Fitch downgrades Aitken Spence outlook to “Negative”

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http://www.sundaytimes.lk/110619/BusinessTimes/bt10.html

Ratings agency Fitch has downgraded the outlook of the senior unsecured Sri Lankan rupee notes issued by local diversified conglomerate Aitken Spence PLC (ASP) to “Negative,” from “Stable.” However, at the same time, Fitch upheld the “AA(lka)” National Long-Term rating already in place for these same notes.

According to Fitch’s Rating Action and Commentary (RAC), this revised outlook reflects “concerns over the probability of a sizable reduction in the scale of ASP’s existing power sector operations and the expectation of the more volatile hotel sector dividend that needs to be consistently upstreamed to the holding company having to replace the power sector dividend over the longer term.”

On the other hand, Fitch also noted that it had continued ASP’s “AA(lka)” rating due to an “expectation that ASP’s core business segments will continue to generate adequate operating cash in the near term from its geographically and industry-wise diversified revenue and profit streams.” This despite Fitch being convinced that ASP would continue to make “significant investments for its port venture (30% ownership).”

In the meantime, Fitch stated that it expects ASP’s “next 24-month operating cash generation to be sufficient for its corresponding cash requirement including the repayment of these notes” with the same also applying to its “current headroom availability for financial leverage (total adjusted net debt/operating EBITDAR) at the holding company level.” Also highlighted, “ASP’s rating remains exposed to the state-owned Ceylon Electricity Board’s (CEB) financial strength, which is the sole purchaser of its power output, albeit the latter’s financials improved in 2010. The power purchase agreements (PPAs) have built-in safeguards along with the non-recourse nature of power sector debt to the holding company.

However, Fitch notes that there has been no finalisation of discussions with CEB for the continuation of ASP’s PPAs for its two 20MW plants, which will expire in 2012. CEB’s own capacity is expected to improve with the new coal and hydro projects (450MW) and these two thermal power plants will be the first to come in for renegotiation, providing direction for CEB’s future use of private thermal power plants. Furthermore, the recent declaration by ASP of the possibility of future dilution of its ownership and/or control of its 100MW thermal plant (74% owned) as may be determined by the Secretary to the Treasury based on the Sri Lanka Electricity Act No.20 of 2009, exposes the company to a significant event risk, which if triggered will warrant an immediate rating review.”

It was also revealed that ASP’s “new wind and mini hydro power projects will bring in additional debt of around Rs. 830 million, which will keep the sector leverage at current levels.” As a consequence, Fitch noted that “ASP will have to maintain its current high power dividend (over 80% of total dividend income) through free cash flows generated from its 100MW plant, and continue this till 2015. Fitch sees that any decrease in this dividend inflow to be a negative rating driver.”

Suggesting cash inflows from hotels and other areas were not adequate to replace a loss of power generation revenues, Fitch also revealed that “any significant additional borrowings for sizable new projects or any reduction in dividend income to group parent against Fitch’s expectations can act as negative rating triggers. However, if ASP were to generate a sizable cash balance through an equity rights issue, power plant sale or if the power sector were to continue after renegotiations at similar profit levels, this may relieve pressure on the holding company’s cash outflows.”

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Colombo South Harbour to be ready for 18,000 TEU vessels by 2013

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http://www.sundaytimes.lk/110619/BusinessTimes/bt38.html

When ready, Sri Lanka’s new Colombo South Harbour port terminal, a US$ 500 million project built by a consortium led by China Merchant Holdings International which put up 55% of the funding compared to local partners Aitken Spence and the Sri Lanka Ports Authority, who will maintain a 30% and 15% stake, respectively, will be the only port in the region equipped to service new 18,000 Twenty foot Equivalent Units (TEUs) container vessels when they come online in 2013, according to Dr. Parakrama Dissanayake, Deputy Chairman of Aitken Spence’s Cargo Sector business unit.

Dr. Dissanayake’s comments were made at a press conference held on the occasion of Aitken Spence’s 30th anniversary of its partnership with Netherlands-based TNT Express, where he also noted that the the challenge was to now move Sri Lanka’s status to that of a higher margin, logistics centre, instead of Colombo being a just a transshipment hub.

Further revealed, regarding TNT Express in Sri Lanka, this business unit had an annual revenue of Rs. 750 million, with 10% to 15% year-on-year revenue growth and 10% to 12% year-on-year volume growth. This is also in comparison to the the overall local market which grows 5% to 6% annually, and the top player is DHL with 30% to 45% market share while Aitken Spence has 14% to 16%. It also emerged that 60% of all revenue for the local business was from US-targetted exports by garment manufacturers.

According to a company statement, TNT Express has grown locally from an office with just three people in 1981, and initially known as Ace Cargo, to having 150 dedicated employees, 25 offices island-wide and a fleet of over 50 vehicles while, globally, TNT Express delivers four million consignments a day and has 83,000 staff, with a turnover of 7 billion euros.

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SL should target 15% GDP thro’ remittances : Cabraal

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http://www.sundaytimes.lk/101107/BusinessTimes/bt18.html

Sri Lanka should target remittances to the tune of 15% of Gross Domestic Product (GDP), according to the country’s Central Bank Governor Ajith Nivard Cabraal, who further elaborated that a current plan targetted remittances equalling 7.4% of GDP by 2013. He also added this would necessitate workers not just having “cheap skills” but, rather, a more professional workforce.

He also stated that Foreign Direct Investment (FDI) into the country would increase by 5% of GDP going towards 2013. Noting there was $6 billion in infrastructure projects currently in progress, Mr. Cabraal further suggested Sri Lanka’s private sector to be the beneficiary of these projects; adding that the Colombo port South Harbour Expansion Project, where US$ 1.5 billion in private funding was slated for terminal development, was a case in point. He also identified the commencement of five exploration wells by 2011 by the local subsidiary of oil driller Cairn and the simultaneous development of 14 domestic airports and one international airport as other examples.

All this was attributable to “policy consistency” to a degree never witnessed before in the country, according to Mr. Cabraal. Speaking at the inaugural session of the 31st National Conference of the Institute of Chartered Accountants in Colombo last week, Mr. Cabraal also revealed that some foreign exchange controls would ease within the next two weeks or so. He also noted poverty alleviation figures for Sri Lanka, due in 2011, would have “substantially gone down” compared to 15% in 2007 and 22% in 2002.

Mr. Cabraal also alluded to the country’s “agricultural renaissance,” saying food security was a “must” so that the country would not “fall into any traps.” He also added that the rubber and rubber products and the fruits and vegetables industries would be worth US$ 1 billion and US$ 0.75 billion respectively by 2015.

Also speaking at the event was Arjuna Mahendran, a former Board of Investment of Sri Lanka chief who is currently Managing Director of Singapore-based HSBC Private Bank who noted that corporates were better at investment promotion than governments. As such, he revealed that investments such as the Prima flour mill, Pugoda textile mill, South Asia textiles, the World Trade Centre, Havelock Residencies, Dialog Telecom, Apollo Hospitals and the HSBC BPO centre were all brought in by corporates.

He also suggested that, to attract more FDI, the country needed to focus more on internal transportation infrastructure in areas such as toll highways, commercial airports, ferries and water taxis. He also noted that agriculture, power generation and IT could potentially show an upward momentum, and advised on the need to synchronise education policy with private sector requirements as well as highlighting the need for private universities.

He further stated that the country’s next step, after setting up export processing zones, should have been industry clusters, tax holidays, cash subsidies, worker housing, water availability and boards of investment in each province. And that there was also a need for “specialist focus” in investment promotion such as those who provided oil distribution services; fleet maintenance, flying schools, in flight services in the aviation industry; affordable housing and other service providers for the proposed healthcare and IT/BPO corridors in Narahenpita and Malabe/Rajagiriya; and the need to free up economically viable acreage for agro industries and water for the apparel and other industries.

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Private sector must push parliament to approve urban developments – Minister

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Private sector must push parliament to approve urban developments – Minister
By Jagdish Hathiramani

Sri Lanka’s Minister for Urban Development and Sacred Area Development, Dinesh Gunawardena, on Thursday requested the private sector to get involved by asking parliament to push through important urban development projects which have been held up at funding. He was speaking at a Ceylon Chamber of Commerce-hosted event where his ministry presented potential investment opportunities in the Western, Southern, Eastern and Northern provinces to members of the private sector.

Further noting that today most regulations have been relaxed to facilitate more rapid economic growth, Mr. Gunawardena added that considering all that the country had lost, it was important that everything be done to speed up growth. He also noted that transportation in cities would continue to be a problem area into the future with traffic congestion on the rise and, while zoning was important in addressing this issue somewhat, alternatives to roads, such as waterways or elevated highways, could be a more effective solution to loading roads even more.

Meanwhile, Mr. Gunawardena’s ministry presented several projects that were nearing the stage where private sector investment would be warranted. These included mainly mixed developments, or a mix of high density middle and low income housing as well as commercial complexes, in Panchikawatte, Colombo and its suburbs, Greater Colombo Township and Greater Hambantota as well as the overall Regional Development Plans for the Eastern and the Northern provinces.

Said to be a pioneering project which was initiated 14 years ago by the Urban Development Authority (UDA), the Panchikawatte Triangle Re-Development project, outlined Architect Planner Surath Wickramasinghe, will be located just 2 km away from the densely packed Colombo city centre and adjoined by three major roads in an area featuring well-known landmarks like the Supreme Court, Elphinstone Theatre and Tower Hall. The project will ‘liberate’ 26 acres of land that is currently mostly occupied by tenements and ‘unreserved buildings’ and so ‘relocate’ over 800 families to Kadawatha as part of the first phase of the project.

The new development will include hotels and office facilities with parking for 3,000 vehicles as phase one followed by a duty free complex, a shopping mall, day and night entertainment and recreation activities, several towers of 30-plus floor high density, high rise apartments, etc. in subsequent phases.
While the details of this project are currently still being finalised, it is likely that it will be offered to serious developers after the April elections. Plans are also underway for similar projects in Slave Island and even Colpetty and the required cabinet papers for these have already been put in, according to Mr. Wickramasinghe.

Presented by UDA’s Director General, Architect Prasanna Silva, the Colombo City and Suburbs plan is geared to attract more investment into the city while also making existing systems in the country’s commercial capital more efficient and green. There is also a focus on facilitating more public transportation, including a dedicated bus lane, a green pedestrian network, wider roads, and more high rises. As such the plan for 2020 has identified more concentrated development zones towards Slave Island as well as special areas for recreation and culture near Beira Lake, Independence Square and Galle Face.

Mr. Silva also outlined long-time existing investment opportunities in areas where UDA land is available such as Chalmers Granaries, where 19 acres of land is vacant between Fort and Pettah for high rise, high density apartments and other mixed developments. He further proposed that as much as half of the business activities currently run out of the Colombo ports could be moved to this venue under the purview of the local port authority while the balance of the commercial developments could be offered to existing Pettah and Fort type of businesses by private developers.

Other Colombo centre projects highlighted include a high rise commercial development at Transworks Square in Fort, a mixed development at Mount Mary at Borella Baseline Road, a development at Southwest Beira Lake, a mixed development at D.R. Wijewardene Mawatha near Lake House, a high rise, high density mixed development over 48 acres of Prison Department, a health and higher education square at Kirimandala Mawatha as well as high density condominiums at Borella Baseline Road, Orugodawatta, and Dematagoda Railway.

Also shared with the audience was the status of the Greater Colombo Township – 3K + Kerawalapitiya project which encompasses the planned Kadawatha, Kottawa and Kaduwella interchanges that form the Outer Circular Highway (OCH) which will bridge the Colombo Katunayake Expressway and the Southern Expressway.

This construction of the OCH, located 10-15 km from the Colombo centre will take 42 months and will open up investment opportunities for retailing, logistics, tourism, housing, business parks, convention centres, etc. at 5 acres at Kottawa town centre, 12 acres at Homagama and 5 acres at Kadawatha as well as 1.5 acres at nearby Mahara.

Expecting its first ship in 2010, the Hambantota port and its surrounding area was the centre of the Southern province investment opportunities, where several development projects situated between the new port and the upcoming airport were spoken of with some even said to be completed such as those for housing and commercial use.

In addition, a botanical garden and cricket stadium were also said to be progressing. Interestingly, 18 banks have already applied to be situated at Hambantota’s aptly named Bank Square.

Further, green recreation and civic zones contained in a concentric circle leading in from the ‘mouth’ of the seaport were also planned.

While more medium term scenarios were presented for the North and the East, they were definitely more creative in scope, perhaps because they were less hampered by on the ground realities. Proposed as a bridge to India as a consequence of Mannar being highlighted due to its significance in the vast Asian Highway, proposed in 2001 by ESCAP; the Northern Province was indicated as being mainly a draw for tourism thanks to near panoramic views of the sun’s journey from East to West. There were also suggestions of commercial developments to aid opportunities in agriculture such as in the budding local fruit, vegetable and spice industries as well as fisheries and even a possible aeronautical university in Iranamadu near Kilinochchi. These would require transport terminals, low and middle income housing, etc.

Meanwhile, the plan for the Eastern Province combines Trincomalee with Polonnaruwa and Anuradhapura to form the island’s largest metro, what is being termed as a ‘metropolis’, where tourism would take centre stage while agriculture of crops like sugarcane, cashew and banana would also be promoted.

Additionally, the suggestion for Batticaloa is island-based tourism, Kappalturai is light industry, Sampoor is steel, Kalkudah is recreation, Valachchenai is paper-based industries, etc. As such, to accommodate for these planned industries, the province would require commercial development, middle and low income housing, a transport terminal, an international stadium and two linear parks among other facilities.

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