Sri Lanka conglomerate and Spanish hotel chain to build $ 100m resort

Aitken Spence joins up with Spanish chain to start a new hotel in Ahungalla under BOI.

Aitken Spence partners with RIU Hotels Spain to build USD 100mn resort in Ahungalla spearheading the first business model around Southern development.

Aitken Spence PLC entered into an agreement with the Board of Investment of Sri Lanka (BOI) to set up a five star Luxury Resort in Aungalla. This agreement was signed by the Chairman of the BOI, Dr. LakshmanJayaweera and the Directors of Aitken Spence MalinHapugoda and VipulaGoonathilake.

Aitken Spence PLC will launch the first business model involving the Southern Highway and the Mattala Airport by investing in a USD 100 million beach resort in Ahungalla to be managed by an international hotel chain. The 5 story 500 roomed 5 star luxury resort which will be managed by RIU Hotels, Spain, would also be a first for the Spanish chain, being their inaugural project in the Asia Pacific region.

"The timing of the hotel's opening will be right since the Southern Highway to Hambantota is expected to reach completion by then and we have the Mattala Airport facility already in place, giving us the perfect mix for our business model. Aitken Spence has always encouraged infrastructure development in the country and our investment is proof of our confidence and support of the Government's development plans" said RajanBrito, Deputy Chairman of the Group.

The Aitken Spence management is also of the opinion that the private sector needs to develop business modes of this nature, which are in line with the Government's vision for the country's development.

BOI stated, "BOI is very pleased that this project will be started in Ahungalla. The policy of the Government is to get 2.5 Million tourist arrivals by 2016. Hence hotel room capacity needs to be increased to meet growing demand"

The project will also be unique in its concept, since it will introduce Charter flights to the country. The hotel which would cater to high end customers looking for long stay vacations will arrive on Boeing 787 Dreamliner charters which can carry up to 200 – 300 passengers at a time. RIU Hotels is an all-inclusive model which has seen international success across 107 properties managed by them in 16 countries.

This business model spearheaded by the Group would also have a snowball effect in developing the tourist industry, particularly in the Deep South of the country.

"This would be a huge boost to the tourism sector as 700 - 800 guests coming into the country in one go would help in creating international awareness of Sri Lanka as an emerging holiday destination in Asia" says the Deputy Chairman.
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Fitch affirms People’s Merchant Finance at ‘BB+’

Fitch Ratings Lanka has affirmed People’s Merchant Finance PLC‘s (PMF) National Long-Term rating at ‘BB+lka’. The Outlook is Stable.

PMF’s rating reflects Fitch’s expectation that support would be forthcoming from its main shareholder, state-owned People’s Bank (PB; ‘AA+(lka)’/Stable), if required. PB has a 36% effective shareholding in PMF, directly and via PB’s subsidiary People’s Leasing & Finance PLC (‘AA-(lka)’/Stable). Fitch’s view of support is also based on PMF’s association with, and consequent reputational risk to, PB’s franchise given the common brand identity, PB’s representation on PMF’s board and support demonstrated by PB in the form of borrowings and equity injections. Nevertheless, there is a multiple notch differential between PMF’s and PB’s ratings, taking into account PMF’s relatively less important role in and lower integration with the group’s overall operations.

Key rating sensitivities- national ratings and senior debt
PMF’s rating may be downgraded if there is any change to PB’s ability or propensity to extend support. This may stem from a change to PB’s National Long-Term Rating or a material weakening of linkages with PB, such as a dilution of PB’s effective shareholding or board control.

PMF’s standalone profile is very weak and characterised by continuing operating losses, deteriorating asset quality, and a thin loss-absorption capacity.

The company made a pre-impairment operating loss of Rs. 6.7 million in FY14 as a result of lower net interest margins and high operating costs. PMF also incurred significant loan impairment charges of 3% of average loans in FY14. This stemmed from a further weakening of PMF’s asset quality along with a challenging macroeconomic environment, which has affected its largely subprime customer base. Fitch believes that PMF’s loan book could face further asset quality stress unless risk management is strengthened.

PMF’s funding is predominantly from term deposits, which, although improving, remains concentrated. Fitch expects liquidity support from PB to be forthcoming if required.

Fitch believes that PMF is likely to be merged or acquired as a part of the Government of Sri Lanka’s ‘master plan’ to consolidate the financial system.
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Orient Insurance to go public in October

* Keen on listing despite likely exemptions to foreign-owned, parent-quoted entities
* Entry into life insurance in medium term plans
* In SL to add value and not capture market share by undercutting rates, says Orient Chief
* Confident company will have a YOY growth of 15% for the next three years
* Stresses the need for joint effort amongst insurance companies to increase awareness on the need of insurance policies

By Shabiya Ali Ahlam
Orient Insurance Sri Lanka, which has been in operation in the country since December 2011, is all set to be listed on the Colombo Stock Exchange (CSE) in October this year, complying with regulations set by the Insurance Board of Sri Lanka (IBSL).

The insurer, which is a member of the Al-Futtaim Group, has not requested from the regulator to be exempted from the requirement of going public even though it is already listed on the United Arab Emirates (UAE) stock exchange.

While some foreign owned insurance companies listed in other countries had requested for an exemption in this regard, UAE President/Orient Insurance Sri Lanka Chairman Omer Elamin said the institution will comply with the law.

“If the law says we should be listed then we will. We feel that under the law no one can be exempted. If there are any changes in the law we will comply. Keeping in line with that, Orient Insurance Sri Lanka is getting ready to be listed in the CSE by October this year,” Elamin told the Daily FT during the sidelines of the launch of ‘Travel Care’, its newest policy.

The local insurance law requires all insurers to be listed by 11 February 2016, and those insurers registered with the IBSL after 11 February 2011 to go public within three years.

However, fully foreign-owned insurers that are owned by a holding company incorporated abroad and listed on a stock exchange acceptable by the IBSL are to be exempted on request under changes planned to the insurance law.

With Orient Insurance Sri Lanka current offering only general insurance policies, it has in its medium term plans to bring in life insurance as well.

“Since we will need two licenses we thought that we don’t want to ride two horses at the same time. We will first establish the general insurance company and then once that it reaches a certain stage of stability we will move into life,” he shared.

According to Elamin, the progress of Orient Insurance Sri Lanka is on track and as planned. Stating the company is in Sri Lanka to add value and not capture market share by undercutting rates, he stated with this policy the company has done well, if not better than expected.

Having recorded a net profit of Rs. 6 million in its second year of operations, Elamin is confident the company will record a higher profit by the end of 2014 and will continue have a 15% YOY growth for the next three years. “All in all we are satisfied with the progress of the company,” said Elamin.

Acknowledging that the insurance penetration in Sri Lanka is on a declining trend, Elamin noted this is due to the awareness on the need and importance of having a policy not being at the required level.

To improve this situation he said it is necessary for all insurance companies to come together work towards this endeavour.

“There is defiantly a need to increase awareness. For this insurance companies will have to join hands and this can probably be done through the Insurance Association of Sri Lanka (IASL). It is important they work together to increase the awareness of the public on the importance of insurance. It should be a joint effort of the whole market.”

Orient Insurance Sri Lanka currently handles all classes of general insurance namely fire, motor, marine import and export, and property insurance. The company also offers casualty, accident, liability, and medical insurance covers.

Orient Insurance Sri Lanka and Orient Insurance OJSC are part of the Al-Futtaim Group which has been in operation since 1930 and is one of the most diversified business conglomerates based in the UAE.

Orient Insurance PJSC has an ‘A’ rating from Standards & Poor’s and an ‘A Excellent’ from AM Best. The business is recognised to be one of the largest insurers in the Middle East.
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Sri Lanka inflation to be 2.8-pct in June 2014: Treasury Secretary

June 29, 2014 (LBO) - Sri Lanka's inflation would be 2.8 percent in June and the country now had strong economic growth and a stable exchange rate, Treasury Secretary P B Jayasundera said.

Jayasundera told a forum of Sri Lanka's key exporters and importers Friday that as he walked into the forum he got a text message that inflation in June would be 2.8 percent.

"International rates. And last five months plus this month we are having inflation below 5 percent," he said.

"Single digit. So governor central bank can have a carnival. He can be a governor who can claim 'I am a governor of the central bank because monetary policy, financial stability is in place'."

He said no bank has collapsed.

"Exchange rate is flexible, yet foreign exchange rate regime is stable," Jayasundera said.

"Flexibility does not mean ruthless fluctuations. So it needs to be predictable. In fact that has come in line."

He said foreign reserves were also nearly 9 billion US dollars and was moving towards the 10 billion mark.

Sri Lanka's rupee has been facing upward pressure over several months after weak or negative credit growth reduced outflows of foreign exchange as domestic demand fell and a depreciated exchange rate decimated the spending power of the poor and the rich alike.

Sri Lanka is recovering from a balance of payments crisis triggered in 2011 after the state manipulated energy prices with bank loans which were ultimately accommodated with central bank credit (printed money) through sterilized foreign reserve sales.

The rupee fell from 110 to 130 to the US dollar in the wake of the crisis.

Sri Lanka has been prone to high inflation and balance of payments trouble since shortly after 1951 when a hard peg was broken by then finance minister J R Jayewardene and a money printing central bank was set up to join then now collapsed Bretton Woods soft-peg system.

The forex shortages also gave an opportunity for trade-deficit Mercantilists and autarkist- nationalists to raise their head and seek rents from protectionism and import substitution, denying the less affluent affordable access to products especially foods, critics say.

Another pyramid scheme busted

By Charundi PanagodaView(s):

Around September last year, Malin, a businessman from Beliatta, received a phone call from his elder sister who happily informed him about the “really high” returns she was receiving from an “investment” at a company called Panora Advertising. She talked about receiving some Rs. 40, 000 a month from this company.His sister had heard about Panora from a relative of her husband. This relative was recruiting members of his family, and so far had recruited “about a hundred” people for a Rs. 3,000 fee for each person roped in. Even an old aunt of Malin’s had taken out a huge lease on a vehicle to invest in Panora. Around this time, Panora had become “very well known” in the area.

Malin, too, wanted a piece of that pie. So he and a friend drove to Ambalantota, “a little bit further from the town, near the temple,” where Panora’s main office was located “to check it out.” When his sister first told him about the company, frankly, he was suspicious. It all sounded just a bit too good to be true. But when he visited the office, his suspicions began to dissipate little by little.

“The office looked like a legitimate place,” he recalled. “There were about 10 to 15 support staff, computers and the rest. Even some Army personnel were there. I don’t know whether they were buying anything, but they were there.”

Malin and his friend were told that they could receive monthly payment for “watching ads” online. The company’s director, Somalal, explained to them the “business of advertising.” Big marketing companies paid huge sums of money, “about 15 to 20 lakhs,” Somalal told them, to advertise on TV shows. Panora could do for customers like Malin what the big marketers were doing for TV shows, was Somalal’s sales pitch to them.

“He said big ad companies paid them for showing ads,” Malin said recounting the encounter. “He said with that ad revenue, they’d be able to pay about a 25 per cent interest rate on an initial investment from us.”

So Malin purchased a Panora “investment package” for Rs. 156,000 (the minimum package was Rs. 1,800) where he was promised a Rs. 10,000 weekly payment for two years for watching ads online on www.panoraadvertising.net. Malin is only a small-time businessman. He collects “things like pepper” from villages to be sold in Colombo. He got the money to invest in Panora by pawning his wife’s jewellery, thinking he’d recover it all in a couple of months.

Last Monday the Tangalle Police arrested Jayasinghe Manachchige Somalal for defrauding people by running a pyramid scheme. The Central Bank defines a pyramid scheme as “… where a participant is required to contribute or pay money, and the benefits earned by the participant are largely dependent on the increase in the number of participants in the scheme; or increase in the contributions made by the participants in the scheme.”

network marketing, where “individuals sell products to the public — often by word of mouth and direct sales,” according to consumer protection information provided by the Federal Trade Commission, an independent U.S. Government agency. If the money the marketers make is based on actual sales to the public, it could be considered a genuine marketing plan. But if the money is based on the number of people recruited and the number of sales to them, then it’s a pyramid scheme.

According to Central Bank information pamphlets, pyramid schemes can take many guises, such as buying gold coins or “colourful” wrist watches, providing some services online, or as in the case of Panora, asking customers to deposit or invest a sum of money. These schemes were made illegal in Sri Lanka by an amendment to the Banking Act No. 30 of 1988, where offering or participating in a pyramid scheme is deemed a criminal offence.

“Pyramid schemes are ultimately unsustainable because the number of participants increases exponentially,” said Dr. Sirimal Abeyratne, Professor in Economics at the Colombo University. “It can’t run forever, when participants come to withdraw money it collapses, and more the participants greater the damage. A big, island-wide scheme like this could even cripple the whole financial system.”

For his deposit in September last year, Malin received only one week’s payment after a five-week waiting period. After that the payments stopped. Last December, Panora was closed for weeks and its accounts were frozen pending a Central Bank investigation for not being a licensed financial institution, and yet Somalal continued to promise his customers payment. In a YouTube video uploaded about a month ago, Somalal described his legal troubles as “agitation” caused by “jealous people.”

Somalal had been running the scheme for about five months and had recruited about 25,000 customers, said OIC Wasantha Kumara, one of the investigating officers. The company had three bank accounts, and had even issued receipts to customers for transactions, OIC Kumara said. Somalal made around Rs. 150 to Rs. 200 million from the whole venture. He used the money mostly to buy supermarkets and filling stations. By the time he was arrested he had spent over three-fourths of the money he made.

He and a partner of his, Nilan Indika, who has an arrest warrant out for him, had got the idea for floating Panora from an identical establishment in Tissamaharama called Luminous Advertising, which was also busted earlier this year. Somalal and Nilan had worked at Luminous, where they “quickly picked up the business,” OIC Kumara said.

“Somalal was a mason baas by profession,” he added. “He was only educated up to O/L and barely passed even that, but his customers were engineers, doctors, teachers, and even some policemen. However, he is a good orator and really knows how to convince people. He says he did this to earn a living.”

Somalal, a 32-year-old impoverished man from Dikwella, promoted Panora as a legitimate, up-and-coming business with weekly meetings and community events, including one at a Hambantota hotel where about 200 people turned up. The company even got a two-page promotional write-up published in the Sunday Lakbima.

Despite the hype, it eventually came to a point where Somalal could no longer pay his customers. Some angry customers even protested outside his home some months back until the Police dispersed them. Customer complaints mainly prompted police investigations into Luminous and Panora.

Malin is only one out of hundreds of people who lost money in this scheme. A number of victims the Sunday Times spoke with said they had pawned gold jewellery to raise money, jewellery they’ll never get back. Chitra, a small tea shop owner from Tissamaharama said she borrowed money from a number of people last year for a Panora “investment,” when it was gaining popularity in the town. Now she has to ward off the moneylenders, on top of worrying about her children’s school fees.

Central Bank officials say, despite the many public warnings people continue to fall for scams like Panora’s because they are “fooled by the high returns, and get greedy.”"There are so many legal ways to invest but people want to make easy money at whatever risk,” a Central Bank communications official said. “These things are difficult to prevent. It is difficult to convince people of the risk until it’s too late. Despite what happens to others, they think they will somehow get their money back.”

To avoid such potential frauds, officials advise the public to be aware of a country’s normal interest rate and be wary of anyone offering “extraordinary rates.” The Central Bank advises the public only to transact business with financial institutions licensed by the Bank.

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Touchwood: A case of deception and confusion

By Sunimalee Dias

Touchwood Investments PLC has filed an appeal in the Supreme Court against the Commercial High Court order issued to wind up the company.

The company was issued the winding up order on June 5 and liquidator Mr. Sudath Kumar was appointed as well.

Mahogany trees at the Gomaragala Estate in Eheliyagoda.

However, in a stock exchange filing the company stated that they had appealed their case against the winding up order.

Touchwood Investments PLC ran into trouble when they were found to be unable to pay back their investors cum clients who had invested in the purchase of trees on their teak, mahogany, sandalwood plantations in Sri Lanka and Agarwood plantations in Thailand.
It was found out that in the winding up case that the company had duped investors to believe that all Touchwood companies were connected under one large group.

It was noted during the case that the Touchwood which started as a Touchwood Investments (Pvt) Ltd in 1999 changed name in 2001 to Touchwood Investment Ltd and later registered under Touchwood Investments PLC in 2007.

In fact in their Annual Report for 2012/2013 it was found that the company referred to other Touchwood companies as affiliates, subsidiaries, associates and authorised representatives and even in the Harvest Agreement Certificate of the Petitioner in the winding up case. But correspondence with the investors was carried out under the cover of five other Touchwood company names.

The chart indicates the number of companies that were run by Roscoe A. Maloney along with his wife Swarna Maloney.

During the investigation carried out by the Securities and Exchange Commission (SEC) it was noted that the board of directors present remained mum when queried about the number of companies and their connections except to state that the companies only had common directors namely Roscoe and Swarna Maloney and Asitha Koralage who was the company’s Deputy Chairman.

When the company ran into problems in terms of paying back the investors upon the maturity of the trees it was found that the company management was scurrying from one end to another in another in a bid to get the money.

In this respect, the Maloneys used their Touchwood (Pvt) Ltd company registered in Moratuwa to raise over Rs.200 million through a debenture issue to settle the Agarwood plantation clients.

They were found to have settled their personal due to by inflating the values on assets belonging to Touchwood PLC. This money the Maloneys’ used to purchase controlling interest of ASPIC Holding Private Ltd (which is a holding company of Central Investments Finance PLC).

In addition, following investments made in Cambodia on alleged state land development the Maloneys’ borrowed money through Touchwood Investment PLC for Cambodia property firm Touchwood Investment PLC Property with 5 acres of vanilla and 5 acres of sandalwood in Matale valued around Rs.27 million used to settle lenders.

Moreover, the Maloneys’ transferred approximately Rs.150 million deposits held at LOLC under Touchwood Investment PLC to LOLC as payback.

LOLC sold Touchwood Investments PLC shares to recover loans with share composition become 90 per cent public and 10 per cent non-public (Mr. Maloney’s shares) and the Touchwood Hong Kong stake in Touchwood Sri Lanka was also sold in April/May 2013.Further during the court hearings it was revealed that cheques presented in open court by current Touchwood Investments PLC Chairman Lanka Kiwlegedara to pay back the petitioner in the winding up case had bounced.

At the conclusion of the hearings the Commercial High Court issued the order based on the fact that the company had no money to pay back the investors as a reason for the winding up as a result of which the liquidator was appointed as well.

The fact that the company’s continuous failure to settle the debts owed to the Petitioner and other creditors have also been made note of when delivering the Order.

CIFL: Depositors plan to appeal against recent court ruling

By Quintus PereraView(s):

The CIFL (Central Investment and Finance Ltd) depositors are restlessly awaiting a copy of last week’s Appeal Court decision dismissing their case against the CIFL and the Central Bank (CB) as they want to file an appeal in the Supreme Court (SC).

The dismissal of the appeal paves the way for the CB to go ahead with its restructuring plan unless the depositors are able to move the SC to get a stay order pending determination of their proposed appeal.

Some members of the CIFL Depositors Association (CIFLDA) monitoring the stock market have found one individual, believed to be a politically-powerful government advisor, to be continuously buying CIFL shares in the past few days to the tune of 250,000 shares per day.

In this manner, if this person continues to purchase shares he could be a majority shareholder and later there is a possibility of his coming forward as an investor. One of the CIFLDA members explained that if the person becomes an investor the commitment of the interest thereby paid to the depositor would be low.

The total deposits, he said, is Rs. 3.5 billion and assuming 60 per cent is converted into shares (under the CB plan) the amount so converted is Rs. 2.1 billion with the remainder 40 per cent being Rs. 1.4 billion and this 40 per cent would be the existing deposit base.
At the rate of 5 per cent the interest commitment would then be Rs. 70 million only. So, he said, that any investor who makes a low investment will benefit from these flaws.

Then that means, the CIFLDA member pointed out. the deposit liability could be brought down and the interest commitment would then come down, making it an investor-oriented plan and not a deposit-oriented one. He said that thus, whoever who now purchases large chunks of shares at such low rate as 60 cents per share could be working on an agenda set by the authorities.

Meanwhile M.A. Gunasinghe, Administrative Secretary, CIFL Depositors Association (CIFLDA) said their committee met on Monday and confirmed the plan to appeal against the Appeal Court decision.

One depositor, H R Perera, an attorney-at-law himself from Dehiwela, has filed a private plaint at the Fort Magistrates Court to recover his deposit of Rs 1.5 million and the interest thereof as the maturity period is over.

He said the CIFL has failed to pay the capital plus the interest. He said that at the last date the case could not be heard as the summons could not be served and he obtained a further date.

Mr. Perera told the Business Times that several of the CIFL depositors have complained to the police to recover their money and the police is awaiting the Attorney-General’s decision to proceed with prosecutions.

P. K. Mahindapala, Secretary, CIFLDA said that they are in search of genuine investors to finance the failed CIFL and once such investors are found they would be routed through courts. To resolve all these matters they would be summoning a general meeting of all the depositors very soon.

The Business Times is inundated with pathetic woes of these desperate persons, most of them ailing old people, and with their means of living lost, their end appears to be etched in their faces.
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