that Six could be too much because even one wouldtake immense planning, resources, focus and time. He brought out somemeaningful recommendations in making countrys development hub

concept more practical and as a result more achievable;


Sri Lanka fall to 165th in the Annual World Press Freedom Index in2014 from 163rd in 2013.The index compiled by Paris based Reporters Without Borders placesthe country among the 20 worst countries for media oppression. It noted that In the north of Sri Lanka, thearmy reigns supreme, tolerating no challenge to the official vision of the pacification process in Tamil separatisms

former strongholds. Sri Lanka was placed last among the South Asian countries (India-140th, Pakistan-158th, Nepal-120th, theMaldives-108th). The index is based on the level of abuses, the extent of pluralism,media independence, the environment and self-censorship, the legislative framework, transparency andinfrastructure. Finland, Netherlands and Norway made up the top three with Eritrea being placed last.

Consumers remain in the dark about Sri Lankashigh cost of coal imports. According to Mr. AsokaAbeygunawardena, Executive Director, Energy forum, Sri Lanka is paying a

premium price to import coal and that the government has not clariedthe reasons as to why it is doing so. He also said although coal powergeneration appears to be a cheaper alternative to sustainable energy,

according to calculations coal power would be costly in the future. Henoted that despite coal being imported into the country at zero tax,sustainable energy to be a cheaper form of power. (+25.6% YoY).

Government and private sector should work to dene what each willhave to contribute to the hub concept

Key Performance Indicators are not just for the private sector, they are also

for the Government. They can be honest, weekly indicators

Existing development projects need to be evaluated on design,regulations, collaborations and accountability

Creation of an apex body with vision, authority and accountability for thepublic and private sector to formulate policies and regulations

Source: Asoka Abeygunawardena


4/124

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5/125

In Economic news:


Trade deficit in 2013 sharply narrowed to $7.6bn(-19.2% YoY). As per CBSL exports in the year rose 6.3% YoY to$10.4bn with imports declining 6.2% YoY, $18.0bn. Following the recent

Inflation drops to 4.2% YoY in Feb 14 (-20bpsMoM) a23 month low.The annual average rate of inationalso reduced to 6.0% (-50 bps MoM). CBSL attributed the slow rise inination to a moderation in prices of food (0.2% MoM) and non-food

categories (0.1% MoM).

The Capital Alliance (CAL) Urban Price Index in Feb 14 was up 2.5% YoY.According to CAL, food and beverage prices increased 2.1% MoM with

transportation, communication and energy increasing 1.8%MoM.

trend of revising published data, Sri Lanka Customs, Ceylon Petroleum

Corporation and Lanka IOC revised their import volumes for 2013. Theresulting trade decit of $7.6bn was met by worker remittances $6.8bn(+13.0% YoY) and $1.4bn (+35.0% YoY).

Source: CBSL Source: Sri Lanka Customs, CPC and LIOC

Source: CBSL

Source: CBSL

The rupee ended the month at 129.59/132.47

vs. USD (rupee weaker ~0.18% MoM)

Agriculture exports (~22% of exports) were $2.6bn, up 10.7% YoYdriven by tea exports $1.5bn (+10.7% YoY). Industrial exports (~77%

of exports) were $7.7bn, up 5.0% YoY on strong apparel exports to theEuropean Union and the United States amounting to $4.5bn (+13.0%YoY). Exports of rubber products grew $887.8m (+3.3% YoY)

Consumer goods imports (~18% of imports) were $3.2bn, up 6.3%

YoY, with food & beverage imports rising 4.9% YoY to $1.4bn.

Intermediate goods imports were $10.6bn,down 8.9% YoY, on revised

fuel imports ($4.3bn, -14.6% YoY) and lower textile imports of $2.0bn(-9.8% YoY). Non revised fuel import data was not provided.

Investment goods imports were $4.3bn,also down, 7.3% YoY; onreduction in imports of machinery & equipment, $2.3bn (-5.7% YoY) and

transport equipment,$668m (-32.7%) which oset growth in buildingmaterials, $1.4bn(+9.7%).

desiveRm$SU

Data

Jan-May 13 7,581 7,581 No Revision

721905,1636,1nuJ-31

861334,1106,1luJ-31

141574,1616,1guA-31

821684,1416,1peS-31

241493,1535,1tcO-31

87075,1846,1voN-31

13-Dec 1,551 1,551 -

387999,71387,8131ceD-naJ

Provisional

DataDifference

7

8.5%

9.5%

10.5%Inflation YoY%

Sri Lanka

2.5%

3.5%

4.5%

5.5%

6.5%

.


6/126

In Economic news:


The All Share Price Index closed at 5,940.31,down 4.9% MoM. The only sectors to record positive growthwere telecommunications (+10.0% MoM) and motors (+0.1% MoM).Worst performing sectors were beverage, food & tobacco (-9.9% MoM),

chemicals & pharmaceuticals (-8.3% MoM) and footwear & textiles(-6.7% MoM). The drop in performance is due to poor corporate protsand foreign investors leaving the market, as the United States FederalReserve pulls backs on its economic stimulus package (injecting cash in

to the economy through buying bonds) resulting in higher yields.

In other news Asiri Hospital Holdings controlled by Softlogic Holdings, acquiredseveral stakes in Central Hospitals; 24.06% from John Keells for Rs.1.6bn,2.73% from Union Assurance PLC and 10.0% from the Aureos South Asia

Fund.

Capital Alliance Ltd (CAL) became Sri Lankas rst dealer-broker incorporate debt securities. CALs entry is an important step in providing

a liquid secondary market for corporate debt issuances, where investorsare still aected by having to oer signicant discount to exit theirpositions.

Vallibel Finance Plc.s Rs.500m listed debenture was oversubscribed.Vallibel issued 2.5m unsecured, subordinated, redeemable debenturesat Rs.100 each and raised the issue a further 2.5m on being

oversubscribed.

First Capital Holdings Plc. is to issue Rs.500m senior, unsecured,

redeemable debentures.

Alumex Limited, a subsidiary of the Hayleys group, is to go for an InitialPublic Oering (IPO) to attract Rs.838m. The proceeds are to nance the

construction of a coating plant. 59.9m ordinary voting shares would beoered at Rs.14, which would be listed on the Diri Savi Board of thestock exchange.

Creation Investments Capital Management LLC through its whollyowned subsidiary, Creation Investments Sri Lanka LLC is to invest about

Rs.1.7bn in Commercial Credit and Finance PLC (CCF). The investmentwould expand CCFs branch network, increase asset base and contributeto meeting its capital adequacy requirements.

Source: CSE

IFC, the World Banks private sector arm is to invest $7m in Senkadagala

Finance PLC. The funds are to grow the companys micro and smallbusiness operations around the country. In a statement IFC revealedthat IFCs funding will enable Senkadagala Finance to extend over 50,000

new loans to micro, small, and medium enterprises over a five-year period.

Bansei Securities Group (Bansei) has invested Rs.25bn in Sri Lankangovernment securities during the past 12 months. Speaking to the

Daily FT, Mr. Toyohiko Murakami, Chairman, Bansei stated that around4,000 of the companys mostly wealthy retired clients had invested inthe government instrument. He further went on to say Our clients find

investment in Sri Lankan Government bonds as safe and attractive. This is

because of the rebound in socioeconomic growth in post-war Sri Lanka as

well as the relatively strong Lankan currency. Bansei has a 15.0% stake inSri Lankas Pan Asia Bank and is in a partnership with NWS Holdings.

Source: DailyFT


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8/128

In Business news:


Tea on high alert as dry weather affectsproduction. According Mr. Neville Ratnayake, Chairman, Sri LankaFederation of Tea Smallholder Development Societies in conversationwith the DailyFT, current dry weather conditions had caused a 50%reduction in tea production since the beginning of the year. As result thelivelihood of 400,000 small tea holders have been signicantly aected.

Small tea holders cultivate tea on less than two acres of land. Mr.Ratnayake further stated that the government is monitoring the situation,with a further deterioration leading to nancial assistance being givento smallholders. According to the Department of Meteorology currentdry weather conditions are to continue to at least mid-March. The drop in production has yet to be felt in the auction prices says

Mr. Anil Cooke, Chief Executive, Asia Siyaka Ocer speaking to Daily FTnoting that considerable quantity of carry-forward of tea from the previoustwo months due to auction restriction on offer during long stretches of

holidays, the impact of drought has not been felt significantly. Howeverhe did note that auction quantities of high grown teas are alreadyreducing and that It will start dropping sharply in the mid to latter partsof March and into April.

On a separate note the Planters Association of Ceylon concerned ofthe shortfall of fertilser to lead to a reduction in paddy, tea, rubberand coconut crops. The association noted that the most hard pressedwould be the smaller cultivators who are extremely dependent onthe subsidy. The Sri Lankan government provides a rebate to fertiliserimporters who sell the material to cultivators at a lower price. Howeverineciency and delays in the state institutions processing of suchrebate claims and also the introduction of a limit on fertilser imports isdiscouraging the importers.

Source: Forbes and Walker

Vehicle registrations were down 1.5% in Jan 14.According to JB Securities total vehicle registrations were only 27,827in Jan14.

Three wheeler registrations were down a signicant 29.1% YoY to 5,802,lowest in 19 months. JB Securities notesThe momentum is steadily declining, in comparison in Jan 2013 therewere 8,178 units registered. at the end of 2013 there were approximately700,000 trishaws registered that traverse our roads 35 trishaws per 1,000

people one of the highest in the world.

Motor cars registrations were 1,949 up 35.8% YoY. JB Securities noteso Brand New Cars small cars (< 1,000 cc) registering only 255 units(down from high of 1,589 in Feb 12)

o Pre-owned cars- 1,311 units versus Jan 13 of 607. Toyota accounted for914 units through hybrids (Aqua, 306 and Prius, 205 units) and non-hybrid

Allion/Premio (284 units). The government policy on hybrids is sound fuelefficiency is double and although tariffs are 40% of that applicable to normalcars the higher CIF values ensures revenue loss is minimal.

o Premium cars BMW 5-series registrations were 32 units, a drop from82 in Jan 13.

2-wheeler registrations were 16,402 (+17.1% YoY).

Source: JB Securities

Tea production reached a record high in 2013 with volumes increasingto 340.2mkgs, up 7.5% YoY. For 2014 the industry had targeted about a2.0%YoY increase in production to 348mkgs, which now looks likely tobe missed after just two months into the year.


9/129

In Business news:


2.5million tourist arrivals target for 2016 isflawed as arrivals top almost 150,000 in January.Tourist arrivals in Jan 14 were 146,575 a considerable 32.6% increase YoY.According to Sri Lanka Tourism Development Authority (SLTDA)

In an attempt to ll this void Mr. M. Shanthi kumar, Chairman, Colombo CityHotels Association speaking to Mirror Business stated in 2013 the averagecity hotel occupancy rate was 65% down from 70% in 2012. He went on tosay even though there was a slight drop in the tourist occupancy rates at the

five star city hotels in Colombo, .occupancy rates of other small scale hotelsgradually increased during the year. City occupancy rate is down despitetourist arrivals reaching 1,274,683. The denition of a tourist was revisedin Jan14based on which 2013 numbers were revised but 2012 numberswere not revised thus not allowing fora meaningful comparison.

In 2010, SLTDA launched a Tourist Development Strategy to attract 2.5mtourists by 2016. However this target has not been revised accordingto SLTDAs new tourist denition; as such 2.5m would be achievedcomfortably with probably many months to spare.

Moreover, Dr. D.S.Jayaweera, DirectorGeneral, SLTDAspeaking at recentevent stated thefollowing facts of theindustry

During the rst 10days in Feb 14, 50,000tourist arrivals

Latest tourist arrivals(Jan 14, Feb 14) do notinclude diaspora andtransit passengers

Composition toof Sri Lankas keytourist markets is fast

changing and is likely be lled with emerging countries on top, topplingthe lead of the more traditional India, UK and Germany

Earnings from tourism reached $1.4bn in 2013, up 35.0% YoY.

Source: Sri Lanka Tourism Development Authority

East Asia arrivals grew 95.6% YoY with 10,779 coming from China, HongKong and Macau a staggering 223.9% increase YoY

Main single market, India grew a tepid 5.6% YoY to 17,886

Arrivals from, Western Europe grew an encouraging 17.9% through U.K(12,896,+13.6%), Germany (9,211,+16.7% YoY) and France (8,430,+33.6%YoY)

Middle East arrivals were 6,842 up 9.7% YoY

Russian arrivals grew 91.6% YoY to 10,700, while North America touristtrac was also on the up (U.S. 3,839,+31.6%, Canada 3,070, +12.7%)

SLTDA continues not to release hotel occupancy data for 2013. It seemsto believe suppressing information and allowing for speculation is betterthan publicly engaging the problem should it be revealed that monthlyoccupancy rates were low.

LMD-Nielsen Business confidence Index risesto 139 in Jan 14 (+9 points MoM). LMD notes A stableexchange rate and a gradual reduction in the cost of borrowing may havebeen contributory factors in setting the sentiment scale for the latest BCI. Mr.Shaheen Cader, LMD, Managing Director, is of the view that the mainconcern appears to be inflation, with all respondents mentioning this as a

pressing issue for business.

There was signicant movement in the share of respondents who expectcompany sales to get better over the next three months, rising to 42%from 34% in Dec 13. However worryingly the share of respondents whobelieve the economy will get better in the next 12 months dropped to36% from 45% Dec 13, with those who believe the economy will stay thesame rising to 35% from 23% in Nov 13.

Source: LMD


10/1210


Odel suffers on weaker sales.Retailing giant Odel PLC recorded net protof Rs.46m for the quarter in 2014 (Sep to Dec13), down a signicant 40.2% YoY on lowerthan expected sales and increasing costs.Revenue for the quarter was about Rs.1.4bn,down 1.5% YoY aected by the introductionof value added tax, with gross prots reducingto Rs.504m, down 7.9% YoY. During this periodOdel re-launched its store at the BandaranaikeInternational Airport, opened new premises

in Negombo and JaEla and refurbished itsNugegoda store.

Nestle revenue up but profitsdown. Nestle Lanka Plc (Nestle) publishedfourth quarter 2013 nancials with revenuerising to Rs.7.8bn, up a steady 8.2% YoYdespite an increasingly volatile and extremelycompetitive environment. Nestles milkcollection from domestic farmers reacheda record 62m litres in 2013. Despite a strongtopline growth net prots fell to Rs.697m,down a staggering 22.1% YoY as highproduction and labour costs continued toimpact protability.

In Business news:


11/1211

In Consumer news:


Health warnings on cigarette packets approved.The Sri Lankan parliament passed into law that pictorial health warningsmust be published on packets of tobacco. Accordingly, about 80% ofeach packet should be covered by a health warning. Despite the passinginto law, practical implementation is still on hold as the Ceylon TobaccoCompany (CTC) has challenged the regulation in courts and a decisionis still pending. Tax on tobacco is Sri Lankas number one revenuegenerator.

SLT rings in the profits. Sri Lanka Telecom (SLT) recordedfull year revenue (2013) of Rs.36.8bn, up 5.9% YoY, with fourth quarterrevenue of Rs.9.9bn (+5.8% YoY). Growth was led by broadband and PEOTV pay television services which oset weaker voice and internationalrevenue. Revenue at Mobitel (SLTs wireless arm) rose to Rs.27.5bn(+10.4% YoY) in 2013, with its subscriber base reaching 5.0 million.Moreover the company said its investment in third and fourth technologyis generating higher broadband revenue. Net prot for the year was upa staggering 38.5% YoY% to Rs.5.4bn. More over, SLT procured a $100mve year loan to upgrade its infrastructure. The facility was arranged byStandard Chartered Bank and Sampath Bank.

Potato levy up. Ministry of Finance and Planning stated that thelevy on imported potatoes was increased by Rs.15 to Rs.25 per kg due tothe strong domestic harvest. The market price for potatoes range fromabout Rs.70-80 per kg. The ministry further went on to say that We expectabout 150,000 metric tonnes of potatoes this year and the government is

planning to make the country self-sufficient in potatoes by 2016.


12/12

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news bulletin - february 2014

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