A new short-term instrument has been introduced to the market by Union Bank of Colombo, which celebrated its first year of operations last month.
Called a 'Banker's Acceptance' the new instrument is a vehicle for raising finance to exporters who utilise usance facilities. However the bank will also provide the facility to importers in the future. "This is essentially a facility that finances exporters so that they may give credit to their buyers abroad", Union Bank Treasurer, Mangala Boyagoda said.
Even earlier, banks used to finance exporters against their export documents. The usual procedure is to sell the foreign exchange forward, arrive at the rupee amount, deduct the interest for the period (discount) and give funds up to that amount to the exporter. The Union Bank has gone a step further and separated the funding element from the forex risk by giving the exporter the option of deciding when to sell forward his forex. "Instead of selling the forex forward, the exporter can now wait till the date of collection and convert his foreign exchange at the spot rate prevailing at that date", Mr. Boyagoda explained. With most analysts forecasting the dollars to strengthen, this is expected to be attractive to exporters who would like to benefit from a possible exchange gain.
However if necessary, the exporter may ask the bank to hedge against currency risk at any time before the export proceeds are realised. Under the new scheme the exporter will draw a bill of exchange on Union Bank. The bank will accept the document by placing its seal. "This Bankers Acceptance is then sold in the money market", says Mr. Boyagoda. "It will carry the Union Bank guarantee".
Similar to commercial paper, the Bankers Acceptance will carry an attractive rate of interest above the Treasury Bill rate, adding yet another instrument to the tradable debt securities market in the country.
"But the main advantages of this instrument is that the exporters who are willing to take the risk would be able to benefit from exchange gains, while having cost effective funding at the same time", Mr. Boyagoda said.
He says with most large corporates having their own treasuries, they are now better able to monitor the forex markets and take decisions on managing risk, for maximum returns.
The Union Bank signed its first agreement for Bankers Acceptances with Lanka Walltiles Ltd., last Thursday.
The events connected with tenders called for by the Vocational Training Authority (VTA), which we highlighted last week, have taken another turn with things becoming curiouser and curiouser. Many bidders are saying that they are still in the dark as to the fate of the original tender for 700 typewriters. In response to our story, the VTA Chairman, T.B. Ponnamperuma said the VTA, as a responsible public body, welcomed constructive criticism, and was fully devoted to a policy of transparency in all its dealings. Major General Ponnamperuma, who was quite conscious of the image of the VTA among the business community, said no wheeler dealings had taken place. While admitting our report was factually correct, he attributed many of the shortcomings to the exigencies of the situation. He said as the VTA was to open a number of training centres all over the country in a short period, the management was under tremendous pressure to meet deadlines. Whatever mistakes that had been committed by the officials were due to that, he said.
The VTA chief said the public and the media should understand that the VTA was a new organisation with no experience in handling tenders. He said the management had referred the matter to the Attorney General before cancelling the tenders for personal computers and computer printers.
VTA supplies manager, Sylvester Dias, commenting on the purchase of 50 typewriters from the State Trading Corporation (STC), said an urgent purchase had to be made as the necessary equipment was not available for several training centres which were to be opened shortly.
In such a situation the VTA had no option but to buy the machines from STC, which is a state organisation, he said. VTA personnel director, B.L. Ramanayake, whom we inadvertently referred to as the Chairman said the need to update specifications arose as the technical evaluation committee which had been formed after calling for tenders, wanted the specifications changed.
Although the VTA is in it's first year of operation it's officials have years of experience in the public or private sector. VTA itself admits that the TEC for the tenders for computers and printers was formed only after calling for tenders. This is in itself an anomaly.
The tender for 700 typewriters is one about which we have received conflicting information from VTA officials. This still continues to baffle most of the bidders. The official position on this tender seemed to be changing not by the day but by the hour. We were intially informed by an official of the VTA that only 260 typewriters (200 English and 60 Sinhala) were purchased under the tender, and that bidders were already informed of this decision. Yet many bidders told us that this is not so. On the same day we were again informed that 400 typewriters (200 Sinhala and 200 English) had been purchased. This last claim was made by Mr. Dias. Again we were told that the bidders had been informed of the decision when they had not been. An official from a company which was one of the original bidders, said the official position upto Tuesday morning was that the tender was still being evaluated. This was done when the actual decision (as we were informed by the VTA itself) had been taken during the first week of July.
One of the bidders to whom a part of the tender had been awarded, did not have any prior experience in providing an after-sales service. On inquiry, a VTA official (whom we refrain from naming for reasons of courtesy) said that, The Sunday Times had no right to question a decision taken by a ministerial committee.
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