news bulletin - february 2013

In Economic news:

In Business news:In Consumer news:

Car registrations continue to go downhill in the new year. Motor car registrations in Jan 13 declined 59.5% YoY to 1,441, with total registrations declining 40.6% YoY to 28,201.

Tea production in Jan 13 was up marginally by 3.6% YoY to 23.2m kg despite initial fears.

Over pricing impacts hotel occupancy levels across the country. Occupancy levels across all star categories declined significantly in Nov 12.

Apparel factories close shop as export earnings continue to slide. Total apparel export earnings declined by $200m or 5% YoY in 2012 to $4.0bn.

Telecommunication sector 2012 Earnings.

National Thermal Power Corporation (NTPC) of India plans to exit Sri Lanka.

The LMD-Nielsen Business Confidence Index in Jan 13 reached a fourteen-month high of 158.

Fuel prices upped again within three

months. Consumer electronics and

home appliances imports show modest

growth in 2012.

The Ceylon Tobacco Company (CTC)

to challenge Court of Appeal ruling in

Supreme Court.

The Nielsen Consumer Confidence

Index in Jan 13 reached a ten-month

high of 67.

Monthly Bul let in : Februar y 2013

IMF expects Sri Lanka’s GDP to grow only by 6.25% in 2013 lower than Central Bank’s forecast of 7.5%, due to high inflation, declining tax revenue and slow growth in export markets.

Electricity and fuel tariffs on a fully cost-reflective pricing formula gathers momentum as CPC and CEB suffer crushing losses in 2012.

Trade deficit in Dec 12 declines to $641.2m (-34.0% YoY), as year’s deficit reaches $9.3bn (-4.1% YoY) from exports missing its annual target of $11.7bn by about $2.0bn.

Construction industry continues to grow as government invests in infrastructure development and private sector is encouraged to build.

Jupiter Capital Partners to raise $50m to provide financing to small and medium enterprises in Sri Lanka.

CSE and Bloomberg organised investor forum “Invest Sri Lanka” in Mumbai, India draws large crowds.

Inflation in Feb 13 increases 9.8% YoY (flat MoM), remaining at a four year high on elevated food and non-alcoholic beverage prices. Capital Alliance’s Urban Price Index soars 17.2% YoY.

The All Share Price Index closed at 5,635.9 down 3.1% MoM as investors shied away from the market perhaps concerned over pending UN resolution over country’s human rights. Foreign investors were net sellers of Rs.1.9bn during the first two months of the year.

The rupee ended at 125.81/129.07 vs. the USD (rupee weaker~0.6% MoM).

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In Economic news:

Sri Lanka to grow at 6.25% in 2013: IMF. The International Monitory Fund (IMF) expects Sri Lanka’s GDP to grow only by 6.25% in 2013 lower than Central Bank of Sri Lanka’s (CBSL) forecast of 7.5%. While commending country’s overall economic prospects and policies, the IMF view growth to be pressured by high inflation limiting opportunities to ease interest rates, declining tax revenue and slow growth momentum in Sri Lanka’s main export destinations, EU and US.

IMF Mission Chief, Dr. John Nelmes stated that “to maintain this economic momentum it is prudent that the authorities should retain the same policy measures for the foreseeable future “. Also adding that Sri


CBSL drops budgetary support from IMF. CBSL is to have “dropped” plans for a $1.0bn budgetary support as the IMF was not willing to give money directly for government spending. The IMF is reported to have mentioned that it “may not be in a position to consider any direct or indirect

budget support to Sri Lanka as the country is not deemed to require any exceptional financial support from the IMF”.

Trade deficit in Dec 12 declines to $641.2m (-34.0% YoY), as year’s deficit reaches $9.3bn (-4.1% YoY). Annual exports were $9.7bn down 7.4% as ten consecutive months of lower export took effect. Exports in 2012 were

Lankan economy must shift or re-direct its exports to the emerging markets in Asia with competitive, high productive and protectionism way, where the government’s agenda in building a dynamic hub would be much in the same direction.

However CT Smith Stockbrokers believe the country would grow at 7.2% in 2013, from a 50-75 bps cut in interest rates driving the services sector (sector contributes about 55% of GDP). They view that fiscal deficit target of 5.8% of GDP in 2013 is sure to be missed, forecasting 6.5% on conservative revenue estimates.

In 2012, Sri Lanka’s tax revenue fell to 11.25% of GDP due to imports declining 5.8% year over year (YoY) and several tax exemptions initiated since the Budget 2010 reducing collections. This reduction increased the budget deficit to 6.4% in September 2012 (beating year’s target of 6.2%). The deficit was kept at this level for the rest of the year only due to expenditure restraint and delaying cash payments.

In 2012 Sri Lanka completed the receipt $2.6bn from IMF’s SBA facility to boost foreign reserves, resulting in gross official reserves reaching $6.9bn by Dec 12 (+15.1% YoY), about 4.3 months of imports. From 2013 Sri Lanka has to start repaying the SBA facility, with about $490m due in 2013. Lack of funds may compel the government to go to international capital markets to raise funds, something it had earlier said it would not do. As a way around this the government is seen encouraging state banks, DFCC bank and NDB Bank to raise funds overseas and possibly in a swap agreement funds channeled to the government.

almost $2.0bn off the $11.7bn target set earlier in the year. Largest contributors to exports, tea and textile & garment, continued to slide losing 5.3% and 4.8% YoY. Annual imports were $19.1bn down 5.8% YoY, less than the $20.2bn target as other consumer goods declined 19.0% YoY. However, worryingly fuel imports were up 5.1% to $5.0bn.

Source: CBSLSource: CBSL

%05.7LSBC

%05.7BCS

CT Smith Stockbrokers 7.20%

%00.7BDA

%08.6BW

%52.6FMI

%04.5IMB

Source: ADB, IMF, CBSL, Standard Chartered Bank, CT Smith stk.BMI,WB

2013E

%05.7LSBC

%05.7BCS

CT Smith Stockbrokers 7.20%

%00.7BDA

%08.6BW

%52.6FMI

%04.5IMB

Source: ADB, IMF, CBSL, Standard Chartered Bank, CT Smith stk.BMI,WB

2013E

9,000

10,000 2012

3,000

4,000

5,000

6,000

7,000

8,000

2011

2010

1,000

2,000

,

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009

At $9.3bn trade deficit in 2012 is higher than the target of $9.2bn (Chart scale is $m)

100%

80%

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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Trade deficit in 2012 ($m) YoY %

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In Economic news:

Electricity and fuel tariffs on a fully cost-reflective pricing formula gathers momentum. Saddled with crushing losses at Ceylon Electricity Board (CEB) and Ceylon Petroleum Corporation (CPC), authorities commenced discussions on how best to introduce an automatic tariff adjustment based on market indicators.

Such an adjustment formula should save consumers from the shock of arbitrary price increases and allow the relevant institution to quickly pass-through energy prices to consumers. This prevents pressure on the balance of payments, as currently state intervention prevents interest

rates to be adjusted on large volumes of credit funded oil imports, thus leading to spiraling credit.

The IMF a long standing proponent of this idea stated recently that “What we suggest is an ‘automatic Price Adjustment Formula’ to reflect the true cost of generating a

unit of energy in both electricity and fuel. We are happy to see Sri Lanka committed toward bringing these reforms and the authorities are currently carrying out internal discussions towards this end”.

However energy consultant, Dr. Tilak Siyambalapitiya views that the

proposed adjustment formula would take at least take four years to implement as CPC has to reach equilibrium and three power plants have to be built prior to introduction.

As per the Petroleum Minster losses at CPC is expected to be $89bn in 2012 down from $94bn in 2011. He also noted that “CPC hopes to reduce losses this year and break even in two years time”. To reduce losses, from April 2013 low sulfur furnace oil sold to CEB for thermal power generation will be increased to Rs.100 from Rs.75. This is likely to trigger an increase in electricity tariffs for which the Public Utilities Commission of Sri Lanka has already commenced discussions. Moreover CPC is owed about Rs.38bn from CEB and independent power producers.

On a separate note, state officials express that an upgrade to the CPC’s refinery is to cost $1.5bn to increase handling capacity to 100,000 barrel per day from the current 50,000. Built in 1960s the refinery was later transformed to handle Iranian light crude oil. However sanctions on Iran compelled Sri Lanka to go to other suppliers such as Oman, Saudi Arabia etc. This results in less oil been processed as the refinery is less compatible to handle imported crude oil.


$50m SME focused fund launched. Jupiter Capital Partners, an independent private equity firm is raising $50m to provide financing to small and medium enterprises in Sri Lanka. Mr. Indika Hettiarachchi, Founder, Jupiter Capital Partners stated that “We will not only look at large companies, but also small and medium firms of between one to five million US dollars; funding companies with

export capability and industry specialization that can grow fast.”

He further went on to say “Although there are various loan schemes targeting SMEs, such loan schemes dot not help long term growth of such firms, or help increase equity value of such firms thus hindering the growth of entrepreneurship in the country”. The funding is expected in two tranches with the first expected to close in the first quarter of 2013 and the final tranche at the end of the year.

Several private equity (PE) funds launched post the end of the civil war have been unable to attract its funding target.

In October 2009, Leopard Capital a joint venture between Orion Capital Partners in Sri Lanka and Leopard Capital of Hong Kong commenced raising $130m for two funds in Sri Lanka but were unsuccessful, culminating in the closure of its’ Sri Lankan subsidiary in Nov 2011. In June 2009, Singapore investment firm Calamander Capital Ltd. began raising $150m for investments in Sri Lanka, but believe to have been unsuccessful.

While attracting capital for new funds appear to be challenging, several established international PE Funds continued to be active in Sri Lanka. Notably in 2012, Malaysia’s Khazanah acquired an 8.8% stake in John Keells Holdings PLC for $120m, Standard Chartered Private Equity (SCPE) invested $40m in Abans Group and more recently in Oct 12 Actis Investment Holdings forayed into Asiri Hospital Group with a $32m investment.


-100

-80

-60

-40

-20

0

20

2008 2009 2010 2011 2012 2013E

CPC CEBRs.bn

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In Economic news:

Colombo among world’s 10 cheapest cities to live in. As per Economist Intelligence Unit’s Worldwide Cost of Living 2013 Index six of the ten cheapest cities to live in are


Construction industry stays in the limelight. Post war construction continues to grow at a steady pace, as the government invests in infrastructure development and private sector is encouraged to build. Tokyo Eastern Cement Company a subsidiary of Tokyo Cement group is expanding its cement production and bio mass power generation with a $62m investment. The company is to receive a five year tax holiday. Cement imports rose 77.7% YoY to 3.8m MT, as local cement manufacturers are impacted by state price controls.

Adding to the already intense competition in the medium sector construction market, the Road Development Agency is to establish three state companies to bid on construction projects of a value less than Rs.100m.

a) Maga Neguma Construction Equipment Company to rent construction equipment for road building project and also bid for contracts below Rs.100m.

b) Maga Neguma Emulsion Production Company to manufacture emulsion, pre-mix and supply to road sector projects.

c) Maga Neguma Consultancy and Management Company to provide consultancy services.

Source: CBSL

400

500

600Local Production ('000' MT) Imports ('000' MT)

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Source: CBSL

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Local Production Index Imports Index

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in Asia. Colombo joins Mumbai, New Delhi, Karachi, Kathmandu, Algiers, Bucharest, Panama City, Jeddah and Tehran. Tokyo is the most expensive city in the world as last years’ number one, Zurich dropped to seventh impacted by government exchange rate controls.

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In Economic news:


The All Share Price Index closed at 5,635.9 down 3.1% MoM. Investors sold off towards the end of the month perhaps spooked by a pending UN resolution over human rights. All sectors under performed in the month, with stores and supplies (-13.5% MoM), investment trusts (-9.6%) and trading (-8.8% Mom) performing the worst. In Feb 13, foreign investors were net sellers of Rs.614m and have been net sellers of Rs.1.9bn in 2013.

Sri Lanka ranked 67th in Country Brand Index. Future Brand a global brand consultancy ranked Sri Lanka 67th out of 118 countries in its Country Brand Index. This is the first time the country has been ranked and is 13th among Asia Pacific nations. Future Brand’s South East Asia CEO Sarah Reiter described Sri Lanka’s rank as a “wonderful achievement for a debutant”. The

company uses a proprietary hierarchical decision model to determine how residents, investors, tourists and foreign governments perceive a country’s brand. The seven measures of brand strength are awareness, familiarity, associations, preference, consideration, decision/visitation and advocacy. Switzerland, Canada and Japan were in the top three.

6,000ASPI

5,400

5,600

5,800

4,800

5,000

5,200

Source: CSE

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In Economic news:


CSE’s Mumbai investor forum attracts large numbers. Colombo Stock Exchange (CSE) in partnership with Bloomberg organised an investor forum “Invest Sri Lanka” in Mumbai, India to attract investments in to the country’s capital markets. Reportedly over 150 representatives from companies managing offshore funds out of India and India-based funds attended the event. Encouraging prospective investors, CBSL Governor Mr. Ajith Cabraal stated that “Become a partner in this future of Sri Lanka and you can’t go wrong, we have implemented a series of initiatives to attract foreign capital as well as create new opportunities”. The Governor emphasized

Consumer prices in Feb 13 rose 9.8% YoY (flat MoM), with annual average inflation increasing 8.6% YoY (+50bps MoM) on high food prices. Food and non-alcoholic beverage segment constitute about 40% of the inflation index.

that the country needs foreign investment to sustain 8% growth. SEC Chairman Dr. Nalaka Godahewa sharing the regulatory and capital market 10 point development plan wooed investors by highlighting government policies and large scale projects undertaken in maritime, aviation, commerce etc.

Sri Lanka’s Securities and Exchange Commission (SEC) launched an investment guide in the Sinhala language titled Ayojanayata Mulapuramu (‘Introduction to Investment). The guide details important areas such as, factors to be considered prior to investing in the stock market, process to invest in stocks and unit trusts, mistakes investor make and how to select stocks.The SEC stated that ”There has been a significant increase in domestic investor participation with the growth of the capital market and we are of the view that this book will assist investors to obtain a proper understanding of the various aspects of investing in the capital market” .

Source: Central Bank of Sri Lanka and other

Source: CBSL

4.9%

3.8%

2.7%

5.5%6.1%

7.0%

9.3%9.8% 9.5%

9.1% 8.9%9.5% 9.2%

9.8% 9.8%

Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13

Inflation YoY% change

Source: Central Bank of Sri Lanka

China, 2.0%

Bangladesh, 7.4%Pakistan, 8.1%

Nepal , 9.8%

Sri Lanka , 9.8%

India, 10.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%Retail Price Inflation Jan 2013

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In Economic news:


CAL’s Urban Price Index soars 17.2% YoY. Capital Alliance (Pvt.) Ltd (CAL)’s Urban Price Index (UPI), a new indicator measuring inflation of cities’ middle class households endure rose 17.2% far exceeding CBSL’s annual inflation rate of 9.8%. Often viewed as a manipulated indicator, CBSL’s reported inflation is at a four year high. The CAL UPI uses the Laspeyres method to calculate change in prices with 2012 as the base year. CAL assumes a monthly income of LKR 80,000 for a household of four, with 56% of income spent on goods in a basket of food & beverages, communication, transportation and energy costs at the start of Jan 2012. The CAL UPI applies to over half of all city dwellers.

In February CBSL held its main policy rate at which money is injected at 9.5% after cutting 25bps in December and January. Rates were held despite consumer prices reaching 9.8% exceeding its key policy rate. CBSL is

104.2

120.6 122.2

100.39

109.8 110.3

95

100

105

110

115

120

125

CAL UPI CCPI

Sources: Capital Alliance and CBSL

CAL UPI (2012) vs. CCPI (2006/2007)

The rupee ended the month at 125.81/129.07vs. the USD (rupee weaker~0.6% MoM)

expecting inflation to ease from March. The IMF views that policy rates should be “frozen” until inflation starts to fall. IMF mission chief John Nelmes states “Our view is that inflation levels of around 10% where we see them now is cause for holding interest rates cuts,” “And the decision to keep monetary policy on hold, we support”

7.5

130

135 Mid point (Rs. per US$) Bid Ask spread (Rs. per US$)

3.5

4.5

5.5

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115

120

125

130

Source: CBSL

1.5

2.5

105

110


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Car registrations continue to go downhill in the new year. According to JB Securities, motor car registrations in Jan 13 declined 59.5% YoY to 1,441, with total registrations declining 40.6%


In Business news:YoY to 28,201. Registration of Maruti/Suzuki vehicles declined to 190 units compared 1,213 in Jan 12. However registration of Micro vehicles more than doubled to 293 from 131 a year earlier. Premium brands such as Mercedes, Audi and BMW continued its upward trend with 138 vehicles registered in Jan 13 (+64.3% YoY). Registration of hybrid vehicles picked up to 316 (+19.2%) following ten consecutive months of decline.

According to the Ceylon Chamber of Commerce, expenditure on vehicle and parts imports declined 21% YoY in 2012. This is in contrast to significant YoY growths of 200% and 86% achieved in 2010 and 2011. Small passenger vehicles (<1000 cc) and passenger vehicles (1000 cc – 1500 cc) imports declined by 72% YoY on import duty increases, credit ceiling imposed on banks loans to private sector and hike in fuel prices. However, diesel passenger vehicles between 1500 cc & 2500 cc increased 227% YoY in 2012 from utilization of concessionary vehicle permits.

The Motor Traffic Department (DMT) is to spend $50m purchasing 45 vehicle emission testing machines to reduce air pollution in the city of. Detected Vehicles would be blacklisted and given a period to correct defects. However, vehicles belonging to the Sri Lanka Transport Board, the security forces and some other government institutions cannot be monitored through these schemes as they are excluded from receiving annual revenue licences.

Tea production in Jan 13 was up marginally despite initial fears. Tea production in Jan 13 was up marginally 3.6% YoY to 23.2m kg despite adverse weather conditions that plagued the industry late last year. John Keells PLC stated that there could be a “brighter side” to the current wet weather conditions as it could boost crop intake in the first quarter which is generally one of the lowest production quarters in the year.

Following strong opposition from key stakeholders in the tea industry, the government decided to revise its decision to increase tea export cess on 1kg of bulk tea by 100% “so as not to cast any further burdens on this vital industry whose long term sustainability is of significant importance to the country”. Based on the initial gazette, Rs.10 or 5% of the average price of tea which was recorded in the previous week’s tea auction was

to be charged as cess tax effective from 23 Jan 13. On discussion, now the revised tea export cess would not be imposed until Mar 13 and would be calculated on a monthly basis, instead of a weekly basis at a rate of 2.5% of the Colombo Tea Auction average price or Rs. 10 per kg depending on which is higher. A wage hike in the plantation sector is expected by mid-2013 as the two year agreement formed between regional plantation companies and estate sector labour unions is to expire. The 2011 wage hike increased daily wages to Rs.515 (+20.7% YoY) resulting in significant losses to the plantation sector, especially companies with exposure to tea. A new wage increase could once again impact the profitability of firms in the sector as such wage enhancements are seldom linked to productivity enhancements.

Source: Sri Lanka Tea Board

Tea Production (Aprl 12 Jan 13) kg mn

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Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13Tea Pdtn. 29.3 30.8 25.8 24.1 25.4 26.8 26.6 29.9 26.0 23.2YoY % -2.1% -8.4% -13.2% -4.2% 0.1% 11.9% 7.2% -6.1% 1.1% 3.6%

Tea Production (Aprl 12 - Jan 13) kg mn

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In Business news:Over pricing impacts hotel occupancy levels across the country. Capital Alliance (CAL) in a research report states that Sri Lanka runs the risk of out-pricing itself from the rest of the market as it costs $500-$800 more for a 10-day holiday compared to competitors, offering lower standards than competitors. The report warns that this could have a negative impact on occupancy levels in the future. Effects of this are already evident as occupancy levels declined in 2012 despite a growth in arrivals (see graph below). During Nov 12, occupancy levels across all star categories declined significantly with five and four star hotels recording a 13.8% and 14.5% YoY drop in occupancy levels.

CAL expects a correction in prices to occur in the future as more ‘international grade’ competitors enter the market. It further states that a


Apparel factories close shop as export earnings continue to slide. Pakistani based investors the ZM group closed three factories, namely ZM Vertiko Pvt Ltd at Padukka, ZM Kasuals at Kottawa and ZM Vision at Kiriella leaving an estimated 1,500 unemployed and over Rs.1bn in

unpaid loans. Management stated that they were no longer able to continue operations due to losses in apparel orders. Earlier in the year, Crystal Sweater Lanka Pvt. Ltd and Firefox Pvt. Ltd closed factories citing the loss of the GSP Plus facility as they claim to be unable to compete with countries such as Bangladesh and Vietnam that enjoyed the facility. It is believed that both factories have been relocated to Bangladesh. However, external affairs minister Mr.G.L.Peiris stated that it would not reapply for the GSP Plus facility as “there is no such need”.

Telecommunication sector 2012 Earnings. Despite a 10.1% YoY increase in group revenue, net profits of Sri Lanka Telecom (SLT) declined 10.4% YoY to Rs.4bn. Profitability declined

amidst rising fuel prices, energy costs and other input costs. Company revenue increased 8% YoY to Rs.34.7bn driven by growth in broadband, enterprise data, wholesale, international services and PEO TV businesses. The mobile arm of the group, Mobitel, increased

10% growth in arrivals for 2013 could be expected where as the Sri Lanka Tourism Development Authority expects growth in the region of 25%.

On a separate note, earnings from tourism in 2012 increased to $1bn from $830.3m in 2011 driven by a growth in arrivals (1m arrivals in 2012, +17.5% YoY). The government expects earnings from tourism to be in the region of $3bn by 2016 buoyed from 2.6m tourist arrivals.

Having lost the GSP Plus facility in Aug 10, Sri Lanka did not feel the effects from the loss immediately due to the rising cost of production that was plaguing competitors such as Bangladesh and China helping Sri Lanka to sustain a strong demand. However, a downturn in export earnings was experienced from Feb 12 as monthly textile and garment export earnings continued to dip throughout 2012 with Jun 12 and Nov 12 being the only exceptions. Total apparel export earnings declined $200m or 5% YoY in 2012 to $4.0bn.

revenue to Rs.25bn (+13% YoY), driven by a 14% YoY growth in its subscriber base.

Dialog Axiata revenue grew to Rs.56.3bn (+24.1% YoY) driven by growth across all segments. Net profit of the group increased 23.2% YoY to Rs.6bn. Mobile revenue grew 15% YoY in 2012 driven by growth in usage and net additions of over 635,000 subscribers. Dialog Television recorded revenues of Rs.3bn (+27% YoY) as the number of subscribers increased 48,000 YoY to 264,000 at the end of 2012. Revenue from broadband networks grew a significant 112% YoY to Rs.5bn driven by the expansion of its subscriber base.

Source: SLTDA

Monthly Occupancy Rates

Source: SLTDA

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov2011 84% 75% 85% 74% 62% 57% 78% 73% 71% 81% 90%

2012 86% 81% 87% 54% 45% 47% 77% 72% 73% 73% 76%

Monthly occupancy rates

Rs. Bn YoY% Rs. Bn YoY% Rs. Bn YoY% 2012 Rs.bn 2011 Rs.bn 2012 2011 4Q12 4Q11 4Q12 4Q11

Sri lanka Telecom 56.8 10.1% 4.0 -10.4% 18.0 5.3% -1.2 (0.3) 7.1% 8.7% NA NA NA NA

Dialog Axiata 56.3 24.1% 6.0 23.2% 18.6 12.8% -2.2 (0.5) 10.7% 10.8% 354.0 339.0 170.0 164.0

Source: Company Data

112%

Mobile Minutes of Use (Post+Pre)

Group Revenue 2012

Group Net Profit 2012

EBITDAGroup 2012

FOREXgains/(losses)

Net ProfitMargin

Mobile Rev./User (Post+Pre)

Sources: CBSL

2008 2009 2010 2011 2012 1Q 12 2Q12 3Q12 4Q12Exports ($m) 3,469 3,274 3,356 4,191 3,991 1,027 955 990 1,019YoY % 4% -6% 2% 25% -5% -3% 0% -9% -6%

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In Business news:

National Thermal Power Corporation (NTPC) of India plans to exit Sri Lanka. NTPC stated that it cannot accept the new terms put forward by the Ceylon Electricity Board as it “amounted to substantial changes agreed on the initial Power Purchase Agreement”. In 2011, NTPC signed an agreement to jointly form a 500 MW power project in Trincomalee at a cost of around Rs.94bn. However, the project never left the ground as persistent differences between the two entities continued to impede the project.

On the other end of the spectrum, Shree Renuka Sugars of India is to build a sugar refinery and power plant located in the Hambantota port. Raw sugar brought down from Brazil would be refined for sale in the domestic market as well as for exports. Surplus energy generated by the plant is to be purchased by the CEB.


International Association of Outsourcing Professionals (IAOP) establishes Sri Lankan Chapter to boost out sourcing business. IAOP is the global, standard-setting organisation and advocate for the outsourcing profession. The key objectives of the association are to help companies increase their outsourcing success rate, improve their outsourcing ROI, and outsourcing opportunities. Mr. Bobby Varanasi, global ambassador for IAOP, stated that through the newly established chapter it would be able to share the best practices and standards adopted by the association with Sri Lankan members. He further stressed on the need to increase visibility of Sri Lankan firms as many outsourcing firms were

not well known in the international market and that visibility should be “from the buyers point of view rather than be dependent on independent assessments.” Mr. Varanasi believes that the newly established chapter in the country would boost the profile of local firms through the participation in IAOP rankings and awards. and play models, extensive bank regulations and security problems have hindered “the transformation of the efforts of individual/small software developers into commercial success stories”.

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In Business news:

In Consumer news:

In other business news Seylan Bank to raise Rs.2bn in the form of five year unsecured, subordinated debentures in order to boost its Tier II regulatory capital. Buyers would be offered debentures which pay 15.5% annually, 15.0% every six months or 14.5% every month.

Hatton National Bank disposes its 20% stake in Delma Exhange UAE as the exchange house was making losses. The cost of the investment in Delma is stated as Rs.83.6m.

Fuel prices upped again within three months. Citing mounting losses of Ceylon Petroleum Corporation (CPC) and rising global crude oil prices, CPC increased the prices of a litre of petrol (90 and 95 octane) by Rs.3. The prices of auto diesel, super diesel and industrial kerosene were upped by Rs.6, Rs.3 and Rs.4. Lanka IOC (LIOC) too raised the prices of petrol by Rs.3 but kept diesel prices unchanged as they are now in line with CPC prices. It was only in December 12 that prices of 90 octane petrol were increased by Rs.10. The Lanka Private Bus Owners’ Association is mulling a bus fare hike in light of the latest fuel price increases. Prior to the increase in fuel prices, National Transport Commission (NTC) stated that bus fares would not be revised based on a review carried out on the expenditure of bus transport stating that costs had not increased substantially to warrant a fare hike.


Commercial Bank of Ceylon receives Rs.9.6bn as a subordinate loan from International Finance Corporation, a unit of the World Bank. The loan would be used to fund 16,000 small business that would contribute towards creating 170,000 direct and indirect job opportunities.

KPMG confirms an estimated Rs.44.5m fraud at Lanka Canneries Ltd. Hunter and Company, the ultimate owners of Lanka Canneries Ltd. stated that a complaint had been filed with the Criminal Investigation Department.

Similarly, the All Island Three Wheel Owners Association (AITWOA) stated that the price per km would be increased to Rs.40 from current levels of Rs.35-Rs.38 and would not revise the specified rate of Rs.50 for the first km. However, the All Ceylon Three Wheeler Drivers Union (ACTWDU) stated that they would revise the fixed price of the first km from Rs.50 to Rs.60 but would maintain the rate of Rs.32 per km.

Source: Ceylon Petro leum Corporation

Rs.130

Rs.115Rs.125

Rs.137Rs.149

Rs.159 Rs.162

Jul 09 Dec 09 Apr 11 Oct 11 Feb 12 Dec 12 Feb 13

Sri Lanka Petrol Prices (90 Octane)

The LMD-Nielsen Business Confidence Index in Jan 13 reached a fourteen-month high of 158; up a significant 18 points MoM. Further, the index remains well above the average for the last 12 months (126), however is down 7 points YoY. Nielson Sri Lanka’s Director Mr. Shaheen Cader stated that “reasonable December revenue, currency stability and a feeling that things will not get worse “have contributed to the rise in confidence. It was also noted that “concerns over high taxes, inflation, interest rates and political issues appear not to have undermined business confidence.”

In the latest survey, 56% of the respondents believed that the economy “will improve over the next 12 months”, up from 41% in Dec 12. More importantly, those who believed the economy to “get worse” declined to 14% from 20% in Dec 12.

8595

105115125135145155165175185

Sources: lmd.lk

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In Consumer news:

Consumer electronics and home appliances imports show modest growth in 2012. According to the Ceylon Chamber of Commerce, consumer electronics and domestic appliances imports experienced moderate growth in 2012. Electronic and home appliance imports come under both HS Chapter 84 (machinery and mechanical appliances) and HS Chapter 85 (electrical machinery and equipment). The value of imports of HS Chapter 84 and Chapter 85 grew only by 19% and 18% YoY in 2012 compared to 66% and 57% in 2011. The report highlights the depreciation of the rupee, credit ceiling and high cost of borrowing as key reasons for the slow growth. China accounted for 34% of total imports in 2012 (up from 25% in 2011) followed by India with 11%.

Of the items analysed by the report, only a few items such as air conditioning machines, televisions and mobile phones recorded growth in 2012. The number of mobile phones imported in 2012 reached 3.5m units compared to 3.4m units in 2011.

Gazette on cigarette pack’s pictorial warnings to be in force from end March. According to new regulations to be effective Mar 13, pictorial health warnings need to be printed on both sides of every cigarette pack, package or carton containing cigarettes and would need to cover at least 80% of the total area of a packet, package or a carton. Furthermore, it would forbid CTC from using phrases such as “low”, “light”, “ultra”, “mild” and “extra” or any other word that implies that one type of tobacco is less harmful to the body than the other.

The Nielsen Consumer Confidence Index in Jan 13 reached a ten-month high of 67, up 5 points from Dec 12. 23% of the respondents (down from 25% in Dec 12) stated that conditions will be “bad” for people to buy things they need over the next 12 months and consumers who consider job prospects to be “bad” over the next 12 months were 10% compared to 13% in Dec 12.


Jan 13 67Dec 12 62Nov 12 60Oct 12 59Sep 12 59

Aug 12 57Jul 12 59Jun 12 58May 12 60Apr 12 65Mar 12 72Feb 12 77Jan 12 85Dec 11 87Nov 11 85

Source: lmd.lk

NielsenConsumerIndex

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