Owners shedding unviable business units
At least half a dozen owners of companies are divesting their ownership in certain business units to bank the cash at over 30 per cent interest to earn a handsome return while others are moving abroad to start fresh businesses, officials in the industry say.
Most are weary of managing overhead costs, day-to-day businesses, and dealing with increasing taxes and high-interest rates in businesses. “Certain businesses sold in the past two months and there are a few more depositing the cash in a bank to earn a sizeable 30 per cent return. It is a smart move,” an official told the Business Times on Thursday.
None of the companies right now have more than a 50 per cent margin in the businesses, a top company CEO pointed out noting that not many people are ‘interested’ to do business. “Nobody wants to do business in this country because of the heavy interest and heavy tax costs. These costs translate a different meaning to the business community who are feeling that they are not working for the shareholders or equity holders but the government.”
A second CEO agreed, noting that the viability of businesses is in question in this high-interest and tax environment. “Unless it is a trader or a dealer where they make big money investing in long to medium term businesses covering the high interest and tax issues are simply not making sense anymore,’ he said.
For instance, he said that building a hotel takes nearly three years for approvals and construction.
“In the current context, at the end of the construction, the cost would have tripled for a mid-sized hotel. It is virtually impossible to do such a project,” a hotelier pointed out noting that the quality of the hotel industry will also drastically drop in an environment like this. “In a subdued economic environment, no tourists or investors will be attracted to Sri Lanka right now.” These impediments have moved certain units of companies to be sold. Currently, an arm of a large company is for sale in the stock market. “It is being offered to certain investors as we speak,” a stockbroker told the Business Times.
Large stakes of highly geared firms are also in discussion to sell their least profitable or non-profitable units. Stockbrokers said certain small business units of profitable companies are also in the market.
What is extensively being discussed are IT firms, certain insurance companies, manufacturing units, large stakes but not ownership etc.
Stockbrokers said that most firms that are being offered in the market have a debt-to-equity ratio of around 50 per cent and it is not making sense to do business anymore. “It is also not making sense to buy them.”
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