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Biggest scrip issue in history of Colombo Stock Exchange
JKH protects itself against predators with massive bonus issue

Many analysts and business leaders interpreted Friday’s massive 2 for 1 bonus issue announced by John Keells Holdings (JKH) as partly motivated by a desire to protect the company from ``predatory’’ takeover attempts in the light of recent developments in the Colombo corporate scene.

``Obviously creating more shares is a way of making takeovers more difficult,’’ one analyst said. Added a business leader who did not want to be identified: ``Ken Balendra is protecting his flank.’’

But Balendra himself made no admission of any defensive strategy saying there were many good reasons for taking the decision his board did at 8 a.m. on Friday and then conveyed instantly to the Colombo Stock Exchange.

``Our thinking was that we must restructure our balance sheet to reflect the big investments we are making. Our investment in South Asia Gateway Terminals (the joint venture with P and O to develop the Queen Elizabeth Quay in the Port of Colombo) is Rs. 2 billion. Against that, out own issued capital is only Rs. 612 million,’’ Balendra said.

He said that there were many other factors too that reflected the JKH decision which sent its share price zooming to a high of Rs. 180 on the CSE on Friday from the previous day’s close of Rs. 110. It closed on Friday at Rs. 140. These included the need to create shareholder value, liquidity and affordability of the share.

He said that once the share goes ex-bonus, its price should settle at around Rs. 50 or 60 given Friday’s price indications. The share would obviously be much more liquid and affordable and hopefully would be actively traded by retailers among others.

Asked whether the company would be able to service a dividend on its accustomed scale given the huge dilution of its equity by way of the bonus, Balendra was confident that while they may not be able to maintain the same dividend rate - it paid a total of 30% for the financial year ended March 31, 2000 - in quantum terms they would be able to maintain their track record.

The quantum of dividend paid in the last fiscal year was Rs. 168 mn., up from Rs. 151.3 mn. a year earlier. Given current trends, the company seemed confident of being able to raise this to around Rs. 180 mn. in the current financial year provided the business climate remains feasible. But the dividend rate on percentage terms will obviously fall following the dilution.

Balendra also said that as the biggest market capitalised company on the Colombo Stock Exchange, they had a duty to support the market which is currently depressed. The CSE all share index surged over the 500-point barrier to 513.6 on Friday on the back of the JKH bonus. The Milanka Index including many of the blue chips did even better, gaining 40 points to close at 853.2, up from the previous day’s 812.9.

Friday’s scrip issue was the biggest in the history of the Colombo Stock Exchange. While there have been other 1 for 2 and better issues, there had been none by a company with a capital as high as that as JKH.

Analysts pointed out that Hayleys had previously made a takeover more difficult when there were fears a couple of years ago that the Carsons Group might mount a bid for the company by making a substantial interest-free loan to an Employees Share Trust to acquire a sizable slice of the company.

One foreign fund manager with a Hayleys holding described this dilution as a ``poison pill’’ that made any takeover attempt more difficult. While that was obviously an underlying reason, Hayleys urged that giving their employees a stake in the company and allowing them to share in its profits was altogether healthy and desirable.

The JKH directors, like those of Aitken Spence, are substantial shareholders of the company of which the Employees Provident Fund (EPF) is the largest individual shareholder with over 3.6 mn. shares at last balance sheet date. The directors and their spouses own nearly 6 million shares (9.75%), while executives, staff and other connected persons own some 5.2 mn. shares (8.53%).

Sampath wins first round, next round in court

The Sampath Bank’s incumbent management, strongly supported by its employees, Friday won the first round of its battle against a takeover bid by the Hatton National Bank and the Stassen/Distilleries Group of Mr. Harry Jayawardene. But the fight is far from over with court action inevitable.

The competing interest that had acquired a significant 40% stake in Sampath investing a reported Rs. 1 billion and driving up the market price of the bank’s shares made no effort to get four of its nominees elected to the Sampath board at Friday’s annual general meeting on the bank after it had been checkmated by a court order.

This order decreed that no more than 10% of the votes may be exercised at the AGM by this group. In the circumstances, it made no effort to challenge the re-election of four incumbent directors, Messrs. Stanley William, D.J. Guneratne, I.W. Senanayake and Dr. Saman Kelegama as had originally been planned.

A 4-paragraph press release from Sampath said that these four directors who had offered themselves for election were unanimously re-elected.

There was an unprecedented attendance at the meeting at the BMICH with a very large number of shareholders, including a large number of Buddhist priests and Sampath employees, present. Committee Room B of the BMICH where the meeting was held was not sufficiently large to accomodate the gathering and many shareholders who could not gain admission left. Others remained outside the meeting room.

Sampath which has over 16,000 shareholders at the last count published in its annual report generally attracts a maximum of about 500 shareholders for an AGM traditionally held at Friday’s venue. But one estimate placed attendance this year at about three times the number.

Shareholders entering the BMICH for the meeting were frisked by security guards. There was a sizable police presence as there was a possibility of clashes or other unruly incidents. But Sampath said in its news release that the meeting was ``duly convened and held without incident with the large number of shareholders present afforded all facilities to participate and exercise their rights.’’

Since the events that attracted unusual numbers of shareholders to the meeting had taken place after the meeting and venue had been fixed, there was no possibility of arranging larger accomodation, one source said.

The HNB’s MD/CEO Rienzie Wijetillake indicated that they would be going to court on this matter.

Chamber urges easier passage for traders with good records

The Ceylon Chamber of Commerce has proposed that the Customs classify importers and exporters on the basis of their record and performance and give traders with good records facilities for clearing their cargo with minimal surveillance.

Mr.D.J.A. Abeysekera, Chairman of the Import Section of the Chamber told its annual general meeting last week that this system operates successfully in India and he hoped that the authorities here will do likewise.

Abeysekera made the point that such concessions to honest traders will give customs and port officials more time to examine the consignments of errant traders.

In his speech, the chairman of the import section warned that there will be "a very significant cost increase’’ resulting from the June 20 exchange rate changes that increased the dollar rate by 5.4% to Rs.79.75.

Acknowledging that government’s objective may be to arrive at a realistic exchange rate, he said that this measure imposed a heavy burden on the consumer.

"We cannot forget the fact that a large component of the import bill comprise of essentials such as food, oil, fertiliser, machinery and raw materials. The customs duty and the port charges are also now linked to the US $ and with the increase in the selling rate it snowballs to a very significant cost increase,’’ he said.

In this context Abeysekera pointed out the need to investigate the interest rates charged by the banks saying that the spread between the deposit rate and rates charged on short and long term loans "is far too wide and further contributes to the increase of cost of goods.’’

Discussing the Indo-Lanka Free Trade Agreement (FTA), he advocated annual review of the FTA so that teething problems could be resolved and products on different lists reviewed.

He said that in the area of imports, there was adequate protection to most industries here by placement in Sri Lanka’s negative list. But an annual review would be desirable.

Some problems they have encountered at the Indian end with certain Lankan importers unable to obtain duty concessions as the Indian exporters are unable to satisfactorily complete the required documentation has been taken up with the Indian High Commission in Colombo and the Director General of Customs. He hoped that these teething problems would be soon sorted out.

Abeysekera complained that the present system of customs valuation lacked transparency and importers here faced a lot of difficulty in clearing their shipments. He hoped that the necessary changes presently under study by the finance ministry will be quickly implemented.

The Minister of Internal and International Commerce and Food, Mr.Kingsley T. Wickremaratne, was the chief guest at the meeting.

Under-provision for fall in value of dealings securities, Blue Diamonds
Seylan Merchant trims losses but auditors raise questions

The Seylan Merchant Bank (SMB), now 7 years old and carrying forward losses of Rs.103.1 million in its books, has concluded the year ended December 31, 1999 with a net loss of Rs.18.3 million, a 32% improvement on its Rs.27 million loss the previous year, its just published annual report for 1999 said.

But the company’s auditors, Ford, Rhodes, Thornton and Company, has stated in a an opinion that SMB carried dealings securities costing Rs.44 million in its books with a market value of Rs.15.5 million. Of the fall in value of these securities by Rs.28.6 million, only Rs.5 million has been provided for in the profit and loss account.

The auditors also said that SMB had an investment in Blue Diamonds costing Rs.47.8 million with a market value of only Rs.4 million reflecting a fall of Rs.43.8 million which is "considered permanent’’ but has not been provided for.

The auditors said that if adjustments to the financial statements are made considering these factors, the loss for the year would increase by Rs.67.4 million and the accumulated losses carried forward would be Rs.170.5 million.

The bank reported total assets of Rs.1.9 billion and liabilities of Rs.1.7 billion. Shareholders funds at the end of the last financial year were stated at Rs.243.9 million.

SMB Chairman Lalith Kotelawala has told shareholders in his review that he was happy to report a ``creditable’’ performance in 1999 with the consolidated loss down substantially from the previous year’s loss. He said that "this performance validated the restructuring program instituted in 1997 and strengthened the likelihood of positive financial results in the near future.’’

Kotelawala reported that the bank had introduced several new products in the year under review and said that these can be expected to improve financial performance in the years ahead.

The bank’s Director/General Manager, Mr. R.S.W. Senanayake, attributed the loss reduction to the accumulation of high quality performing assets since the 1997 restructuring and the sustained efforts towards reducing the overall cost of capital. He said that the bank’s asset portfolio had recorded substantial growth in 1999 with the lease rental portfolio growing 49% to Rs.406.9 million. The loans and advance portfolio too increased 70% to Rs.331.5 million.

Senanayake reported that SMB Money Brokers (Pvt) Limited, a licensed money broking firm under its umbrella dealing in the money market and inter-bank foreign exchange, had recorded a Rs.0.8 million profit in 1999 against a Rs.0.5 million loss the previous year.

They had also incorporated a fully owned subsidiary, SMB Real Estate Limited to deal in real estate and property development.

A 3-month promotional "Millennium Offer’’ launched on September 27, 1999 which ended in December that year offering attractive value added terms including provision of leases in 24 hours and a free comprehensive motor insurance cover had achieved the goal thereby enhancing the SMB asset portfolio by Rs.300 million in three months of the special offer.

Senanayake said that SMB will continue to emphasise fund-based operations such as leasing and commercial loans in the current financial year as the present economic environment is not conducive to traditional fee-based merchant banking activities.

The directors of the company are: Messrs. Lalith Kotelawala (Chairman/MD), R. Renganathan (Deputy Chairman), R. S. W. Senanayake, S. A. Chapman, A. D. Jegasothy, P. R. Anthonis and J. E. R. Perera, Mrs. S. P. C. Kotelawala and Mrs. R. L. Nanayakkara.

The global trading system in the nineties

by Kanes
World trade in goods and services expanded in nominal US dollar terms, by 55 per cent between 1990 and 1998 to $ 6700 billion. Trade volume grew at an average annual rate of 6.7 per cent exceeding the growth of the real GDP of 3 per cent a year. The ratio of global trade in goods and services to GDP rose from 19 per cent to 23 per cent between 1990 and 1998 - the ratio for developing countries exceeding 30 per cent. Developing countries record the fastest expansion of trade in this period with the average annual increase of over 10 per cent and their share in world trade has risen from 23 per cent to 27 per cent. Trade in manufactures has grown faster than trade in agriculture and mining products in both value and volume, and world prices of traded agricultural and mining products have lagged behind those of manufactures causing terms of trade losses for the majority of developing countries. Trade liberalization and globalization have tended to expand exports of developing countries as a whole in the nineties but a close examination of facts and figures reveal that while a small number have benefited from them, the majority have failed to reap benefits or reaped them at great social costs.

Unequal Trade

The developed or advanced countries numbering 24 with 14 per cent of the world population create 52 per cent of the world output and 69 per cent of the world’s exports of goods and services. The developing countries, including the four newly industrialized Asian economies, numbering 132 with 79 per cent of the world population account for 43 per cent of the world’s output and 27 per cent of the world’s exports of goods and services. The 28 countries in transition (countries of the former Soviet Union and of Eastern Europe) with 7 per cent of the world’s population have only 5 per cent of the world production and 4 per cent of the world’s exports of goods and services. Thus, the world’s output and exports are unevenly distributed; the 24 developed countries with 14 per cent of the world’s population having over half the world output and over two-thirds the world’s exports of goods and services.

Not only the 132 developing countries with 79 per cent of the - world’s population generate only a little over a quarter - 27 per cent - of world’s exports, but their exports are also unevenly distributed with Asia having the most and Africa the least. Asia accounts for 17 per cent of the world’s exports of goods and services while Africa generates only about 2 per cent; Latin America generates about 4 per cent and the Middle East 3 per cent. Within the developing countries as a group, including newly industrialized economies, Asia accounts for 64 per cent of the developing country exports - nearly two-thirds, Latin America 16 per cent, Middle East 13 per cent and Africa 7 per cent as shown in the table.

Concentration of Exports in a Few Developing Countries

The concentration of exports in the hands of a few developing countries is illustrated first by the fact that the four Asian newly industrialized countries - South Korea, Singapore, Taiwan and Hong Kong - account for 9.3 per cent of world’s exports and 34 per cent of developing country exports - or one- third. They generate more than half of Asia’s exports. If China too is included, then the five countries account for 12.4 of world’s exports and 45.8 per cent of developing country exports or nearly half. Second, developing country exports are further concentrated in those developing countries which are mainly exporters of manufactures. Thus, the 10 leading manufactures exporting developing countries - Hong Kong, South Korea, Singapore, Taiwan, Malaysia, Thailand, China, India, Pakistan and Brazil - account for 16.3 per cent of world exports and 60.1 per cent of developing country exports. On the other hand, the 40 developing countries who are mainly exporters of primary products generate only 1.2 per cent of world exports and 4.3 per cent of developing country exports and the 17 oil exporting developing countries account for only 2.9 per cent of world exports and 10.9 per cent of developing country exports.

Thus, developing country exports are heavily concentrated in the Asian countries with manufactures exports and they happen to be mainly those of East and South East Asia. In addition, they have high incomes: thus, the per capita GNP of the four newly industrialized economies exceed $10,000 (with Hong Kong and Singapore exceeding $20,000) and of Malaysia and Thailand exceed $2000; only that of China is below $1000 — $783. On the other hand, developing countries in Africa which depend mainly on primary commodity exports have a very low level of exports. Of the 40 developing countries depending mainly on primary commodity exports, 28 or 70 per cent are in Africa, and they have the lowest incomes in the world. Studying the picture from a different angle, the 46 least developed countries, mainly African, generate only 0.5 per cent of world’s exports and 1.8 per cent of developing country exports and the 40 heavily indebted poor countries mainly African again, account for only 0.8 per cent of world exports and 3.0 per cent of developing country exports.

Exports Growth

The growth rates of exports and imports volume of developing countries were lower than those of developed countries in the decade 1981-1990 but higher in the subsequent decade 1991-2000, but the value of their exports grew at a lower rate because of falling export prices and the value of their imports grew at a higher rate on account of rising import prices - in other words because of unfavourable terms of trade. In 1991-2000 for example, export prices declined at an average annual rate of 0.6 per cent while import prices rose at 0.5 per cent and terms of trade declined at 1.0 per cent per annum. In the previous decade 1981-1990 terms of trade declined by 2.3 a year as export prices fell by 0.7 per cent and import prices rose by 1.7 per cent a year. Thus, the entire 20 years was characterized by deteriorating terms of trade - falling export prices and rising import prices for developing countries. On the other hand, terms of trade of developed countries improved in this period by 1.0 per cent a year in the eighties and 0.4 per cent a year in the nineties as their export prices rose and import prices fell. Thus, international trade under globalization clearly benefited the developed countries more in the last twenty years.

The major reason for these unequal benefits from trade is that the prices of the main exports of developed countries - manufactures - rose more than those of the main exports of developing countries - primary commodities and oil. In the eighties, the world trade prices of manufactures in US dollars rose by 3.2 per cent a year while those of oil fell by 4.6 per cent and of non-fuel commodities by 0.7 per cent a year. In the nineties, world trade prices of all three groups declined, but those of manufactures declined less - 0.3 per cent a year - than those of oil - 2.4 per cent a year - and of non-fuel primary commodities - 0.8 per cent a year. Thus, most of the developing countries being exporters of primary commodities and oil suffered from adverse terms of trade in the twenty years. Oil exporting countries of the Middle East experienced declining prices in the entire period and overcame the declining value of exports by sharply raising their volume of exports in the nineties. Primary commodity exporting countries of Africa too experienced declining export prices and had to raise the volume of exports in the nineties to offset it. Latin American countries exporting both primary commodities and manufactures experienced rising prices of exports in the eighties and declining prices in the nineties; the price decline was offset by increasing export volume. Finally, Asia benefited from rising prices (though slightly) in the entire twenty years, mainly because of its substantial exports of manufactures by East and South East Asian countries. As a result of this, Asia’s exports value rose by 11.5 per cent a year and Latin America’s exports rose by 7.8 per cent in the nineties while Africa’s and Middle East’s exports value increased by 2.4 per cent a year each. Thus, the developing countries that have benefited most from expansion of trade as a result of globalization are those who are exporting manufactures and those who have benefited least are the exporters of primary commodities and oil.

Exports Needed to Import

The volume of imports of developing countries is determined by the volume of exports when their export prices are falling. Thus, in the eighties, when export volume increased by 2.5 per cent a year, import volume rose by only 1.9 per cent; in the nineties in order to overcome declining prices, developing countries increased their export volume by 8.3 per cent and then that resulted in their import volume rising by 8.1 per cent. The developing countries are thus compelled by declining export prices to maximize production and export of their commodities to obtain the required volume of imports. Africa for instance had falling exports prices and declining value of exports in the eighties which led to falling imports but in the nineties it had rising exports and rising imports despite declining export prices, because it raised the volume of exports. Increasing the volume of exports needs much effort and even diversion of resources from domestic consumption, which may cause some social hardship. The growth rates of export volume and import volume changed only slightly in the developed countries: export volume growth rate was 5.3 per cent a year in the eighties and 6.0 per cent a year in the nineties while import volume growth rate was 5.7 per cent and 6.0 per cent respectively. In the developing countries export volume growth rate jumped from 2.5 per cent to 8.3 per cent a year in this period and similarly import volume rose sharply from 1.9 per cent to 8.1 per cent a year while terms of trade were deteriorating. The jump in the export volume growth rate may explain the rise in the GDP growth rate from 4.2 per cent a year in the eighties to 5.5 per cent in the nineties in the developing countries.

The New Exchange Rate Regime

by Analyst
The Central bank has widened the limits within which it will permit the exchange rate to fluctuate to 5% on either side of the middle rate. Hitherto the Bank would intervene by buying or selling US dollars to the commercial banks within 2% of the middle rate. We follow what economists call a ``crawling peg'', with the peg being adjusted from time to time to allow a stepwise devaluation in small doses.

The Bank pretended that the exchange rate was market determined as a political ploy to avoid the criticism that it was devaluing the rupee. In fact each year there was an accumulated devaluation of 8-10%. And the depreciation of the real rate in 1999 was 7%. (Last year it was 6% since inflation had come down)

This devaluation or depreciation was to neutralize the inflation differential between the country and our trading partners/competitors. It was necessary to keep our exports competitive. But the very depreciation itself contributed to inflation and was destabilizing the economy. The accumulated small doses of depreciation raised the cost of living and the organized workers both in the private and public sectors agitated for and invariably succeeded in pushing up their money wages, nullifying the benefits of depreciation to the economy and setting the stage for another round of depreciation, like the cat trying to catch its own tail.

So we had this continuous vicious circle. Domestic inflation is affected by imported inflation, directly through the price of traded goods and indirectly through the price of non-traded goods. The latter effect is what bewilders the public and makes newspaper editors breathe fire. It operates because as traded prices increase, supply tends to shift from non-traded to traded goods while demand shifts from traded to non-traded goods; the consequent excess demand for non-traded goods then causing their prices to increase.

Of course the domestic inflation is also affected by the domestic monetary situation as well. This type of passive crawling of the rupee was suitable when the financial markets were repressed. But financial markets have been liberalized somewhat in recent years and the Central Bank has lost some control over monetary instruments, particularly the interest rate.

When the exporters (and the banks) expect depreciation they keep their foreign exchange earnings abroad without bringing them to the country. This puts pressure on the exchange rate unless the Central Bank increases the interest rates to a level sufficient to offset the profit that will accrue to those who keep funds abroad in the hope of a depreciation and borrow locally at the prevailing interest rates which will not eat into their anticipated exchange gain through the expected depreciation.

The exporters who keep funds abroad have to borrow locally to finance heir trade while they hold their money abroad in the hope of profiting from an anticipated depreciation. When the interest rate goes up it is worth less for them to hold money abroad since the anticipated exchange gain from the depreciation will be neutralized by the interest rate going up. So, interest rates have to go up when money is held abroad by exporters in dollars rather than converting them to rupees to finance their credit requirements for trade.

But increases in interest rates reduces credit draw off by the domestic business sector not involved in export-import trade and they suffer unnecessarily. This increase in local interest rates to conserve foreign exchange affects domestic private sector investment adversely. In short it affects economic growth negatively. Why should the domestic sector, both business as well as consumers who borrow, suffer when they are already burdened by high interest rates?

These higher interest rates also raise costs and prices of the locally produced vegetables, rice etc. Economists call this, sacrificing domestic for external stability. It would not be so bad if at least the policy could preserve external stability by bringing about a balance in the current account of the balance of payments. But this policy has failed to achieve this as the following figures show.

Balance of Payments Crisis

Source: Trends in Public Finance (General Treasury) & Central Bank Annual Report 1999.

The table shows the continuing adverse situation in the last two years when the trade balance, the factor income balance and the current account balance have worsened. Then the overall balance has turned adverse and it is a large deficit amounting to US $ 263 million. All this is does not take into account the full effects of the oil price hike, which has taken place in the last six months.

The magnitude of the crisis is shown by the fact that official reserves have fallen further to US $ 1,371 mn. as at end of April 2000.The terms of trade as at end of April 2000 is 82.6 which shows a further deterioration continuing the downward trend from September 1999.Although wheat and sugar prices have fallen in world markets the price of rice has gone up to US $ 250 per metric ton from $ 194 last April.

What will be the projected balance of payments deficit for year 2000 on the current account and the deficit in the overall balance? It will be much larger than in 1999 unless corrective action is taken. The Central Bank is right to take some action although it is far from what really has to be done in the same direction. The 5% band will give more flexibility than the 2% band.

How wide should the band be? A forecastable downward crawl as before will still cause a capital outflow. The local interest rate and the foreign interest rate differential must be considered when the rate of crawling is decided on. The foreign exchange market will reflect supply and demand on trade account more accurately, excluding the speculative factor if the exchange is allowed to operate more freely.

The depreciation will have to be carried out in an erratic way to preclude any possibility of drawing conclusions of general validity, so that the speculators do not have only a one-way bet.

Risk of exhaustion of foreign reserves

The Annual Report of the Central Bank shows that although inflation has come down significantly (thus eliminating the need for depreciation to maintain the real exchange rate, the rationale for the small doses of depreciation) the current account of the balance of payments has worsened to 3.1% of the GDP. Worse, the overall balance of payments position has turned negative by a large figure, as much as US $ 263 million whereas previously we had a surplus generally.

The commercial banks had also been building up foreign exchange abroad. The government could not go ahead with the planned foreign market borrowings. Foreign aid had also declined. So there is a risk of running out of foreign exchange reserves to meet our commitments. The outstanding foreign debt increased to US $ 9,049 mn. in 1999. What is more significant, the annual amount of foreign exchange to repay the foreign debt is increasing somewhat steeply in recent years.

The total debt service payments, which consist of long term and medium term debt and interest payments on all foreign debt increased by 12% to US $ 846 million. The amortization of foreign loans increased by 17% to US $ 550 million. The foreign debt repayment and interest payment falling due this year are not available but they are likely to be even higher than last year.

The debt service burden was 12.5% in 1999.The total external debt including the foreign currency liabilities of the banks is US$ 9,707 million while the official foreign assets are US$ 1,639 million. Columbia suffered reserve exhaustion in 1966, Chile suffered a crisis in the Allende years, Brazil, Peru, and Mexico all suffered foreign exchange crises and in the late 1980s had to default on their foreign debt.

It should not lead to much depreciation as exporters convert their dollars to rupees. But it will not be sufficient since the Bank will still largely determine the rate and the market will still speculate on what is the underlying policy of the Bank. There will be no real change except for a little more fluctuation in the rate. The Bank should give much more freedom to the market and this should be considered only a first step.

Causes of the crisis: oil price hike and war purchases

But there are fundamental questions, which have to be addressed, like how effective is exchange rate adjustment to bring about a correction in the Balance of Payments. It is clear that a nominal rate crawl of 2% at a time with discreet adjustments at periodic intervals, (say one month) will not suffice to deal with an external shock like the oil price hike. There was a similar oil shock in the 1970s when we were under a strict exchange control regime and there was much hardship caused to the people.We didn't have sufficient foreign exchange reserves to spread the pain over a longer period.

When the UNP came to power they devalued drastically and the World Bank gave adequate foreign exchange to act as a buffer to finance any pent-up demand for imported goods and services. So, what now is the attitude of the UNP? A UNP MP who is also an economist blames the government and accuses it of mismanagement.

For the last fifty years we in this country have lived beyond our means. Our politicians think good times will last forever. In the 1950s the UNP taxed the plantation sector to death to finance free education, free health and later give free rice. When the Korean War boom collapsed, there was a need to adjust by removing the rice subsidy. But politicians dilly-dallied and exchange control had to be tightened and foreign trade had to be state controlled to prevent foreign exchange racketeering. (The abuses soon came to be carried out by state bureaucrats though)

After 1977, in spite of the introduction of the open economy, the government did not free all prices and allow them to be determined by market forces. Many subsidies, open and hidden, continued. These subsidies benefited the better off much more than the poor. So the middle and upper classes were able to spend lavishly and import all manner of luxury cars and other imported goodies. The housemaids labored in difficult conditions to remit foreign exchange to the country.

And what does the government do? It promoted the import of all manner of luxury goods which can be afforded by the rich only because they enjoy subsidies, don't pay taxes and practice all manner of cheating on customs duties and other indirect taxes. The politicians were given duty free vehicles, which they promptly sell in the market. An economically unjustifiable Duty Free Shopping Complex was introduced to enable some crony businessmen to make money while ruining the local manufactures and duty free concession given to all those returning from abroad after a long stay.

All these faulty policies have now come home to roost. Our foreign exchange reserves are fast being depleted. If they are exhausted the country will not be able to import even the basic foodstuffs required to feed the people. Nor will the country be able to repay foreign loans falling due for repayment. The crawling peg exchange rate policy did not prevent serious crises in several Latin American countries in the 1970s and 80s.

The problem is that why the policy can preserve the real exchange rate (this is the nominal rate adjusted for inflation) stable, it does not prevent the deterioration and emergence of a continuous deficit in the Balance of Trade or even in the Current Account of the Balance of Payment. Please see the table above and notice that our balance of trade and the balance on current account have been negative for the last several years.

We didn't have to worry because the remittances from the housemaids and the inflow of capital from abroad were sufficient o produce an overall surplus. But this situation has change with the large deficit of US $ 263 million last year. Our foreign exchange reserves are coming down fast. Now we have the oil price hike. Our living standards must be reduced to conserve the foreign exchange reserves.

The reserves are needed just for the purpose of what economists call an external shock. When misfortune strikes, no one wants to bear the loss in a single dose. The pain must be spread over a long period. We should continue to import the bare essentials from abroad. In the 1970s this was accomplished by severe exchange control restrictions. But nobody wants to go to that era of queues and blackmarkets which are the inevitable results of such restrictions.

The alternative is to raise prices of imported goods so that less will be imported and the reserves conserved for essential foods and oil. These items cannot be reduced too much. So, if the rupee depreciates it is necessary to curb imports and promote exports. The question is how much depreciation is required to restore balance in the current account of the Balance of Payments and stop the erosion of our foreign exchange reserves.

The other side of the coin is of course what will be the magnitude of the domestic inflation caused by this depreciation? Much more depreciation will take place with a more flexible exchange rate. How long can the pain be spread over by having only small doses of depreciation? Can we conserve foreign exchange reserves by reducing the purchase of weapons? Can we somehow attract more inflows of foreign capital? It is very unlikely unless the war is stopped.

Can we increase our earnings from tourism? Not likely unless the war is stopped. The truth of the matter is that the previous governments since 1983 did not prosecute the war vigorously because they did not want the people to bear the cost of the war. Now there is no question that unless the war is stopped, we may reach a situation of exhaustion of foreign exchange reserves and may have to default on the foreign debt . Nor are we likely to get much foreign aid since our lack of democracy and failure to settle the ethnic question are now taken notice of by the European Union.

A policy mix of flexible exchange rate and higher tariffs needed

The UNP blames the government saying that it has mismanaged the economy. There is much truth in this accusation since there is mismanagement of our resources like the foreign exchange; there is corruption and wastage, extravagance by politicians who get lavish perks at public expense. But this crisis in foreign exchange is more than that.

The oil price hike is too much for the foreign exchange reserves to bear.

The conservation of foreign reserves requires more action. What can such action be? Selective controls on imports, import controls, exchange controls, higher tariffs etc. But given the weak and corrupt administration these measures do not succeed and only add to more corruption, smuggling and blackmarketing of foreign exchange.

Depreciation does not have this problem. It creates no incentive for evasion and corruption and does not depend on the corrupt and inefficient bureaucracy for its enforcement. But to be effective it is not enough to have depreciation in the nominal exchange rate. It requires depreciation in the real exchange rate.

All these years the Central Bank merely offset the inflation differentials between our inflation and inflation in the outside world, maintaining the real exchange rate. But now we require a reduction in the real exchange rate which must involve a reduction in living standards since we cannot afford all those imported goodies we have been enjoying since 1977.

Politicians and newspaper editors argue for an increase in wages to compensate for the increase in the cost of living caused by the depreciation. But this is self-defeating. It will erode the anticipated benefits from the depreciation and set the stage for another round of depreciation. If the devaluation is to work the wages must be held down not adjusted upwards.

It was said that Brazil, in spite of continuous depreciation achieved no real devaluation. The same may happen if wages are upped. Devaluation also has effects on income distribution, which make it politically unattractive. The alternative to devaluation is selective controls and higher tariffs. And controls over foreign exchange for less essential imports and foreign payments.

The effect is to reduce imports directly and give export subsidies. But these policies cause corruption while raising the prices of selected goods brought under control. What we need perhaps is a mix of tariffs and devaluation. There never was a good reason to give duty free concession for politicians. There never was a rationale for a duty free complex. There is a strong case for cutting government expenditure and reducing the budget deficit considerable without cutting the war expenditure.

There is lots of government expenditure that can be cut down like the expenditure on politicians and on the public service. There are far too many public servants doing little or no work but drawing a dole. There should be retrenchment as recommended by the World Bank. There is also other wasteful government expenditures like Samurdhi, which can be cut down.

It is also necessary to take income tax seriously. Politicians and public servants must be taxed. Even if the exemption from tax cannot be removed at once, at least it can be turned into a tax credit rather than tax exemption, giving the same relief. It is more difficult to evade tax when relief is given in the form of tax credit rather than tax exemption.

There should be some sort of cost recovery from undergraduates at least those entering the professional disciplines like medicine, accountancy, engineering, and law. Secondary schools in the cities should be given fewer grants from the education budget. What C.W.W. Kannangara should have done was to set up central schools teaching in the English medium rather than make all schools free, (vernacular schools were free even in colonial times).

Similarly, there was a charge, a nominal charge for medical services in colonial times. It's time to levy a charge on the treatment of patients leaving out the poorest and those suffering from serious illnesses requiring indoor treatment. The need for as much depreciation will then be reduced. In the past when there was a depletion of resources requiring corrective action SLFP governments resorted to direct controls and tariff increases while the UNP would impose monetary controls like higher interest rates and credit restrictions. This is to cast the burden on the private sector and reduce expenditure by the private sector.

Its disadvantage is that it strikes at private sector investment, which means again damaging long run prospects for economic development. Dornbusch drew a distinction between expenditure reducing and expenditure switching policies. In expenditure switching people are induced to cut down on imports and go for domestic products. Devaluation is a method of doing so. So are tariffs, quotas, export subsidies.

Countries that experience adverse external shocks will experience a sharp slowdown in domestic economic growth. We already experience this slowdown whatever the government officials say to the contrary. Our growth rate (GNP) came down last year to 3.8% from 4.6% in 1998. (GNP). Unless corrective action is taken, there will be a slowdown and a reduction in resources available for consumption or investment. Normally cuts fall on investment rather than on consumption, damaging long run growth prospects as well with an increasing population.

Forbes research market report

JKH announced a 2 for 1 bonus on Friday, which resulted in the prices being pushed up to a high of SL Rs 180 from Thursday’s close of SL Rs 110. Although the price has already come off to the SL Rs 140 levels, knowing the local market there is likely to be more steep fluctuations in the price within now and the ex bonus date. The obvious positive coming from the bonus is a far greater dividend payout. It is most unlikely that the company would reduce its DPS of SL Rs 2.80 by too much given that they have accumulated cash reserves of about SL Rs 1.9 bn and healthy annual cashflows. This will result in much higher dividend yields as the price corrects. Our long-term view of JKH remains unchanged, with plenty positive surprises in the future from its new areas, IT and SAGT. The group remains the best value creator among conglomerates, but BUY on weakness.

Market overview: Aggressive trading seen on JKH shares at the end of the week, due to a 2:1 bonus issue, livened up an otherwise dull week of trading. Significant increase in the price of the heavy weight resulted in both market indices being pushed up significantly. The ASI and the MPI which were relatively flat until Friday closed for the weekend on a positive note as a result of this, with gains of 3.5% and 5.8% to close at 513.6 and 853.2 respectively. Market turnover for the week was SL Rs 333m. Foreign selling continued, with foreigners being net sellers with an outflow of SL Rs 131m.

The marked fall in foreign currency reserves the depreciation of the dollar and a few other unresolved macro uncertainties, should continue to weigh down the market at least in the medium term. Nevertheless, we maintain that there is selective value on a bottom up basis.

JKH-Plantations and P&O downgraded: Despite further downgrades to allow for plantation wage hikes and lower P&O contributions JKH still has plenty of growth momentum left, at an estimated CAGR of 35%. The group should grow about 32% in FYO1, despite a 4% downgrade in plantation contributions and a 20% downgrade in SAGT contributions. Wage hikes for tea and rubber plantations workers were settled at SL Rs 121 and SL Rs 112 respectively, SL Rs 3.00 higher than expected. At a recent company visit we were informed that SAGT contributions for FYOO were about SL Rs 70m as opposed to SL Rs 92m. We have downgraded SAGT contributions by 20% in FY01 and 255 in FY02 to take into account electricity costs, previously ignored. We have also reduced our assumption of total TEU handled in FY02 from 550k to 527k BUY.

Hayleys — Wages hiked & currency depreciates. High leverage to the external sector is now a positive with local currency devaluing faster than East Asian counterparts and Western economies (main markets) on the up. We have downgraded the groups rubber and plantation sector contributions by 7% in order to factor in recent plantation wage hikes. An offset to plantation downgrades comes from the accelerated depreciation of the rupee boosting traditional sectors. Exports account for 47% of group revenue, which means that there should be a notable improvements in margins this year. We expect earnings to bounce back by 31% in FY01, maintaining our previous forecasts of SL Rs 520m. We estimate group EPs CAGR over the next two years to be 25%. We now recommend Hayleys as part of a core holding as opposed to a trading BUY.

Kegalle — Rubber will boost performance. Kegalle has one of the highest exposures to rubber, with rubber making up 54% of total production, followed by tea and coconut with 30% and 16% respectively. Despite it’s lower than expected performance in FY00, the expected strong pick-up in rubber prices, on the back of recovering commodities, has placed Kegalle on a much stronger financial footing, further cushioned by its investment in Maskeliya. Kegalle’s full-year performance came in lower than we had expected, recording a profit of SL Rs 38.9 m compared with our estimate of SLRs 48.7 m. This was largely due to the fact that we had expected yields to be up 10% on rubber and tea yields down only marginally. However, both tea and rubber yields declined by 7%.

We expect rubber NSA to come in at 23% and 11% higher in FY01 and FY02, respectively, with tea NSA expected to be up by 8% and 5% respectively. On overall productivity, we expect yields on both tea and rubber to be up 5% and 10%, respectively, in FY01 given the company’s continued field development programmes. Even with the significant increase in wages, the stock has an upside of 176% on the DCF value. ROE of the company is expected to be at 13.6% and 22.6% in FY01 and FY02 respectively, with cash flows expected in improve after FY01 BUY.

Owning company gets Rs. 70 mn. in management fees
Finlay’s plantation companies lose money in 1999

James Finlay & Co. Ltd., which describes itself as the "largest investor in the Sri Lankan tea industry," has seen both Hapugastenna Plantations Ltd and Udapussellawa Plantations Ltd, its plantation owning vehicles, suffer losses in the year ended December 31, 1999.

Hapugastenna Plantations lost Rs.72.4 million during the year under review against a profit of Rs.84.3 million the previous year. Udapussellawa posted a loss of Rs.80.8 million against an earning of Rs.42.9 million a year earlier, the companies’ 1999 annual reports reveal.

However, Finlays wholly owned James Finlay Plantations Holdings Limited earned a Rs.43.9 million management fee from Hapugastenna while James Finlay & Company (Colombo) Limited earned a similar fee of Rs.26.1 million from Udapussellawa.

In 1998, Finalys invested a massive Rs. 1.6 billion, todate the biggest plantation deal transacted, to totally buyout Plantation Investment aned Management Co. Ltd. (PIMC) which had the controlling interest of both Hapugastenne and Udapussellawa. Subsequently, Finlays re-named PIMC as James Finlay Plantation Holdings Ltd.

The sharp depression in tea prices during the year under review, down to Rs.107.74 per kg against Rs.131.98 in 1998 at Hapugastenne Rs. 96.55 from Rs. 121.14 at Udapussellawa was a major actor in the losses incurred. The rubber portfolio of the Finlays’ estates also saw the average dropping to Rs.42.64 per kg. from Rs.48.4 (Hapugastenne) and Rs. 42.87 from Rs. 47.12 at Udapussellawa in 1998. Rubber yields too had been disappointing although an all time record yield of 2,496 kg per hectare had been obtained from a 10 hectare field planted in Bibile 1986.

Reporting to shareholders, Mr. R. L. Juriansz, the companies’ Chairman/Managing Director, expressed the boards deep consciousness of the need to develop the estates so that they are more productive and more profitable in the future, "while maintaining borrowings and interest at bearable levels."

He said that the directors hoped to come up with refinancing proposals which would enable these two objectives to be met.

The field and factory development programs that were reported to be progressing "fairly satisfactorily" was expected to contribute significantly to the companies’ long term viability.

Capital investments at both Hapugastenna and Udapussellawa had increased during the year under review. At Hapugastenna, the investment reached Rs.202 million from the previous year’s Rs.186 million while at Udapussellawa Rs.50 million was spent on field development compared to Rs.47 million the previous year. A further Rs.6.4 million had been spent on factory development by that company.

Juriansz explained that the development program involves replacing the oldest and least productive tea and improving badly eroded soils. At Hapugastenna, 1.2 million tea plants were put out against 0.8 million at Udapussellawa.

Both companies also invested in fuelwood plantations and improving factory conditions including aspects of hygiene and cleanliness and improving the performance of the machinery.

Juriensz said that his board was working towards a proposals which would provide funds for the plantations while reducing the overall interest charges in both companies.

He was confident that the recently planted young tea on plantations of both companies will be high yielding and "will make a real contribution to profits." He expected both companies’ performance to compare well in terms of cost, price and yield in the rest of the plantation industry.

He commented however that despite the positive factors of development undertaken, it must be acknowledged that the weather will always not be favourable and the tea market will fall from time to time. It was their objective therefore to place the companies on a sufficiently healthy state to ride through such periods.

The retained losses at Hapugastenna now total Rs.164.3 million while those at Udapussellawa are Rs.347.3 million. Neither company is paying a dividend this year.

The directors of the two companies are: Hapugastenna - Messrs. R. L. Juriansz (Chairman/MD), N. K. H. Ratwatte (CEO), C. L. K. P. Jayasuriya, E. R. Croos Moraes, G. C. B. Wijeyesinghe and S. B. Divaratne. Udapussellawa - Messrs. R. L. Juriansz (Chairman/MD), N. K. H. Ratwatte (CEO), C. L. K. P. Jayasuriya, E. R. Croos Moraes, G. C. B. Wijeyesinghe and M. Vamadevan.

Bartleet’s Weekly Market Commentary

The last week of trading for the month of June ended with JKH announcing a 2 for 1 bonus issue. Both indices traded within a narrow brand from Monday through Thursday but witnessed sharp rises on Friday mainly due to JKH shares rising sharply to reach a high and a low for the day of Rs. 180 and Rs. 130 respectively, ultimately ending the day at Rs. 140. This price represented a rise of Rs. 30 for the day. The ASPI saw a gain of 16 points (3.1%) to close the week out at 513.6 points, the first time the index has topped the 500 points level since 29th March this year. The MPI picked up 39.1 points (4.6%) during the week to close at 853.2 points. Equity Turnover which began the week on a moderate note gradually witnessed increases as the week progressed culminating by topping the Rs. 100Mn. mark on Friday on the heels of large quantities of JKH shares changing hands. On a WOW basis Equity Turnover totaled Rs. 332.86Mn. This is a decline of 60% from the previous week’s figure of Rs. 841.87Mn. while the Average Daily Turnover for the 5 days was Rs. 66.57Mn. The total number of shares traded during the week totaled 7.29Mn. which was mainly due to large quantities of JKH, Grain Elevators, Sampath Bank, Blue Diamonds, Pelwatte Sugar, NDB, Distilleries, Hayleys, Talawakelle Vanik, Korea Ceylon and DFCC shares changing hands. The Average Daily Share Volume totaled 1.46Mn. for the week. Foreign sales continued its dominance over foreign purchases throughout the week with the former contributing Rs. 56.62Mn. (17%) and the latter contributing Rs. 13.24Mn. (4%) to total market turnover. This resulted in there being a net foreign outflow of Rs. 43.38 Mn. for the week.

For the half year ended June 30th, 2000 the ASPI declined by 58.9 points (10.2%) while the MPI declined by 84.3 points (8.9%). During this period the ASPI witnessed a new 9 year low of 430.6 on 8th May while on the same day the MPI too witnessed a low of 674.5 points since its inception in January 1999. Equity Turnover totaled Rs. 6.955Bn. during the 6 month period while the Average Daily Turnover totaled Rs. 59.96Mn. The month of June saw the Equity Turnover reach Rs. 1.84Bn. the highest for the 6 month period. The number of shares traded totaled 213.34Mn. while the Average Daily Share Volume during this period totaled 1.84Mn. The month of February saw the number of shares traded reach 46.02Mn. which is the highest for the 6 month period. There was a net foreign outflow of Rs. 2.304Bn. with foreign purchases and sales contributing Rs. 823.28Mn and Rs. 3128.25Mn. to total Equity Turnover.

Standard Chartered offers ‘overnite’ loans to high earners

The Standard Chartered Bank is offering higher paid staff of selected companies loans of between Rs.50,000 to Rs.500,000 (or a maximum of 6 months salary) under a quick processing ``overnite" scheme.

To qualify for this "unique loan scheme," an applicant must be earning a minimum salary of Rs.20,000 a month with one year of permanent service with his/her current employer, the bank said in a news release.

A spokeswoman for the bank said that these 18.75% loans "is going to be a hit on the market."

"We were the first to launch this scheme and we are going to re-launch it in a different manner," she said.

According to Sabry Ghouse, Head of Consumer Banking of Standard Chartered, these "Overnite Loans" will be processed within 24 hours if the applicant qualifies. He promised "easy access to the scheme and smooth processing procedures."

The bank says that it is "known to innovate" and Room Service and Pay-by-Phone are two products already popular among customers. It aims to achieve two specific goals in the target market with "Overnite Loans."

"Since we are a need-based bank, after researching the market we believe it is time we stepped forward to offer this to those mid-up market income earners, who can easily make use of this scheme. On the other hand ... what a boost to employee morale ... when this is added on as a benefit through the company?," Ghouse said.

"We will continue to provide the market with what they need. We will continue to pursue opportunities to develop our unique franchise in line with our strategy. However, we will not compromise on quality."

65% dividend payment despite 30% earnings dip
Wet weather dampens Elephant House profit

Ceylon Cold Stores Limited (CCS), best known as the Elephant House, had seen a sharp decline in profitability attributed to the wet weather impact on soft drink sales during the year ended March 31, 2000, the company has said in its just published annual report. But the company has earned enough to give its shareholders at 65% return for the year.

Despite a turnover gain of 3% to Rs.1.87 billion during the year under review and a 10% saving on interest, the company’s pre-tax profit was down 28% to Rs.220.4 million while its after-profit was down 30% to Rs.192.4 million from Rs.275.8 million a year earlier.

Company Chairman Ken Balendra described the year "as reasonably successful given the adverse weather conditions and its impact on the soft drinks industry."

Balendra has reported to shareholders that CCS had invested Rs.167.3 million on capital expenditure during the year.

He said that the unusual wet weather which prevailed across the country throughout the last year had resulted in a downturn in the growth of the soft drinks industry. Nevertheless, Elephant House has made further advances in retaining its market leadership in this field the teeth of fierce competition.

"Effective use of marketing and distribution resources, sensible pricing, and conservative credit policies have allowed your company to stay ahead of its competitors both in profitability and liquidity," Balendra said.

He also said that they had seen "yet another year of excellent growth" in ice cream which was not as rain-affected as soft drinks. The company had recorded substantial increases in the `take home’ and `own premises’ categories.

"The high quality of these ice creams along with innovative marketing and distribution strategies contributed to this impressive growth," he said.

He said that the plant expansion of the production capacity of their Kaduwela ice cream factory has been completed with the addition of a new freezer from Italy.

Balendra also reported that the company’s frozen food, milk and other departments had performed "adequately" given the downturn in the economy.

He also reported that the Indo-Sri Lanka Free Trade Agreement provides export opportunities for some of their products under the concessionary tariff terms. These were being actively pursued. He also said that their core products are protected under Sri Lanka’s negative list and there was no immediate threat to these from Indian exports.

Elephant House continues to invest significantly in information technology, Balendra said. One result of this is that the company’s ice cream distributors will be linked through a wide area network. He expected greater efficiency through this information flow and connectivity both at company and distributor level. They planned to absorb their soft drinks and frozen foods distributors also into this network later.

Balendra expressed confidence in the benefits the company would derive from technology and customer orientation and predicted "outstanding results in the future."

The directors of the company have recommended a 50% final dividend for the year on top of a 15% interim paid in March.

John Keells Holdings (JKH) with 39% and its subsidiary Whittall Bousteads with 11% are the two biggest shareholders of Ceylon Cold Stores. JKH has a controlling interest of the company in which the Ceylon Investment Company and the Ceylon Guardian Investment Trust also have a 9% stake.

The directors of the company are: Messrs. Ken Balendra (Chairman), V. Lintotawela, C.J. Fernando, G.S.A. Gunasekera (M/D), J.R. Gunaratne, D.S. Walpola and Ms. R.S. Goonewardena.

Finlays’ estate companies diversifying into forestry

Two big plantations owning companies controlled by James Finlays Limited have embarked on commercial forestry projects with both Hapugastenna and Udapussellawa Plantations diversifying significant areas of their land in fuelwood and timber.

Hapugastenna has a program to plant 200 ha each year while Udapussellawa will plant 100 ha annually, the company’s Chairman/ Managing Director R. L. Juriansz has reported to shareholders.

He said that Hapugastenna needed 45,000 cu. metres of fuelwood for all its factories on an annual basis while Udapussellawa required 30,000 cu. metres.

While Hpugastenna’s requirement translates into 900 ha of fuelwood plantation based on a 10-year rotation, Udapussellawa’s requirement is equivalent to 600 ha. Hapugastenna already has the base for this production.

Juriansz reported that the companies have a timber harvesting unit of a Skyliner, timber loader and three chain saws harvesting timber with the least possible damage to the environment. They have been the first to use a Skyliner in Sri Lanka, he said.

Reporting that both companies were now in a position to supply transmission poles and sleepers regularly in commercial quantities to the CEB and the CGR, he said they were negotiating with both agencies about obtaining government approval to make these supplies directly.

Hapugastenna has begun planting a commercial forest estate of 300 ha on abandoned tea divisions from Hopton and Kehelwatte Estates.

Juriansz said that this will improve the environment and also provide them a future scheme of income. They have received assistance for their forest program from the Estate Forest and Water Resources Development Project on technical matters covering the planting material, surveys and human resources development.

Hapugastenna was also looking at latent hydro power potential on their estates (Hapugastenna (Tea) and Alupolla). Juriansz said that as they were not in a position to exploit these resources themselves, they have signed a memorandum of understanding with Eco Power Power (Pvt) Limited who will build and operate mini hydro projects at the sites and sell the power to the CEB. Hapugastenna will be paid a percentage on these sales.

Udapussellawa has leased out for 10 years the silent tea factory to a garment production venture. St. Magaret’s Tea Factory was not working and was without machinery at the time Finlays took over. Its lease to a BOI approved garment factory has provided Udapussellawa with an additional source of revenue and savings on security expenses, maintenance etc.

FCCISL’s Entrepreneur Award for fifth consecutive year

The Federation of Chambers of Commerce & Industry of Sri Lanka (FCCISL) will continue its annual "Sri Lankan Entrepreneur of the Year" contest for 1999 for the fifth consecutive year.

A news release from the federation said that this award continues to be generously supported by the business community and claimed that it is the highest national honour to the local business sector.

Mr. D. K. Rajapakse, Managing Director of D. Samson Industries, became the first winner of this award when the competition was launched in 1994. Since them Messrs. Kumar Devapura, the Tri Star Chairman, P. N. Nandasena, Chairman of Flexport Pvt. Ltd. and Daya Gamage, Chairman of the Daya Group of Companies had won this award.

Under this scheme entrepreneurs from even the remotest part of the country are permitted to participate and be recognised at both provincial and national levels. Under the provincial contest, the most outstanding entrepreneur from each province is selected.

FCCISL said that the official launch of the competition for 1999 will be held at the Galle Face Hotel on July 5 while the final awards ceremony is scheduled for November 3 at the BMICH.

Singalanka Chairman announces resignation at EGM

Mr. D.C.L. Amerasinghe, Chairman of Singalanka Standard Chemicals Limited, a quoted company that had sought shareholder authority to sell off the company’s assets indicated he would be resigning at a meeting held in Colombo on Thursday evening following differences with major shareholders.

Last week’s extraordinary general meeting had been summoned to consider a resolution to sell off the company’s assets as it could no longer function viably.

According to the minutes of this meeting, a shareholder urged the chairman to resign with immediate effect as "no constructive measures were taken to revive the company.’’ Mr. G.R. Pathmaraj, representing the KG Group of Companes which is a substantial shareholder of Singalanka, had told the meeting that if no steps are taken to reconstitute the board to include representatives of major and minor shareholders as proposed by him, he would take legal action.

With other members present at the meeting too urging that the board be reconstituted and that the chairman should resign, Mr. Amerasinghe verbally indicated that he was resigning from the board and said he would send in his written resignation on June 30. He then left the meeting, the minutes said.

Mr. R. Navaratnam was appointed protem chairman and took the chair. It was agreed to reconstitute the board and on the proposal of Mr. R.S.C. Dias, Pathmaraj was appointed a director. He said that he was willing to contribute to revive the company and assist in running it as a going concern.

The EGM decided to have a board meeting on July 7 to consider the resignation and appointment of directors.

Singalanka which was running a sulphuric acid factory was forced by a court order to close its factory in 1996 due to protests from neighbours on environmental grounds. The company was mainly in the business of producing alum sold to the National Water Supply and Drainage Board for water purification.

However since 1997 it faced price competition on its product from India.

The company claimed that the industry was set up with the necessary permission from environmental regulators. After the factory had been functioning for several years, they encountered problems and a court order halting production had been enforced for over three years.

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