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The government is hoping to raise at least Rs 10 bn via the new two-year Treasury Bonds, The Sunday Times Business learns.
The first Rs 500 mn issue would be offered to the public on March 3. Thereafter Rs 500 mn tranches would be offered fortnightly.
"Depending on the subscription to the issues, the offers may be altered in the future" a Central Bank official said.
The bonds come at an opportune time when the government has already exhausted the Rs 125 bn ceiling on T-Bills set by Parliament.
Though T-bonds are ultimately expected to reduce the dependency on short term borrowings, analysts believe that it is unlikely that T-Bill holdings would be retired in favour of T-Bonds this year with the government already having budgeted to raise more than Rs 50 bn from private sources.
Unlike Treasury Bills which are zero-coupon instruments, T- Bonds would have a coupon. The interest would be paid to investors every six months.
The rate for the forthcoming T-Bond issue has not been announced as yet.
Prospective investors would however be able to submit bids at a discount or premium to the face value to reflect a chosen yield, quite independent of the coupon rate.
Despite this, the fixed-income analysts were keenly awaiting the announcement of the rate.
"A lot of people would be guided by the coupon rate," one analyst said.
Private analysts are looking for yields of at least 16 per cent a year. A coupon of 15.5 per cent paid semi-annually would result in a yield of around 16 per cent a year when compounded.
"Unlike the short-term Treasury Bill, commercial banks would not hold a two-year instrument as part of their liquid assets," one analyst pointed out. This tended to dampen demand from the sector.
Analysts also said private buyers would not be willing to get less than the one year T-Bill yield which is now slightly over 15 per cent.
Two-year rates, however, are usually driven by different fundamentals, and the long rates need not necessarily be lower than the short rates.
"Sri Lankan investors are relatively unsophisticated and at least initially the yields would have to be attractive enough to tempt investors," an analyst pointed out. "Below 15 per cent, there won't be much private sector interest to invest, only captive sources would buy them."
Of late the Central Bank has been acting to bring interest rates down, and is believed not too keen on offering a high coupon.
Though treasury instruments are gilt edged and regarded as having no credit risk, interest rates have tended to fluctuate wildly from time to time, which is believed to contribute to the relatively high T-Bill rates in Sri Lanka.
"Volatility is a major risk factor which makes investors demand an additional premium," an analyst said.
Others say all new instruments generally require a premium to be paid.
Private corporates hoping to issue two-year debentures were also awaiting the T-Bond issue with some interest as it would establish the benchmark two-year rate in Sri Lanka, doubling the existing risk-free yield curve.
Vanik Inc. has already issued unsecured debentures with a 20 per cent coupon to the public, and the Merchant Bank has issued unsecured debentures at 17.54 per cent for period exceeding two years.
Two new primary dealers have been appointed as primary dealers to deal in Treasury instruments in the run up to the T - Bond issue in March, while several existing dealers have been struck off the list.
While Asia Capital Ltd and the National Savings Bank have been added to the list, Standard Chartered Bank, Habib Bank Zurich, Mashreq Bank American Express Bank had been removed.
people's Merchant Bank which was recently appointed a primary dealer had also lost its dealership.
"We are aggressively planning to market T-Bills," Asia's Vice President Treasury Gerard Abeysena said.
Asia Capital itself had been a major investor in T-bills holing a portfolio of one billion rupees at one time.
Mr. Abeysena said Asia Capital had an advanced information management system to handle retail transactions.
The highest rice imports of the decade was recorded in 1996, improving the supply position in the wake of erratic local production. Sri Lanka had imported 290,000 tons of rice in 1996, worth Rs. 4,553 mn.
''This is the highest quantity of rice imported in this decade,'' Agrarian Research and Training Institute (ARTI) said.
Milled rice accounted for most of the imports at 237,000 tons (Rs. 3,752 mn.) followed by broken rice (50,364 tons) and brown rice (2,122 tons).
Despite this, retail prices of rice had risen by 20 to 36 per cent in December 1996 compared with the previous year.
The demand for rice is believed to have risen in 1996 with the withdrawal of the wheat subsidy.
Though demand had risen during the festival season in December owing to ample imported rice, prices have not risen significantly over the previous month.
Though rainfall had been low during the Maha season a more distributed rainfall had helped reduce damage, ARTI said. Low rainfall, particularly during October had delayed the beginning of the Maha cultivation season.
''However paddy production in Anuradhapura district was severely affected for the third consecutive season this year due to water shortage," ARTI observed.
However better rainfall in November and December in Kurunegala had enabled 63,253 HA to be cultivated.
In the second largest rice producing district of Ampara 54,000 HA had been cultivated. Nearly 80 per cent of the target (36,800 HA) had also been cultivated in Batticaloa district.
More than 70 per cent of the cultivation overall target (478,000 HA out of 673,000 HA) has been achieved by end December. Harvesting is expected to peak in March 1997.
A Japanese company will introduce deep sea tuna fishing in the Southern seas, the company's Chairman Tatsuro Toda said last week.
His company, Japan Gaia Village organised the recent visit of Japanese investors to Sri Lanka to study the country's economic potential and viability for launching various projects.
Japan Lanka Gaia Village, Managing Partner, Jayantha Jayatilleka told the media that the group consisting of Japanese businessmen from various private organisations have been touring the country for one week and were keen on seeking potential ventures in the country.
The Japan Lanka Gaia Village specialises in fisheries industry. Deep sea tuna fishing would be a joint venture between the Company and the Southern Development Authority (SDA).
Speaking on the occasion, Southern Development Authority Deputy Director General, Sarath Hemachandra said that for one whole week the groups has been visiting the southern development area and other parts of the island and are well aware of both the economic and political conditions of the country.
JBB Stevia Laboratory, Executive Adviser, Eiichi Sakamoto, being a member of the group, hopes to venture into planting Stevia, a plant known for its medicinal value. According to him, Stevia extract is a sugar substitute, but research has proved that, the plant, has also multi-functional activities, such as the effective treatment of diabetes.
''However, if we are to introduce this to Sri Lanka, we have to see to the economic side of cultivating Stevia in Sri Lanka'', he said.
Sanwa Marine, Container Business Department, Manager, Noritomi Seta said that his Company wants to venture into freezer containers.
At their meeting with Trade Minister Kingsley Wickramaratne, the minister, said that there is enormous potential open for investment in Sri Lanka, making it the production base not only for the local market but also for future markets in the SAARC region.
Are we to believe the powers that be who assure us that there will be power, come what may, this year?
At least some big names in the business sector are not so sure.
So, they have ordered generators to meet any contingency. That cost is a small price to pay, they say, rather than having to rely on what the Board tells them...
A leading West Asia-based bank will set up more branches - about 20 - in Sri Lanka, they say.
That was the initial plan, but the idea was deferred when the big bomb exploded at the big bank last year.
But now, the greenlight has been given again, following the recent visit of a bank big-wig.
The Board of Investment (BOI) is nuturing a plan to promote Colombo as a financial services centre in the region, Chairman BOI, Tilan Wijesinghe said last week.
He added that Sri Lanka needed to focus on having a stable economy and a macro-economic framework. He acted the importance of a stable fiscal policy and a good regulatory framework in which a viable domestic financial system could survive.
Speaking at a Forex Club sponsorship event, Mr. Wijesinghe said that Sri Lanka's geographical location was an advantage to promote Colombo as a shipping centre to handle transhipments and as an aviation and air cargo centre. He said that the privatisation of AirLanka was an initial step towards this end.
The BOI, Bank of Ceylon and People's Bank handed in their sponsorship cheques to the Sri Lanka Forex Club which is to organize a congress of South-East Asian foreign exchange dealers.
Mr. S. Easparathasan, Senior Deputy Governor of the Central Bank, said that adequate emphasis has not been laid on the financial services sector unlike the trade sector and pointed out that the convening of this congress would create awareness among bankers in Sri Lanka and the region.
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