Labour Federation opposes amendment to EPF Act

The Ceylon Federation of Labour (CFL) has filed a strong objection against the proposed amendments to the Employees Provident Fund (EPF) Act.The federation, which is an organisation bringing together trade unions in the private, semi-government and co-operative sectors of Sri Lankahas urged the authorities not to introduce any proposals in the amendment that could eat into the balance of members of the EPF and ultimately leave only a meagre sum at retirement to the individual.

“It is the considered view of the CFL that the original objective of the EPF which is to provide tax free benefits for the individual worker at retirement should not be harmed in any reform of the EPF but it appears that your amendments allow too many pre-retirement withdrawals,” an extract from a letter, dated October 4 sent by CFL secretary-general of CFL, S Siriwardena and addressed to Labour Relations and Productivity Promotion Minister Gamini Lokuge said.

The letter said the Federation does not object to the stipulated withdrawal for housing purposes but are certainly opposed to the allocation of EPF funds to build ostentatious secretariat urging the Minister to find other means to fund projects of this type.

“The proposal to allow withdrawals in respect of medical wants is not welcomed as it overlaps with the medical facilities provided by the Employees Trust Fund (ETF).We suggest that the medical benefits proposed by you be undertaken by the ETF by widening the scope of the medical benefits offered by them at present.”

The letter added: “The CFL considers your proposals to have an insurance and pension scheme built into the EPF as ill conceived and these are best operated as separate schemes outside the EPF. However, we are unable to comment further on these proposals as details are not within our knowledge.”.

Meanwhile, CFL has also alleged that the Minister had proceeded with the amendments to the EPF Act by obtaining cabinet approval for the proposals without any consultation with the National Labour Advisory Council. (NLAC)

“You would recall at the last meeting at the NLAC, it was agreed that an opportunity would be provided for NLAC to discuss the proposals before amendments to the EPF are made.

“However, we now learn that you have sought and obtained cabinet approval for your proposals,” it said.

“This is most unsatisfactory and we lodge our strong protest against your cavalier attitude towards the NLAC and wish to place on record our objections to the amending Act,” the letter highlighted. (AR)

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Tourism stakeholders concerned over promotion curbs

Tourism stakeholders in Sri Lanka have expressed their concern over a recent policy change advocated by the tourism authorities to halt promotional campaigns for the next two years.

The stakeholders are puzzled over the recent comments expressed by Sri Lanka Tourism chairman Dr Nalaka Godahewa where in a recent speech made at the ‘CIM Talking Point’, he had been quoted in the media to have said that Sri Lanka Tourism would refrain from running promotional campaigns for the next two years.“I think stopping all promotional campaigns completely is not good although I agree that building infrastructure should take precedence over the promotional campaigns. In this competitive global environment, Sri Lanka should be constantly known just as you advertise a product to the market,” Sri Lal Miththapala, the immediate Past-President of the Hotels Association who is now a project director at the Ceylon Chamber of Commerce told The Bottom Line.
He said that although stopping promotions for a few months will not impact the numbers in the short term, stopping them for as much as for two years, would impact the numbers drastically in the long run.
Similar views were expressed by some other industry stakeholders this paper also spoke to.
Earlier, Dr Godahewa, in his speech had argued that a severe reduction of publicity was being contemplated as a result of the unpreparedness of the industry and due to present ‘infrastructure constraints’.
He is also reported to have said that sweeping changes will be made to Sri Lanka tourism in future such as the amalgamation of the five tourist boards into one authority and that the planned 2011 as ‘Visit Sri Lanka Year’ will now not be celebrated in a full scale.
During the speech, Dr Godahewa is stated to have said that Sri Lanka would get 850,000 tourists next year even without running promotional campaigns and commented that the targeted 2.5 million tourists by 2016 is ‘not a very well calculated number’.
Attempts to get a response from Dr Godahewa on his opinion proved futile as he did not call back to a message left with his secretary nor reply to an email sent to his email address.

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Laugfs IPO ‘may fund Shell takeover’

By Azhar Razak

Local petroleum gas distributor Laugfs Gas Holdings (LAUGFS) is hoping to utilise funds raised through its forthcoming Initial Public Offering (IPO) to partly fund a possible acquisition of a 49 percent stake in Shell Gas Lanka Ltd (SGLL), a top company official said.

LAUGFS has expressed interest in buying the 49 percent stake of Shell from the Sri Lanka government if the ongoing Royal Dutch Shell (RDS) deal with Sri Lanka government is signed and a 49 percent stake is then divested by the government.

 

“If a 49 percent stake held by the government is sold to the public through a listing, as proposed, we are very interested in grabbing the full 49 percent stake,” Chairman Laugfs Gas Holding, W K H Wegapitiya told The Bottom Line.

 

According to him, LAUGFS would not have a problem in raising the necessary finance to acquire the stake of Shell, since at that time it might even have the funding raised by a forthcoming Initial Public Offering (IPO) which commences early next month.

 

“As far as funding is concerned, we could also use funds raised through the forthcoming IPO as well if necessary,” he suggested.



LAUGFS seeks to raise Rs. 2.5 billion through the IPO which is set to officially open on November 04, 2010. However, according to calculations, if US $63 million (Rs7.056 bn, assuming 1 USD = Rs112) is required by the Government of Sri Lanka to buy a 51 percent stake, LAUGFS might need an approximate Rs6.8 bn for a 49 percent stake of Shell.

 

Media reports that came in earlier in the week however suggested that part of the funds raised through the LAUGFS IPO would be used to retire expensive debt, finance further expansion and to diversify into the leisure sector.

 

“Out of the total money raised, we are hoping to use Rs. 1 bn for our expansion drive and use another Rs. 800 m to set off our borrowings from the banks,” one media report quoting the LAUGFS chairman had stated.



The government, which already owns a 49 percent in Shell and is presently finalising a deal with RDS to buy the balance 51 percent stake said that it is looking to divest a 49 percent stake after buying out the controlling stake.

 

According to the media minister and government spokesman Keheliya Rambukwella, the government is looking to divest the 49 percent minority stake by way of listing in the stock exchange to pave way for an effective public public-private partnership.

 

Addressing a cabinet briefing on last Thursday, he said the government had offered US 63 million dollars to acquire the remaining 51 percent stake of SGLL with talks between the two parties now over and the deal currently being finalised.



According to sources, state institutions such as Sri Lanka Insurance Corporation, state banks and Employees Trust Fund may help finance the purchase.

 

RDS, which originally acquired the firm as part of a privatisation drive undertaken by the Sri Lanka government would be exiting its Asian oil operations if the controlling stake in the Sri Lankan operation is divested.

 

SGLL is engaged in importing, storing, filling, marketing and selling liquefied petroleum gas in Sri Lanka. Presently, it is a joint venture between RDS and Government of Sri Lanka with 51% and 49% shareholding, respectively. (AR)

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What is there to burst bubble?

By Indika Sakalasooriya

The idea of a possible bubble forming in the Colombo bourse, the world’s second best performing market at the moment, has been cast aside by local market analysts dispelling the claims by several foreign fund mangers, terming them as ‘regret notes’.

The latter part of last week saw the market loosing some of the steam, triggering the fears of a possible bubble as speculated by some. 

“Sri Lanka is a long term bull market. It is true that some shares are trading beyond their intrinsic values. But this doesn’t mean that a bubble is forming. Let’s assume that there is a bubble. But I don’t see any material evidence that would lead to burst it, such as a threatening interest rates scenario or at least a wild card situation like the re-emerging of the LTTE,” CT Capital chief executive Channa Amaratunga said.

He, however opined that the impact of restrictions on broker credit from January 1, 2010 by the market regulator, entrance of sizable IPOs in the early part of 2011 and continuous rights issues by firms can mop up the liquidity in the market and this may cause a slowing down of the momentum.

“Due to the regulatory restrictions, currently many stockbrokering houses provide ‘unofficial margin’ facilities and extended credit to retail investors to keep the momentum going,” he said.

Also noting that the “future looks bright”, Amaratunga added a cautious note — “this doesn’t mean that we should overlook the budget and trade deficits and finding actual political solutions to the problems that need urgent attention”.

In a recent interview with CNBC, regional economist at Barclays Capital Pakriti Sofat said Sri Lanka’s capital market rally is supported by strong economic fundamentals. Sofat, during her brief interview also said that in the near term Sri Lanka is not facing any risks arising from political or economic fronts.

But she averred that loss making state enterprises should be reformed.

She remarked that country’s fiscal side is improving as the government is making an effort to broaden and streamline the tax base via a Presidential Tax Commission.

She also said that she expected the rating agencies to upgrade Sri Lanka’s sovereign rating to BB- in 2011.

Sighting the comments made by some of the foreign fund managers about a possible bubble, Bartleet Mallory Stockbrokers research manager Rakshitha Perera said: “When the time was right these foreigners couldn’t get into the market. They resorted to the idea that the shares were over priced and the market is overheated. At the same time foreigners who held to their shares during the troubled time exited the market making a killing. They also thought they’d be able to get back into the market at low prices. But that is not happening. So now they complain the market is overvalued and a bubble is forming.”

Colombo Stock Exchange has risen by more than 100 percent this year — its main index crossing 7000 points — compared with the second best equity market in Asia, Indonesia, which is only up around about 40 percent.

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Distributors ask payout from Royal Dutch Shell

By Jithendra Antonio

In the wake of the governments’ sky high promises to offer LPG at lower prices to consumers after the buyback, The Bottom Line reliably learns that Royal Dutch Shell PLC has faced serious criticism from its distribution channel in Sri Lanka and talks are on to compensate its distributors by the world’s second largest oil and gas giant before its exit from the country. 



“Shell asked us to expand our operations in the country last year or to ‘step down’ from business if we did not have the capacity to expand from our own investments. So we had to generate funds through various ways. They were using our money to build their brand at no cost without revealing us their exit strategy. There abrupt exit will cost us serious losses,” said an official from Shell Gas Lanka’s distributors.

According to the distributors, Royal Dutch Shell PLC has encouraged its distribution channel in Sri Lanka two years ago on its sole behest to expand the distributor capacity and double the volume of sales on the expense of medium scale distributor business community of Shell Gas Lanka Limited.

The official also said that each of the distributors had to invest nearly Rs.40 million to upgrade and expand their operations as requested by Shell Gas Lanka.

According to him, the sale of Shell Gas Lanka would result in for them to lose the backing of a strong brand and hindering of credit lines.

He said that they are not asking for the whole Rs40 million afforded by each of them but at least some reasonable compensation. However since the negotiations are happening at the moment he refused to give us further comments on the matter.

There are around 30 Shell gas distributors islandwide.

However, neither the present country manager of Shell Gas Lanka Ltd, Walter Sanchez or any other official was not available for comments.

The Bottom Line also learns that Shell Gas Distributors’ Association is planning to hold a press conference next week to communicate the matter to the media.

Analysts say that Royal Dutch Shell is exiting from its core business LPG, in Asia and some South American Countries with a view of investing its money in oil drilling in some identified locations.

However, many ventures which Royal Dutch Shell had started during last decade has been shut down from time to time globally such as its solar energy and renewable energy projects.

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Fitch Upgrades Sri Lanka's Dialog to 'AAA(lka)', Outlook Stable

Rating Action & Commentary by Fitchratings

Fitch Ratings-Colombo/Mumbai/Singapore-08 October 2010: Fitch Ratings has today upgraded Sri Lanka's Dialog Axiata PLC's (Dialog) National Long-term rating to 'AAA(lka)' from 'AA(lka)', and simultaneously revised the Outlook to Stable from Negative. The agency has also upgraded the National Long-term rating on Dialog's outstanding LKR2.5bn redeemable preference shares to 'AA+(lka)' from 'AA-(lka)'.While Dialog's ratings factor in support from its parent - Axiata Group Berhad (Axiata, 83%
ownership) in arriving at the final rating, the upgrade reflects the company's improved stand-alone credit profile, and liquidity position. This is in turn a result of Dialog's successful cost rationalisation exercise, reduced tariff pressure within the local mobile industry at present (which is likely to allow further balance sheet improvements over the short-term), strong market share within the mobile industry amid improving economic conditions, and its improved operating cash flows.



Fitch assesses Dialog's standalone rating at 'AA(lka)'. A downgrade of the ratings could be precipitated by unfavourable developments within the local regulatory or competitive environment that would result in a sustained increase in Dialog's leverage (net
adjusted debt/EBITDAR) of above 2.5x, or by the weakening of Axiata's financial profile. Conversely, an upgrade of Dialog's standalone rating may result if the company is able to sustain leverage of below 1.5x, while maintaining an evenly spread out debt maturity profile.

 
Dialog's profitability as measured by EBITDAR margin improved to 41% at 30 June 2010 (end-H110), from 26% at end-2008 (FYE08), largely due to the 'right sizing' of its operations since early-2009. This included the centralisation of key administrative functions, better utilisation of network and office infrastructure, staff reductions, and network modernisation. The stronger operating cash flow generation that resulted, combined with lower levels of incremental capex, reduced group leverage to 1.7x in end-H110 (FYE08: 3.8x). 



"We expect Dialog's healthy EBITDAR margin, combined with modest revenue growth and relatively low incremental capex, to generate strong pre-dividend free cash
flow over the medium term" says Hasira De Silva, Associate Director with Fitch's Asia Pacific Corporates team. This, along with the management's commitment towards maintaining relatively low leverage levels, is likely to improve Dialog's ability to absorb competitive pressures over the mediumterm. 

 
Over 67% of Dialog's group revenue and 77% of EBITDA were derived from the mobile segment at end-H110 (December 2007: 84% and 94% respectively), which is prone to competitive pressures barring regulatory intervention at present. In Fitch's view, Dialog's alternative revenue sources are unlikely to eclipse cash flow generation from its mobile segment over the long-term.

 
The recently implemented regulatory tariff floor has curbed the erstwhile aggressive price competition within the mobile space, and may allow larger operators to de-leverage to an extent, or preserve balance sheet quality. 



"In our view, the local mobile industry is overcrowded, and therefore we believe that a
renewed price war cannot be ruled out should the floor be removed. This could continue to be a key risk to Dialog's operations over the medium-term" adds Mr. De Silva.
Dialog's liquidity position was sound at end-H110, with around LKR7.4bn of committed un-drawn credit lines (in USD) and LKR3.6bn of cash available, against LKR5.1bn of current maturities including preference share repayments. 



At end-H110, 65% of group debt was denominated in USD. Dialog has expressed its intention to maintain a sinking fund from its annual net USD receipts (H110 net receipts: USD17m), to help mitigate potential currency risk on the scheduled repayments of its USD debt, which fall due between 2011 and 2015.

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Apparel exports to EU rise as Colombo loses tariff benefit

Bangladesh  is enjoying the benefits of the EU decision to withdraw zero-tariff from Sri Lanka, among other factors now boosting garment exports. Sri Lanka was supposed to enjoy the Generalised System of Preferences Plus (GSP+) status from the European Union, but it was withdrawn for the country's poor human rights record after its crushing of Tamil resistance.

The EU intends to make the formal move at the end of this month.



The GSP+ status gives 16 poor nations preferential access to the EU in return for strict commitments on a wide variety of social and rights issues.



Exports of readymade garments (RMG) blew past the state's target in the first two months of the current fiscal year, according to the latest data from the state-owned Export Promotion Bureau (EPB).



Bangladesh exported knitwear worth $1.6 billion against the $1.21 billion target in July and August, 31 percent up over the same period a year earlier.



During the same period, the country exported woven garments worth $1.31 billion against a target of $1.12 billion, up 17 percent from last year.



Ahsan Kabir Khan, managing director of Interfab Shirt Manufacturing Ltd, cited two reasons for the strong orders coming to Bangladesh, including recovery from the global recession.



"In the last year, buyers followed a conservative strategy in purchasing RMG products, and this year the actual business is returning," Khan said.



Second is the ongoing shift of orders from Sri Lanka, Pakistan and China to Bangladesh, he added. Orders, which were supposed to go to Sri Lanka, are now coming to Bangladesh, he said.



China has been suffering from shortages of low-wage workers, and Pakistan has faced widespread flooding, Khan said.



Part of the rise reflects the competitive level of RMG here.



"We're now taking shipments against orders which were placed earlier. This might be a cause for exceeding the target," said a Spanish buyer requesting anonymity.



But it is also true that many more international buyers are now placing orders in Bangladesh for its cheap prices, he added.



Source : The Daily Star - Bangladesh

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