• Commercial Bank values employees at Rs. 12.8 bn
• 81 take up Vanik offer
• CDC to launch second venture capital fund
• How to make a cocktail drink
• Sharp increase in FDI needed
• We do not bail out ailing commercial banks says ASJ
• London Stock Exchange votes to go public
• Mind Your Business
• Colombo will catch up say Compaq bosses
• Tourism to battle bombs, violence and GST
• Tea board tours India and Pakistan
• Foreigners continue to sell out
• 'Hong Kong' superstop promotion relaunched by Cathay Pacific
• Better earnings help DPL
• ANZ enters into financing agreement with JKH
• Sydney 2000 ANZ VISA launched
• No revolution from American insurance giant
• Emirates to fly new corporate livery
• Impoverishment not caused by globalisation
• Japan economy improves
• Pan Asia Funds MRI scanner
• Website for Foto Design
• TCI launches new website
• UAL profits up
• Merchant Credit records net profit of Rs19.3 million
• Special Emirates packages to Rome for Sri Lankans
• Tokyo Cement to receive ISO 14001 certification
• Abans/ Prima health food demo

In a trend setting move...

Commercial Bank values employees at Rs. 12.8 bn

By Dinali Goonewardene

The Commercial Bank in a trend setting move has valued its employees and included the value in its annual report for the financial year 1999. The employees have been valued at Rs. 12.8 bn. In comparison the bank has Rs. 41.8 bn worth of assets excluding its employees. "Employees are a hidden asset in any organization. If you don't show this asset you are not showing the real value of the company," Manager Finance, Commercial Bank, Prasanna Indrajith said , explaining the rationale behind the move to value employees.

The bank has used the Lev and Schwartz model to compute the value of its employees. All the bank's employees are included in the valuation and it has been assumed that all employees would continue in employment up to retirement. While employees remuneration included direct and indirect benefits it was assumed that an 8 per cent increment was granted to employees on average. The total future remuneration of employees was then discounted to the present value at 10 per cent which is the financial cost of funds to the bank. An average value of Rs. 6.4 mn per employee has been arrived at through this computation.

While the International Accounting Standards Committee does not have a standard which requires employees to be valued, accounting experts viewed the inclusion of human resources in the annual report as a positive move which would give the company a competitive edge. Potential investors would be able to take informed investment decisions.

However doubts have been raised about the rigid rate of 8 per cent which denotes increments in remuneration. Accounting experts viewed this as unrealistic. This method assumes that when employees factored into the equation leave they will be replaced by employees earning similar remuneration levels.

This too has been viewed with sceptism as experts believe that goodwill attached to people working in the bank gives the bank recognition. This may not be replaced with employees having similar qualifications. However accounting experts said the difficulties involved in imputing a precise valuation for employees was not a justification for excluding the value of human resources.

81 take up Vanik offer

Vanik Incorporation's staff responded positively to the company's voluntary retirement scheme, with around 81 members handing in their resignation as at last Friday.

The proposed scheme offers three months basic salary for every year of service as at March 31, 2000. Despite Vanik being a relatively young company, the scheme does not take into consideration the loss of career.

The minimum compensation depending on the period of service is six months on the basic salary or Rs. 50,000. While a maximum of Rs. 225,000 for those who worked over 84 months.

Though the qualifying period for gratuity is five years and above, Vanik's Board consented to pay gratuity for staff who complete only four and a half years service.

Employees could continue to pay their car loans for the remaining period, but the loan would be converted into a lease agreement.

The housing loans would be transferred out to other financial institutions. The staff could continue to pay the interest on the housing loan for the next six months. But from the 7-12 month, they would have to pay the interest and the installment. The loan would be transferred to other financial institutions thereafter.

The offer is open for staff until Tuesday 1.30 p.m. Vanik has a total of 260 staff members on their cadre. Market sources say that the package would cost the company around Rs. 40 mn to Rs. 50 mn. But the figures could be less with deductions on housing and car loans.

CDC to launch second venture capital fund

CDC Capital Partners will invest around US$ 5 mn to launch a second fund, a top company official said.

Their first fund Ayojana being a close ended fund, would fully invest its resources by the third quarter of this year, which leaves room for another fund to be created, Steven Enderby, CDC's country manager in Sri Lanka told the media last week.

CDC is also targeting over US$ 25 mn investments in Sri Lanka this year through management buyout deals and investments in areas like IT, Enderby said.

There are exciting opportunities in the IT sector and we would like to seek a listing possibly even a dual one in the future, he said.

"Besides investing US$ 42 mn in equity and debt into South Asia Gateway Terminals, we are looking at a number of investments of the US$ 3 mn range," he said. Management buy-outs (MBO's) are great products for this market, he said.

" It's an efficient way for diversified holding firms to shed some of their units and let the management focus on their resources. I believe that in some of the larger groups there is good opportunity for them to sell."

CDC is presently working on around six MBO's in a range of sectors like tea, agriculture, and property. He declined to give specific details.

Formerly known as the Commonwealth Development Corporation, CDC became a public limited company last year, following the enactment of the CDC Act last July.

Managing Director CDC Investments, Robert Binyon said they are now increasingly taking a private sector approach to its business.

"We are bullish on South Asia. We are looking at returns of over 25 percent when appraising projects and at the moment our portfolio in South Asia is very comfortably giving us those returns," he said.

Binyon said that CDC's new investment policy aims to direct around 50 percent of new investments into sub-saharan Africa and South Asia. In 1999, new investments were £ 279 mn.

How to make a cocktail drink

Ingredients:

1 fresh rooster's tail
4 ounce of alcohol and fruit juices
Sugar, salt, pepper, you name it you can add it as required

Pour all ingredients into a cocktail shaker, shake briskly and pour into a cocktail glass. Garnish with the rooster's tail...Voila! a cocktail drink. Not quite, not even remotely.

Despite the name and long illustrious stories of its origin, a rooster's tail has never been mentioned, not even from when it was first defined in 1806. Other than in voodoo that is.

However, two local companies along with two cocktail experts have ventured out to redefine a cocktail in Sri Lanka using local and foreign alcohol with local fruit juices.

But be warned, no bloody saints, celebrities or tools from a tool box.

CPC (Lanka) Ltd's Kist cordial and Orient Lanka's range of alcoholic beverages have been concocted by the Manager of Trans Asia's 'The Library', Rajah Akbar and the Hilton, Blue Elephant's James Martil to create 15 tantalising thirst quenchers.

Officials from both organisations said they hoped to promote the nine cocktails and five mocktails (mock cocktails) internationally.

At present the companies have come up with a designer menu with the 15 concoctions and a bar tenders guide giving instructions and ingredients to prepare the concoctions.

Officials said that copies of the menu and the bar tenders guide would be given free as appropriate to each hotel/restaurant. They said that this concept would save the hotels and restaurants time and money developing from scratch.

Caterplan, CPC (Lanka) Ltd's food service division's Manager, Sanjeeva Ariyawansa said that the food and beverage industry liked the idea and that over 15 hotels had already signed up. He said that more recipies would be developed in the future.

Sharp increase in FDI needed

A substantially large increase in foreign direct investment is essential if the Sri Lankan economy is to achieve a significant rise in economic growth.The projected requirement of investing around 35 to 40 per cent of Gross Domestic product[GDP] can be achieved only if our national savings are supplemented by an additional foreign investment amounting to about 5 per cent of GDP.Such an increase is necessary to increase our rate of economic growth,enhance industrial employment opportunities and raise per capita incomes.

According to the latest figures of the Board of Investment[BOI],which we published last Sunday,foreign direct investment as a per cent of GDP is only 1.46 per cent.The BOI figures indicate a rise in FDI in the past three years.This is indeed good news and we can only hope that this trend of increase will not only continue but gain in momentum.This is especially so as the present quantum of FDI is woefully inadequate.We need a three to four fold increase at least in the next few years.

Our performance in attracting FDI is not as rosy as may seem by quoting the figures of the last five years.There has been an increase each successive year since 1995,but 1995 was an year of very low FDI.In fact 1995 was one of the worst years of FDI.In 1993 FDI had reached a peak level.It fell in election year 1994 and fell further in the first year after the election of the PA government.The rise we have now witnessed is indeed a recovery from the low attainments of recent years.We can be relieved by the performance,but not proud of it.

Foreign Direct Investment is a vital necessity,not merely because of its contribution to the overall rate of investment in the country,but also owing to special features and contributions it could make to economic growth.Foreign direct investment often brings with it modern technology and improved management skills.There is a gradual transference of this knowledge and skills to our work force some of whom would move out from these enterprises to other local firms or even to begin new enterprises of their own.The other most significant role they play is that most such enterprises have already developed international marketing links.Therefore export markets are already available for the products they manufacture in the country.Since these manufactures are for the export market,they improve our balance of trade.The risks are taken by the enterprises themselves and as such foreign direct investments do not increase our foreign debt burden,unlike loans and aid. All these are significant advantages.

One of the most important constraints to attracting more foreign investment is the security situation in the country.There is a very close correlation between the levels of new foreign investment and the security condition in the country.Therefore we must be realistic enough to accept the position that we cannot make a serious headway in FDI till our security situation improves significantly.It is equally important to understand that the security situation is not the only constraint.Bureaucratic delays,work ethics in the country,inadequate economic infrastructure and lack of required skills for more sophisticated industry are among the other serious constraints.These constraints cannot be removed immediately,they require to be removed over a period of time by adequate responses in our educational programs,investment in infrastructure development and changes in attitudes and values.

There can be little doubt that foreign direct investment into the country should be increased.To increase the inflow from the woefully inadequate levels of today,we require to get several things right.An improvement in the security situation is vital,but other preconditions should also be satisfied.We must always remember that foreign investors would choose the locations which are most conducive to increasing their profits and reducing their risks.That is the iron law of investment.We cannot bend it..

We do not bail out ailing commercial banks says ASJ

Q: You made a statement recently about not bailing out banks.

ASJ: Nobody needs to be worried about it at all. It's only a message because there has been a spate of letters saying they have deposited and lost money. There is a perception in this country that the Central Bank is there to pay for everybody's investments. Nowhere in the world is a Central Bank there to bail out people.

We are there to protect the banking system and the banking institutions. So we advice them on what to do, sometimes we give penalties. If they are short of cash due to liquidity problems we help them out. But despite all our efforts some of them go on recklessly, get into trouble and go down. Because of this perception there was a spate of letters, calling for a bailing out mechanism. That is what we call a deposit insurance scheme. They can pay more, have a deposit insurance scheme and insure deposits up to a certain amount. Up to Rs. 100,000, deposits are insured. Central Bank is not an insurance company. The danger is that people perceive that they would be bailed out by getting into imprudent investments. That is what is called the moral hazards. That is if they know that the Central Bank is always there to bail them out, then they will lend recklessly.

Q: What about regulation to supervise merchant banks?

ASJ: It will depend on our capacities to supervise, we are also human beings. If anybody goes and put their monies in merchant bank who we don't regulate, knowing the risk, they should take the risk. We might in the future bring in regulation to include other financial institutions. But at the moment it is the banks, and the licensed specialised banks and finance houses.

We learnt with finance houses, that as soon as we passed the law and began supervising them, they collapsed. There was nothing we could do. So we don't want to do that. Before we do that, we have to build up our staff, first informally start supervising them and then bring in the law. Otherwise for all their past sins we will have to pay.

Q: The equity market is not doing too well. When will the debt market be opened to foreigners?

ASJ: By opening Unit Trusts to non residents, the government perception is that it will attract monies to these funds and foreign investors might come and invest in unit trusts and the stockmarket. If you invest in unit trusts, you don't need to manage your funds. Look at India, it's an enormous industry. It has not grown in Sri Lanka. And we want to see it grow with the help of the foreign investors if they want to invest. There have been inquiries from Sri Lankan expatriates. Only thing is that the unit trust must bother to sell themselves. They should move ahead and try to attract deposits.

Q: Selling corporate debt to foreigners, is it on the cards?

ASJ: Not at the moment.

Q: What is the status of the reforms in the two state banks?

ASJ: They are now having an internal examination among themselves on how to reform within. They have got reputed accounting firms. Bank of Ceylon has got PriceWaterhouseCoopers and Arthur Anderson, People's Bank has got Arthur Anderson and Ernest & Young. They are trying to do an internal re-organisation and trying to modernise themselves. They are examining these proposals. We expected the two banks to come out strongly after some of these are implement. Because they have now realised the path that they had taken so far, is not going to help them very much. Bank of Ceylon is an excellent bank, People's Bank was an excellent bank but it is not doing very well now.

Q: Is there a timeframe for it?

ASJ: On their own they will realise that some of these reforms will have to come now. You can't postpone them now because the reforms would be costlier. I am told that the trade unions have agreed in the case of People's Bank that some reforms are necessary. They are two great institutions that have done a lot for the country. People underestimate them. There were people who got up in parliament and said that Bank of Ceylon should not be established. That was the thinking of the foreigners then. Local people then had to go to a shroff who was a powerful man and helped their kith and kin. At that time Bank of Ceylon came, it really gave a relief to the nationals. Today some of our industrialists would not have reached ahead if not for the Bank of Ceylon. Then People's Bank came and spread out to the rural areas mobilising deposits. Bank of Ceylon followed them, because of the competition. That's how the banking industry grew. These banks did a great service. You cant live on your past. You have to modernise yourself, today banks have changed, from money lending to fee-based services. You don't need such large branches, may be a teller or two, not a very big operation. It's similar like Nations Trust Bank, which trades via supermarkets.

Some of the unions think it will be privatised. Even if you privatise them overnight, it is not going to make them better. We don't know who will buy it. Privatisation is not the solution for any of the evils. You must look at what the problems are, improve the management, maybe get some consultants into areas where you are weak. Now in Central Bank if we are weak in some areas, we hire some consultants. It's much cheaper.

There is no magic wand for the solution of privatisation. We have to talk to the unions, get their views, their consent. The President has said we must go towards a reward system of incentive payments.

Every bank in the world pays a good banker more, they have a reward system. If you have a dealer who brings in lots of money you reward him. What happened to Bank of Ceylon in the past, they got first class dealers, trained them in London, got them down here and now they are worth 5-6 times of what they were. They work here for a month or two and then they are picked up by someone else. Most of the good dealers in the financial markets today are trained by the Bank of Ceylon. How long can Bank of Ceylon retain these people without paying higher salaries?

You need a flexible organisation. What I am saying is that both banks, in fairness to them, have realised the need for major internal reforms. They should and will come, of their own volition, because they themselves hired these consultants, which is a very good sign. Because you cant reform yourself, you have to get outsiders to tell you where you have gone wrong, the areas of improvement and so on. Say for instance, if you don't have a good dealer, you will have to hire them, even if it is from outside. You can't say I don't have good dealers and lose in the market.

Q: The insurance sector at the moment, is closed for the banks, are there any moves towards liberalising this?

ASJ: We are flexible with that, and we are discussing this issue as one of the things to do.

Q: When do you hope to open it up?

ASJ: It's like this. Earlier banks wanted to do insurance like to thrust them on to their customers. That's not what we have in mind. If a bank wants to set up a subsidiary and if insurance is the means of raising savings, then it is fine. I am only expressing a personal point of view at this moment.

We are open. Today banks are merging with insurance companies. That's no big deal. Where there are synergies and mutual benefits, we are opened. But we wont be doctrine. But then again, we have to keep the business separate.

Q: Any progress so far?

ASJ: The budget proposals have been passed by the Monetary Board recently. They are to permit foreign shareholding up to 60 percent in banks, open up Unit Trust to non residents, 100 percent ownership to foreign companies to invest in stockbroking firms. Some of these things were restricted by the Central Bank regulations, and now they have been lifted.

Q: There is speculation that the Central Bank is investigating the various lottery schemes offered by banks to attract customers.

ASJ: We have no idea of interfering with their lotteries. Why should we do it? If you want to go and invest in it, its your risk, your choice. These are incentives they give, and you pay a price of foregoing your interest or something. If there are irregularities we will be unhappy.

Q: There were statements, that the government is going to bring down interest rates to 10 percent by June. How true is this?

ASJ: If the Bank of Ceylon and People's Bank bring down interest rates others will follow. We are not expecting a drop in statutory reserves. We are expecting inflation to come down, and interest rates will also come down then.

This is a general case when inflation comes down, interest rates will also come down after a time period. The perception is that by June inflation will be 3 percent and there will be strong pressures for interest rates to come down.

Q: Are we going for another FRN this year?

ASJ: Before that, we will have to go for a rating. There has to be an appropriate time and place. At the moment, they are negotiating a peace deal. So, we should not go for a rating, that's what I feel. You must wait for a good time before we go and get a rating. We don't want to go when things are in a state of flux. If things on the peace negotiations are encouraging, elections are also out of the way, then that may be an appropriate time.

We thought of January and February thinking that elections will be over last year. It didn't happen. Then there was the assassination attempt on the President. Suppose we were in the market, and got a rating, there would have been chaos. We will announce it at the right time.

Q: Does this mean, that this year is out?

ASJ: Difficult to say. Government will have a lot of money and they will be retiring debt from the privatisation proceeds of Sri Lanka Telecom. There would also be a lot of highway projects starting.

We will go for a bond and use the money for road projects.

Q: Have you identified how much of debt you are going to retire?

ASJ: No idea. I don't know how much we will get from SLT.

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