Sri Lanka, Malaysia establish Currency swap

By Indika Sakalasooriya
The Central Bank of Sri Lanka (CBSL) has entered into a bilateral currency swap agreement with the Bank Negara Malaysia (BNM- Malaysian Central Bank) to prop up the country’s ailing foreign reserves, a highly placed CBSL official confirmed to The Nation Economist.

“We held several rounds of discussions with the BNM during the last few weeks and a Currency swap was agreed upon. The total amount of the swap was US$ 200 million” the official said.

However, he declined to reveal the maturity period of the swap.
According to him, CBSL is planning to raise US$ 500 million alone from currency swaps and is particularly looking at central banks in Southeast Asia.
“Though we go to the regional countries, the swaps will not be done in the local currencies of those countries, but in US$ vs. LKR” he explained.

However, it is yet to be known what the BNM intends doing with US$ 200 million worth of LKR, given the non-convertible nature of the LKR in forex markets.

In Economics, a Currency swap is an arrangement in which, initially, two parties exchange specific amounts of different currencies, and a series of interest payments on the initial cash flows are exchanged.
Often, one party will pay a fixed interest rate, while another will pay a floating exchange rate (though there may also be fixed-fixed and floating-floating arrangements). At the maturity of the swap, the principal amounts are exchanged back.

In the ‘Road Map for the Monetary and Financial Sector Policies for 2009 and beyond’ which was presented in January 2009, CBSL has proposed going into Currency swaps and promoting Treasury Bonds and Bills among Sri Lankan expatriates.

Though initial plans were to raise US$ 500 million from both strategies, with the response, especially from the diaspora, the CBSL has become more ambitious, as now they are aiming at US$ 1 billion at the end of 2009, according to the official.

Last week, The Nation Economist reported quoting two bank officials from Sampath and People’s Bank, that a substantial amount of money has already flowed into their NRFC and other foreign currency deposit instruments, following the promotional work undertaken by the CBSL.

The Sri Lankan Government also has started a campaign to pay a bonus interest in LKR on the interest paid by the licensed commercial banks, National Savings Bank and Lankaputhra Development Bank on RFC and NRFC accounts, with effect from February 1, 2009 to improve foreign remittance flow.

According to a press release issued by the CBSL last week, Sri Lanka’s foreign reserves fell to US$ 1,753 million in December from US$ 2,030 million in November, which was sufficient to finance 1.5 months of imports.
Gross official reserves with Asian Clearing Union (ACU) funds for December were US$ 2,561 million, sufficient to finance 2.2 months of imports.

In the early part of 2008, Sri Lanka’s foreign reserves were around US$ 3.4 billion. But since mid-September 2008, they began decreasinging significantly.


Central Bank eases pressure on RFC’s

Governor Ajith Nivard Cabraal and Deputy Governor Ranee Jayamaha at the press briefing (Pic by Ravindra Dharmathilake)

By Azhar Razak
Central Bank says that they have decided to soften their stance on Registered Finance Companies (RFC) by bringing down the minimum liquidity reserve percentages. Last week, the Central Bank announced that they will cut down the minimum statutory liquidity reserve requirement for fixed deposits and saving deposits from 15 percent to 10 percent and from 20 percent to 15 percent respectively.

The Governor of the Central Bank, Ajith Nivard Cabraal told reporters that consequent to the failure of certain unauthorised finance businesses, and the effect of certain unfavourable international developments, they observed a few stresses within some RFC’s and Specialised Leasing Companies (SLCs) that are presently operating in the country.

‘We have seen a drop in deposits and also the reluctance by the public to renew deposits in some finance companies following the recent collapse of some finance firms. Therefore, we believe our assistance to the existing firms at this point of time would ease the pressure and bring about stability,’ Cabraal said.

The government, on the recommendation of the Central Bank also announced that they have developed a policy support package to prevent a liquidity crisis in the regulated financial and leasing sectors. As part of the package, the government will offer four billion rupees in bonds and guarantees to RFC’s and SLC’s that are struggling including a Rs. 2 billion credit facility against the sale of land. The Central Bank said that the government has selected their own Lankaputhra Bank in overseeing these activities.

‘Finance companies that are facing a problem of selling land in their portfolio could transfer them to Lankaputhra Bank and get 2-year bonds in return. The bonds could then be discounted in the secondary markets to raise cash. Lankaputhra Bank will do its own valuation of the land and give 67 percent of their value as bonds,’ Deputy Governor Ranee Jayamaha said.
Further she added that Lankaputhra Bank would also act as guarantors on behalf of RFC’s and SLC’s to obtain funding from licensed banks.

‘In recent times, we have seen reluctance from some of the commercial banks to lend to finance companies. The state has therefore decided to assist them in obtaining credit and the amount of guarantees given could be around 2.2 billion rupees,’ Jayamaha explained.

Finance and leasing companies have been operating in the economy of Sri Lanka for many decades, and now account for about 9 per cent of the financial sector. Although the sector is relatively smaller in magnitude than the banking sector, its operations are spread throughout the country, thereby having an effect on economic activity in all parts of the country.


John Keells Ramon Roy IT venture profits held up

A top official of John Keells Holdings (JKH) has confirmed to The Nation Economist that, the returns from JKH’s Indian Business Process Outsourcing (BPO) venture were yet to materialise.
During April last year, JKH invested US$ 5.72 million for a 44% equity stake in Quatrro F&A, the Indian-based Financial & Accounting (F&A) business of the Quatrro group, headed by Raman Roy.

The official, who wished to remain anonymous, in an e-mail interview with The Nation Economist said that, since the BPO business was still a start up business, it would, hence, fetch the desired results only in the medium terms.

“We had a 5-year Business plan with clear objectives. It was not expected to make profits in the initial years. But, we remain confident that, it will achieve its targets over the medium term,” the official said.

According to the Company, for the Financial year ended 2007/2008, JKH had invested over Rs. 30 billion in the IT sector, which only yielded a return of around 5%. The only other worst performing sectors for JKH were city hotels and Sri Lankan resorts.

JKH currently owns BPO centres in Gurgaon, India and in Colombo. When asked about JKH’s expansion plans in the BPO business, the official said that, it would only depend on how the business develops.
‘The global financial crisis may well be an opportunity for the BPO business and we are already seeing this from the inquiries we have been getting recently,” the official further explained.

Quatrro, founded by Raman Roy, is a BPO company serving clients in North America, Europe and Asia in Risk Management & Fraud, Finance & Accounting, Market Research, Knowledge Services and Mortgage Processing. (AR)


Carsons gains Rs 1. 6 bn after divesture of stakes

By Santhush Fernando
Carsons Cumberbatch Group (CARS) gained over Rs. 1.6 bn by divesture of its stakes in Union Assurance (UAL), Ceylon Cold Stores (CCS) and John Keells PLC (JKL) last Friday.

John Keells Holdings PLC making a disclosure to the Colombo Stock Exchange (CSE) announced that it has acquired on the CSE the following stakes of Carsons Group in its associate & subsidiary companies for a total consideration of Rs. 1,599,909,965:
JKH bought 13,864,965 shares (37%) of Union Assurance PLC at Rs. 72 per share, while 4,361,311 shares (20.2%) of Ceylon Cold Stores PLC and 1,657,300 shares (10.9%) of John Keells PLC at Rs. 115 per share and at Rs. 60 per share respectively.

Further to the above acquisitions, JKH’s shareholding in John Keells PLC will increase to 86.9% & the John Keells Group shareholding in Union Assurance PLC & Ceylon Cold Stores PLC will increase to 73.9% & 80.5%, respectively.
JKH will be making a mandatory offer for the remaining shares of Union Assurance PLC not held by JKH under Section 31 of the Company Takeovers & Mergers Code of 1995.

Carsons together with its subsidiaries, Ceylon Investment (CINV) and Ceylon Guardian (GUAR), divested its stakes in Union Assurance, Ceylon Cold Stores and John Keells PLC resulting major capital gains for the Group.

CCS and JKL were accounted as long term investments in CARS group, Ceylon Guardian group and Ceylon Investment Balance Sheets while Union Assurance was accounted as a long term investment in Ceylon Guardian group and Ceylon Investment, while in Carsons Group it was accounted as an associate.

The gains for Ceylon investment was around Rs.238.8mn (Rs.9.9 per share), Ceylon Guardian group to be Rs.353.2mn (Rs.18.6 per share) and Carsons Group to be Rs.650.5mn (Rs.106.4 per share).
Carson Cumberbatch & Company Limited, through its subsidiaries, primarily operates two breweries and also owns oil palm plantations covering approximately 70,000 hectares in Malaysia and Indonesia.


 Udayasiri Kariyawasam tipped to become SEC Chief

Dr.Gamini Wickremesinghe to step down

Incumbent Chairman of Insurance Board of Sri Lanka (IBSL) Udayasiri Kariyawasam is tipped to become the next Chairman of the Securities and Exchange Commission (SEC) of Sri Lanka with the stepping down of Dr. Gamini Wickremesinghe.

Udayasiri who was also the former Chairman of the Bank of Ceylon (BoC) was to be appointed SEC Chairman and the present SEC Board members are to tender their resignations shortly to make for the new Chairman, The Nation Economist learns.

A charted accountant by profession, Udayasiri was appointed IBSL Chairman eight months back, as Dr. Wickremesinghe had requested that he be relieved from his duties due to increasing work commitments of SEC and BoC, along with subsidiaries of the BoC group.

“My term of three years has ended and I did not request that my term be renewed. We have been able to spearhead a lot of work during this period. Anyone coming in can carry on the good work forward as we have a well qualified staff to do the job. New Chairperson will have easy access as the system is in place at SEC and functioning well.” Dr. Gamini Wickremesinghe said.
“We have had good relationships with the Colombo Stock Exchange (CSE) and all listed companies and meet their expectations. We have completed much of what we could of our ten year Capital Market Development Master Plan and the capacity building programme to meet its demands is in place.” He said.

“We are all hopeful that the war will end soon and the SEC was geared to meet the booming market once it picks up after the war. We have played a proactive role in encouraging companies to be listed or if not at least tune itself so that transformation into a quoted company would be smooth. So I have done my duty to my nation” He added.
Dr. Wickremesinghe’s three year tenure at BoC is to lapse in mid 2010. (SF)


 Sorry – no foreign investments in Indian Supermarkets

Foreign investments in Supermarket outlets are yet to open up in India due to a restriction by the Indian government. At present, the Government of India has restricted foreign entrants setting up supermarket chains in India, although a major Sri Lankan retail conglomerate has shown interest.

‘We do not have any plans to set up supermarkets in India owing to the restriction presently imposed. However, following a very good reception for our export volumes of Keells food products in India we have now a sales team with a Chief Operating Officer on the ground in India operating out of the key metros,’ a senior official from John Keells Holdings (JKH) who wished to be anonymous told the Nation Economist.

The official was referring to the operations of John Keells Foods India (Pvt) Ltd. (JKFI), a company set up in April last year to manufacture and market meat products in India.
JKFI is a fully owned subsidiary of JKH and it is learnt that JKH also owns a similar company in Mauritius.

 Nihal Fonseka resigns from ComBank board

The Board of Commercial Bank of Ceylon PLC announced that, the DFCC Bank nominee on its Board- Nihal Fonseka, had resigned on the completion of nine years as a Director, as required by the Central Bank of Sri Lanka.
In a disclosure made last Friday, the Bank said that A.N. Fonseka, under Direction 3(2) (xi) of the Banking Act Directions No. 11 of 2007, had relinquished his office.
A.N. Fonseka relinquished office as one of the Nominee Directors of DFCC Bank on the Board of Commercial Bank of Ceylon PLC, on January 31 2009, as already informed by the company, on completion of 9 years as a Director in the Bank, as required by the Banking Act Direction on Corporate Governance issued by the Monetary Board of the Central Bank of Sri Lanka.” The statement said.

 Ennore still on hold

Though local media reports suggest that John Keells Holdings are likely to grab the Ennore project soon, a foreign media report reveals that ambiguities in the Indian Union Government’s policies have led to delays in the selection of the winning bidder for the Ennore project. The Ennore project is presently put on hold, as one of the bidders who were not short listed among the six selected to undertake the project have sought court intervention. John Keells which partnered with India’s Larsen and Tourbro Ltd (L & T) became one of the six successful bidders mid last year.