The Sunday TimesBusiness

19th January 1997




Ceylinco hopeful of boosting CBC Crosby

Ceylinco Securities and Financial Services Ltd. (CSFSL) has set a tough target for newly acquired stock broking firm, CBC Crosby Stock brokers Pvt. Ltd.

"We hope to increase turnover by 300% in the next three months and turn the company around," CSFSL, executive director, Mr. B. Ranaweera told The Sunday Times Business optimistically, considering the bearish trend in the Colombo Stock Market , now reported to be picking up.

Last week a consortium led by CSFSL, acquired CBC Crosby Stock Brokers Pvt. Ltd. for Rs. 10.5 million.

Headed by CSFSL which will eventually hold the majority shares of CBC Crosby, the consortium includes Seylan Merchant Bank, Seylan Bank, Alliance Finance and Arpico Finance.

Negotiations are now underway for the equity participation of a subsidiary of a state bank, Mr. Ranaweera said.

The consortium is expected to raise around Rs. 30 million which will be sufficient to wipe out liabilities (an overdraft) of CBC Crosby also, Mr. Ranaweera added.

CBC Crosby's current portfolio of around 1000 accounts, of which only about 150 are active, will remain with the new management.

For the targeted 300 percent increase in turnover however, aggressive marketing and support from equity partners is essential.

"We have a captive market within the Ceylinco Group," Mr. Ranaweera said. "For example, Seylan Merchant Bank has a huge trading portfolio and margin trading accounts" he added.

Commercial Bank of Ceylon tied up with Crosby Securities to set up a stock broking company in the boomtime of the Colombo Stock Market in 1993/94. Last year Crosby which provided the research arm of the brokerage pulled out a set up a research unit on its own.

The new owners have to now set up a sound research unit to improve clientele and increase market share. "In fact our priority is to now set up a good research unit ,after which we will move into stage two of our marketing plan, Mr. Ranaweera said.

"With a sound research and analysis unit, we intend to form technical and strategic alliances with foreign partners, he said.

The company is not interested in equity partners, unless the partner is a big time operator capable of bringing in about Rs. 35 - 40 million monthly, Mr. Ranaweera said. Their strategy is to build up alliances especially with Indian and Hong Kong companies, where the Group ties are strong.

By April our staff will start meeting up with possible future partners. Technical and strategic partners will have managers appointed to liaise with Colombo and channel business to us, Mr. Ranaweera added.

With the take over , staff has been trimmed down to 12. Some of the staff have been absorbed into the Commercial Bank. The responsibility of relocating excess staff was undertaken by the Bank as part of the sale agreement, Mr. Ranaweera said.

Meanwhile the new management will infuse new blood into CBC Crosby., mainly investment managers.

The company will continue to operate from the existing premises at Meewella building , Colombo 4.

With the acquiring of the brokerage, CSFSL is now a fully fledged financial services unit offering many services under one roof. Since the firms IPO in 1994, activities have strengthened with primary dealership in T-bills and money broking. Recently the company acquired Asian Finance and also has a fully equipped secretarial service.

The company had applied to the SEC for a new licence for a stock broking company, but stiff licence fees and additional start up costs would have been far more expensive than buying an existing broking company, Mr. Ranaweera explained.

By Ruvini Jayasinghe

Bankers welcome Central Bank reduction of reserve ratio

The Central Bank's decision to reduce commercial banks' statutory reserve ratios by one percent will result in the availability of additional funds for lending because it results in a decline in commercial banks' lending rates, a Hatton National Bank official told The Sunday Times.

According to the bank official, this will result in a slight improvement in liquidity levels providing more funds for lending with a reduction in cost of funds. The reduction in reserve ratios will give long term relief which is fairly substantial, from commercial banks' lending rates which are currently standing at around 18-24 percent, he said. However, they are still awaiting the circulars which were to be released to all commercial banks, last Monday, he said.

According to the ANZ Grindlays, Manager FOREX, Subash Wanigasingham, the reduction reserve ratios from 15-14 percent would be a relief to the economy which is not vibrant, at present. Deposit rates together with the Central Bank's Treasury Bill rates will definitely come down, he said, adding that as far as they are concerned around Rs. 50 mn will be released into the market as a result of the reduction of the reserve ratio.

A Sampath Bank official said that they hope to reduce lending rates and deposit rates too will drop. In addition, the Bank will be able to release Rs. 70 mn to the local money market as a result of this revision. Interest rates are expected to come down and price increases to stabilise, this year, he said, adding that many exporters are switching over to foreign borrowing from rupee borrowings due to new guidelines issued by the Central Bank, which allows them to borrow at offshore rates which are relatively lower than local interest rates.

A top official from the Commercial Bank, stated that the funds available to banks as a result of this revision, can be used for income generating and lending purposes. Further, the reduction of reserve ratios, is a step forward in providing relief to the economy, he said.

By Ruwanthi Ratnayake

New digital exchange links to Kandy

The new Ericsson AXE 10 digital exchange at Rikkillagaskanda was recently inaugurated by the Minister of Telecommunications Mangala Samaraweera, a company release states.

The project, which was financed by the World Bank, was supplied and installed totally by Ericsson. These will now be connected to the Kandy main exchange, which was installed in early 1996.

The Rikkillagaskanda Exchange will initially be equipped to handle 500 subscribers, in addition to the current subscriber base of 84.

A total of 76,440 lines in the Greater Colombo, Central Province and Galle District will be installed under the project.

Mind your Buiness

Shock on the line

The powers that be are seriously contemplating a hike in telecommunication charges, we hear.

Not everyone is happy, least of all the four cellular network operators.

The growth in that industry has already been hampered by the twenty five per cent turnover tax levied by Sri Lanka Telecom and any more price hikes will make the cost prohibitive....

Targeting estates

The privatisation programme is not bringing in the big bucks as planned and the Treasury Boys are a worried lot.

So what can they do except speed up the process for those sectors which have attracted favourable demand.

Therefore, privatisation of the plantation sector may reach a hurried conclusion....

New five-star in city

The prophets of doom are predicting a dismal performance for the tourist industry even this year what with the security situation retaining it's status quo.

But at least a reputed chain of hotels has other ideas; the time is ripe for investment in Colombo, they feel.

They are now prospecting a site for what might be the city's latest five star...

By Buiness Bug

Transport sector in crisis

Although infrastructure development has been recognised as priority need by successive governments, little real improvement in physical infrastructure is visible. Transport is one area in which the gap between demand for and supply of infrastructure is widening to near-crisis proportions.

The road network - especially in the Greater Colombo area - has not expanded significantly in the past decade. The numbers of vehicles travelling on these pot-holed roads have increased exponentially. With this increase in vehicles has come an increase in congestion, traffic accidents, and air pollution. Travelling by road in Sri Lanka is now more unpleasant, time-consuming, and dangerous than ever before.

Public transport is in crisis. There is no significant addition of new buses - to the peoplised fleet or the private fleet - and the existing fleet is deteriorating rapidly. Demand for public transport services, however, is booming. The result is that existing buses are carrying larger and larger numbers of passengers and breaking down more and more frequently. Rail is utterly neglected although it has the greatest potential for ameliorating the public transport crisis. There has been close to zero investment in railway infrastructure in recent years. The pathetic state of the ancient railtracks, locomotives, and communication equipment has negatively affected the quality and reliability of service provided and greatly limited the scale of railway operations.

It is vital that the government takes this situation seriously and takes strong measures to solve these problems. Part of the problem to date has been that the issue of transport and infrastructure has not been considered and addressed in an integrated manner. The separation of the Transport and Highways portfolios into two different ministries is a testament to this. The current conflict between the Presidential Secretariat and the Ministry of Transport over the purchase of Indian buses also reflects the lack of an integrated approach to the transport problem.

It is vital that all the relevant players - the Ministry of Transport, the Ministry of Highways, the Road Development Authority, Sri Lanka Railways, the National Transport Commission, the Department of Motor Traffic, representatives of the peoplised bus companies and private bus operators, and representatives of commuters - be brought together to identify and recommend solutions to the urgent problems of the transport sector. The strategy of each agency addressing its own problems has not resulted in any overall improvements. It is obvious now that a more holistic and collaborative approach is needed.

Any future approach to this problem must include the following three priorities: sound physical infrastructure for transportation, quality public transport services, and increased road safety and discipline. The development of improved and expanded transport infrastructure (ie. roads, expressways, bridges, railway tracks, locomotives) will require a combination of public and private investment. In order to attract private investment in this area, the government will have to introduce instruments like tolls for road use and will have to support significant fare increases. Serious thought must be given to strategies to revitalise Sri Lanka Railways and to upgrade its infrastructure. Rail has the capacity to carry large numbers of passengers to their destination in a faster, cleaner, and (often) cheaper way than buses or vans. In our present situation, in which roads are becoming increasingly congested, dirty, and slow, we should seize the advantage that rail presents.

Road safety and discipline is an issue that should not be undermined. To much of the urban population, traffic accidents often present a more menacing threat to life than terrorism. There are many things that must be done in order to deal with the anarchy on Sri Lanka's roads. Traffic regulations must be consistently enforced with a set of spot fines that are restructured to reflect inflation and act as an effective deterrent. Imposing a fine of Rs. 150 for a parking violation is completely ineffective because it does not "hit the purse" hard enough. The threat of a Rs. 150 fine therefore does not deter drivers from disregarding parking rules.

Some action must also be taken to limit the number of cars allowed on the roads. The high duty on imported vehicles does not appear to be limiting imports in the least. The increased vehicle fleet is putting an unbearable burden on the road network. The government must either take some of the older, polluting vehicles off the roads or place restrictions on the numbers of vehicles entering Sri Lanka. Priority must also be given to improved road engineering. Traffic lights, roundabouts, islands, sidewalks, parking bays, and bus lanes must be developed strategically to ease congestion and facilitate the flow of traffic.

The government should heed consumer complaints. If the transport problem is not taken seriously at this point, it will prove to be a devastating bottleneck to economic development in the near future.

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