19th November 2000
News/Comment|
Editorial/Opinion| Plus| Business|
Sports| Sports Plus| Mirror Magazine
Three apply for Primary Dealerships
By Chamath Ariyadasa
At least three institutions are known to be keen on getting Primary Dealership status and are awaiting a response from the Central Bank.The National Federation of Co-operative Rural Banks (NFCRB) and Capital Asia told Sunday Times Business that they have sought approval from Central Bank while NDB admitted they were looking closely at the option.
A surprise applicant is the government funded NFCRB which has more than 1,400 branches islandwide and comes under the Cooperative Development Department.
Some of their main activities are mobilising savings, extending credit, pawning and paying pensions to farmers.
The CRBs have over 5.3 million accounts and deposits worth Rs 12.9 billion as of last year.
According to a senior official, CRBs will be able to invest a compulsory 40% of their excess funds in government treasuries at a lower cost without going to other dealers.
They will also be able to market these securities to the masses through their branch network.
A new company would be formed specifically for this purpose.
The other applicant is Capital Asia set up by Asia Capital which is presently involved in secondary market dealing of government securities.
Asia Capital, which initially wanted a primary dealership, opted out at the last minute when the Central Bank called for applications.
The company is willing to pump in a higher level of capital than the present requirement of Rs. 150 million equity, as is the National Federation of CRBs.
NDB which is rumoured to have applied for a dealership through Associated Citi National Investment Bank denied this but said they were looking closely at the possibility.
Officials of the Primary Dealers Association feel that new entrants should bring in additional equity, as there is a larger volume of government securities in issue.
Some are also of the opinion that making an opportunistic entrance into the market at a time when rates have climbed unexpectedly high is not fair by existing primary dealers.
Most primary dealers are carrying losses as they built their portfolios believing rates would not rise by an unprecedented 8% seen this year and see the Central Bank as partly responsible for this.
Other analysts believe that independent players should promote government securities which can lead to a reduction in rates helping the government raise cheaper funds.
6 out of the 8 existing primary dealers are attached to banks, which together have about Rs 290 billion worth of deposits.
Analysts argue that just a 1% increase in their deposit cost resulting from having to entice savers would make them lose about Rs. 3 billion in income as average cost of deposits is under 10%.
Each bank has invested only Rs. 150 million in a primary dealer as equity
raising the possible conflict of interest.
Suntel lights lamp and makes a wish
Suntel MD, Hugo Cederschiold says if they had a wish for the future they would like to see a review in the way operator licenses are given. "We are restricted to using wireless technology which is fine, but it can't do everything," he told Sunday Times Business. "Today developments are extremely fast and you should not look upon technology as a basis for giving a license" he said. License should be tied up with service in his opinion. New technologies such as optic fibres or ADSL could be used to provide high speeds for example. Suntel is however in the process of raising a large amount of debt from the local market. A part of their US$ 42 million loan from ABN Amro will be repaid with money raised and they will also pay up suppliers Ericsson who have been providing funds for several years. By doing this the company plans to cut its foreign debt and replace it with local debt. According to Mr. Cederschiold, "the devaluation of the rupee in June hit us very hard". "We are not turning a profit at the moment.That is purely due to financial costs. Last year we had another kind of financing and we made a profit."
"Turnover will be between Rs 2.5 bn to Rs 3 bn for this year ending December which is quite a healthy growth compared to around Rs 1.7 bn last year."
The company is in the process of raising Rs 3.7 billion of debt which breaks down to Rs 1 billion from a public debenture, Rs 400mn from DFCC, Rs 500mn from NDB and the balance from a syndicated loan guaranteed by NDB and IFC.
The pricing of the long term public debentures of 5,6 and 7 year terms are quite interesting according to market analysts as they will have a fixed rate.
The 3 tranches will be priced at 3year T bond + 0.8%, 1.05%, and 1.3% respectively using the rate at the auction rate immediately preceding the issue.
The reason for the fixed rate is that managers to the issue Citi National Investment Bank have had difficulty in making a comparison to a benchmark and major bidders are seen to be quite picky at the moment.
At present rates the public can lock in at over 19.5% yield on these debentures.
The issue will however not have a rating.
According to the Mr. Cederschiold, "It was mainly a matter of practical expedience. The rating would not be so much about Suntel as a company but of the whole issue where you would rate Suntel, NDB and IFC. That means the rating is not of much value to Suntel."
Money raised is ultimately expected to help in network roll out.
The company has over 70,000 connections with around 10% of fixed line market share. Since 1996 cumulative investment is around US$100 million of which US$49 million is equity.
This is divided between Telia International 55 %; Metropolitan group 21%; TVG, a Hong Kong Investment Fund, 19% and NDB 5%.
Financials of the company will be available next week from their issue prospectus and the issue opens on the 30th of November.
Mind your business
Who is covering?
The proposed privatisation of an insurance giant has attracted many offers because so many people believe it could be a gold mine in the right hands.But now that the deadline for offers has been somewhat arbitrarily extended, some who beat the deadline are protesting. Some suspect some hanky-panky but even those who do not, say that the extension was unfair.
Nevertheless, when the final decision is taken as to who will be awarded the deal, the interests of the other giant will be paramount, the powers that be have decided.
Dambulla dazzles
With the green light finally being given for a cricket stadium in Dambulla. Even after the ministerial reshuffle, the city is likely to be targeted as a major centre for tourism.Already two five star hotels are available but many hoteliers now eye Dambulla as their next venue for expansion with at least two major hospitality chains wanting to set up resorts there.
These proposals too are likely to get the go-ahead and sports and tourism. Being under the same ministry does help…
A leak on the hike
The price hike on industrial and auto gas announced this week is only a fraction of what is on the cards, we hear.A hike on petrol prices is likely to follow sooner rather than later and the quantum of the increase will be around ten per cent, they say.
No firm decision has been taken about a hike on diesel prices with the
issue to be decided after the monopoly status of the Dutch is broken...
Caught in the love ring
The Japanese like it different. Not for them the delicately chiselled jewels sought by Westerners or the heavy designs of the East. And a little jewellery store located at the Hilton Hotel has cottoned on to this fact of life.Established in 1890, A M A Carreem's has carved out a niche for itself in this elusive market.
"We service the quality conscious Japanese expatriate clientele in Sri Lanka and 30% of our revenue is earned in Japan," AMA Careem's partner Shezard Careem said.
Mounted stone jewellery is a hot favourite in Japan where blue sapphires, cat's eyes, star sapphires and alexandrites are all the rage. Boy meets girl and viola - out pops a love ring followed by an engagement ring and then a wedding ring.
The gold industry in Sri Lanka has a colourful, if rather shady, past. Smuggling has been a tradition in an industry burdened by heavy government taxes. For hundreds of years astute traders bought dollars on the black market, smuggled them out to countries such as Singapore and Saudi Arabia and returned with gold bars in their pockets.
Liberalisation of the industry began in 1994 when imports were permitted without Central Bank approval. 1996 saw the removal of import taxes and 1998 the withdrawal of turnover tax. A 2% provincial council tax still remains.
The diamond and gemstone market too, has grown in leaps and bounds post
liberalisation. Exports of jewellery diamonds and gemstones picked up 37.5%
to Rs. 16.7 mn in 1999.
Who dunnit, asks HNB
A visibly angry Hatton National Bank management refused to cave in on their decision to dismiss its union leader, S.B. Abeyesekera on disciplinary grounds."HNB will not give in on the issue. Mr. Abyesekera is not the saint he is being made out to be," said HNB's Managing Director, Rienzie Wijethileke at a media briefing last week.
The management also alleged that the dismissal has been turned into an anti HNB countrywide poster campaign by some wealthy individuals.
Mr. Abeysekera, a bank clerk who rose to the position from that of a labourer and a peon was dismissed following a lengthy inquiry, conducted by an independent lawyer and a former president of the labour tribunal, F.N. de Silva on disciplinary grounds of six charges including insubordination, attendance and misconduct.
His dismissal coincided with HNB's acquisition of 44% of Sampath Bank shares. The HNB Union, a member of the Ceylon Bankers' Union, alleged that funds from the HNB EPF, pension fund and Widows and Orphans Fund were used to buy Sampath shares.
The bank management told the media that the union used this allegation to create an unhealthy environment in the bank and with the top management, which culminated in court battles.
Abeysekera's dismissal has sparked off the HNB's 2000 strong union to inform the management of proposed trade union action.
The HNB management has informed the HNB trade union that trade union action cannot be resorted to under clause 30 A of the Collective Agreement for dismissal of a bank employee. The management has also asked the Labour Commissioner through the Employers' Federation to halt any trade union action on the issue.
"Just because he is the HNB union leader (about half the HNB's full staff strength of 4000 are union members) we cannot treat him differently in the case of dismissal after inquiry. There have been about five or six cases of dismissal at HNB and every time there is a dismissal if the union threatens trade union action the bank will not be able to enforce its rightful disciplinary measures when required," the management said.
The posters demanding a reinstatement of Abeysekera had been plastered on the walls all over the country from Trincomalee, to Tissamaharamaya to Vavuniya. At a conservative guess there would be around 100,000 poster costing a minimum of Rs. one million. Someone with some sizeable resources was behind the campaign, the bank management alleged.
HNB together with Seylan Bank has one of the largest branch networks of privately owned commercial banks.
The poster campaign which reared its head before the general election poster campaign wiped it out has struck again but does not seem to have affected the bottom lines of the Bank's annual financial performance which is expected to be announced next week.
Mr. Wijethileke said that profits after tax has grown 16%.
On its recent acquisition of the majority stake of Sampath Bank which is with the AG for a legal directive the bank management said that an announcement would be made by the Central Bank soon.
"Our investment in the stock market including the Sampath Bank shares is just 1% of our total assets. The argument being peddled that if affect our profitability is nonsense," Mr. Wijethileke added.
When the Sunday Times Business reported the dismissal of Abeysekera and Union Internation Network's protest in September, Mr. Abyesekera said that even the auditors had painted out that HNB's EPF has suffered a Rs. 20 million loss in 1997 and Rs. 23 million loss in 1998 from stock market activities.
But the HNB management counted these arguments saying that these were
not realised losses.
That address: inadequate to inspire
The President's Address to Parlia- ment was disappointing; in as far as the economy was concerned. It was a reiteration of lofty goals, a biased view of the economy's performance by a selective use of statistics, an inadequate assessment of the current economic situation and lacking in any new economic strategies. One might even say little thought appears to have been given to a new economic agenda. It was full of unachieved objectives of the last six years to be achieved in the next six.Perhaps the President's statements are meant to be of this sort. Another political exercise for the consumption of the people.
A vague vision of, "Making our country one of the most developed and advanced countries in the third world through a definite programme of economic development that would achieve the elimination of poverty" may sound good, but the rest of the statement nor the government's initial actions, appear to back it up.
Not only is a definite programme lacking, but also a resolve to place economic issues at centre stage, rather than party political concerns, is evident in not discussing the current economic realities and stating the government's responses to them.
The more specific economic objectives in the statement are the reiteration of the unaccomplished targets. We have been hearing for a long time that the country has to achieve an eight percent rate of growth. That was not achieved in the past six years, now that is once again the illusive objective of government policy.
It is one thing to desire a high rate of growth, it is quite another to achieve it. There is nothing to indicate that there are different sets of economic conditions or a more aggressive economic strategy to achieve this desired higher rate of economic growth.
Particularly disappointing was the President's lack of discussion of the current economic situation in a realistic and bold manner. She chose to paint a rosy picture than face up to the realities of the situation.
There was no reference to the difficulties faced and the implications of the oil price hike, the diminishing foreign exchange resources, the depreciating currency, the rising rate of inflation, the rising interest rates and poor state of the government's finances.
Instead by a carefully selected set of disputable data, we are told that the country's economy is stable, perhaps even robust and impliedly on the way to achieving rapid economic progress.
Even the increase in the size of the Cabinet to over forty is interpreted as one of the strategies for effective implementation of the government's programme.
This avoidance of the current realities does not augur well for the formulation of an appropriate, politically courageous and pragmatic programme of economic action.
We hope that a more carefully thought out, realistically planned and a more specific economic programme would be implemented in the next few months.
The postponement of the Budget can only be justified in terms of coming up with the specific economic programme.
The business community in particular is waiting for clear signals that the government means business.
So far it has failed to convey that impression and only favourable global
conditions appear to be driving the economy. The government has failed
to provide the much needed catalytic effect. Unless there are strong measures
to deal with the emerging economic conditions the desirable objectives
which the President expressed so eloquently will remain an unrealised vision.
Get the EPF rolling
Sri Lanka faces the fastest aging population and its pension system is crying out for reformThe EPF currently acts as a regressive tax on individuals, thus mainly affecting low-income groups. It is time a change in the system was made; a change that would benefit the majority of the population. With reform, labour market mobility will be granted as well.
Sharada Selvanathan, University of Warwick
Don't be surprised at yourself once you turn 50. You'll feel the calculations building up and financial affairs will keep you on edge. You'll be spending much of your time thinking of your future. "Future" that's knocking on the door next to you and waiting to get in. Issues of investment returns and post retirement consumption will be on top of your agenda. You can't help yourself.Sri Lanka faces the fastest aging population in the history of the world and its pension system is crying out for reform. The EPF represents the central pillar of retirement savings in Sri Lanka and dates back to the late 50s.
It is a mandatory fully funded system. Each employee contributes 8% of his/her wages and the employer contributes 12% of wages. The amounts are invested in a pool and the proceeds are paid as a lump sum at retirement. The fund is managed by the Central Bank of Sri Lanka, which ultimately responds to the Ministry of Labour.
The shortcomings of the system are never ending. The absence of a firm regulatory authority leads to high evasion, the lack of the inflation index for pension system schemes erodes the personal wealth of individuals and poor investment returns make the idea of retirement all too depressing.
The Chilean pension reform of 1981 has been hailed as a large success, and is taken by many, as a model for future reform in other countries. This pension reform was a shift from an unfunded scheme (whereby today's workers pay for today's retirees) to a funded one. The latter system involves the accumulation of capital funds to provide a desired pension to its beneficiaries after retirement.
The former unfunded approach placed enormous pressure on the Chilean economy and had a draining effect on public budget thus forcing reform. Impetus for reform has come from this successful example and has led to a wave of pension reform in Central and Eastern Europe as well as Central Asia.
Reform, in this case, increased portfolio diversification, isolated the system from political interference, sensitized workers to savings, accelerated financial market development and reduced the unresponsiveness of wages to market forces. All of which seem to be necessary in the current Sri Lankan system.
Why does the government keep a tight hold on our savings? With such involvement, political control rests at large and individuals are the final losers. Calculated on a weighted average basis, over the past 27 years, the EPF has achieved a rate of return of only 1.6% (after adjustment for inflation). This is blamed mainly on the lack of investment freedom and its public administration.
The EPF currently invests 98% of its funds in government debt. Although, recently, the EPF has been given some freedom to diversify into equity investments, portfolio diversification is still very much limited due to the high political influence involved.
By yearend 1998, only 0.25% of assets had been so invested thus proving the lack of independence in investment decisions.
If portfolio diversification is allowed, investment in government securities is based on market prices (as advised by the Independent Fiduciary Services) and public administration is replaced with a private one, investment returns will increase and post-retirement consumption would not seem so bleak. As the political grip loosens, individuals will be able to invest in other competitive markets, such as real estates or foreign financial markets, which will prove to be more profitable. In the long term, individual income will increase, promoting greater savings.
The EPF currently acts as a regressive tax on individuals, thus mainly affecting low-income groups. It is time a change in the system was made; a change that would benefit the majority of the population. With reform, labour market mobility will be granted as well.
The only theoretical advantage of the EPF is that it is a funded system. However, the clear loopholes make it seem no less unfunded, with high evasion and its taxing effect on individuals.
Does the government not trust our instincts and experience in saving voluntarily? The current mandatory system forces individuals to save and thus has the effect of counter attacking moral hazard and savings myopia (theoretically). However, what makes us different and more shortsighted than government officials? What makes them know the system better than us?
Economists believe that a transition from a mandatory system to a voluntary one has the potential to increase domestic savings greatly. Individuals will use their idea of consumption smoothing, current income, expectations of the future and the marginal propensity to consume to decide on their level of future savings. To add to this, the opportunities they gain by investing in high return areas would lead to financial market development, investor confidence and longer term economic growth.
However, such a transition would take some time. For reform to take place, changes have to be made at the centre. The government has to allow free market forces to take the lead and political influence will have to be dampened. As administration moves into private hands and the social assistance element is separated from the mandated saving element, further reform can take place, where individuals will be given complete autonomy. And then, when we finally turn 50, life would not seem as austere as it seems for most 50 year olds today.
Front Page| News/Comment| Editorial/Opinion| Plus| Business| Sports| Sports Plus| Mirror Magazine
Please send your comments and suggestions on this web site to
