16th November 1997

Colombo Port in stock market

By Asantha Sirimanne

The government is planning to list the Colombo Port in the stock market The Sunday Times Business learns.

"The preliminary examinations are currently under way to examine the possibility," a top government official said. "At present the Ports Authority does not even have a proper balance sheet."

The government is also close to finalising a deal with the P & O led privately owned company, South East Asia Gateway Terminals to build a new container berth at Queen Elizabeth Quay on a Build Operate Transfer (BOT) basis.

There has been substantial opposition to this project from trade unions which want the government to develop the Port with foreign debt.

The state owned Ports Authority will be first converted into a limited liability company before going for a public listing.

The Port is to remain in government hands.

"This will not be a privatization in the sense a majority stake will be sold to foreign buyers," an official said. "The government will simply sell a part of its stake to the public."

Once listed the Colombo Port will be the highest capitalized company in the Colombo Stock Exchange.

According to one estimate the listing is likely to boost the market capitalization of CSE by as much as 20 per cent.

In 1996 the Colombo Port made pretax profits of Rs 2.5 bn on revenues of Rs 8.3 bn. This was substantially higher than in 1995 when the Port made pre tax profits of Rs 1.3 bn on revenues of Rs 4.5 bn.

Galle and Trincomalee harbours ,both of which are also owned by the Ports Authority , made losses.

If the QEQ is developed by P & O, the Colombo Port will also get substantial annual payments from the terminal company.

Analysts say a listing will not only allow the government to earn revenue but also pave the way for the Colombo Port to raise equity capital. So far it had been heavily dependent on Japanese government aid and internally generated funds for growth.

New Year reopening for Galadari

By Mel Gunasekera

Despite the severe damage in the recent bomb blast, the Galadari Hotel management is optimistic about rising from the rubble to re-open in January, officials said.

Stage one would include the opening of two restaurants, the lobby and about 250 rooms. The cost of re-construction would be financed by the government.

"The government was very quick in responding to our appeal for assistance, and they have promised us a financial package that includes a complete duty waiver for the items required for the refurbishment of the hotel," Galadari General Manager, Chandra Mohotti, said at a media briefing.

The government is providing a soft loan of Rs. 1.5 bn at 2 percent, re-payable over a 15 year period, including a 5 year grace period for firms affected by the blast. This would benefit the Galadari Hotel as well.

Though Mr. Mohotti declined to reveal figures, he told the Sunday Times Business that they were negotiating with the Govt. to finance them in three stages. "Firstly, a massive grant would be ideal. Secondly a soft loan and thirdly we are looking for further equity investment", he said.

At present the government of Sri Lanka holds a 25 per cent stake in the 500 room hotel. The Galadari Brothers hold the controlling share of 65 percent and the balance 10 percent is owned by the public.

When disaster struck, the hotel was nursing a long term international loan obtained by the Galadari Brothers on behalf of the hotel. A spokesman for the Galadari Bros. said there was US$ 10 mn remaining to be re-paid.

However, the vital question of the total cost of the damage is yet to be answered. "We have a rough estimate of Rs. 300-Rs.600 mn, which was initially based not only on the cost of goods, but also on the duties payable to the government. Since the duties have been waived, we have yet to make a proper evaluation," Dr. Milroy Perera, Consultant Architect for refurbishment attached to Selvaratnam and Perera said. "We are in the process of getting foreign quotations for the repairs."

Initial estimates have shown that the loading bay and the ballroom took a severe beating, but the rest of the structure remains intact.

Looking at the brighter side of things, Mr. Mohotti said that no member of staff would be retrenched despite the temporary closure of the hotel.

Dirty floats to continue in South Asia to repel currency raiders

South Asian Nations would continue to have capital accounts in place in the medium term as the region adjusted and integrated itself to the global economy, top representatives of the region's monetary authorities said in Colombo.

With Central Banks unable to compete with the enormous funds that bear raid currencies in free floating markets, regulators are discovering new virtues in dirty floats with administrative controls.

"Capital controls are not there to prevent capital from going out of the country but to prevent flighty capital from coming into the country," Sri Lanka Central Bank Governor A. S. Jayawardena said, addressing 250 delegates attending the South Asia Forex Dealers Congress in Colombo.

Organized by the Forex Dealers Association of Sri Lanka the congress is expected to pave the way for the creation of a South Asian Forex Dealers Association soon.

Mr. Jayawardena said in Sri Lanka capital controls simply meant that prior approval had to be obtained for capital transfers which was always granted in bona fide cases.

"All of us are on the threshold of convertibility on the capital account." India's Reserve Bank Governor C. Rangarajan said.

"In this context regional cooperation could prove vital for orderly forex market development."

He said Indian capital account liberalization would not take place for at least another three years.

SAARC nations are in various stages of financial and economic liberalization. The larger nations including India and Sri Lanka have accepted IMF's article VIII obligations and have effectively freed current account transactions.

However there were widespread differences. While India had average daily spot and forward transactions of US $ 1.75 bn the island state of Maldives had a mere one million worth of transactions. The Indian economy in fact accounted for nearly three quarters of the total trade and gross domestic product of the region. The economic disparities as well as political differences also prevented the emergence of a single currency for the region in the foreasble future.

While East Asians nations with free floating currency had seen their currencies fall, the South Asian economies have been relatively immune, partly due to capital account restrictions.

But there were also fundamental reasons.

Mr. Rangarajan said the current account deficits of SAARC nations were low (Indian a mere 1 per cent of GDP), the proportion of short term debt low (6 to 7 per cent compared with more than 30 per cent for Thailand) and the unhedged forex exposure of financial and non financial corporates was also low.

Mr. Rangarajan said technological developments and linkages made crises spread to other market as forex traders overreacted, sometimes paying little heed to fundamentals.

"The most important concern for central bankers in the present scenario is the overreaction of market participants which causes contagion effects, in the form of spillovers from a crisis in one market to related markets," he said.

"While some spillover is inevitable because of close trade and other links, as the recent experience shows, the contagion effect seems to be based on incomplete information, or a result of herd behavior."

World Bank's South Asian Cheif Economist John Williamson said the East Asian crises had spread to other countries with little regard to fundamentals. Though Thailand had weak fundamentals, it was not the case in Hong Kong or Taiwan. Particularly for countries in transition, a managed float was more appropriate. (A. S)

Don't leave it all to the private sector says OECF

By Asantha Sirimanne

A top foreign aid agency has called for more government involvement in infrastructure projects.

"The government needs to acknowledge its role and responsibility, followed by public-sector reforms and to carry out infrastructure development by means of co-operation between the private and public sectors," the Overseas Economic Co-operation Fund said in its international annual report.

"In order to further develop infrastructure it is not adequate to only rely on the private sector."

OECF administers the Overseas Development Assistance (ODA) of the government of Japan. It is currently the largest donor to Sri Lanka and has funded power, transportation, telecommunications and water supply. It has given 11 loan to develop the Colombo Port. In 1996 OECF has held fund, the Kelanitissa Combine Cycle Power Plant, Walawe Left Bank Irrigation Project, Towns North of Colombo Water Supply Project, the Greater Colombo Flood Control and Environment Improvement Project and the Plantation Reform Project. By end 1996, the OECF had provided 65 loans to Sri Lanka and completed the disbursement of 35.

OECF said in the transportation sector the main issues were the maintenance and rehabilitation of the existing 'heavily damaged road network' to expand domestic transportation capacity.

OECF identified several obstacles to the further development of infrastructure.

These included the fact that the government has curbed spending to rein in the budget deficit, the inefficiency of organisations involved in implementing infrastructure development, the slow progress of projects resulting from complicated procurement procedures, the low level public utility charges arising from many years of social welfare measures and the fact that there are insufficient funds to pay for the maintenance and management of infrastructure.

"confronted by such a host of contrasting, the Sri Lankan government decided to encourage the participation of the private sector to promote infrastructure development," OECF said. "However private sector led infrastructure development is only at the planning stage in one or two projects and progress is slow."

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