• Another devaluation not ruled out
• Central Bank to supervise Primary dealers
• Fate of airbuses hang in the air
• No more shell shocks
• Sampath employees association explodes
• Mind your business
• Ups and downs of devaluation
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Another devaluation not ruled out

By Mel Gunasekera

"If the dollar reaches the upper level [of the trading band], there could be more adjustments," Director Economic Research, R A Jayatissa told The Sunday Times Business.

"We can't say anything for sure right now. We are monitoring the situation. But there won't be any more changes to the trading band for the moment," he said. 

In a surprise move, the Central Bank last week announced a de facto devaluation by widening the rupee-trading band — the spread between its selling and buying rates for the U.S. dollar —from 2% to 5% to make the market more dynamic and exports competitive. The new trading band is now set between Rs. 75.60 to Rs. 79.47, raising the dollar midrate indicator by Rs. 3.10 to Rs. 77.53 compared to a previous Rs. 74.43.

After staunchly rejecting a steep devaluation in the past, last week's 4% devaluation took the market by surprise. But Jayatissa says it was inevitable. "It's not a surprise. We have been watching the situation for a while. The rupee has appreciated by 4% against the basket of 24 currencies during the first five months of this year." He said that the adjustment was needed to maintain economic stability in the face of increased fuel and defence related imports. Between January and March this year, the fuel bill shot up to US$ 205.7 mn compared to US$ 70 mn YoY. Renewed fighting in the North, has pushed the defence bill up by around US$ 175 mn to US$ 880 mn this year.

However, with the present rate of inflation being one of the lowest for a long period, widening the band will free foreign exchange market forces enabling them to operate with greater flexibility, he said.

Jayatissa also expected the current volatility in the money market to settle down within the next three months. 

"Our target is to maintain stable interest rates and low inflation. We will also bring down the repo [overnight repurchase rates] and the reverse repo rates in the future," he said.

The Bank has been making upward adjustments to its repo and reverse repo rates in an attempt to stablise short term rates. Presently the repo rate stands at 9.50%, reverse repo at 15% and the overnight call rate to 14.75%.

The devaluation is expected to trim the trade deficit by US$ 100 mn to around US$ 1.9 bn this year banking on rising export earnings, compared with US$ 1.29 bn deficit last year. 

With total foreign exchange reserves at US$ 2.54 bn as at end April compared to US$ 2.81 bn YoY, the country's declining reserves has come under the spotlight.

The sharp depreciation also follows a 14% drop in foreign reserves to US$ 1.4 bn as at the end May, compared to US$ 1.64 bn YoY, the Bank's latest figures have indicated.

However, the balance of payments is expected to record a surplus this year, after the depreciation boosts export earnings of around US$ 100 mn to US$ 150 mn and expected privatisation proceeds of around Rs. 30 bn from SLT's IPO, Jayatissa said. 

Central Bank to supervise Primary dealers

As part of the off-site supervision, dealers will have to report their operations on a new format. The reports would have to be submitted daily, weekly, monthly, via diskettes or email to the Central Bank, Superintendent Public Debt, T S N Fernando told the Sunday Times Business.

Under a US$ 325,000 World Bank grant, the Public Debt Department had contracted the Washington based Chemonics International to develop a system to streamline the work of the primary dealers, and develop procedures and formats to enable the Department to carry out its surveillance, he said.

The consultants also outlined an action plan for the next six months. The Department hopes to commence onsite supervision within the next few months.

The eight dealers who would come under the scheme include, Ceybank Securities, Commercial Bank Primary Dealers, HNB Securities, First Capital Treasuries, NSB Fund Management, Sampath Surakum, Seylan Bank Asset Management and Ceylinco Shriram Securities.

Fate of airbuses hang in the air

SriLankan is now flying at below capacity, with a load factor of 70%, since their recent re-fleeting increased capacity by over 50% in the last 12 months. The airline which took a hard hit from the crash in tourist arrivals into Colombo cannot fill up the expanded seat capacity as the country's security situation has been deteriorating since December 99 and the announcement of a war footing has closed the lid on direct arrivals improving.

The Airline's fleet of 12 includes six new A 330s, four A 340s and two 320s.

"We will have to look very seriously at whether or not it is prudent to bring more capacity into the market. One of the benefits we have of course is the tie up with Emirates. It is possible that we would be able to work something out with them. I don't know yet. It is too early to say. We would not want to take on more equipment than we commercially need. It was part of the agreement that the two carriers would look at fleet requirements commonly. It is being looked at extremely carefully now and we will be in a position to talk about it in a couple of weeks," Mr. Hill said in an interview with the Sunday Times Business.

The airlines' plans to develop through traffic has now been accelerated to make up for lost direct arrivals in home base and SriLankan flights to North America i.e Canada and US are now being negotiated with several airlines on a code share basis.

"We are going to have to concentrate on traffic from Europe, Middle East, to Colombo through to Australasia, Far East and in particular to the Indian subcontinent," Mr. Hill said.

The airline has to first obtain permission from the USA and Canada for bilateral agreements to allow Sri Lanka airlines to fly to North America. Mr. Hill said that a US delegation would arrive soon to inspect their operation and check on standards before giving the green light. 

No more shell shocks 

As a result the company will incure a loss of Rs. 15 million a month, the release said. The company is currently involved in cost cutting and diversifying into retail value chains. 

Sampath employees association explodes 

The union is scheduled to call a special general meeting at the Navarangahala this morning to decide on the course of protest action which does not rule of the eventuality of a strike, an association leader, Mr. Upali Samara singhe, Senior Manager Corporate Planning said.

The union expressed fears that the smaller Sampath bank will be gobbled up by HNB, arguably Sri Lanka's largest privately owned public quoted bank.

The union was worried about retrenchment and also saw a threat to their customers especially their FCBU customers among who were a large number of tea exporters. 

They alleged that Mr. Harry Jayawardena who was spearheading the attempted eventual consolidation of the two banks was himself a big time tea exporter through his company Stassens and could have too much power over Sampath's tea exporting customers.

The union also alleged the the purchases of Sampath shares by this consortium over a short period which boosted their holding to a majority 44% was in violation of the Banking Act and the Articles of Association of Sampath Bank.

They said that their management has alredy notified the Central Bank, the Colombo Stock Exchange and the Securities and Exchange Commission. 

The union also pointed out that besides the negative impact on workers a consolidation or ownership of Sampath Bank by HNB would create a banking giant in Sri Lanka. 

They alleged that the HNB/Stassens combine led by Mr. Harry Jayawardena was trying to take over the 30% of Commercial Bank held by DFCC Bank. If HNB, Sampath and Commerical Bank were to be owned by one person or entity this would make it all powerful and even perhaps the largest bank in South Asia, they said. This could affect competitiveness in the banking industry and also cast doubts on the public's confidence in the Colombo Stock Exchange, they said.

The alleged that HNB's move to buy a Sampath stake spending Rs. 120 million from their employees provident fund at a very high share price was immoral.

However their own investment in Sampath through their provident fund and trust fund was in self defense they said. 

With Sampath Bank's Annual General Meeting (AGM) looming ahead on July 30th the new majority shareholder has proposed four new appointments to the board; Mr. R. Jansz, Mr. Damian Fernando, Mr. G. Ubesiri and Mr. P. Amarasinghe who is a retired Central Bank executive. 

The 44% stake of Sampath was bought mainly through HNB which owns 10.0526%. Other related companies who own Sampath shares are HNB EPF a/c 4.99%, Distilleries Company of Sri Lanka (DCSL) 4.99%, Stassen Exports Ltd4.97, Smart Development Ltd 4.697%, Mason's Mixture Ltd 1.806%. The individuals, Mr. P. Singuppuliaratchige Don, Mr. D. N. Daluwatte and Mr. M. U. De Silva connected to the group collectively own 12.53% of Sampath. 

Meanwhile the Securities and Exchange Commission (SEC) is looking into whether the recent purchases have triggered the Takeovers and Mergers code. On being questioned as to why trading on Sampath shares was not suspended, SEC officials said there was no satisfactory evidence that the code had been breached in order to issue a directive suspending trading. A whiff of the possibilities inherent in this scenario has ensured Sampath Bank shares are trading at a premium with investors.

Traditionally, this banks shareholding structure has been fragmented, preventing a build up of power. The tussle for the company's shares which persisted over the last few weeks reached its zenith with a 18 per cent stake being traded on Monday.

Claims by Sampath Bank that certain companies acting in concert had triggered the Takeovers and Mergers Code and breached the Banking Act were subsequently retracted. However Hatton National bank had breached a 10 per cent shareholding limit imposed on it by the Banking Act. The Central Bank's banking supervision department subsequently directed Sampath bank not to include shareholders who had breached the limits imposed by the Banking Act in its shareholders register.

Mind your business

Wheeler dealings

A few Korean brands are already available but other Korean automobile manufacturers have sent their agents to Colombo to scout for prospects here.

And, these agents feel they could offer nearly the same quality for a much lesser price, so some major car agents have been approached to get the wheels moving on the deal...

Alls well that ends well

Speculation of a take-over bid was rife and the watchdog was alerted but fortunately, there was no evidence of such an event, though a large stake of the bank changed hands.

What was more feared was that there will be a run on the bank's deposits and branches were asked to be vigilant and contingency plans were prepared. It appears that alls well that ends well because even though the management panicked, depositors appear to have kept their cool...

Odd one out

And that leaves one of the three networks as the odd one out because they do not have a 'card' system.

They have attempted to redress this by re-introducing a less than a hundred rupees monthly rental package but that has not had the desired effect. Now the company is weighing the pros and cons of introducing a 'card'- whether the losses from rentals would offset the gains from an increased market share...

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