Financial Times

Lankan firms venture overseas
An increasing number of Sri Lankan companies are venturing overseas, setting up manufacturing plants or marketing outlets in a series of bold moves that marks an emerging new trend and reflects the growing confidence and entrepreneurial spirit among local businesses.

However, total returns from such investments, which include those by top conglomerates like Hayleys, Aitken Spence, Carsons and John Keells, are still small mainly because many of them are new or because they re-invest much of the profits back in the overseas ventures.

The Exchange Control Department of the Central Bank has allowed 58 investments abroad since 1998, including four investments approved in 2004. The total investment value approved for these ventures is over $50 million although the actual amount invested has been only $35 million, Controller of Exchange H.A. G. Hettiarachchi said.

Outward direct investments by Sri Lankan firms are not yet liberalised. They are allowed by government on a case-by-case basis, depending on the merits of each case, with the permission of the Finance Minister under exchange control regulations.

"When we recommend investments for the approval of the minister we look into their contribution to exports and ability of overseas investments to further enhance the export earnings of these companies by finding new markets and improving their competitiveness," Hettiarachchi said.

"They must have a proven record of past export proceeds and their overseas investments should have a short pay back period. They must recover their total investment cost in a short period out of their returns."

The finance ministry granted 12 approvals in 2003 for investment abroad by resident companies with a total value of $29.2 million in the field of export promotion, financial services and travel services.

Long-standing overseas investments by local firms include those by subsidiaries of the Carson Cumberbatch group, which has palm oil plantations in Malaysia and Indonesia.

Carsons has said it expects to re-invest in its overseas plantations part of the $30 million earned from the sale of an estate near to the Malaysian capital Kuala Lampur owned by a subsidiary, The Bukit Darah Company Ltd.

Carsons oil palm plantations in Indonesia and Malaysia account for more than half the group's profit before tax. The group, controlled by the Selvanathan family, has five Malaysian oil palm plantation company subsidiaries quoted on the Colombo Stock Exchange.

The Hayleys conglomerate is expanding its overseas presence in a big way and plans to have new plants in Indonesia and China for its activated carbon and coir businesses to meet rising global demand for its products and overcome raw material shortages here.

It wants to set up two activated carbon plants in Indonesia with a total project cost of about $2.5 million each, including equity from minority shareholders and bank loans. The company's Haycarb subsidiary already has a carbon plant in Thailand and its Dipped Products subsidiary has built a medical gloves factory there at a total cost of $10 million. The latter also acquired its Italian distributor over a year ago.

Hayleys plans to set up a rubberised coir plant in China, probably near Beijing, as a joint venture, and a fibre extraction plant in Indonesia. John Keells and Aitken Spence, which operate coral island tourist resorts in the Maldives that account for a significant part of their income, have both bid for another island resort.

Ceylon Biscuits, makers of the Munchee brand, last year took over Bakeman's, a defunct firm that was once India's third largest biscuits maker. Another firm, Damro, which makes furniture, has set up show rooms in South India.

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