News Bulletin - December 2012

7/30/2019 News Bulletin - December 2012

1/15

Gradient

Alliance

In Economic news:

In Business news:

In Consumer news:

Motor car registrations in Nov 12 wilted to 1,335 (-70% YoY). Tourist arrivals in Nov 12 was 109,202

(+20.1% YoY), Sri Lanka welcomed its one millionth visitor or 2012 on the 30th o Dec.

Tea production in Nov 12 was down 6.1% YoY to 29.69m kg. Sri Lankan exporters o ood and

beverage products to the USA were requested to renew their registration with the US FDA.

The Inormation Technology (IT) market in Sri Lanka is to grow 10% in 2013.

The Sri Lankan banking sector trails in providing long-term loans and advances.

British Airways ranks Sri Lanka as the best place to visit in 2013.

MTI Survey on CEO Business Outlook or 2013.

The LMD-Nielsen Business Condence Index in Nov 12 declined to 134.

CPC increased the price o a liter o

Octane 90 Petrol by Rs.10, the price o

urnace oil sold to CEB increased by

Rs.25 per liter.

The special import duty on potatoes

and big onions were reduced by Rs.35

and Rs.10 per kg.

The Nielsen Consumer Condence

Index in Nov 12 recovered marginally

to 60.

Monthly Bul let in : December 2012

IMF commends Sri Lankas growth but concerns over ination and highdebt/GDP, noting infation has allen dramatically. This is an extended periodo low infation we have had - relatively low. It is much better than Sri Lankas

historical perormance.

The nine month budget decit reaches Rs.483.0bn (+26.9% YoY, 6.4% oGDP) exceeding government 2012 target o 6.2% o GDP.

No sovereign bonds sales in 2013 as govt encourages commercial banksand blue chips to attract international capital

An agency at the World Bank warns expropriation risks are rising indeveloping countries, highlighting events in Argentina, Bolivia and SriLanka.

Sri Lanka ranks 79th in Transparency Internationals Global CorruptionPerception Index.

Sri Lanka Prosperity Index gains 4.1% YoY in 2011 with Northern Provincerecording the highest growth (+7.5%YoY).

Ination in Dec 12 eases to 9.2% YoY (-30 bps MoM), with the ColomboConsumer Price Index rising 0.9% on high ood prices.

The All Share Price Index closed at 5,643.00, up 5.5% MoM, down 7.1% YoY.NDB Capital Holdings PLC and CRISIL Limited, India develops Sri Lankasrst xed income index.Central Bank afrms 2013 GDP growth o 7.5% as CT Smith Stockbrokers

and BMI cut orecasts to 7.2% and 5.4%. 3Q12 GDP slows to 4.8% asagriculture sector contracts, causing Central Bank to reduce 2012 GDPgrowth or the third time to 6.5% rom 6.8%.

Interest rates cut 25bps and credit ceiling lited to boost the economy.The action is likely to urther uel ination and is expected by Central Bankwho now believe ination to reach 10% in early 2013.


2/152

Gradient

Alliance

In Economic news:

Central Bank arms 7.5% 2013 GDP growthrates as third quarter GDP slows on acontracting agriculture sector. Sri Lankas economygrew 4.8% YoY in 3Q12 at a slower pace compared to 8.5% in 3Q11. Latest

quarter growth is the slowest since 3Q09.

Sector wise, agriculture(~11% o GDP) contracted 0.5% YoY, due to adverse

weather conditions. Paddy production decreased a signifcant 38.2% YoY

as armers experienced a double whammy as drought conditions in July

and early August turned oods in September. Moreover growth in tea

4.3% YoY oset a decline in rubber 4.7% YoY.

Industrial sector (~30% o GDP) grew 7.3% YoY (10.8% in 3Q11).

Manuacturing grew 3.3% versus 7.7% in 3Q11 due to sluggish growth intextiles and apparel (+2.9% vs. +10.2% in 3Q11) impacted by loss o GSP+

acility and lower demand in main export markets.

Services sector grew 4.6% YoY in the quarter (7.8% in 3Q11). Wholesale

and retail trade grew 2.2% slowing rom 9.5% in 3Q11 whilst import trade

reduced 1.2% YoY and export trade shrank 0.9%. Hotels and restaurants

continued to grow at a staggering pace, 25.3% YoY (27.2% YoY in 3Q11)

IMF commends Sri Lankas growth butconcerns over ination and high debt/GDP.International Monetary Fund (IMF)s resident representative Koshy Mathai

commenting prior to the release o 3Q12 GDP data, noted that recent

growth (Sri Lankas) has been strong and ahead some o the astest growingeconomies in Eastern Europe, Latin

America and Asia, but infation and

national debt has to all. Maybe we

are looking at 6.5% growth - 6 to 7%.

On ination he noted that ination

has allen dramatically. This is an

extended period o low ination

we have had - relatively low. It is

much better than Sri Lankas historical perormance. Ination in Dec 12

was 9.2% month down rom an almost our year high o 9.5% in Nov

12. As at 3Q12 debt to GDP is at a high o 86.9% with the budget defcit

reaching 6.4% in Sep 12 higher than emerging countries such as Turkey,

Thailand, Vietnam, Mexico, and Malaysia, who have defcits o about 5.0%or below and state debt o around 50% o GDP or below.

To provide a picture o fscal consolidation at the end o the year, CBSL

would pay or we believe has already repaid about Rs.209bn o debt

during 4Q12 as it had stated that it would pay during 2012. As at 3Q12

confrming Sri Lankas position as one o the worlds leading tourism

destinations and justiying Sri Lankan governments strategy taken to

boost this sector urther.

Bringing growth rates somewhat in-line with external orecasts, the CentralBank o Sri Lanka (CBSL) reduced the 2012 GDP growth target or the third

time to 6.5% rom 6.8% (revised in Nov 12). Based on revised growth we

back-out a likely growth rate o 6.9% or 4Q12. Interestingly CBSL let its

7.5% growth target or 2013 unchanged, expecting fscal and monetary

policies taken in 2012 to bear ruit and world markets to turn to growth.

Whereas CT Smith Stockbrokers and Business Monitor International cut

2013 growth rate to 7.2% (rom 7.4%) and 5.4% (rom 5.9%).


7.1%

.5%

8.0%

8.6%

.0%8.2%

8.4% 8.3%

7.9

.4

4.8%

6.9%

8.0%

.2% 8.2%

8.3% 8.2%

8.2%

7.8%

6.8%

6.5%

4.0%

4.5%

5.0%

5.5%

6.0%6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

4.0%

4.5%

.0%

.5%

.0%

.5%

.0%

.5%

8.0%

8.5%

9.0%

1 Q1 0 Q 10 3 Q1 0 4 Q 10 1 Q1 1 2 Q 11 Q 11 4 Q1 1 1 Q 12 Q 12 3 Q1 2 4Q 12 E

DP YoY% for qtr only o or cum. l st 4 q rs

Source:CBSL and Gradient estimates


debt per capita increased to Rs.308,814 (+25.5% rom 4Q11) rom 22.0%

year to date increase in total debt and a 2.8% reduction in the countrys

population during the same period.

ADB cuts South Asian growth.Asian Development Bank (ADB) reduced 2012

GDP growth o South Asian countries to 5.3%

rom 5.5% whilst also cutting 2013 growth to6.2% rom 6.4%. South Asian countries comprise

o Aghanistan, Bangladesh, Bhutan, India, the

Maldives, Nepal, Pakistan, and Sri Lanka.

.

.

.1.4

6.4

..

.4

8 .5.2

.7.1 8 .7.2 .6.9

.

8 .5.8

75

77%

79

81%

83

85%

87

89%

91

93%

,

,

,

,00

5,000

6,000

7,000

8,000

006 2007 008 009 2010 01 2 1 31 Ju 12 3 Au 12 3 e 012 2013E

e t n. De t GD


3/153

Gradient

Alliance

In Economic news:

Sri Lanka cuts interest rates. In a bid to boost economic activity CBSLcut policy rates by 25 basis points (bps) and allowed the credit ceiling to expire onDecember 31, 2012. This is likely to urther uel ination and is expected by CBSL, who

now believe ination to reach 10% in early 2013 beore moderating later in the year.CBSL Governor Mr. Ajith Nivard Cabraal said expected to make cuts rom January, butreduced infationary pressures had prompted the bank to move more quickly to a pro-

growth stance so that people could make spending and investment plans based on lower

rates.

Repo and reverse repo rates are now 7.50% and 9.50%.The rate cut took many analystsby surprise, as on the 11th o Dec 12 when Reuters asked Mr. Cabraal i policy rates are

to be cut anytime soon, the governor stated that (its) not necessarily we should do that,certainly, next year may not be as tight as this year. We will keep a close tab on infation.

A credit ceiling o 18% on banks was imposed in 2012 as the country suered a

balance o payment crisis rom a regime o excessive bank credit taken mainly by stateenterprises. As per CBSL data credit obtained by the private sector rom commercialbanks decelerated to 23.5%in Oct 12 rom a high o 35.1% in Mar 12. CBSL expects thisto urther reduce to around 19% by the end 2012.

According to Deputy Central Bank Governor Mr.Nandalal Weerasinghe credit ceilings had servedtheir purpose and were part o temporary measures

to stabilise the economy. He noted that it was able

to deliver a punch and bring quick results which wouldhave taken longer i only interest rates had been relied

upon. Justiying the liting o the ceiling he went to

say that larger banks had space o about Rs.90bn tolend and credit was now lower than the ceiling.

Fitch confrms Sri Lankas currency ratings butwarns high debt implications.Fitch Ratings (Fitch) inthe Sri Lanka section o the Asia Pacifc Sovereign Credit Overview

Q412, armed Sri Lankas oreign currency and local currency ratingsat BB- with a stable outlook, on fscal consolidation, strong growth, and

lower ination. Howeverit noted that currencyexposure was stalling scal

improvements.

Positives were highlighted

as political stability,policy consistency to

deliver sustainable balance o payments, sustained strong growth, and

improvements to the investment climate. Weak public fnances, withcurrency causing sharp general government debt rising in 2012 wereconsidered as areas o concern, commenting that Sri Lanka coupleslimited scal fexibility, thanks to its high debt, with an already strongly

negative real policy rate,

suggesting limited scope

or a policy response i a

shock occurs.

Further, Sri Lanka and

Mongolia are the onlytwo countries amongthe 12 emerging Asiancountries tracked by Fitch,

to have oreign currencydebt as a ratio o currentreceipts over 100%, notingthat This actor is likely to

weigh on these sovereigns

ratings. Moreover Fitchhighlights that our o theworlds 12 countries in the

highest-risk 3 category oits macro-prudential risk

assessment ramework arerom emerging Asia (China,

Mongolia, Indonesia andSri Lanka).


Source:Fitch

Source:Fitch

Source: CBSL

3%

5%

7%

9%

1%

3%

5%

%7

1,800

1,850

1,900

1,950

2,000

2,050

2,100

2,150

2,200

2,250

2, 00Credit to thePrivate Sector (Rs. bn) rowth Y%o

Source: CBSL

20

40

60

80

100

12

70

30

Nov 1 Dec-11 Jan- 2 eb-12 Mar- 2 Apr- 2 May-12 Jun-12 Jul- 2 ug-12 Sep- 2 Oct- 2

Credit to State Corporations (R s. bn) Growth YoY%


4/154

Gradient

Alliance

In Economic news:

Expropriation risksdiscourages oreign investors.World Bank groups Multilateral InvestmentGuarantee Agency (MIGA), a provider opolitical risk cover or oreign investors statesexpropriation risks are rising in developing

countries highlighting Argentina, Bolivia andSri Lanka.

MIGA notes that Several new directexpropriations occurred in 2011-2012, notably

YPF S.A. in Argentina partly owned by Repsol

YMP S.A. (Spain) and Transportadora de

Electricidad, a power transmission company

in Bolivia owned by Red Electrica Espaola

(Spain), andsome local companies in Sri

Lanka.

According to MIGA adverse regulatorychanges was the actor most concerninginvestors ollowed by breach o contract. It

Sri Lanka ranks 79th in Global CorruptionPerception Index (CPI).In Transparency Internationals annual global CPI, which ocuses oncorruption in the public sector, Sri Lanka was ranked 79th out o 176

countries. Sri Lanka ranks ahead o India, Nepal, Pakistan and Bangladeshbut below Bhutan (33rd). Within the Asia Pacifc region Sri Lanka isranked 11th.

Transparency International states A growing outcry over corrupt

governments orced several leaders rom oce last year, but as the dust has

cleared it has become apparent that the levels o bribery, abuse o power

and secret dealings are still very high in many countries. Transparency

Internationals Corruption Perceptions Index 2012 shows corruption

continues to ravage societies around the world.

Denmark, Finland and New Zealand were ranked 1st with a score o

90 on strong access to inormation systems and rules governing thebehavior o those in public positions. Aghanistan, North Korea andSomalia were ranked the worst. Changed methodology or the Indexallows year-over-year comparisons rom only 2012 onwards.

No sovereign bonds sales in 2013. Due to thisaction the CBSL governor notes that a useul window to the marketor commercial banks to attract international capital. The budget 2013

provided several incentives to borrow overseas, with banks allowed to

borrow up to $50m and companies up to $10m a year without approval

rom the CBSL.

We remain skeptical i the budget defcit could be plugged withoutborrowing rom abroad, as deputy minister o fnance has already stated

the country will have to take on more loans or print money to reducethe defcit (government expects to fnance over 80% o the 2013 budgetdefcit rom local borrowings). Borrowing abroad is attractive as it doesnot crowd the local market thus keeping interest rates in check.


notes that in some cases expropriation waslinked with sovereign deault, which was

considered as a worry especially ater thedevelopments in Europe. Other selectedcomments;

ri8IJMFQPMJUJDBM SFHJNFT NBSLFECZ QPPS

governance and under the control opolitical parties conventionally described

as let-wing explain a higher likelihood oexpropriations; transitory economic shocksand debt burdens tend to better predictsovereign deault.

ri&YQSPQSJBUJPO JT NPSF MJLFMZ UP IBQQFO

multiple times in countries that haveexpropriated private assets in the past,whereas sovereign deault is a less

persistent event

ri.PTU PG UIFN XFSF DMVTUFSFE JO "GSJDB

South America and the Caribbean.


5/155

Gra ent

ance

In Economic news:

Prosperity Index increases to 60.6. The Sri LankaProsperity Index (SLPI) gained 4.1% YoY in 2011 with Northern provincerecording the highest growth (+7.5%). SLPI consists o three sub-indiceseconomy and business climate, well being o the people and socio-economic inrastructure.

Trade defcit in Nov 12 declines to $992.9m(-9.8%YoY), as years defcit reaches $8.58bn(-2.1% YoY). Exports were down 6.6% YoY in the month, the ninthconsecutive monthly drop, whilst imports reduced 8.4% YoY.

To reach CBSL s 2012 export target o 11.70bn we estimated that Nov12 exports was required to be at $1.6bn, signifcantly higher than the

recorded $827.6m. As at Nov 12 ull year exports were $8.99bn thusunlikely to reach the annual target.

In Nov 12, agriculture exports (~22% o exports) decreased 8.0% YoY,while tea exports increased 0.6%, no explanation was given or the dropin exports, so we consider losses in livestock and fsh exports to be thecause. Industrial exports (~77%) declined 6.4% YoY. Again no reasonwas provided or the decline so we believe non-textile manuacturingand construction caused the decline as textile exports and ood andbeverage exports were up 4.6% YoYand 12.0%YoY.

Imports were $1.82bn down 8.4% YoY. Consumer goods imports (~18%o imports) declined 28.8% YoY, as ood and non-ood imports reduced28.6% and 29.0%. Intermediate goods imports (~62%) were at (-0.3%)as petroleum imports increased 18.7% YoY o setting reduction in goldand ertilizer imports (fgures not provided). Investment goods imports

reduced 13.0% YoY as mach. & equipt. imports were $230.1m (-10.1%YoY) and transport equipt. imports were $55.8m (-55.0% YoY).

In Nov 12, tourism earnings rose 30.1% YoY to $114.7m. Earnings romtourism during the year increased 23% YoY to $905.3m.


Northern province improved its ranking to sixth rom ninth in 2010 onincreases in per capita GDP, bank density, road density and schools withEnglish medium classes and computer acilities. However compared toother provinces the Northern province had lower G.C.E. (O/L) pass ratesand experienced an increase in reported crimes.

Western province score o 76.1 (+3.5% YoY) was the only province to behigher than the national average. Notable improvements were in percapita GDP, reduction in poor households, vehicle ownership, telephonedensity and schools having English medium classes and computeracilities. Adversely, pupil teacher ratio and number o reported crimeswas the highest among all provinces

Source: CBSLSource: CBSL

Source:CBSL

Source: CBSLSource:: CBSLLL

225.8%.

%1 ..%.17 .

23 %8.5.

200.0%

250.0%

00.0

.

1,000.0

, . radede c ( m ( o

m

.

13 %.7

..4.

..

.

. .. .

%.

4.3.

4 .2

.. 9.8

00.0%

50.0

0.0%

50.0

100.0%

.

200.0

400.0

600.0

Jun11 Jul11 Aug11 Sep11 Oct11 Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep 12 Oct12 Nov12

Source:CBSL


Nov

urce: CBSL

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

,

Jan Feb Mar Apr May Jun Jul Aug ep ct Nov Dec

At $8,582.9m rade deficit in 2012 is

approaching 2011 level. Target for 2012 is

$9,200m. (Chart scale: $m).

2012

2011

2010

2009


6/156

ADVERTISEMENT


7/157

Gra ent

ance

In Economic news:

The current account defcit during the frstnine months o year expanded to Rs.140.5bn(+17.4% YoY). However the monthly current defcit was positivedue to a 22.1% drop in current spending osetting a 14.7% drop in taxrevenue. Current spending mostly consists o expenditure on wagesand salaries and consumables. The nine month budget defcit reachedRs.483.0bn (+26.9% YoY, 6.4% o GDP), having already exceeded the2012 government target o 6.2%.

The rupee ended the month at 125.56/128.82vs. the USD (rupee stronger ~2.4% MoM).Rupee strengthened as exporters cashed in dollar invoices and therewas less activity rom importers. Year to date the rupee is now weaker11.6%, down rom year high 17.3% in Jun 12.

The All Share Price Index closed at 5,643.00 up

5.5% MoM down 7.1% YTD. Best perorming sectors in themonth were beverage, ood and tobacco (+12.8% MoM), manuacturing(+6.4%) and investment trusts (+6.1%) whilst worst perormer was healthcare(+1.1% MoM). In Dec 12, oreign investors were net buyers o Rs.3.2bn andhave been net buyers o Rs.38.7bn in 2012.

Deputy minister o fnance stated that more state frms will list in theColombo Stock in the coming years. He noted that listing more companiesboth private and public are among a series o initiatives that the state willpursue in the next two to three years. We must show companies that CSE inan ideal orum to raise capital and make the listing process less cumbersome.He urther said that We are hoping to double the number o companieslisted on CSE by 2016. Currently there are 288 companies listed on the stockexchange.

NDB Capital Holdings PLC and CRISIL Limited, India has developed Sri Lankasfrst fxed income index. The index measures perormance o governmentsecurities. Four indices are to be launched based on 91 day treasury bill, 364day, 3 year and 5 year treasury bonds. Data would be collected through dailypollsrom stakeholders and rom transaction data. Mr. Maheen Senanyakewriting in the Island newspaper noted that the launch o the indices wereinspired by an intention to disseminate inormation with respect to thehealth o the securities in terms o both interest rates and value.


Source: CBSL

Source:World Bank

India

Sri Lanka

Pakistan

Bangladesh

Nepal

.0%

15.0%

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

85.0%

95.0%

2008 009 2010 2011

ll .

Source:World Bank

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

4Q04

1Q05

2Q05

3Q05

4Q05

1Q0

2Q0

3Q0

4Q0

1Q07

2Q07

3Q07

4Q07

1Q0

2Q0

3Q0

4Q0

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q1

1Q11

2Q11

3Q11

4Q11

1Q1

2Q1

3Q1

SE Market Cap. as a % o 12 month GDP

4Q04 3Q12 average 26%

Rs.bn Jan-Sep 10 Jan-Sep11 Jan-Sep 12

Jan- Sep 12 of

target Target '12E

Tax Revenue 581.9 661.2 711.3 64% 1106.1

as % of GDP - - - - 14.7%

Current Spending 710.8 780.9 851.8 77% 1107.9

as % of GDP - - - - 14.7%

Current A/C Deficit 128.9 119.7 140.5 NA 1.8

as % of GDP - 0.0%

Fi scal Defici t 323.6 380.7 483.0 103% 468.9

as % of GDP 5.8% 5.8% 6.4% 6.2%

Ination in Dec 12 eases to 9.2% YoY (-30bps MoM), with the Colombo ConsumerPrice Index rising 0.9% on high ood prices.Food and non-alcoholic beverage segment constitute about 40% o the

ination index.

Source:CBSL

Source: CBSL

Rs.bn

et2012E defict tar

Rs.468.8bn

- 50.0

500.0

4 .

-400.0

-350.0

-300.0

250.0

00.

-150.0

-100.0

50.0

an Feb ar pr ay un Jul Aug ep ct Nov ec

1 1 1

Jan- Sep fiscal eficit as a % annual

efcit/target

103% - 2012

82% - 201173% - 2010

6.

.7.7%

.

. %

..

.

6.4

.. % 4.9%

3.8%

.

.5

6.

.0

.3..

9..5%... .9

...5%.


8/158

Gra ent

ance

In Economic news:


The economy in 2012: External and internal shocksDr. Nimal Sanderatne, Former Director o Economic Research, CBSL

In 2012 the Sri Lankan economy aced severe external and internal shocksthat adversely aected economic growth, the trade balance and fscalout turn. The global economic depression and turmoil in the MiddleEast aected the countrys trade balance adversely. Drought and oodsaected agricultural production. The bright spot in the economy was theboom in tourism.

The trade defcit is likely to be about $9bn this year. The massive trade defcit o nearly$10m in 2011 created a severe strain on the balance o payments that necessitated a largedepreciation o the currency, high taris on consumer goods, increase in interest rates andrestrictions in credit rom the early part o this year. This led to a curtailment o imports in thefrst ten months o this year by 4%. However the decline in export earnings were steeper at6.6% and consequently the trade gap widened to $7.2bn by the end o October.

At the end o the frst ten months o the year export earnings ell by 8% with tea exportsdecreasing by 6%. While tea exports improved in September and October, garments exportshave been declining throughout year.

Despite an imminent large trade defcit o about $9bn this year, the Central Bank expects abalance o payments surplus o $380m based on expectations o higher workers remittances,tourist earnings, other service earnings, oreign direct investment and net inows o capitalto the stock market. Whether these expectations would be realised, time will tell. Even ithis were to be so, the lesson rom the trade perormance o the last two years is that thecountry cannot go on spending so much more on imports than it could earn rom exports.Imports are nearly twice exports.

This undamental disequilibrium has to be addressed by both decreased expenditure onimports and an increase in exports. No doubt this years export earnings were severelyaected by the slow growth o most western economies and economic crises in several

European economies that are our main markets or manuactured exports. The denial o theGSP Plus concession is also hurting exports to Europe. As a result, exports o manuacturesell 7.6% in the frst ten months.

The turmoil in Middle Eastern countries and the US ban on trading with Iran, the countryssecond biggest market or tea and main supplier o crude oil, aggravated the trade balanceboth by decreasing tea export earnings and increasing oil import expenditure.

Containing the fscal defcit at 6.2% o GDP is a daunting task as the fscal defcit reached6.4% GDP at the end o September. Government expenditure grew nearly twice as ast asrevenue growth. There has to be a considerable increase in revenue and a severe curtailmento expenditure to achieve the target. The Treasury maintains that this would be achieved inthe last quarter o the year.

This years growth is likely to all to less than 7%. In order to correct the undamentalweaknesses in the economy it is vital to ensure a climate conducive to oreign investmentin export industries. It would be dicult to develop such an investment climate withouta policy ramework that ensures security or investments and upholds the rule o law andensures law and order.

Dr. Nimal Sanderatnehttp://www.ceoonline.lk/panellists/profle/Dr_Nimal__Sanderatne/7

FROM OUR GUEST COLUMNIST OF THE MONTH


9/15


10/1510

Gradient

Alliance

In Business news:

Tea production in Nov 12 was down 6.1% YoYto 29.69m kg due to adverse weather conditions. Thereore, it ishighly unlikely that the Tea Boards target o 325m kg or 2012 could bemet. The Tea Board previously revised its tea production orecast rom330m kg to 325m kg or 2012 due to drought conditions that prevailed inthe country earlier in the year.

Kahawatte Plantations Plc who has a tea production o 6m kg per year,announced that it has been able to increase productivity and income oemployees through an out grower model. Employees are given between1,000-1,200 bushes to look ater in the estates in their spare time. Adequate

training is provided and the employees receive 64% o the purchase price.The plantation stated that the model was the ideal remedy or labourshortages or estates in lower elevation levels and the model could beadopted by other planters as well. Currently, 250 hectares o the EndanaEstate in Kahawatte Plantations operate under the model.


20.0

22.0

4.

26.0

28.0

30.0

32.0

34.0

.

an Feb ar pr ay un Jul ug ep ct ov ec

ote: Dec 2012 mont y progressionestimates is ased on average mont y contri utionto annua

produc ondurng and

TeaProduction mnk

2010 2011 2012E

Tea Board forecasts 3 25mn kg of production for 2012.

Assumed monthly progression of Tea production

Sri Lankan exporters o ood and beverageproducts to the USA were requested by Sri

Lankas embassy in Washington to renewtheir registration with the US Food and DrugAdministration (FDA).The deadline was given as 31st Dec 12and ailure to do so would result in the suspension o registration. Moreover,all non-US companies were requested to appoint a US agent as a mediator

between the FDA and exporter. Total global ood and beverage exportsby Sri Lanka stood at $307m in 2011 (+40% YoY) according to CBSL data.

Total global ood and beverage imports into the USA was $102.5bn(+18.3% YoY) where beverages (17%), fsh (12%) and ruit (10%) were thetop imports. Business Monitor International orecasts ood consumptionin the US to increase at a CAGR o 3% rom 2011 to 2016 with moreopportunities in the organic market which is expected to grow at a CAGRo 8.5% between 2010 and 2015.

DVERTI EMENT


11/1511

For your fresh fruit requirements:

Mangoes (Karuthakolumban), Cashew Nuts, Pineapples

free delivery within city limits

Coconuts free weekly delivery to

restaurants/caterers/hotels

+94777508323

[email protected]

www.facebook.com/fruitmarketlk

ADVERTISEMENT

Gradient

Alliance

In Business news:

The Inormation Technology (IT) market in SriLanka is to grow 10% in 2013, according to BusinessMonitor International (BMI). Moreover, it is projected to grow at a CAGRo 12% rom 2013-2017 making it one o the astest growing marketsin the region. Basic inrastructure improvements outside Colombo,modernisation o the banking sector and rapid growth in the tourismindustry were highlighted as growth drivers. Computer hardware,sotware and IT services sales are expected to grow to $321m (+8% YoY),$61m (+8% YoY) and $95m (+12% YoY). However, on a negative noteSri Lanka had a risk/reward rating score o 27.7 out o 100, ranking itlast in the Asian region. Sri Lanka had the lowest or joint lowest scorein each ratings category, including IT market and country risk. Despitethis shortcoming, BMI identifed Sri Lankas IT market as a rontier marketwith high growth potential.

The Sri Lankan banking sector trailsin providing long-term loans andadvances, compared to regional and non-regionalcounterparts, according to IMF ocials. IMF ResidentRepresentative or Sri Lanka and the Maldives, Dr. KoshyMathai stated that loans and advances over fve yearsand above as a percentage o the total asset base othe banking sector in Sri Lanka was only 0.2% in 2010.Dr .Koshy Mathai urther stated that the fgures or SriLanka does not give a good indication and cited theundeveloped state o the corporate bond market and the

stock market as reasons. The government has proposedto exempt income earned through investments in bondsand debentures listed on the Colombo Stock Exchange inorder to develop the corporate debt market.


British Airways ranks Sri Lanka as the best place tovisit in 2013, adecision made by a panel o experts using company data.Mr.Ash van Wensveen, British Airways destination manager stated growth in

tourist numbers was due to the countrys oerings o endless beaches, elephanttreks and several UNESCO world heritage sites to v isit. Moreover, British Airwayshead o UK & sales stated that consumers will continue to be driven by value-or-money in 2013. Rio de Janeiro, Brazil and Seoul, Korea were ranked 2nd and3rd. British Airways is to commence ights to Sri Lanka in Apr 13.


12/1512

Gradient

Alliance

In Business news:

Glaxo Smith Kline (GSK) to invest Rs.200m toestablish a manuacturing plant.The plant would locally manuacture Iodex and Eno, a pain relie balmand gastritis treatment pill. Further, the company inused oreign


direct investments (FDI) o $11m into the country in order to expandoperations. Taprobane Seaoods (TSF) too have invested Rs.40m to opena crab and prawn processing actory in Kilinochchi and Jana.

On a similar note, Chevron Lubricants is to relocate its plant toSapugaskanda at a cost o $15mdue to the existing land lease agreementwith Ceylon Petroleum Storage Terminals Ltd expiring in Jul 14. The plantwould be relocated to a 4.5 acre land at LIEL industrial estate which hasbeen leased or a period o thirty years. The company stated that thecost o relocating would be unded internally.

The LMD-Nielsen BusinessConfdence Index in Nov 12declined to 134;down 1 point MoM. The index remains abovethe average or the last 12 months (126),however is down a signifcant 24 points YoY.Nielson Sri Lankas Director Mr. Shaheen Caderstated that While the short-term businessoutlook is negative despite the onset o theshopping season in December in the mediumterm, businesses are more positive.

In the latest survey, 34% o the respondentsbelieved that the economy will improve overthe next 12 months, slightly down rom 35% inOct 12. More importantly, those who believedthe economy to get worse increased to 27%rom 23% in Oct 12.

ource: md.lk

85

95

105

115

125

135

145

155

165

175

185

0%

10%

20%

30%

0%

50%

0%

70%

Take o Recover Remain depressed Further slide

n 2012 2013 g o a economy wi ; 2012 2013

MTI Survey on CEO BusinessOutlook or 2013

0

1

20%

30%

0%

50%

0%

70%

Highe r growth Same growth Lowe r growth

In 2012 2013 your usiness wi experience

(vs. previous year);2012 2013

%

10%

20%

30%

40%

50%

60%

70%

Accele rate Sta ilise Decline

In 2012/2013 Sri Lankan economy will; 2 1 1


13/1513

Gradient

Alliance

Gradient

Alliance

In Business news:

In Consumer news:

In other business newsApparel exports were up or the frst time in eight months in Novemberreaching $364m (+4.6% YoY). However, year to date exports are downto $3.6bn (-4.6% YoY)

The consumer durable retail division o Sotlogic Holdings Plc, Uni-Walkers (Pvt) Ltd, is to receive $15m in fnancing rom the World Bankgroup unit International Finance Corporation (IFC). O the fnancing,$10m will be in the orm o a convertible instrument with the balancebeing a 10 year loan acility with a grace period o 3-5 years.

Commercial Credit and Finance Plc is to raise Rs.500m in the orm o2.5m unsecured, subordinated debentures with the possibility o issuing

Key stock markettransactions during Dec 12German Investment and DevelopmentCorporation (DEG) and the NetherlandsDevelopment Finance Company (FMO) are topurchase a 19% stake each in Asian AllianceInsurance PLC with the overall transactionbeing valued at Rs.1.8bn. Kotagala PlantationsPlc purchased a 100% stake (6m shares)inUnion Commodities Ltd. or Rs.1.6bn.

Ceylon Petroleum Corporation (CPC)increased the price o a liter o Octane 90Petrol by Rs.10, taking the current price to Rs.159. LankaIndian Oil Company (LIOC) too upped prices by Rs.10 in line with theincrease by CPC. Ocials have stated that the prices were increasedin order to prevent the CPC rom incurring urther losses. Accordingto CPCs managing director Mr. Susantha Silva, the CPC had run intolosses o Rs.75bn as o Oct 12 as they were unable to pass on the priceincreases in the world oil market to the consumer. However, tradeunions attached to CPC have stated that the main reason or the loss

is the concessionary rates at which uel is sold to the Ceylon ElectricityBoard (CEB).

Further, CPC increased the price o urnace oil by Rs.25 per liter.CPC stated that it was incurring losses o Rs.4.2bn per month due


Date Status Target Company Buyer Seller No. of shares Value (Rs.) Stake involved (%)

22-Dec-12 Completed Union Commodit ies Ltd. Kotagala Plantations Plc NA 6m 1.6bn 100%

20-Dec-12 Pend ing Asian Al li ance Insurance PLCGerman Investment and Development

Corporation (DEG) NA NA 0.9bn 19%

20-Dec-12 Pend ing Asian Al li ance Insurance PLCThe Netherlands Development Finance

Company (FMO) NA Na 0.9bn 19%

18-Dec-12 C ompleted Asiri Central Hospitals Plc Asiri Hospital Holdings Plc Asiri Surgical Hospital Plc 7.3m 1.82bn 33%

17-Dec-12 Completed Chevron Lubricants Lanka Plc NA National Savings Bank 0.25m 50m NA

17-Dec-12 Completed C hevron Lubricants Lanka Plc NA JB Cocoshell 0.20m NA NA

17-Dec-12 Completed S ampath Bank NA Sri Lanka Insurance - Life Fund NA 40m NA

10-Dec-12 Pending Digital Commerce Lanka (Pvt) Ltd Dialog Axiata PLC NA NA $1.6m 26%

5-Dec-12 C ompleted Aviva NDB Insurance PLC American International Assurance NDB Capital Holdings PLC 1.5m 523.5m 5%

Source:CompanyFilings

another 2.5m in the case o an oversubscription.

Renuka Holdings was included in Forbes Asias 200 Best under a Billion($)list o companies or the second consecutive year. 200 companieswere chosen out o 15,000 that operate in the Asia Pacifc region thatactively traded shares and generated revenues between $5m - $1bn.

Asia Capital Sri Lanka Hybrid Fund, established by Asia WealthManagement Company (Pvt) Ltd in partnership with CD One Ltd o Japanto attract investments into Sri Lanka, is to invest in 4 hotels includingRs.500m each in two upcoming hotels in Balapitiya and Wadduwa.

Rs.130

Rs.115Rs.125

Rs.137

Rs.149Rs.159

Jul09 Dec09 Apr11 Oct11 Feb12 Dec12

Sri Lanka Petrol Prices (90Octane)

to concessionary prices at which urnace oil is sold to CEB and otherprivate sector power suppliers. As a result, we believe that i t is very likely

that electricity taris would be increased in the near uture.

Moreover, the All Island Three Wheel Owners Association (AITWOA)stated that three-wheeler ares would be increased by Rs.3-Rs.5 per kmas a result o the petrol price increase.


14/1514

Gradient

Alliance

Gradient

Alliance

In Consumer news:

The special import duty onpotatoes and big onionswere reduced by Rs.35 andRs.10 per kg. Import duties on potatoeswere hiked by Rs.20 in Sep 12 citing the needto protect local armers and to certiy a highprice or the production o local armers.Import duties on potatoes were increased byRs.20 in Aug 12 as well. Import duties on bigonions were last revised in Aug 12 where it wasupped by Rs.25.

On another note, the TelecommunicationRegulatory Commission o Sri Lanka(TRCSL) stated that the telecommunicationlevy on internet and broadband serviceswould be reduced rom 20% to 10% rom2013 onwards. This announcement comesollowing the budget proposal to reduce thetelecommunications levy related to internettaris in order to boost the mobile broadbandmarket. Moreover, TRCSL is to strictly monitorbroadband speeds where the speedsmaintained by fxed and 3G operators should

not be below 70% and 30% o the advertisedbandwidth.

The Nielsen ConsumerConfdence Index in Nov

12 recovered marginallyto 60, up 1 point rom Oct 12. 40%o the respondents (down rom 41%in October 12) stated that conditionswill be bad or people to buy thingsthey need over the next 12 months asconsumers continued to be doggedby concerns that many o the itemsthey need remained out o theirreach. Consumers who consider jobprospects to be bad over the next 12months weredown to 21% comparedto 30% in October 12.

Nov12

Oct12

Sep12

Aug12

Jul12

Jun12

May12

Apr12

Mar12

Feb12

Jan12

Dec11

Nov11

Oct11Source:lmd.lk

NielsenConsu

merIndex



15/15

Gradient AllianceHelping to shape your Business

We are a management consultancy and fnancial advisory services provider.

Combining experience and comprehensive capabilities across many industries andbusiness unctions, we work with clients to achieve a higher level o excellence.

We carry out company and market research, developing company fnancial

models, valuations and competitor analysis. Moreover we perorm market surveys,

easibility & due diligence studies and construct business plans.

MonthlyBullet

in:December2012

4A, Deal Place A,

Colombo 03,

Sri Lanka

M: + 94 773 619800

P: + 94 11 5786787

[email protected]

[email protected]

www.gradientalliance.com

News Bulletin - December 2012

Documents

Transcript of News Bulletin - December 2012