Tsunami
and shareholder value
The damage and destruction caused by tsunami waves to Sri Lanka
and its economy are immense. To start with we have lost more than
20,000 people and many are missing. We are not used to these kinds
of disasters since our nation is not familiar with such natural
disasters. The market dropped on Tuesday as information on the scale
of the disaster trickled in. I will examine the impact this will
have on our economy and shareholder value.
Tourism
sector
The beach resorts in the Southern, Eastern and some in
the West coast have been severely hit. The immediate impact would
be a tremendous drop in earnings since this was the winter season,
where occupancy was full. Hotels will have to be reconstructed and
this will take a month or two. It is questionable whether all hotels
will be able to recover their insurance policies. In this case hotels
will have to raise money for reconstruction and this will further
increase their financial costs. I also feel that this will have
a trickle down impact on the tourism industry as a whole in 2005
since the country's image as a location immune to natural disasters
is now lost. If this is the case there could be a poor performance
of the sector in the year 2005. Image building and marketing has
to be carried out overseas to overcome this drawback to this sector
which is a key contributor to the economy.
Construction
industry
One man's meat is another man's poison. This will be a
tremendous opportunity for the construction industry which will
have an increase in business due to reconstruction and rehabilitation
work which will commence very shortly. Industries such as cement
production and even contract business will benefit in the process.
Banking
sector
In terms of infrastructure the impact on banks was quite
minimal. Some banks would have experienced damages to their regional
branches. The lending portfolios of banks could have been affected
since significant property was destroyed and these could have been
constructed with debt. Where a bank's exposure becomes high in this
regard earnings would tend to dip. At the same time banks would
also get opportunities to invest in rehabilitation and reconstruction
whereby they would be able to earn higher earnings in the future.
Healthcare
sector
Majority of the private hospitals are in Colombo and its
suburbs but increasingly many affluent rural individuals are brought
and admitted in these hospitals with all sorts of injuries. The
hospital sector is likely to experience an increase in earnings.
Some of the hospitals such as Apollo and Nawaloka are listed and
their earnings increase should fundamentally improve their shareholder
value.
Petroleum
sector
Last week the market was upbeat about LIOC whose price
doubled when the stock started trading. The LIOC IPO was mainly
towards raising funds for the Trincomalee oil tank facility. The
impact on these is yet not adequately assessed but it may have an
impact on LIOC performance in the next year.
Human
capital
More than the damage to any sector, the human capital
of the country has been lost on a large scale. The individuals dead
are those who contribute directly or indirectly to the economy and
thus the performance of the market. It is difficult to estimate
how long it will take to correct the damage.
Message
to the investor
From north to east to the south it is the same story.
A story of tragedy filled with human loss, suffering and mass destruction.
This is an opportune moment for our leaders to come forward and
build a nation by uniting everyone.
It
is time for us to pause and think as Sri Lankans and work together
in rebuilding a nation without poverty, without war, without human
suffering and which is safe from such natural disasters. Only then
can we be assured that we have done our best for mother Lanka and
that we are working towards sustainable shareholder value.
(The writer could be reached at -
ravim@icbsgroup.com) |
