News Bulletin - October 2012

7/30/2019 News Bulletin - October 2012

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In Economic news:

In Business news:In Consumer news:

Motor car registrations in Sep12 declines 75% YoY to 1,072 with total registrations declining

45% YoY to 24,478.

Tea production in Sep12 was up 11.9% YoY to 26.8m kg driven by improved weather

conditions.

Tourist arrivals in Sep12 were 71,111 (+18% YoY). India continued to be the highest contributor

with 13,888 (19.5%) arrivals with the largest growth rom the Arican region (+216.4% YoY).

Lonely planet, named Sri Lanka as the number one destination in the world to visit in 2013.

The loss o Sri Lankas GSP+ acility to be about $1bn to Sri Lankas garment industry.

Net Interest Margins (NIM) o the banking industry to decline to 3.3% in 2016. Dish TV India toinvest Rs.700m in Dish TV Lanka.

The LMD-Nielsen Business Condence Index in September continued its mild recovery to 122.

Sri Lanka hikes prices on diesel, tobacco,

alcohol and chicken. Sri Lanka was

ranked 63 in the Global Food Security

Index Sep 12 (Rank 62 in Jun 12).

The price o a 450g loa o bread was

increased by Rs.2.

The Nielsen Consumer Condence

Index in Sept 12 recovered

marginally to 59.

The Asian Development Bank reduced Sri Lankas 2012 GDP growth

orecast to 6.5% rom 7.0% and cut its 2013 orecast to 7.0% rom 8.0%as part o its overall downgrade o the South Asian region.

Sri Lankan Cabinet approves the budget or 2013. O the governmentspending o Rs.2.52trn (+13.5 YoY), deence and urban developmentwill receive Rs.289.5bn (+25.9% YoY).

Sri Lanka improves its Ease o doing business ranking to 81.

The current account decit during Jan-Jul 12 expanded to Rs.139.3bn(+57.6% YoY). The seven month budget decit is Rs.425.7bn (+50.0%),5.7% o GDP (4.4% in Jan-Jul 11).

The All Share Price Index closed at 5,513.64 down 7.7% MoM, year todate losses are at 9.2%.

Ination in Oct 12 eased to 8.9% YoY (-20 bps MoM) a ve monthlow.

The trade decit in August 12 was $921.1m (+4.3% YoY), expandingthe years decit to $6.27bn (+6.3% YoY). Exports were down 13.1%YoY in the month, sixth consecutive monthly drop.

Monthly Bul let in : October 2012


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In Economic news:

The Asian Development Bank (ADB)reduced Sri Lankas 2012 GDP growthorecast to 6.5% rom 7.0% and cut its 2013orecast to 7.0% rom 8.0%. The revisions were parto ADBs overall downgrade o the South Asian region where it is

now expected to grow by 5.5% (vs. 6.6%) in 2012 and to 6.4% (vs.

7.1%) in 2013, almost entirely rom weakness in India. ADB noted that

Sri Lankan Cabinetapproves budget

2013. Approval wasreceived or governmentspending o Rs.2.52trn (+13.5

YoY) o which deence and

urban development will

receive Rs.289.5bn (+25.9%

YoY). Education is to receive

Rs.37.9bn (+9.9% YoY) and

higher education has been

allocated Rs.27.9bn (+17.2%

YoY). The total maximum

borrowing or 2013 has been

increased to Rs.1.3trn (+12.6%

YoY).The rst reading o the

appropriation Bill was on the8th o October and the budget

proposal (second reading) will

be presented on the 8th o

Nov12.

Sri Lanka improves itsEase o doing businessranking to 81.The eight placejump rom 2011 in the IFC and World

Bank compiled report was attributed

to implementing the most regulatory

reorms in South Asia and thus having created a better environment orlocal entrepreneurs. Three signicant actions that were considered to

have improved Sri Lankas position were;

a) Computerising the registration or the Employees Provident Fund and

Employees Trust Fund

Economic growth in South Asia is under pressure rom the continued

weakening o the global economic environment and tight monetary

policies adopted to rein in domestic ination. ADBs orecasts South

Asias ination to average 8.6% in 2012 and 7.4% in 2013.


Source: ADB, IMF, CBSL, Standard Chartered Bank, RAM Ratings

Original Revisions Latest Original Revisions Latest

ADB 8.0% 7.0% 6.5% 8.0% - 7.0%

CBSL 8.0% 7.2% 6.8% 8.0% - 7.0%

SCB 7.1% - 6.8% 7.5% - 7.5%

IMF 7.5% 6.8% 6.7% 8.0% 7.0% 6.7%RAM NA NA 6.5% NA NA 7.0%

2012E 2013E

Source: Appropriation Bill

Ministry 2012 2013 2012 2013

Defence and Urban Development 229.9 289.5 25.9% 11.5% 3.1% 3.4%

Local Gov. and Provincial Councils 129.8 132.7 2.3% 5.3% 1.7% 1.5%

Finance and Planning 124.2 94.8 -23.7% 3.8% 1.7% 1.1%

Ports and Highways 123.0 131.6 7.0% 5.2% 1.6% 1.5%

Public Adm. And Home Affairs 113.6 127.8 12.5% 5.1% 1.5% 1.5%

Economic Development 104.6 88.9 -15.0% 3.5% 1.4% 1.0%

Health 74.0 93.5 26.4% 3.7% 1.0% 1.1%

Transport 53.5 44.7 -16.5% 1.8% 0.7% 0.5%

Agrarian Services and Wildlife 39.0 43.2 10.8% 1.7% 0.5% 0.5%

Irrigation and Water Resource Man. 35.8 40.5 13.0% 1.6% 0.5% 0.5%

Power and Energy 33.6 28.5 -15.1% 1.1% 0.4% 0.3%

Education 33.3 37.9 13.9% 1.5% 0.4% 0.4%

Water Supply and Drainage 33.2 34.7 4.7% 1.4% 0.4% 0.4%

Higher Education 24.5 27.9 14.0% 1.1% 0.3% 0.3%

Allocation (Rs. Bn) % of 2013

government spending

Rs.2.52trn

% of GDPYoY

Growth

%

b) Establishing an electronic system

or registering land in Colombo

c) Credit Inormation Bureau

establishing a searchable collateralregistry

Sri Lanka was the highest ranked South

Asian country ahead o Maldives (95),

Pakistan (107), Nepal (108), Bangladesh

(129), India (132), Bhutan (138) and

Aghanistan (168). Singapore topped

the rankings yet

again ollowed

by Hong Kong,

New Zealand

and the United

States. However

on a negative note, Sri Lanka was ranked 112th in

dealing with construction permits (Maldives -19,Pakistan -105) as the country had 17

procedures to content with (Maldives

- 8, Pakistan - 11) thus increasing

average processing time to 216 days.


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In Economic news:

Construction industry aected by high costs.In the second quarter o 2012, 2,389 houses were approved orconstruction in Greater Colombo (+3.5% YoY) and in 4Q11, 375 otherbuildings were approved (+10.0% YoY). The rising cost o constructionpost the rupee devaluation is seen as a major deterrent to construction;

Sri Lanka to get $500m loan rom the IMF? It isunclear i Sri Lanka is seeking a loan rom IMFs Extended Fund to pay othe maturing $500m sovereign bond. An ofcial at the Finance Ministrystated that an IMF team was in the country in early October to discuss

Government debt continues to rise. Governmentdebt as at Jul 12 was Rs.6.16trn a staggering 23.8% increase rom a yearearlier. Year to date, debt is up almost Rs.1.02trn (+20%) still within thegovernments budget imposed borrowing limit o Rs.1.16trn or 2012.

Foreign debt rose 34.0% YoY to Rs.2.97trn and now accounts or 48.3%o total debt; highest in recent years. In 2012 $415m was received aspart o the nal disbursement under International Monetary Fund(IMF)s stand-by arrangement and a $1bn sovereign bond was issued.

Whilst a rise in oreign debt puts pressure on the rupee at the time orepayment; governments desire to borrow overseas rees up liquidityor the private sector.

Based on CBSL orecasts or GDP growth and ination, we estimate GDPat current prices to be Rs.7.52trn and Rs.8.62trn in 2012 and 2013. Hencewe analyse debt as % o GDP at 81.9% in Jul12 rising to 84% at the end

o the year and to be just over 88% in 2013. 2013 increase in debt isbased on Rs.1.3trn additional borrowing approved in the budget 2013.Levels above 90% are widely considered to be unsustainable levels

or an economy leading to currency devaluation, higher ination andperiods o higher interest rates.


a new loan acility. However the CBSL governor

reuted this claiming that the IMF team was hereon a routine visit and that the government is notengaged in any discussions with the IMF or anadditional loan acility.

New World Securities Limited, a trading member o the Colombo StockExchange with about 80% Japanese ownership increased its investmentin Sri Lankas treasury bonds to Rs.6.5bn, having attracted Rs.2.0bn in lateJun 12. New World Securities Director and CEO Viraj Malawana said that

they were looking at a urther Rs.10-15bn over the next six months andthat the 12.5% cap placed by the government on oreign investmentsin domestic debt is not avourable.

Source:CBSL and Gradient estimates

as at 1Q12 the Cost o all construction index was at an all-time high o

524.7 (+23.6 points QoQ). Cost o cement continued to rise in the localmarket with the second rise in cement prices in six months occurringin mid-October. Demand or cement in Jul 12 was 413,000 MT (+21.5%

YoY) o which about 47% was locally produced.

Source: Central Bank of Sri Lanka

Note: Cost index for 2Q12 is not available

Source: Central Bank of Sri Lanka

Note: Latest available data

Greater Colombo Housing Approvals (Number and Index) Great Colombo other building approvals (Number and Index)


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In Economic news:

EPF controversy rumbles on. Several employeetrade unions sought action rom the countrys Supreme Court

over controversial share investments by the state managers o theEmployees Provident Fund (EPF). The investments which resulted inlarge losses are claimed to have been made in second tier rms and

banks in contravention o the publicly declared investment policy.

The Ceylon Petroleum Corporationcloses the Sapugaskanda renery ortwo weeks due to the non-availability o crude oiland due to the need to make changes to the renery to

accommodate other varieties o crude oil. Non-availabilitywas claimed to be the result o delays in calling ortenders thus leading to delays in receiving new supplies.

The COC Managing Director stated that despite theclosure there were ample stocks o ready-to-use uel.New supplies is to arrive at the Colombo Port in Mid-November.

Changes are been done to the renery as it is currentlyable to only process Iranian crude oil. US sanctions on Iranhave necessitated Sri Lanka to look at other sources to

obtain its oil. A Dubai based supplier is to provide crude

Hydro power plants avoided a nearcatastrophic scenario as the delayedmonsoon rains nally arrived. Water inows to thepower plants up to Sep 12 were the lowest in 20-years, at one point

generating only 12.8% o the countrys energy requirement. Accordingto Power Ministry, in the rst nine months o 2012 hydro reservoirs hadreceived inows enough to produce 1,228m units (GigaWatt hours) oelectricity, lower than in 1991. Power cuts were imposed or the rst

time in 10 years, ater the Chinese built coal plant ailed and along withweak rainall.

Years o under investment hasled to chronicshortage o energy generation thus stiingeconomic development. Whilst hydro and

coal power plants are to be constructed,apart rom second phase o the Chinese

built coal plant coming to the grid in 2013 theother plants are years away rom construction.

Further the government has warped policies

where places o worship and several industries


are oered subsidies thus aggravating the pressure on the ordinary

citizens who are already paying one o the highest taris in Asia.

In a bizarre move that is likely to keep electricity taris high or theoreseeable uture, the Public Utilities Commission (PUC) increased the

purchases taris on renewable energy uels by over 20%. This rate isxed or 20 years or mini-hydro plants built in 2013. The taris apply toplants o 10 MW.

Moreover share purchases in severalbanks have led to allegations o

insider dealing as the CBSL beingthe regulator o the banks wasdeemed to have been privy tonon-public inormation. Further it

was revealed that the investmentpolicy had been changed withoutconsulting unions.

stock oil on Nov. 8 or 9 and a Saudi supplier isto deliver supplies on Colombo on Nov. 13 or 14.

Due to the change in Supplier it was noted thatthe country would have to incur an additionalRs.2bn increasing the total uel bill to Rs.5bn.

The Sapugaskanda renery processes about 70%o the national petrol and diesel requirements,75% o aviation uel, 45% o urnace oil andkerosene. It was reported that the loss due

to the closure would be about a staggering

Rs.600,000 a day. Separately Sri Lankas PetroleumResources Development Secretariat (PRDS) called

or expressions o interest rom geophysicalprospecting rms to re-process seismic datareceived rom o the coast o Mannar.

Source: PUCSL

Flat Tarifs or 2013


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In Economic news:

The current account decitduring the rst seven monthso the year expanded toRs.139.3bn (+57.6% YoY). Thepoor perormance was largely due to a declinein tax revenue in Jul 12 (-0.3%) and a signicant

spike in current spending, Rs.135.7m (+28.7%YoY). Current spending mostly consists o expenditureon wages and salaries and consumables.

The seven month budget decit is Rs.425.7bn(+50.0%), 5.7% o GDP, a 127bp increase rom a yearearlier (4.4%); as current spending and capital &

lending minus repayments rose 41.7% and 19.4%, osettinga 12.6% rise in state revenue. The budget decit o 5.7% o GDP

is shy o the 2012 target o 6.2%.

Inland Revenue Department (IRD) Commissioner General Ms. MallikaSamarasekera stated that tax revenue as a percentage o GDP haddropped to 7.0% in 2011 rom 8.3% in 2009. According to recentlypublished Central Bank data, tax revenue declined to 6.53% o GDP orthe rst seven months o 2012 rom 6.69% in 2011. The benchmark tax toGDP ratio or a lower income country is considered to be about 18% and25% or a middle income country.

Treasury yields drop onincreased liquidity. Yields ontreasury bills across all maturities continuedto drop through-out the month. Rates on91 day treasury bill dropped to 10.66%(-62bps MoM), 182 day treasury billsdropped to 11.97% (-60 bps MoM), and364 day treasury bills reduced to 12.56%(-46 bps).

Stable and upward trending marketsattract investors to equities rom bill andbonds, whilst volatile markets have theopposite eect. Central bank kept repoand reverse repo rates unchanged or thesixth consecutive month.

The IRD is to introduce a scheme or tax payers to calculate taxable incomeand tax payable by themselves. Also noted that i any citizen willinglycomes orward and pay taxes their past records will not scrutinised. Furtherto raise tax awareness IRD is organising a National tax week rom Nov 1-7,2012. In 2011, 756,757 individuals and 32,747 private, oreign and localcompanies were taxable, and 1,736 tax deaulters had been charged.


Source: CBSL

Source: CBSL

Source: CBSL

Source: CBSL

Rs. bn Jan-Jul 10 Jan-Jul 11 Jan-Jul 12

Jan- Jul of

annual target Target '12E

Tax Revenue 425.0 493.887 556 50% 1106.1

as % of GDP - 7.6% 7.4% 14.7%

Current Spending 550.4 784.5 695.3 63% 1107.9

as % of GDP - 8.9% 9.3% 14.7%

Current A/C Deficit 125.4 290.6 139.3 NA 1.8

as % of GDP - 1.4% 1.9% 0.0%

Budget Deficit 272.6 283.7 425.7 91% 468.9

as % of GDP - 4.4% 5.7% 6.2%

Summary


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In Economic news:

The All Share Price Index closed at 5,513.64down 7.7% MoM, year to date losses are at 9.2%.The only sector to record a positive gain in the month was Stores(+1.4% MoM) whilst worst perorming sectors were Services (-13.9%MoM), Inormation (-13.1%), Investment (-12.3%) and Trading (-12.0%).In October, oreign investors were net buyers o Rs.2.3bn and have been

net buyers o Rs.33.8bn in 2012.

The Securities and Exchange Commission (SEC) relaxed almost all

regulations brought in earlier in the year by the previous Chairmen.

a) Brokers can now extend credit to clients up to three times thenet capital (ater deducting 50%o the value o xed assets) without

deducting debtors rom net capital.

Key stock market transactions during Oct 12

b) Ban on executive directors, employees and spouses and theirnominees o broking rms rom selling shares within six months o theirpurchase lited.

c) The 20% upper limit on o-market transactions lited.

A longstanding minority shareholder activist Mr. K.C. Vignarajah in a

letter to SEC stated that genuine investors and independent minorityshareholders were rudely surprised and shocked by these changesand noted that it would be detrimental to attaining investor condence.

Separately Mr. Namal Kamalgoda was appointed to the post o SECsDirector Surveillance.Previously he was Director Corporate Aairs.

Lionhart Investments ltd continued to reduce its stake in Environmental Resources Incorporated (ERI) as it sold around 20m o ERI shares (6%) orRs.305m, reducing its stake to 60% rom 85%.


Source:Company Filings

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

23-Oct-12 Completed ERI Caledonian Securities Lionhart Investments 24.0m Rs.361.6m 7%

19-Oct-12 Completed Hunas Falls Hotels Plc Amaya Leisure Plc Mercantile Investments and Finance Plc 0.9m Rs.58.4m 16%

19-Oct-12 Pending Softlogic Capital Plc LAUGFS Holdings Ltd Softlogic Capital Plc 5.1m Rs.103.6m 67%

16-Oct-12 Completed ERI Caledonian Securities Lionhart Investments 20.0m Rs.305.0m 6%

5-Oct-12 Completed E-Channelling PLC Cocoshell Private Limited E-Channelling PLC 3.4m NA NA

3-Oct-12 Completed Asiri Hospitals Holdings PLC Actis Investment Holdings Asiri Hospitals Holdings PLC 209.0m Rs.2.3bn 10%

Ination in Oct 12 eased to 8.9%YoY (-20 bps MoM) as ood andnon-alcoholic beverages ell 1.3%MoM. Ination is now at a ve month low as interestrates remain high thus impacting consumer spendingand borrowing.

Key policy rates were let unchanged or the sixthconsecutive month. The Governor o CBSL in aninterview with Bloomberg (Oct 25) said that interestrates were kept unchanged as they are pretty pleasedwith the current economy and behavior o ination, andthat a growth platorm or 2013 has been set. He urtherwent on to state that controlling ination was a priorityand an opportunity to loosen interest rates may arise inDec 12. He also said that annual change in ination inJanuary and February 2013 would be higher due to thelower base, but would moderate rom March.


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In Economic news:

Overall house prices in SriLankan dropped 0.7% duringthe 3 months to Sep 12. As perLankaPropertyWeb.com overall house pricesdecreased to Rs.17.5m rom Rs.17.6m in Jun 12.Colombo house rental and apartment rental prices

reportedly increased to Rs.220,000 per month(Rs.210,000 in Jun 12) and Rs.280,000 per month(Rs.220,000 in Jun 12). Above prices cannot beindependently veried and is based on average

property prices on advertisements published onLankaPropertyWeb.com.

The trade decit in August12 was $921.1m (+4.3% YoY),expanding the years decitto $6.27bn (+6.3% YoY).Exportscontinued to be a major concern, down13.1% YoY in the month, the sixth consecutivemonthly drop, whilst imports dropped amodest 4.7%, the lowest drop in our months.This caused a reversal in the previouslydecelerating monthly trade decit growth,as the August trade decit was a staggering72.3% higher than Jul 12; the largest monthlygrowth since December 10.

Based on CBSLs 2012 roadmap targets o$11.70bn or exports and $20.90bn or importsand analysing monthly trade activities in2009-2011, we estimated Aug 12 exports tobe $1,256.0m, signicantly higher than therecorded $828.9m. Thus it is unlikely thatexports targets would be met.

In August, agriculture exports (~22% oexports) decreased a signicant 28.5% YoYas tea exports dropped a 32.7% due to lowerinternational prices. Industrial exports (~77%o exports) declined 7.6% YoY as textile andgarments exports reduced 3.9% YoY to$358.8m due to lower demand in the EU area,lower cotton prices and what we eel as theindustry loosing price competitiveness due tothe withdrawal o GSP+ acility.

Imports at $1.75bn also came in below ourorecast o $1.83bn. Consumer goods imports(~18% imports) declined 22.9% YoY, as importsexcluding ood and beverages dropped 26.8%


4Q11 1Q12 2Q12 3Q12

Sri Lanka Overall House Sale prices Rs.m 17.9 17.1 17.6 17.5

Sri Lanka Overall Land prices per perch 630,000 670,000 710,000 720,000

Colombo House Sale prices Rs.m 46.8 50.2 42.5 39.1

Colombo Apartment Sale prices Rs.m 23.7 27.7 27.5 28.4

Colombo Houses Rental prices per month Rs. 170,000 190,000 210,000 220,000

Colombo Apartments Renta l prices per month Rs. 220,000 210,000 220,000 280,000

Colombo Commercial Rental pri ces per month Rs. 820,000 830,000 690,000 780,000

Source: LankaPropertyWeb.com

Source: LankaPropertyWeb.com

Provincial land prices per perch (Rs.)

Source:CBSL

YoY to $127.3m (vehicle importswere down54% YoY).Intermediate goods imports (~62%o imports) declined 5.2% YoYas textile andtextile articles dropped 15.1% YoY due to lower

cotton prices. Moreover, ertiliser importsincreased 72% YoYto about $77m. Investmentgoods (~20% o imports) increased by 9.9%YoY as imports o machinery & equipmentincreased 25.3% YoY.

Source:CBSL

During Jan-Aug 12, exports ell 5.7% YoY to$6.52bn, however imports decreased only 0.2%YoY to $12.86bn, thus urther expanding the tradedecit to $6.27bn (+6.3% YoY). Trade during the last

our months o the year accounts or about 36%o annual exports and imports. Thus we orecastull year exports to be $10.35bn (~-1.5%YoY) andimports to be $20.02bn (~-1.3% YoY). The resultingtrade decit is $9.67bn (~-1.1% YoY), higher thanthe CBSL target.

Source:CBSL Source:CBSL and Gradient estimates

Trade

Jan - Aug 12

($m)

CBSL target

2012E ($m) % of ta rget

Gradient estimates

2012E ($m)

Exports 6,588 11,700 56.3% 10,348

Imports 12,746 20,900 61.0% 20,020

Trade Deficit 6,157 9,200 66.9% 9,671


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In Business news:

Motor car registrations inSep12 declines 75% YoYto 1,072 with total registrationsdeclining 45% YoY to 24,478 accordingto JB securities. Hence several carimporters are seeking permission tore-export vehicles. The registration oMaruti Alto declined to 45 units (-94%YoY). However, registration o luxury

Tourist arrivals in Sep12 was 71,111(+18% YoY), marginally higher than our estimate o70,500. Total arrivals or the year are up 16% YoY to 693,772.India continued to be the highest contributor with 13,888arrivals whereas the Arican region (+216.4% YoY) and NewZealand (+159.8% YoY) registered the highest growth duringthe month.UKs Post Ofce Travel Moneys 2012 Long Haul Holiday Reportnamed Sri Lanka as the best value destination or the thirdconsecutive year. The Best Value analysis is based on the costo basic tourist items such as a cup o coee, beer/lager, Coca-

Cola/Pepsi, a bottle o water etc. According to the report, SriLankas ranking was benetted rom a strong sterling poundagainst the rupee osetting a 21% YoY growth in items costscompared to Vietnam and Bali (2nd and 3rd on the Long HaulHoliday Report) whose costs had reduced 14% and 26%.

Tea production in Sep12 was up 11.9% YoYto 26.8m kg driven by improved weather

conditions. Moreover, John Keells Ltd expects prices o SriLankan tea to remain strong during 4Q12 due to high demand drivenby a shortall in black tea production globally.

Sri Lankan tea prices averaged Rs.419.8 in Sep12 (+21.39% YoY).However, Sri Lanka continues to lose global export market share toKenya (Sri Lanka 19% vs. Kenya 25% in 2011) as Kenya has made in-roads into traditional Sri Lankan tea markets such as Iran, Russia andthe UAE.

It was initially thought that the lower price o Kenyan tea was thereason or Sri Lankas loss o market share. However, this appears not tobe case as currently Kenyan tea prices average $4.20 per kg comparedto Sri Lankas $3.20 per kg. During Jan-Aug 12 tea export earnings were$840m, down 14.5% rom a year earlier.


brands (Mercedes, BMW and Audi) were up by 7% YoY to 88 due to theissuance o vehicle permits to state workers along with an increase invalue o permits by $5,000 to $30,000. Motor cycle registrations declined

to 11,922 (-51% YoY).

According to Customs sources, revenue losses rom vehicle permitsamounts to Rs.8.5m on a Montero Sport, Rs.6m on a KIA SUV, Rs.13m ona BMW X1/X3 and Rs.20m on a BMW 520D.

Geely Automobile Limited, ranked 475 in Fortune Global 500, is to enterthe Sri Lankan market through a joint venture with Micro Cars Ltd. Amanuacturing plant is to be established in Hambantota at a sharedinvestment o $20m with Micro Cars.

Separately the Tea Trade Association o Cochin, India is to set up a teatrade centre, whereas Sri Lanka is still grappling with the decision oconverting the country into a tea hub.

Source: Sri Lanka Tea Board

Source: Sri Lanka Tourism Development Authority (SLTDA) ,

Capital Alliance (CAL), Business Monitor International (BMI)

Note: Oct - Dec 2012 monthly progression estimates is based on average monthlycontribution to annual production during 2010 and 2011


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In Business news:

Lonely planet, namedSri Lanka as the numberone destination in theworld to visit in 2013. Themain reasons highlighted were theemergence o new popular places tovisit (Kalpitiya, Puttalam lagoons and


Arugam Bay), value or money and easy reach due to cheap ares romregional hub Bangkok.

In a surprising move the President o Sri Lanka ordered the removal oprivate campsites inside national parks on the belie that most campsites

are owned by oreigners resulting in currency outows. Mobile tentedsaari operators have claimed that most are locally owned and that themove is detrimental to the industry with bookings in 2013 having tobe cancelled. Several tour operators noted that ew clients had alreadycancelled their trips to Sri Lanka entirely as a result.

Separately, Mr. Bhashwara Senanka Gunarathna, who was a membero the board o Sri Lanka Tourism Development Authority since 2010was appointed as the chairman o the Sri Lanka Tourism DevelopmentAuthority (SLTDA) and the Sri Lanka Tourism Promotion Bureau (SLTPB).

The loss o Sri Lankas GSP+ acility to beabout $1bn to Sri Lankas garment industry,according to ormer Secretary General o the Joint Apparel AssociationForum, Rohan Masakorala. As a result, key exporters such as Brandix andMAS Holdings have moved production acilities to Bangladesh, whocontinue to receive duty ree advantages. It was noted that the eectsrom losing the acility were not initially elt due to issues that wereaecting other competitors such as China and Bangladesh. However,

according to a recent report published by Emerging Textiles, prices oChinese imports are below average or most product categories.

To add to the woes, Sri Lanka could ace increased competition rom Indiaas it eyes a Free Trade Agreement (FTA) with the European Union. I theFTA is to be successul, Indian apparels would gain preerential access tothe EU markets under the GSP acility. Negotiations are at the nal stageand are expected to conclude by the end o the year o early 2013.

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In Business news:


Sri Lanka Insurance Corporation (SLIC) in anRs.208m re-insurance agreement with a akecompany. According to the Auditor Generals report, SLIC hadentered into a re-insurance agreement with a ake company namedTrans Asia Management Advisors FZC with regard to Sri Lanka PetroleumCorporation. According to the report premiums o Rs.92m and Rs.116mhad been paid to Trans Asia Management Advisors FZC in 2009/2010

Net Interest Margins (NIM) o the banking industryto decline to 3.3% in 2016 due to the high level o competition,rom the current level o 4.2% according to the Central Bank o Sri Lanka (CBSL). Inorder to counter declining NIMs, CBSL states that banks would need to introduceexible and novel banking solutions particularly leasing and venture capital,ee-based banking, merchant and investment banking. A reports published byFitch Rating expects banks in Sri Lanka to increase lending to Small and MediumEnterprises (SMEs) in order to counter the eects o competition together withan increased ocus on retail lending.

However, orecasts by the CBSL or the nancial sector remain positive as agrowth o 8.2% is expected or 2012 with assets and lending o the bankingsector expected to double rom its current levels to Rs.8trn and Rs.5trn by 2016.

Dish TV India toinvest Rs.700m inDish TV Lanka, a 70:30joint venture company betweenDish TV and Satnet Private

Limited. The main driver or the investment is the high Average RevenuePer User (ARPU) o $9 in Sri Lanka compared to $3-$4 in India despite theDirect-To-Home (DTH) market being smaller than India. Dialog TV currentlyleads the DTH market in Sri Lanka with a subscriber base o 239,000. Dish

Source: Company data

and 2010/2011. RAM ratings reafrmed SLICs AAA/P1 rating stating thatthe company had a strong capital and was avourable to most peers interms o key ratios o the industry.

TV India currently has only a 0.2% market share in Sri Lankas DTH market(APAC Pay-TV & Broadband Markets 2012). For the quarter ended 30thSep 12, Dish TV India generated revenues o Indian Rs.5,336m (+10.1%YoY) and added 477,000 new subscribers during the quarter resulting ina gross subscriber base o 13.9m.

However, orecasts by the CBSL or the nancial sector remain positiveas a growth o 8.2% is expected or 2012 with assets and lending o thebanking sector expected to double rom its current levels to Rs.8trn andRs.5trn by 2016.


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In Business news:

The LMD-Nielsen Business Condence Indexin September continued its mild recovery to122; up only by 1 point MoM. Furthermore, the index remains belowthe average or the last 12 months (129) and a signicant 40 points lessthan a year ago. The main reason or the slowness as highlighted byNielson Sri Lankas Director Shaheen Cader is that many respondents arestill pessimistic about economic growth and report that nancial resultsor the year are worse than or last year.

Source: www.lmd.lk

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Other business news Sri Lankas Renuka Agri Foods Plc, injected Rs.250m into Rich Life DairiesLtd, a rm which sells branded milk by purchasing cumulative convertibleand redeemable debentures in Rich Lie.

Fitch Ratings withdraws LOLC groups ratings whilst conrming thenegative outlook as LOLC group o companies chose to stop participatingin the rating process.

Bank of Ceylon to raise Rs.6bn via 30m unsecured, subordinated,redeemable ve-year debentures at Rs. 100 each; with an option to issue

an equal amount at Rs.100 should the initial oer be oversubscribed.Previously in 2011 BOC issued Rs.4bn in debentures.

Prima settles custom law violation charge with Rs.115m payment. SriLanka Customs had previously imposed an Rs.1.2bn penalty on PrimaGroups Ceylon Grain Elevators Plc in Jul 98.

Singer Sri Lanka raised Rs.644m through a private placement in orderto convert out o some o its short-term unding obligations and

strengthen its balance sheet.

In the latest survey, 35% o the respondents believed that the economy willimprove over the next 12 months, up rom 32% in August 12. Moreover,those who believed the economy to get worse increased to 33% rom 22%in August 12.


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In Consumer news:

Sri Lanka hikes prices on diesel, tobacco,alcohol and chicken. Lanka Indian Oil Corporation (LIOC)increased the prices o a liter o diesel by Rs.4 to Rs.121 per litre. LIOCsaid the hike was necessary as it was losing Rs.13 per litre which hadamounted to a total loss o Rs.350m. It was only in Feb12 that theCeylon Petroleum Corporation (CPC) increased diesel prices by Rs.31

to Rs.115 per litre.Taxes on tobacco products were increased with theview o stemming the looming budget decit. During 1H12, CeylonTobacco Company contributed Rs.31.2bn (+8% YoY) to government

revenue. Excise duty rates on wine, arrack, oreign liquor and malt liquor


Description New Previous Change %

*Cigars Rs.7,000 Rs.5,500 27.27%

Cigarettes below 60mm Rs.4,612 Rs.4,037 14.24%

Cigarettes between 60 and 67mm Rs.9,258 Rs.8,112 14.13%

Cigarettes between between 67 and 72mm Rs.12,100 Rs.10,953 10.47%

Cigarettes between between 7 2 and 84mm Rs.14,963 Rs.13,815 8.31%

Cigarettes between over 84mm Rs.18,500 Rs.17,100 8.19%

Source: Sri Lanka Customs

* per kg

Excise Duty per 1,000 Cigars

Sri Lanka was ranked 63rd in the Global FoodSecurity Index September 2012 (Rank 62 in

Jun 12). The index is prepared by the Economist Intelligence Unitand considers the core issues o ood aordability, availability, quality

and saety across a set o 105 countries.

Overall, Sri Lanka is ranked ahead o India (66) and Pakistan (76). However,India is ranked ahead in terms o availability (52 vs. 58 or SL) and Pakistan

is ahead in terms o quality and saety (56 vs. 70 or SL). Higher Nutritionalstandards, less volatility o agriculture production and ood saety werehighlighted as strengths or Sri Lanka in terms o scores while public

expenditure on agricultural R&D, GDP per capita and protein quality wereidentied as weaknesses.

The Nielsen

ConsumerCondence Index inSep12 recoveredmarginally to 59, up 2points rom the all-time low o 57recorded in August 12. 29% o therespondents (down rom 48% inAugust 12) stated that conditions

will be bad or people to buythings they need over the next 12months, noting that consumers

continue to be plagued byconcerns about borrowings to

nance purchases such as durablesand vehicles, particularly in the

light o the prevailing high interestrates. Consumers who considerjob prospects to be bad over thenext 12 months were down 21%

compared to 24% in August 12.

The price o a 450g loa obread was increased by Rs.2as Prima and Serendib increased the priceso wheat our by Rs.6 and Rs.4 per kg. Bothcompanies requested price hikes due to losses

incurred on imports driven by a depreciatingrupee and high cost o transportation. Primaand Serendib increased prices o wheat ourby Rs.8.50 in April as well. In Feb 12, bread

prices were upped by Rs.5 ollowing uel andelectricity price hikes.

GlobalFoodSecurityIndex2012Affordability Availability Qualityandsafety

SriLanka 63 46.3 61 58 70India 66 44.2 71 52 73

Pakistan 76 37.6 80 82 56

Nepal 79 34.5 94 71 74

Bangladesh 81 33.9 79 81 92

Source:EconomistIntelligenceUnit

CategoryRankCountry OverallRanking OverallScore

Sep12 59

Aug12 57

Jul12 59

Jun12 58

May12 60

Apr12 65

Mar12 72

Feb12 77

Jan12 85

Dec11 87

Nov11 85

Oct11 75

Sep11 69

Aug11 77

Jul11 77

Jun11 69

May11 65

Apr11 62

Source:lmd.lkNiels

enConsumerIn

dex

(beer) were increased during the month as well. Further, the Ministry o

Cooperatives and Internal Trade stated that the price o kg o chickenwould be increased by Rs.30.


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