CSE head warns against oligopoly

CB Asst. Gov. recommends 'unemotional' approach to staff issues

By Charumini De Silva

Ceylon FT: The Chairman of the Colombo Stock Exchange Krishan Balendra while highlighting the benefits of financial sector consolidation said companies must be unemotional when dealing with the elimination of staff and warned the regulator against the emergence of a banking oligopoly with high lending rates and low deposit rates. "Research has shown that the majority of the consolidation processes elsewhere could not deliver shareholder value so we need to be cautious and avoid risk," Balendra said addressing a recent forum on financial sector consolidation. He pointed out that in the consolidation process, having joint managing directors and joint chief executive officers on the board would not work, as the board must comprise credible and accountable personalities.

"Therefore, the companies have to be unemotional when eliminating the over-lap," he said. "Another macro issue which could arise at the end of the financial consolidation process is the high lending rates and low deposit interest rates creating an oligopoly effect in the market," Balendra noted.

Balendra, like many of the speakers at the forum welcomed the Central Bank's initiative to consolidate the financial services system of the country.

"There is a misconception in the industry that in the financial consolidation process we are forced to find partners, but I would like to rephrase it by saying that it is actually very encouraging to have a regulatory-enabled financial consolidation," NDB Bank CEO, Rajendra Theagarajah said.

He urged the industry to look at the entire picture of the financial consolidation plan for the next five to 10 years and not at the immediate model. "We must not look at the short-term benefits of making 2+2=4, but we must look beyond for 2+2=6 or 7, and destination businesses".

The Finance Company PLC Chairman, Preethi Jayawardena said the financial sector contributed around 9% of the GDP and 58 companies were competing for this small market proportion, predominantly depending on short-term outlooks.

Elaborating on a recent incident in the NBFI sector he said, the weak balance sheet of CIFL had a negative impact across the board, creating an uneasy environment. Hence, the financial consolidation process would be an ideal opportunity to create a strong financial sector in our economy.

However, Jayawardena noted that the NBFI sector mainly catered to the SMEs where banks did not tap into. He therefore strongly suggested that everyone should be mindful of what President Mahinda Rajapaksa emphasized about the increasing inequality of the economy.

Central Bank Assistant Governor C.J.P. Siriwardana said, in this financial consolidation process the synergy of two financial companies depended on finding the correct partner. Companies should look for key areas such as structure, culture, IT systems, accounting systems and features of the two companies in carefully finding partners.

He said the valuation document was the base of the commencement of the financial consolidation. At present, nine audit firms selected by the Central Bank were conducting valuations on banks, and NBFIs will soon be finalized and the reports submitted on 2 May. 

The first round of the consolidation process was a voluntary one, but if companies fail to find partners by 31 March 2015 the Central Bank would have to intervene.

Further explaining, Siriwardana said some of the small companies had asked for huge premiums for mergers and acquisitions. If these companies continue doing it till the last moment, the Central Bank would finally have no good partnering companies to go on with the financial consolidation, and in such a situation if companies are unable to find possible partners the Central Bank would have to intervene.

"The banks and the finance companies have already submitted their proposals, and this indicates their eagerness to actively take part in the consolidation process. With everything going as planned so far, we can finalize the first round of matchmaking soon," he said.

The Central Bank Assistant Governor, echoing Balendra, went on to say that consolidation was a sensitive issue with regard to staff, and recommended an unemotional approach.
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Raigam to invest Rs 150 m on PVD salt plant

By Lalin Fernandopulle

The import of salt has dropped from around 45,000 metric tonnes to around 7,500 mt during the past six years due to investments in local table salt production by Raigam Wayamba Salterns, said Raigam Group Chairman Dr. Ravi Liyanage.

At present there are no imports of crystal salt or free flow table salt except for Pure Vacuum Dried (PVD) salt. The PVD process uses vacuum evaporation technology which ensures pure sodium chloride free from any impurities and consistent quality, despite the condition of raw salt input, he said.

The company will invest Rs. 150 million this year to expand the PVD salt production facility in Puttalam.

“We hope to manufacture around 10,000 MT of PVD salt a year. A substantial amount of PVD salt is yet being imported for high end markets. Production is inadequate to meet the national need.

The production of PVD salt needs high technology. We have already invested Rs.100 million on the PVD plant,” Dr. Liyanage said.

The country’s salt needs in 2007 was 135,000 metric tons for consumption and 20,000 metric tons for industrial use. Of this quantity imported salt was 45,000 metric tons including 30,000 metric tons in crystal form and the remaining 15,000 metric tons in the free flow table salt form.

The annual demand for salt has gone up annually and in 2013 it was 150,000 metric tons for consumption and 25,000 metric tons for direct industrial use.

“After seeing the market switching from crystal salt to free flow table salt, Raigam Wayamba Salterns invested in free flow table salt plants, first in Palavi, then Puttalam and later in Bata Atha, Tangalle,” Dr. Liyanage said.

The present demand for PVD salt is 10,000 metric tons of which 2,500 metric tons is supplied by Raigam's PVD plant. This is Sri Lanka's only PVD plant which was launched in 2012-13 with an investment of Rs.100 million. The import of the remaining 7,500 metric tons of PVD could be stopped when manufacture begins in the new plant.

Paranthan Chemicals which produced caustic soda and allied products was destroyed by terrorists thereby creating a demand for imported salt allied products such as caustic soda, soda ash, chlorine, bleaching powder and hydrochloric acid which have a high commercial value of over one billion rupees in foreign exchange.

The entire national need of these products are being imported whereas Sri Lanka was self-sufficient in these chemicals 30–35 years ago when Paranthan Chemicals was in operation. The largest consumers of caustic soda are soap and detergent factories, plastic, paint and pharmaceutical industries.

Large quantities of caustic soda are also used in the textile, paper and rubber industries and in the production of synthetic fibres. While chlorine, bleaching powder and soda ash are used in large quantities in water treatment applications.

The per capita consumption of salt in Sri Lanka is around 7.5 kilograms whereas in Europe it is less than 4 kilograms. High salt consumption could lead to heart diseases but according to data such risks could be reduced by 40 percent if the consumption of sodium chloride is reduced by around 20 percent.

This is practised in some countries by replacing about 20% of the salt with potassium chloride. In addition to low sodium salt, dual fortification of salt with iron avoids iron deficiencies and is commercially available in international markets with the support of UNICEF. But in Sri Lanka only iodine is permitted to be included in common salt for consumption purposes, which is a barrier to value added salt.

We have called upon the authorities to introduce 'low sodium salt' and 'dual fortified salt' as our CSR program.

In 2013-14, Raigam Wayamba Saltern Plc recorded a turnover of Rs. 339 million in its first three quarters compared to Rs. 226 million in the corresponding period of 2012-13.
http://www.sundayobserver.lk/2014/05/04/fin01.asp