BUSINESS

New look Takeovers and Mergers Code shortly

By Ann Nicholas

The Securities and Exchange Commission (SEC) is in the process of revising the Takeovers and Mergers Code. It is being revised in order to reduce the risk of rules being manipulated and to be able to address the issues faced by the SEC successfully.

The code first introduced in 1995 was found to be outdated and inadequately equipped to address the new situations.

The SEC has appointed a committee to consider amendments to the code, which is headed by Additional Solicitor General, Saleem Mahsoof.

Speaking to The Sunday Leader, Mahsoof said the existing code was formulated using the British code for takeovers and mergers as its base and was of the opinion that this was not appropriate for Sri Lanka.

In Sri Lanka the code is statutory and comes under the Securities and Exchange Commission Act, where non-compliance leads to charges being filed against the violating party, whereas in Britain it is entirely a voluntary practice where the listed companies engage in a procedure of self-regulation - a reason why the existing code in Sri Lanka was found unsuitable.

The committee is currently carrying out extensive studies on the subject and is also studying the laws related to takeovers and mergers in Malaysia, Singapore, Hong Kong and India for a more comprehensive viewpoint prior to making final recommendations and would be formulating proposals which will be presented to the SEC for approval.

The SEC hopes to address a number of issues on takeovers and mergers. One such issue is in the event a certain party acquires 30% of the voting rights of a company, this triggers the mandatory offer made statutory by the code. The mandatory offer is what the acquiring party must offer to purchase from the other shareholders their shares at the same premium it was bought for.

This rule is expected to be implemented in a stricter sense so that the interests of the minority shareholders will be protected.

Another issue faced by the SEC is the indirect acquiring of voting rights in a company through indirect buying in non-listed companies. Since the code only regulates the companies listed on the Colombo Stock Exchange (CSE), the code does not have provisions to deal with such situations.

The committee will also make recommendations that will promote greater transparency in disclosures of corporate entities and hopes to introduce rules to prevent the undue siphoning of funds.

Mahsoof pointed out that in some cases where genuine takeovers have been made, the other companies tend to take defensive action. The SEC will also recommend independent advice to both the acquiring and acquired parties, prior to takeovers and mergers.

"In all this, the SEC's primary objective is to safeguard the rights of the shareholder," said Mahsoof.

The SEC emphasised that although it had called for public reviews on several occasions, there was hardly any response. "We wrote to all the listed companies but the feedback was very unsatisfactory. We wanted to have the views of the major players in the market prior to finalising the draft. But now, since we cannot postpone the process further we have decided to call for public opinion once the draft is done," said Director General, SEC, Palitha Gunawardena.

The Sunday Leader spoke to several companies listed on the CSE however many were unaware of the exact recommendations made by the SEC.  Joint Managing Director, John Keells Holdings Limited, Ajith Gunawardena said that any loopholes in the legislation should be seen to.

He said it is important that minority shareholders have the right to exit from their investments, adding, "This right must not be taken away by other means and must be protected."

Market volatile due to political deadlock

By Shehan Moses

Trading at the Colombo Stock Exchange (CSE) on Monday, January 26 looked positive from the early hours. At day's end the ASPI closed at 1,180.95 points and the MPI closed at 2,170.35 points - a rise in both indices compared to the previous trading day and the day's turnover was a high Rs. 467.3 million. Among the top gainers were AMW with the share value rising from Rs. 67 to Rs. 90 and among the day's top losers was Richard Peries, where the share value fell sharply from Rs. 160.26 to Rs. 95. Foreign purchases amounted to Rs. 11.6 million and domestic purchases amounted to Rs. 465.6 million. Market capitalisation was Rs. 292.4 million.

Trading on Tuesday took off from where it left on Monday with the ASPI closing at 1,234.31 points and the MPI closing at 2,228.04 points. Among the top losers was AMW where the share value fell from Rs. 90 to Rs. 70. The day's turnover was Rs. 478.7 mn. Domestic purchases amounted to Rs. 445.2 mn while foreign purchases accounted for a measly Rs. 33.04mn. Day's end market capitalisation amounted to Rs. 305.06 mn.

Wednesday's trading was a roller coaster, with the ASPI finally closing at 1,225.07 points and the MPI at 2,196.76 points. The day's turnover was Rs. 240, 606,158. Foreign purchases amounted to Rs. 44.9 mn and domestic purchases amounted to Rs. 195.5 million. Day's end market capitalisation was Rs. 303.3 million.

On Thursday the market was in reverse gear with both the indices falling - the ASPI closed at 1,197.34 points and the MPI closed at 2,138.02 points. The share value of DFCC fell from Rs. 350 to Rs. 327.25. Foreign purchases amounted to Rs. 8.1 million and domestic purchases amounted to Rs. 90.3 million - a considerable drop compared to the previous days of the week. However the market on Friday picked up steadily with both the ASPI and MPI indices recording gains. The ASPI closed at 1,211.11 points and the MPI closed at 2,169.65 points and turnover for the day was Rs. 112.3 million.

Speaking to The Sunday Leader, Research Manager, HNB Stock Brokers, Hasita Premaratne said the market was volatile but overall the market was positive. He said the market went up on Tuesday due to expectations over the Mano-Malik talks. He said the market corrected on Thursday because of the over-reaction during the week. He further noted that next week the market will continue to be volatile  and will depend on the political scenario.

Dollar stabilises

The US dollar exchange rate registered a slight dip throughout last week compared to the week before. On Monday it was selling at Rs. 98.67 and by Friday had dropped to Rs. 97.77, with the exchange rate showing signs of stabilising. Financial analysts were of the opinion that the market forces corrected itself and due to this the rupee appreciated slightly. Given the rate at which the rupee was depreciating against the dollar over the past few weeks, it was expected to rise to around Rs. 100 to the dollar. Some analysts said the Central Bank - although denying to have done so - may have actually intervened and taken steps to stabilise the dollar.

Very often sharp movements in the rupee, interest rates and the stock market in the short-term are a reflection of the political crisis in the country. "In the short-term, movement on a daily or weekly basis of the dollar has been very reflective of the political situation," said Chief Executive Officer, Frontier Research, Amal Sanderatne. Another reason for the minor stabilisation of the dollar seemed to be the sentiment that prevailed due to the political consensus following the alliance between the People's Alliance and the JVP. "Within the last week there has been increased optimism that a solution will be found to the cohabitation issue. This optimism is reflected in the fact that the rupee has appreciated," Sanderatne added.

PM agrees to meet J-Biz alone

By Jamila Najmuddin 

Joint Business Forum (J-Biz) Chairman, Mahinda Amarasuriya announced last week Prime Minister Ranil Wickremesinghe has indicated he would meet J-Biz, but alone.

Though J-Biz had suggested both the President and the Premier should attend a meeting together to discuss the country's deteriorating political and economic climate, the PM has responded stating there was no point in holding a conference together and J-Biz has set up a meeting on February 6 with the PM.

Speaking at a press conference on Wednesday (28), Amarasuriya said that if the President and PM cannot reconcile soon, the country will face a severe economic crisis by April.

However, J-Biz has still not decided on action plan that will be implemented if the President and PM fail to resolve their differences.

The forum has decided to hold a round table conference with all the important organisations in civil society in order to finalise the proposals that have been put forward and get the signatures of key members of civil society and religious dignitaries. It has also decided to hold a meeting on February 20 with the regional chambers of commerce and representatives from all parts of the island.

"We hope to have a wider group at discussions. It is quite clear that due to this crisis, it is the Small and Medium Enterprises (SMEs) that are affected the most. We hope to get more people from outstations that represent these enterprises and get a wider cross section of opinion," said Amarasuriya.

Speaking about the JVP-SLFP alliance, Amarasuriya stated that J-Biz had no problem with any party that had open economic policies but unfortunately, the JVP has not advocated an open economy. "All parties come out with nice policies, but we cannot only depend on what they say. We can only judge them by their past track records, and it is quite clear that the JVP has a bad past of killings. Therefore we are worried about this signing of the MoU between the SLFP and JVP," he said.

PA-JVP alliance - can it survive? 

By Dinesh Weerakkody 

In Sri Lanka over the last 20 years, the staggering economy and the effect of war was only supposed to be felt by the business community and the average citizen of this country.

The politicians regardless of the situation drove around in the most expensive cars and dined at five star hotels expecting the people who create jobs for the unemployed to pay taxes to keep the government alive, invest in the economy to keep the engine of growth running and to make all the sacrifices.

In the last 18 months people saw some hope with the ceasefire about to give the average citizen a new lease of life. This was not to be because President Chandrika Kumaratunga decided to suspend parliament and hijack some key ministries. The fact that Kumaratunga's action has pushed the country into chaos and turmoil does not seem to worry her one bit.

After languishing in the doldrums from 1999 and a recession in 2001, the economy had just begun to recover. Tourist arrivals surpassed all previous records and the coming season had the hotels overbooked. Above all there was peace. Her decision to sack three ministers and prorogue parliament resulted in the stock market losing Rs. 80 billion of its value, the rupee depreciating by 4% and US$ 200 million worth of foreign investments being put on hold.

The majority of the people of Sri Lanka do not care who enables the economy, as long as it is effectively enabled. It is high time the people of this country hold political leaders accountable and responsible for their actions without watching in silence.

In this context the current J-Biz effort to exert pressure on the President and Prime Minister to resolve the deplorable political crisis is praiseworthy. The UNF and Kumaratunga will have to put their house in order without delay. We know that Wickremesinghe is a man of principles and has pledged many times to deliver prosperity to all citizens. It up to him to stand up and deal with the stand-off without allowing the country to drift. Therefore, the challenge to the two leaders is to work together as a team, do what is good and do it well.

Defence

According to Kumaratunga, she took charge of defence, interior and media for security reasons. Well we all know what happened during her tenure as defence minister. Since she took over as defence minister, she did nothing to dismantle the Manirasakulam camp nor re-negotiate the MoU with the LTTE.

One certain fallout of this crisis is that work will get disrupted as investors and state officials adopt a wait and see attitude and as a result development will suffer. What the President should have done is to have invited the UNF government to work with her and take collective responsibility rather than striking when the Prime Minister was visiting the United States, to discuss our aid programme.

The PM however returned to a grand welcome from thousands of supporters. Many of them joined the crowed spontaneously because their dreams were shattered because of the President's hasty decision to sack three ministers and suspend parliament. The PM however is losing some of this support because the crisis has prolonged, resulting in severe economic consequences. It is therefore high time that our political leaders learn that political differences should never outweigh national interest and that all political parties put the country ahead of their political agendas and work for the greater good of our nation.

Twenty-five months ago the people of Sri Lanka gave a mandate for peace and it is the bounden duty of our political parties to respect the wishes of the people. Twenty months after there was a resurgence of the economy, endorsement from the international community and optimism due to peace, the business community took the risk and began to invest and create employment.

Therefore it would be tragic for the country if, having come so far, all the gains in the past are lost because the President is preoccupied in trying to cut a deal to remain in power and is not focused on consolidating the gains made in the last 18 months.

The President is focused on taking short term decisions at crisis management compounding the economic problem long-term. As a result business confidence is now at a low ebb and international assistance will not be forthcoming until the resolution of the political crisis.

JVP alliance

The President should stop portraying the present crisis as a security crisis and accept the fact that this crisis is essentially stemming from a miscalculation of the support she had in parliament. Therefore, in a display of desperation, the PA is now tied up with the JVP. The PA-JVP alliance will do very little to win back the confidence of the business community or the international community.

The JVP is responsible for thousands of deaths. Their radical ideology and unions have destroyed companies in the private sector. The only bright side of this alliance will be that the JVP is a disciplined party and therefore they may influence the PA to become more accountable to the country. On the other hand the JVP is also mindful of the fact that they stand to benefit by working with the PA.

This alliance according to political analysts would be suicidal politically as far as the PA is concerned because the JVP could very well eat into the PA's vote base. Also certain PA MPs have advised the PA leadership that aligning themselves with the JVP could destroy its popularity in the urban areas. The PA and the JVP leadership know very well that the peace process has to be put back on track fast.

Gambling

Kumaratunga like Wickremesin-ghe has a mandate so she should stop gambling with the country and work towards supporting the government of the day to fulfill the peace mandate given by the people. The UNP on the other hand must realise that the current political crisis will move from bad to worse unless the two main parties shed their political differences and unite behind a common vision. However the problem is that PA and UNF can't see eye to eye on many important national issues.

In the final analysis, despite the JVP support to prop up the PA, the ground reality is such today that the country will be confronted with a prolonged crisis on the economic, political and social fronts because of Kumaratunga's hasty decision.

If the present trend continues, a fresh election could become a reality, something the business community does not want at this moment. Lastly, at least now in this time of chaos and uncertainty we must all realise that whether we think our blood to be red, blue or green, we are above all and before everything else Sri Lankans.

Business confidence: the bleak picture 

Business confidence took a beating for the second consecutive month in January thanks to the political crisis that drags on.

So observes the LMD-ACNielsen Business Confidence Index (BCI), which plummeted by a massive 23 basis points in the last two months, to reach a low of 155 in January.

In early November last year, the BCI was only one point below the all-time high of 178, attained in December 2002.

LMD observed last month that "unless our politicians start acting in the national interest soon, the BCI is likely to move in the direction of the 11-month low of 152, in July last year," and the business magazine laments that its prediction has materialised.

The unique business confidence index further asserts that the investment climate in the country continues to be viewed with much pessimism. Only 67% of those polled stated that our prospects are either "good" or "fair" (almost 90% said so in November).

Of the latter respondents polled, only a discouraging 15% - down from a healthy 50-odd percent two months ago - felt that the prevailing environment is "good."

The latest edition of the LMD-Nielsen BCI shows, however, that the medium-term outlook is being viewed with more optimism.

Some 44% of those surveyed expected "the economy, in general, to improve in the coming 12 months." This is an increase of seven percentage points from last month, but well short of the 60% who said so a month earlier.

A clear majority of businesspeople surveyed - some 60% - also continue to acknowledge that their "company's business" (or sales volumes) increased from 12 months ago, and more than half of ACNielsen's sample still expect business "to get better in the next year."

The current edition of LMD comments: "The writing is on the wall for the shorter term, at least. The unceremonious events of last November and the political wrangling that has followed will take many months to recover from - if and when our politicians start acting in the national interest."

'Best Bank' accolade for Deutsche Bank 

Deutsche Bank, Europe's second-largest bank by assets, recently won the accolade of Best Bank of 2003, which was awarded by the International Financing Review (IFR) magazine based in London.

The magazine, in giving out the award, said: "In 2003, Deutsche developed a relentless and urgent drive to succeed. It was aggressive, fast moving, innovative, and highly results focused. The big change in Deutsche's investment bank in 2003 was the alignment of core businesses along a single strategic track. On the strength of its performance in 2003, the bank looks to have embodied the drive, vision, passion and commitment necessary to be a bulge bracket player in global corporate and investment banking."

The award underscores the strength and breadth of Deutsche Bank's global platform; this is well demonstrated in its widening global bond franchise. According to figures compiled by Bloomberg, Deutsche Bank and just one other bank are the only financial institutions to have a global market share of over 8%. The nearest rival has a 5% share.

Deutsche Bank's global market share for last year stood at 8.3%, a 2.47% increase over 2002's recorded market share of 8.1%. Deutsche Bank has underwritten international bonds amounting to US$ 181.16 billion last year, compared with US$ 134.485 billion in the previous year.

Deutsche Bank's US dollar bond franchise has continued to make significant strides, largely due to continued investment by the firm in trading, sales and research expertise. Market share has risen steadily in the league tables in US Debt from No. 10 in 2000 to No. 5 this year (September year to date).

Chief Country Officer, Deutsche Bank (Sri Lanka), Stefan Mahrdt said, "Deutsche Bank has developed well beyond its traditional European strength and this shows the confidence that US and non-US borrowers have in Deutsche Bank's ability to place US dollar denominated bonds."

Railway coaches from China 

The Chinese proposal to supply and assemble stainless steel railway coaches to the Sri Lanka Railway Authority (SLRA) by China National Machinery Import and Export Corporation (CMC) was presented to Transport, Highways and Aviation Minister, Tilak Marapone last month.

The Chinese offer comes with a complete credit package against the government of Sri Lanka guarantee.

The Chinese proposal to modernise the SLRA is not limited to the supply of railway coaches but to provide the advanced coach building technology to Sri Lanka by establishing a modern railway assembly workshop in collaboration with Colombo Dockyard Ltd. and International Industrial Trade Promotion Consortium.

The proposal will be implemented in stages, initially to supply complete built up coaches and thereafter to progressively assemble railway coaches in Sri Lanka. The modern railway workshop will provide employment for skilled labour and utilise local raw materials.  CMC is one of the top 10 trading companies in China and a wholly state-owned company.

It is the first Chinese company to have exported Chinese made railway rolling stock including passenger coaches, locomotives, spares, freight wagons, etc., to more than 30 different countries such as USA, UK, Botswana, Zimbabwe, Egypt, Pakistan, Bangladesh, Thailand, Iran and Sri Lanka. Presently 95% of the Chinese railway requirements are provided by CMC.

PERC to decide on third player in three weeks 

The deadline for submission of final proposals and technological bids for the selection of the third player in the petroleum retailing market in Sri Lanka closed last Friday. According to the Director, Public Enterprise Reform Commission (PERC), Chandu Epitawala, the bids were expected to be presented to the technological evaluation committee.

Once the technical evaluation report is submitted, the cabinet appointed committee would then call for and review the financial bids. Epitawala said that the evaluation of both the financial and technical bids would take about two weeks allowing for the holidays in between.

By about the third week of February PERC is hopeful of selecting the third player. The new entrant will start operations in the market only around the end of March this year, once it has received cabinet approval and the relevant funds are organised.

The eight shortlisted companies vying for selection are Shell Overseas Investments B.V., Petroleum Nasional Berhad (Petronas), Hindustan Petroleum Corporation Ltd., Reliance Industries Ltd., International Petroleum Investment Company (IPIC), Bharat Petroleum Corporation ltd., East West Petro Products Limited and Sinopec (HK).