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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Foreign fund perceptions

Foreign fund perceptions

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1Foreign fund perceptions Empty Foreign fund perceptions Wed Feb 06, 2013 11:25 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I've spoken to quite a number of foreign fund managers and nearly all of them say that lanka's corporates are not savvy enough to take advantages in the economy.

For example it is very rare to see a lankan company issue shares to acquire businesses - something that is often seen in HK, SING, THAI etc. Hence deal making always utilises cash and debt.

I can't understand why large cap stocks are not doing this... any reasons???

2Foreign fund perceptions Empty Re: Foreign fund perceptions Wed Feb 06, 2013 12:50 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:I've spoken to quite a number of foreign fund managers and nearly all of them say that lanka's corporates are not savvy enough to take advantages in the economy.

For example it is very rare to see a lankan company issue shares to acquire businesses - something that is often seen in HK, SING, THAI etc. Hence deal making always utilises cash and debt.

I can't understand why large cap stocks are not doing this... any reasons???

One obvious reason that comes to mind is that the acquiree must be requiring Cash and not Equity in the acquiror's business.

3Foreign fund perceptions Empty Re: Foreign fund perceptions Wed Feb 06, 2013 12:56 pm

Hanoifortune

Hanoifortune
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:I've spoken to quite a number of foreign fund managers and nearly all of them say that lanka's corporates are not savvy enough to take advantages in the economy.

For example it is very rare to see a lankan company issue shares to acquire businesses - something that is often seen in HK, SING, THAI etc. Hence deal making always utilises cash and debt.

I can't understand why large cap stocks are not doing this... any reasons???

Didn't those fund managers tell you the reasons?

4Foreign fund perceptions Empty Re: Foreign fund perceptions Wed Feb 06, 2013 1:15 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Well to some of them it is due to ineffective management. But that was jus one example. Who would not want a stake in in a large cap like COMB, JKH etc

That was just one example. Another was the lack of long term financing commitments from foreign sources as well as a lack of joint ventures.

The main problem with the foreign fund managers is that most of the shares are not liquid enough for a fund to accept.

5Foreign fund perceptions Empty Re: Foreign fund perceptions Wed Feb 06, 2013 2:11 pm

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Once the CSE cracked platform is well repaired along with country's positive outlook in the long run, there is a high chance of acquiring equity of high cap corporate who show the high return on investment. It opens the path for transfer of high technology & knowledge that develops the local business environment.

Other opportunity is the extending the current business to overseas (particularly banking sector) as no room for further local expansion, as former BOC chairman indicated.

6Foreign fund perceptions Empty Re: Foreign fund perceptions Wed Feb 06, 2013 2:13 pm

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
Well, its obvious!
The share swap for acquisition are NOT popular here, because none of those listed companies ( except a very few) are true corporates, they are part of family business or controlled by large shareholder who in exit demand cash payments rather than payment in kind.

7Foreign fund perceptions Empty Re: Foreign fund perceptions Wed Feb 06, 2013 6:02 pm

raptor


Manager - Equity Analytics
Manager - Equity Analytics
Also the reason many foreign companies use share swaps is that if the merger doesnt work and destroys value, the person who sold out has to bare part of the value destruction given they were paid in shares.

Sri Lanka doesn't have a huge culture of M&A, most family companies dont want to sell and most listed companies won't buy other listed entities as either they arent a good fit, there are few synergies or in most cases no one wants to merge. As pointed out, the banking sector is too fragmented, we have toom any banks for an economy this size. The first and most obvious sector for consolidation is banking. I guess some of the fund managers are right in the sense that no one here really wants to merge, there isn't a culture. Can you imagine SAMP merging with say COMB, or smaller bank like NTB? There has never been a merger like that and there will be complications when deciding who stays and goes from top management. I cant see a CEO saying fine lets do it and boards here arent willing to do it either as they arent independent, a lot of board directors are executive and therefore cannot look at an M&A situation from an unbiased perspective.

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