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Thursday, 23 October 2014 00:02 - - {{hitsCtrl.values.hits}}
Signifying the importance of the opportunity, President Mahinda Rajapaksa officiated as the Chief Guest and rang the Colombo Stock Exchange’s old bell used prior to the commencement of the automated trading.
Presentations by the top officials focused on the post-war rebound in Sri Lanka both from a macro-economic perspective and private sector growth.
The forum aimed at providing a global audience of fund managers and institutional, as well as high net worth investors an excellent opportunity to study and understand the potential of the capital of market Sri Lanka.
Take-off to a high altitude
Treasury Secretary Dr. P. B. Jayasundera gave assurance to potential investors at the conference that the country has got into a true new wave of development with a promising economic outlook to move rapidly towards a higher income economy over the next decade.
Delivering a comprehensive address at the Capital Market Conference 2014 on Thursday (9) he opined that the nation has taken off towards a “high altitude”, but it is a long haul flight which needs to be managed in a skilful and cautious manner.
“The pilot should be experienced and we are privileged to have a President and Finance Minister, who is well-experienced, to navigate. The co-pilots and the crew should remain sensitive to all aspects and be alert at all times to make the journey a success, only then will the passengers enjoy the flight in reaching the destination,” said Dr. Jayasundera at the conference that was inaugurated by President Mahinda Rajapaksa.
He elaborated that in that context the country’s corporate sector and professionals in particular need to recognise that their home based strength is the key to build up
the five hub centric economy to capitalise on strategic advantages in emerging Asia and attract international attention.
Pointing out that Sri Lanka’s existing and upcoming Free Trade Agreement (FTA) will help connect to world’s largest emerging economies he noted: “The saturation of certain economies in the region places us in a more advantageous position to be able to persuade investors to look for options here than elsewhere.”
According to him short-term concerns expressed by few affected parties and certain Capital Market experts on several legislations, which are meant to bring about medium to long-term benefits to all, have proved to be invalid. “The case in point is the underperforming assets legislation as well as regulations on terminal handling charges on exports and imports. No investor was affected and left the country. Those assets have been put onto best use and have helped the private sector better. Similarly markets have worked well for exporters and importers after the removal of terminal handling charges. No shipping line left the country. To the contrary, the country is better positioned with these legislations,” asserted Jayasundera.
The Treasury Secretary also assured potential investors in the audience that while Sri Lanka may not have perfect governance, it falls in the ‘promising’ lot among the emerging global economies.
Pointing out that the nation holds higher ranking comparing to its regional peers in areas such as Global Peace Index, Economic Freedom Index, Ease of Doing Index and few others, he said: “I dealt with these concerns not to argue that the country has perfect governance but to highlight the fact that it is certainly not among the worst lot, or even the bad but in the promising lot among emerging global economies as far as governance is concerned.”
Pointing out that the Colombo stock market just crossed Rs. 3 trillion market capitalisation, almost 40% of the country’s GDP, he recalled that in 2005 it was just 20% and in 2009 reached 22%. Fiscal incentives have been provided for unit trusts, stock brokers, listing of debt and equities and even market participants.
“Foreign transactions are facilitated within a liberal exchange and payment system. The regulatory framework is sound and independent. Nevertheless, the regulatory task is complex and greater coordination between regulatory arrangements is a must. It equally requires competencies and best practices. After all the regulatory autonomy lies in the personalities responsible in the different agencies,” he said.
Jayasundera went on to say that regulatory autonomy is not going against public policy but instead working in the best interest of public policy, adopting best ethical practices in the public interest. While economic development cannot be confined to only per capita income growth or a capital market boom, he stressed it is a mechanism in which all stakeholders benefit.
“In my view a good capital market must be broad based, in which shareholders of companies have confidence. Investments carry a certain amount of risks, and with such risk can come some pain or some gain. It is up to investors to weigh the potential reward against the risk of an investment and decide if the pain is worth the potential gain.
“Hence a stock market should not facilitate speculative transactions, manipulations or frauds but instead promote development through investor confidence. This is the policy direction in which the Government is implementing its reforms,” noted Jayasundera.
He emphasised that Sri Lanka has got into a true new wave of development with a promising economic outlook to move rapidly towards a higher income economy over the next decade and pointed out the nation is in excess of 6% of GDP towards creating a productive and demand driven human resource base.
Complementing the thrust of the social responsibility of the Government, public spending on social security is protected with special emphasis on the elderly and vulnerable groups, he said.
Seven areas of focus
Central Bank Governor Ajith Nivard Cabraal pointed out that while there are many steps being taken to transform the economy, there is a huge opportunity for the foreign investors on the initiative that are currently taking place.
Sharing the immediate focus areas, the first he said is that would receive much emphasis is in continuing to manage the macro fundamentals in a manner that the country delivers.
Each year we go to the markets to top foreign investors to sell Sri Lankan bonds and in every single meeting the final slide shows what we told the investors previously and presents the report card. That is the most powerful message that we gave; we promised to deliver and we did. And at the same time it is important for the people to realise the commitment needed to deliver those,” noted the CB Chief.
Acknowledging the ambitious targets set for 2020 are not easy to achieve, Cabraal said the goals are being executed with commitment and key stakeholders involved are pushed in delivering such.
The second area of focus is in continuing to develop the country’s infrastructure. Noting that Sri Lanka had many gaps in this sphere before that are currently being filled, he opined there is lot more to be done. For such efforts to materialise he stressed the need to have engagements similar to that the country currently has with China, to upgrade the infrastructure projects.
“Sri Lanka would need to do that well. There will be a massive programme over the next 10 years that will ensure the country is up to date with the development of the rest of the world,” he noted.
The third area of focus is in improving the Ease of Doing Business indicator, where the country is currently in82nd position in the world and the first in South Asia.
“We are not satisfied with that and the President has given the target of being in the first 20 slot by 2020, a challenging one to fulfil. For this there is lot of improvements and changes to be made in the legal and business environment and the public administration. Those are being worked towards with a special team,” assured Cabraal.
The fourth area is in continuing to develop the financial sector. Calling the current waiver of consolidation an ambitious program, he noted that at the beginning of the year when the requested was made for 58 finance companies would need to shrink down to 20, many were of the view it will not take shape.
Flaunting the progress achieved, he shared that in the last nine months there were 37 such transactions. “There were amazing transactions that were driven in a methodical and scientific manner. Many countries want to understand how Sri Lanka has gone through the consolidation in a time of no turmoil. We can ensure that there will be a strong financial sector with good institutions to take the country forward,” he told investors. The fifth area in on improving productivity levels of the country. Noting it is an imperative facet of development he said the country would not only look for investment that would help spur growth, but would also search for ways and means that the current existing facilities are better utilised, providing a “big edge” to move forward with a lesser investment but a higher degree of development activities, and higher growth as a result.
The sixth area is in ensuring there being a continuous flow of capital investment.While earlier capital investments would come in by way of FDI, today new channels for the same have been opened out and such include commercial borrowings, bi-lateral funding opportunities and others.Cabrall stressed the need for such to be nurtured and enhanced for the future so capital can flow in easily and form the bedrock in the investment profile of the country.
The seventh area is in continuing to empower the private sector to allow them to realise their potential. “The private sector has been identified as a key important ingredient in the overall structure of the economy and a lot of attention has been paid to that. We believe that in the next few years the same attention would be provided to ensure that the private sector can provide that role and take the country forward,” said Cabraal.
Pix by Lasantha Kumara
Investors seek clarityFollowing the comprehensive briefing that provided a snapshot of the country’s economic landscape, investors were presented with the opportunity of clarifying concerns with the regulators at a panel discussion.
Moderated by Brandix CFO Hasitha Premaratne, the panel featured Securities and Exchange Commission (SEC) Chairman Dr. Nalaka Godahewa, Colombo Stock Exchange (CSE) Vajira Kulatilaka and Central Bank Deputy Governor Ananda Silva. Following are excerpts:
Q: We have been talking about interest rates at below 8% and obviously the low interest regime has come in the last few months. How sustainable is this?
Silva: One fundamental factor that affects interest rates is inflation. Let me take a few minutes to explain how inflation is going to behave in the next couple of years. Especially in Sri Lanka we had a high inflation in the past and also when you look at the scenario around the world it was the same. Right now in Sri Lanka we are in mid-single digit. If you look at the factors that affect inflation, from the demand side we have a moderate monetary growth. From the supply side there is an improvement. Going forward we can maintain and sustain the current inflation. I would like to point out that the administrative prices in Sri Lanka have had a large adjustment.
Q: There were lot of allegations about manipulations. Things have been addressed but what are your thoughts on the market today and what has been done to take control of the situation?
Nalaka: In 2010 we went through a bad patch. Until 2009 the Sri Lankan stock market was kind of a private club. It was a group of people who understood the market. After the war immediately there was huge attraction in the capital market and this resulted in an unprecedented growth rate. Many got into the market without understanding how it functions. When the market went through a correction, those who came in without understanding the market lost. That led to a lot of heartbreak and lot of interpretations were made and lots of accusations were made. This caused a negative perception in the market and we were correcting the perception.
We gradually addressed those issues and created a greater awareness on what happened. Everything that was done in the past three years was addressed in the public domain. In terms of the future, we have
 strengthened our surveillance system so that we do not wait for a problem to happen to address it. The moment me we see early warning signs, we talk to people. Today people can be confident that things are under control. Another thing that has been happening is that whenever an unusual transaction takes place, the SEC takes action fast. The market has stabilised and confidence is back.
Q: On the market dynamics side we have seen that a lot more road shows have been taking place. Are you seeing positive results already or are you looking more at a longer term prospects?
Kulatilaka: Yes, there are lots of positive investors. Immediate results are seen and a lot of funds have got attracted.
Q: We have some companies and what we require are new companies to be encouraged to list?
Nalaka: If you look at the last five years since 2009, already 73 new companies have listed and going forward we have realised the need to grow more and more companies. We have set up a team comprising officials from both the SEC and CSE to work on this and encourage companies to be listed and facilitate them by taking them through the process.
One of the challenges that we are still struggling with is that the market was stagnant for a long period, many companies never thought about it and the actual opportunity available in the market to raise capital is not understood by the large companies yet; this is the reality. We have to gradually create this awareness. Today we have more than 50 companies in the pipeline to be listed. We expect that by 2015 a substantial new number of companies will come into the market.
Q: The challenge I see is the sheer lack of liquidity in the market. One of the reasons I have come across is high transaction cost. What are your thoughts to ensure the strategies are reduced to a market-based pricing?
Kulatilaka: I think it is from the regulatory side that there is a huge change that has taken place; at least 20% has to be floated. For all the companies that are lower than that, they have to give a plan on how they can do it by 2016. New listings that are coming up will help increase the float.
It is a process by itself and listing is a need-driven exercise. Once that happens, there will be an improvement. On the transaction cost, it is debatable. There are no taxes on capital gain and in that case the transaction cost is lower compared to any other countries. The trend is that it can come down. We can’t just open out as there will be other repercussions.
Q: It is difficult for family-owned companies to be listed. Is the way about it through private equity?
Kulatilaka: I fully agree, we need to bring companies as fully-cut diamonds; especially from the governance side, there needs to be an improvement and that will help market capitalisation as a whole. It is not only private equity; the backward areas have to be improved.
There is a lot of activity happening and very soon you will see private equity, venture capitals and angel investors coming in.
Q: Will the increase in interest rates in the US have an impact on the Sri Lanka stock market?
Silva: Sri Lanka is also open and there will be some impact. We have built certain buffers and strengthened our reserves and we can manage the impact; but if there is a sudden increase, some investors might pull out. If you look at the growth of the country and the prospects, there are opportunities for investors to invest in Sri Lanka. |
