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 29th November 1998 |
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DFCC bonds to sell on strong country fundamentalsBy Ruvini Jayasinghe"Fundamentally Sri Lanka has a very good story to tell. The problem is that not many people are aware of it," said ABN AMRO's Vice President, Fixed Income Origination, Ranobir Mukherji at the launch of DFCC Bank's international bond issue in Colombo last Wednesday. The road show to promote Sri Lanka's first tradable international bond issue will be in London tomorrow on the last leg of their three-city tour. Lead managers ABN AMRO's investment banking arm were in Singapore and Hong Kong last week with issuers DFCC Bank, promoting the USD 65 million, 10 year bonds with a floating rate of six months USD Libor plus margin (200 basis points or 2%). The capital on FRN is guaranteed by the triple A rated Asian Development Bank (ADB) while the coupon is guaranteed by the Government of Sri Lanka which does not have a sovereign rating as yet. The lead managers said they will capitalise on the country's 'sound economic management, positive growth record and low debt profile' in selling the bonds through a book building process. Sri Lanka is one of the few Asian countries with a GDP growing at an average of over 5%, Mr. Mukherji said. "The purpose of the road show is twofold, we are using it as a vehicle to promote the DFCC FRN and also to promote Sri Lanka's economic achievements," Mr. Mukherji said. We want to increase the awareness of the international investor community to Sri Lanka because, so far most of the borrowing of Sri Lanka has been from bi-lateral and multi- lateral institutions. "So in order for Sri Lankan credit and the sovereign to go to a broader range of investors, it is very important that investors are made aware of the strength of the economy, Mr. Mukherji added. 200 basis points above Libor is an extremely good rate; the reasons are twofold, Mr. Mukherji told The Sunday Times Business. "First is the ADB guarantee and secondly the scarcity of Sri Lanka risk as such. The bond is not rated because the country does not have a sovereign rating. But this is not uncommon. Many countries issue international bonds without their country having a rating and they are pretty successful, Mr. Mukherji said. The bonds will be listed on the Luxembourg Exchange, one of the most prestigious European exchanges trading the largest volume in international bonds. Luxembourg is the most commonly used for international bond offers, Mr. Mukherji said. "Listing requirements are stringent in terms of information the issuer and in this case even the guarantor has to provide to the exchange. The listing has two significant benefits. One is that it allows greater secondary market trading. And secondly because of the discipline that is required to maintain the listing most investors feel comforted that they get a steady source of information," Mr. Mukherji said. The listing not only adds to the prestige of the issue because it is listed on the major European exchange but it also has very practical benefits, he added. The notes in US$ 250,000 denominations will be targeted as large institutional investors, for example financial institutions like large commercial banks,Mr. Mukherji said. DFCC's issue closely following a Thai EGAT issue of USD 300 million in October has opened a tight Asian bond market which did not see a single issue in the last six months since the Philippine National Power Corporation issue, Mr. Mukherji said. The USD 300 mn, 10 year Electricity Generating Authority of Thailand bond's principal was guaranteed by the world bank and the coupon by the Kingdom of Thailand. The World Bank in addition gave a one rolling coupon guarantee. A sinking fund will be in two years to fund the bullet repayments on the bonds. "By the fifth year 36% of the principal will be stashed away in gilt-edged securities," DFCC chief Maksi Prelis told The Sunday Times Business. The ADB is also making a USD 5 million direct loan to support the issue he said. The funds will be chanelled to the development bank's medium and large scale lending.
New regulator and laws for pension fundBy Mel GunasekeraThe government intends to bring in a new regulator to manage pension funds. "The location of the new regulator and supervisor for pension funds has to be decided as a new law is under preparation," IMF Country Representative, Anton Op de Beke told the Sunday Times Business. The proposal is still in the evolution stage, and no proper timeframe has been drawn up yet, a senior Central Bank official said. At present, the Central Bank manages the Employees' Provident Fund (the country's largest fund), while private pension funds must be registered with the Labour Commissioner. The IMF Staff Country Report on Sri Lanka, is calling for structural reforms of the existing retirement income schemes to facilitate increased coverage and sustainable financing has become imperative. Less than half the labour force is covered by the existing retirement income systems, the report states. The Civil Service Pension Scheme (CSPS) has relatively generous provisions and is largely unfunded. The Provident funds have serious problems with administration and coverage. "While mandatory in principle, there have been large-scale evasions in terms of coverage of the EPF/ETF. The incentive to participate in these schemes has been limited by low returns," the report states. For instance, it is estimated that an employee who began work in 1960 and retired in 1995 would have received a negative real rate of return on their contributions. Rules governing the different retirement income schemes contribute to problems of labour mobility from the public sector to the private sector, affecting the ability of the government to effectively reduce the authorised cadre. The CSPS covers civil servants, armed services, teachers, and provincial and local government employees. Mandatory provident fund scheme exists for other employees in the formal sector. The Public Sector Provident Fund (PSPF) is mandatory for public sector employees not covered by the CSPS, and it's mandatory that every non-government employee in the formal sector participate in the government administered Employees' Trust Fund (ETF), the Employees' Provident Fund (EPF) or another approved fund.
EASF unsure as IMF unhappy with budgetThe Sri Lankan government's desire to secure another ESAF (Enhanced Structural Adjustment Facility) loan from the IMF is far off track as the 1999 budget has not brought the results the IMF expected. "The 1999 budget has not brought Sri Lanka any closer to an ESAF. The fiscal results of 1998 are disappointing, the consolidation put forward for 1999 is not altogether realistic and there is very little in this budget about structural reforms," IMF Resident Representative, Anton Op de Beke told the Sunday Times Business. In the Public Information Notice (PIN) issued in August 1998, the IMF while commending the authorities for maintaining macroeconomic stability in 1997, underscored the critical importance of tightening fiscal and monetary policies and accelerating key structural reforms so as to build the foundations for strong private-sector-led growth. The Directors had stressed that action in these areas should pave the way for discussion for an ESAF-programme. In this connection, the Directors said it is important to elaborate feasible and credible reforms in the areas of the financial sector, the civil service, and pensions. Directors emphasised that continuing progress in fiscal consolidation was a key ingredient in maintaining macroeconomic stability. In 1991, Sri Lanka secured an ESAF for around US$ 470 mn for three years. But the loan was discontinued in 1995, as the government was unable to maintain the strict conditions laid down by the IMF. Only about US$ 390 mn was disbursed. Despite claims from the opposition UNP that Sri Lanka can secure the balance tranche of the ESAF, Mr. Op de Beke said, "Expired means there is no more money there for disbursements." For new disbursements, there would have to be a new loan. What Sri Lanka is doing now is repaying that previous ESAF as well as the previous SAF to the tune of about US$ 100 mn a year. The ESAF is a concessional facility, the interest is only around 1/2 a percentage, but it has to be repaid. Its not a grant, he said.
Fighting 'tooth' and nailThe battle for supremacy in the local toothpaste market took another shine when indigenous toothpaste manufacturer Clogard received Sri Lanka Dental Association (SLDA) endorsement last week. Clogard's rival 'Signal' is the only other manufacturer to have received SLDA endorsement. Signal backed by multinational giant Unilevers control 48 per cent of the local toothpaste market, while rivals Clogard has 28 per cent. The SLDA endorsement certifies the truth in the manufacturer's slogan "Clogard protects teeth and freshens breath." The SLDA which represents the interest of the dentist as well as the public in terms of oral health, had developed its own standards for dental care products and had access to all the required testing facilities to ensure these standards are met. "The SLDA conducts tests on endorsed products every six months, with samples picked at random off retail shelves islandwide, to ensure the products maintain our standards," SLDA Endorsement Committee Chairman , Dr. Mano Fernando said. The SLDA also has the authority to compel a company to withdraw stocks if they do not conform to standards, he said. The SLDA will also monitor the advertising and promotions of the product to ensure it is marketed ethically, he said. Clogard toothpaste is manufactured by Hemas Marketing (Pte) Ltd. The SLDA endorsement was sought as an extension of the company's commitment to provide consumers with high quality products, Hemas Marketing Managing Director, Husein Esufally said. "We wanted the verification from the SLDA, as consumers who use this product will have a guarantee from qualified dental experts," he said. The company intends to increase Clogard's market share and actively market fluoride free toothpaste in areas where the water has a high fluoride content, he added.
Sweet deal turns sourBy M.Ismeth and Chamintha ThilakarathnaA billionaire investor who was here to set up a Rs. 2 bn sugar factory went off in disgust last week, alleging that there was 'no clear government perspectives, objectives or policies for sugar.' Negotiations for the 3000 hectare factory in the left bank of Udawalawe to produce 5,000 metric tons of sugar per day began in 1995. The domestic sugar industry at an all time low, has brought the livelihood of 50,000 families to the brink of disaster. The initial investment of Rs.2 billion was 40% - 50% of equity, with the balance funding from the local banking sector. Discussions with Mashreque Bank and DFCC Bank were underway until the deal went sour with the government demanding a 10% stake in the company. The company was to be listed on the stock exchange. Sugarcane was to be sourced from out-growers. It is learnt that while the investor is still awaiting a reply from the government, the land in question has been sold to Siyambalanduwa Sugar Industries and Vajira Houses. The Siyambalanduwa Sugar Cane Company which has no factory in that area sells their produce to the Pelwatte Sugar Corporation situated closeby. Domestic sugar cane production in 1997 was only about 10% of the country's sugar consumption, compared to 15% in 1996, according to Central Bank Report, 1997. The report adds that 545,158 metric tons of sugar was improted in 1997, a 43% increase compared to 381,158 metric tons imported in 1996. Although sugar cane production has been continuously dropping, creating shortages, import duty has been maintained at higher levels to protect the industry. The current import duty is at 25%, increased from 18% in August last year. The general level of import duty for sugar is 35% with a 10% duty reduction to ease the burden on the consumer. Sugar production during 1997 estimated at 63,897metric tons was a 9% lower than the 70,414 metric tons produced in 96. All three factories at Hingurana, Sevanagala, and Pelwatte recorded lower output levels . The highest decline of 45% from 10,830 metric tons in 96 to 5,887 metric tons in 97 was recorded at the Hingurana factory. The Sevenagala and Pelwette factories recorded and 8% and 1% drop in production respectively from 96 and 97. The Hingurana factory was beset with problems of mismanagement and labour unrest and the company was vested with the government in January 97. During 97 there was a drastic reduction and the area harvested by 30% and the quantity of cane crushed by 44%. A proposal to establish a national agency for sugar industry development states that although the sugar cane industry has been in existence for over 35 years, it had neither a healthy growth nor matured into an effective agro-industry. The yearly expenditure on procuring sugar and sugar based products is over Rs.8 billion. The company was to build a refinery, produce 50 mega watts of power from bi-products to the national grid, make alcohol and MDF panelling and particle boards. The investors also aimed at employing farmers who would earn a minimum of Rs. 6000 - Rs. 7,000 per hectare. With the bagasse (waste product) the country's need of yeast, vinegar, could be produced locally. 'There is no proper sugar regulatory act, " the investors said. The tremendous employment opportunities in the research institute, on the verge of death has not been exploited either. Hambantota MP and Fisheries Minister Mahinda Rajapakse told The Sunday Times Business thatthe prospective investor was unhappy with certain government tax proposals. 'However, he said that things have been sorted out and the investor or anyone else even could now come and invest in the sugar industry.' An official of the Southern Development Authority who did not want to be identified said that, "There may have been some clauses at that time which might not have been acceptable to the investor but now anyone could come."
More Business * Fresh dressing for textile industry * Private operators unhappy * Bank of Nova Scotia to open in March * ICA to judge best annual reports * LB Finance ventures into new fields of business * Business briefs
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