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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka Newspapers Thursday 01/03/2012

Sri Lanka Newspapers Thursday 01/03/2012

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1Sri Lanka Newspapers Thursday 01/03/2012 Empty Sri Lanka Newspapers Thursday 01/03/2012 Thu Mar 01, 2012 12:56 am


Global Moderator

Cabraal rubbishes S&P rating outlook downgrade
* CB says will complete 7th IMF review

The Central Bank last evening rubbished the recent ratings outlook downgrade by Standard and Poor’s (S&P) by calling it ‘highly unwarranted’. The Central Bank also said it planned to complete the 7th review of the US$ 2.6 billion IMF programme by the end of March.

S&P downgraded the sovereign rating outlook of Sri Lanka from positive to stable.

"Stable is stable, there is nothing wrong with that, but we feel the sovereign rating outlook should remain positive considering the economic achievements we have gained," Central Bank Governor Ajith Nivard Cabraal told The Island Financial Review.

Cabraal said discussions were ongoing with the IMF as to the fate of the standby facility programme.

The following statement was sent by the Central Bank in response to S&P’s ratings review:

"The Sri Lankan economy is estimated to have grown by around 8.3 per cent in 2011 recording the second consecutive year with an annual growth rate of 8 per cent or above for the first time in the post-independence history. Year-on-year inflation has remained at single digit levels in the last 37 months, and in February 2012 inflation fell to 2.7 per cent. Inflation is expected to continue to be at single digit levels in 2012, notwithstanding the recent adjustments to domestic energy prices. The debt to GDP ratio is also projected to improve to below 79 per cent in 2011, the lowest after 1981.

With effect from 9 February 2012, the Central Bank of Sri Lanka has intervened in the foreign exchange market mainly for the partial settlement of oil bills. This policy change has resulted in the rupee depreciating by 5.1 per cent against the US dollar during the period from 9 February 2012 to 28 February 2012.

The depreciation of the rupee is expected to have a contractionary effect on imports, while foreign fund inflows are likely to be encouraged. In that context, foreign investments in government securities have already increased, with a net inflow of US dollars 216 million during the period 9-29 February 2012. FDI, which exceeded US dollars 1 billion in 2011, is also projected to increase further in 2012. Hence, the country’s international reserves, which are currently at US dollars 5.7 billion, are expected to improve during the year. Meanwhile, the IMF-SBA programme is progressing with plans of completing the 7th review towards the end of March 2012. (Assistant Governor K. D. Ranasinghe told Island Financial Review that their would be an 8th review, the final review under the US$ 2.6 billion standby facility programme).

On 3 February 2012, the Central Bank of Sri Lanka raised its policy interest rates by 50 basis points and directed commercial banks to limit the growth of their credit in 2012 to 18 per cent, whilst allowing those commercial banks raising funds from abroad to expand their credit by a further 5 per cent, i.e., to 23 per cent. These monetary policy measures are expected to decelerate monetary expansion significantly during the course of the year 2012, thereby helping to mitigate any second-round effects of the recent increases in administratively determined prices, on inflation. In addition to ensuring that inflation is maintained at single digit levels in the medium term, the deceleration in credit expansion will lead to the reduction of expenditure on imports and the reduction of the deficit in the current account of the balance of payments.

In the meantime, the state-owned Ceylon Petroleum Corporation (CPC) increased selling prices of its products while the Ceylon Electricity Board (CEB) also raised its tariff in response to the increased fuel prices. Hence, the financial viability of these state owned enterprises is also expected to improve significantly in the period ahead. Such measures too, would help the government to consolidate its fiscal position further. With ongoing fiscal consolidation, the budget deficit in 2011 is estimated to be around 6.9 per cent of GDP, and is expected to decline further to 6.2 per cent in 2012.

In that background, it is clear that the Government of Sri Lanka and the Central Bank of Sri Lanka have taken necessary measures that would strengthen Sri Lanka’s performance on the fiscal front, the monetary front and the external front. Accordingly, S&Prevision of Sri Lanka’s foreign currency rating outlook from ‘positive’ to ‘stable’ and lowering the country’s long-term local currency rating from BB- to B+ at this juncture, is highly unwarranted," the Central Bank said.


Global Moderator

Fitch Ratings says in a new report that Sri Lanka’s sharp official reserve depletion during the second half of last year has increased risks on the sustainability the country’s balance of payments. Last year’s strong economic performance has led to a build-up of macroeconomic imbalances via increased imports, straining the balance of payments, the ratings agency said.

However, Fitch says it is too early to conclude that the pressure on the external finances, one of the sovereign’s key rating weaknesses, has caused a marked deterioration in the sovereign credit profile.

"Recent policy developments are encouraging as they indicate the authorities are seeking an adjustment in the current account that could place the balance of payments on a more sustainable footing," said Philip McNicholas, Director in Fitch’s Sovereign team.

According to Fitch, Risks to the balance of payments remain in three areas: oil prices, global economic and financial conditions, and potential capital flight, none of which are in Fitch’s base case scenario. Retaining investor confidence in the policy framework will be especially important to ward off the risk of capital flight. Thus, adhering to policies aimed at delivering a sustainable balance of payments, even at the cost of slightly slower growth, would support the current ratings. Conversely, policy slippage, leading to further current account deficit widening and risking loss of investor confidence, would be negative for the ratings.


Global Moderator

* Weak external liquidity despite recent policy shifts, moderately high and increasing external debt, fundamental fiscal weaknesses, high public debt and interest burden, and political institutions that lack transparency and independence, reasons for downgrade

Standard & Poor’s Ratings Services yesterday lowered Sri Lanka’s sovereign rating outlook to stable from positive and downgraded both the ‘long term local currency’ and the ‘local currency issue’ ratings.

S&P revised its outlook on the long-term foreign currency sovereign credit rating on Sri Lanka to stable from positive. At the same time, Standard & Poor’s (S&P) affirmed its ‘B+/B’ foreign currency sovereign credit ratings on Sri Lanka.

"We also lowered the long-term local currency rating to ‘B+’ from ‘BB-’, while affirming the ‘B’ short-term local currency rating. The outlook for the long-term local currency rating is stable. Likewise, the long-term local currency issue rating has been lowered to ‘B+’ from ‘BB-’. We also affirmed the recovery rating at ‘4’. The transfer and convertibility (T&C) assessment is unchanged, at ‘B+’," the ratings agency said in a statement.

"We revised our outlook on the long-term foreign currency rating to reflect the country’s deteriorating external liquidity," said S&P’s credit analyst Takahira Ogawa. "We also lowered the long-term local currency rating to the same level as the foreign currency rating to reflect the country’s lack of track record in having a floating exchange rate regime and its still-developing secondary market for debt instruments."

The ratings are constrained by weak external liquidity, moderately high and increasing external debt, fundamental fiscal weaknesses, the attendant high public debt and interest burden, and political institutions that, in some cases, lack transparency and independence, the ratings agency said.

It further said that improved growth prospects and the government’s moderate progress in addressing a number of its structural weaknesses, through fiscal measures and success in limiting inflation to single digits, supported the ratings.

Although the government and the central bank have recently begun to shift their monetary and foreign exchange rate policies to control the pace of credit expansion and import growth, Sri Lanka’s external liquidity has weakened.

"We estimate its gross international reserves fell to three months’ coverage of current account payments in December 2011 from roughly four months in the middle of 2011," Ogawa said.

"The stable outlook reflects our view that the country’s strong medium-term growth prospects of more than 6% of GDP per capita and recent measures to improve the fiscal profile are balanced against vulnerable external liquidity and high fiscal and external debt. We also expect the recently announced monetary and foreign exchange policy to keep the country’s external position from further deterioration.

"We may raise the rating if there is evidence of progress in addressing the external weaknesses and domestic problems, such as fiscal or structural economic reforms that reduce the vulnerabilities from high debt and interest burdens and the still-narrow economic profile. Conversely, we may lower the rating if there is substantial further deterioration of the country’s external liquidity, or if Sri Lanka’s growth and revenue prospects fall below our current expectations," S&P said.


Global Moderator

A big deal in Sathosa Motors where Access Engineering acquired 60% control, buying out Japan’s Itochu Corporation for Rs.846 million paying Rs.235 a share, dominated trading on the Colombo bourse yesterday.

The market posted a turnover of nearly Rs.1.7 billion, down from the previous day’s Rs.5.86 billion, with both indices moving up – the All Share by 26.42 points (0.49%) while the Milanka was up 25.41 points (0.54%) with 121 gainers outpacing 92 losers.

In addition to the deal in Sathosa Motors, there were substantial trading in Lanka Lubricants closing Rs.3.60 up at Rs.175, JKH gaining 50 cents to close at Rs.175.50 on over 0.2 million shares, Lion up Rs.2.10 to Rs.199.90 on over 0.1 million shares and Aitken Spence down 50 cents to Rs.115 on nearly 0.2 million shares.

"Over Rs.1 billion of the day’s turnover was accounted for by crossings – Sathosa and others," a broker said. "The market started slow and moved somewhat following the Sathosa deal."

Acess will now have to make a mandatory offer to minority shareholders of Sathosa at the Rs. 235 price, brokers and analysts said. The acquisition has triggered the mandatory offer rule.

Access Chairman Sumal Perera has been Chairman of Sathosa Motors from around 1998 as the nominee of Itochu with whom he has had a long trading relationship.

Perera said yesterday that the acquisition was an opportunity for diversifying Access which is focused on construction and engineering and also owns a valuable building, Access Towers, on a prime Dr.Colvin. R. de Silva Mawatha (Union Place)location.

``Many people are going into hotels,’’ he noted. ``This was an opportunity for us to diversify on a model similar to Dimo,’’

Sathosa Motors was spun out of what was originally the CWE’s motor division which held the Isuzu agency in Sri Lanka which Sathosa Motors, a high dividend paying company, continues to hold.

Itochu will continue to be Sathosa Motors’ partner shipping Isuzu vehicles and spares to the Sri Lanka company, Perera said.

During his tenure as chairman of the company, the Sathosa share issued at Rs. 15 when the company was privatized, has grown strongly in value with shareholders, principally Itochu, benefiting from a two for one bonus as well.

Regnis which had demonstrated substantial price gains in recent weeks announced a final dividend of Rs.6 per share for 2011 XD from March 12 with payment on March 20 while Singer Industries where the share price has similarly moved up sharply announced a final dividend of Rs.8.75 per share for 2011 XD from March 12 and with payment on March 20.

The parent, Singer Sri Lanka will pay a final dividend of Rs.6 per share for 2011 XD from March 12 and with payment on Marc h 20.

James Finlay announced a final dividend of Rs.1.50 per share for 2011 following shareholder approval at a March 28 AGM. The share will trade XD from March 29 with payment on April 9.

Beruwela Walk Inn announced that after prolonged negotiations it has received a final settlement payment from its insurance broker of Rs.104.7 million for property damaged claim following the December 2004 tsunami.

A total of Rs.105.1 million had been received earlier from the insurer in 2005 and 2006 with total final settlement from the tsunami claim adding up to Rs.209.8 million against an original claim of Rs.215.5 million plus interest.



Beruwala Walk Inn Plc (BWI) said yesterday it had received a total settlement of Rs. 209.7 million from its insurer on its tsunami claim of Rs. 215.5 million.

The company is now considering collaborating with an investment or private equity fund to revitalise the asset.The company utilsed the payment to make payments to a related company, Banyan Tree Holdings Ltd., for repayments for the refurbishment of Hotel Swanee. The net tangible assets of BWI, which were negative Rs. 186 million before the payment, are now a negative Rs. 82 million, while its net loss of Rs. 45 million has translated to a profit of Rs. 59.6 million. The company announced that after prolonged negotiation with its insurance broker, it received the final payment which was a part of the total payment of Rs. 104.7 million for property damage claims arising from losses during the tsunami.

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