Connect with us

Business

Unwarranted rating action by S&P amid arrangements to settle ISB maturity in Jan. 2022 – CBSL

Published

on

The Government of Sri Lanka (GOSL) is perturbed over today’s announcement by S&P Global Ratings, at a time when the GOSL has diligently lined up adequate funds to repay its maturing foreign debt liabilities and its repeated assurances over the strong commitment to oblige its debt service payments, including the International Sovereign Bond (ISB) maturing on 18 January 2022.,the CBSL said in a press release.

It adds – This move demonstrates repetitive nature in which S&P and other rating agencies acted to initiate rating actions just prior to the settlement of ISB obligations. S&P’s action also fails to recognise the positive developments taking place in Sri Lanka, in an environment in which the entire world is grappling with repeated waves of the COVID- 19 pandemic.

The sense of urgency on the part of an internationally recognised rating agency is inconceivable, particularly since S&P was being constantly updated by the Sri Lankan authorities on the latest developments in all sectors of the economy and many measures to shore-up foreign exchange inflows. In fact, these repeated rating actions, which have undermined and delayed the efforts of authorities’ to augment foreign exchange inflows, have negatively affected investor confidence, potential investment inflows and the gradual build-up of official reserves of the country. Recent rating actions also negated momentum of reserve-build-up and adversely affected investors who acted over such announcements.

As against the S&P’s claim on unforeseen positive developments, major economic and financial indicators are aligned in line with the measures and plans unveiled in the recent Budget announcement of the GOSL and the Six-Month Road Map announcement Communications Department 12 January 2022 by the Central Bank of Sri Lanka (CBSL). The near-term funding arrangements are being finalised by the GOSL and the CBSL with various bilateral sources, which are due to be materialised.

Following several headwinds faced by the Sri Lankan economy in view of the COVID-19 pandemic, there are strong signs that economic activities are now returning to normalcy with all leading indicators signalling positive momentum. Tourism is on the rise and exports are continuously increasing. A number of measures introduced to enhance workers’ remittances are also yielding anticipated results. Government to Government financing initiatives, including liquidity facilitations and trade financing, and central bank swap arrangements are negotiated with neighbouring countries through high-level engagements. These facilities are expected to strengthen and fast track the recovery of the Sri Lankan economy.

With the expected inflows materialising as envisaged in the Six-Month Road Map, at the end of 2021 the reserve position amounted to over US dollars 3 billion level and such level is expected to be maintained in the near-term with gradual build-up with both non-debt and financing inflows. In addition, during the recent past, foreign currency debt exposure has been reduced due to various measures taken by the GOSL and the CBSL. Thus, taking the absolute value of reserve levels only into consideration against the overall exposure of the country’s debt portfolio is inappropriate.

Hence, S&P’s assessment to downgrade the rating has clearly failed to recognise the recent progress made by the Government and the CBSL in securing foreign exchange inflows to meet the government’s forthcoming debt obligations.

Against this backdrop, the Government wishes to re-assure all stakeholders, including the international investor community, that Sri Lanka remains committed to honouring all forthcoming obligations in the period ahead and maintain its unblemished record of debt servicing. The Sri Lankan authorities also welcome direct engagement with investors and invite investors for regular one-on-one discussions without being distracted by such unfounded announcements by external agencies.



Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Conclusion of phase 1 of private placement of Ordinary Shares of JKH to ADB

Published

on

Krishan Balendra Chairman JKH

Following is the text of a letter addressed by JKH Deputy Chairman/Group Finance Director Gihan Cooray to the CSE’s Chief Regulatory Officer Renuke Wijayawardhana.

Further to the announcements to the Colombo Stock Exchange on 22 November 2021 and 22 December 2021 regarding the Private Placement of up to a maximum cumulative amount of the Sri Lankan Rupee (“LKR”) equivalent of USD 80 million to Asian Development Bank (“ADB”), through the issuance of up to a maximum of 122,500,000 new ordinary shares of the Company in two phases (Phase 1 & Phase 2), we wish to inform that Phase 1 of the Private Placement of ordinary shares of the Company to ADB was concluded on 19 January 2022.

Accordingly, 65,042,006 ordinary shares (“Initial Placement Shares”) of the Company were allotted to ADB at a price of LKR 154.50 per share on 19 January 2022 for a consideration of the LKR equivalent of USD 50 million. The Initial Placement Shares results in a post-issue dilution of 4.70 per cent in Phase 1 of the transaction.

Additionally, in terms of Phase 2, the Company has issued 39,025,204 non-tradable/non-transferable options (“Options”), which will entitle ADB to subscribe for additional new ordinary shares of the Company (“Option Shares”), for an investment amount of up to a maximum of the LKR equivalent of USD 30 million.

Therefore, the maximum number of ordinary shares that would potentially be issued under the entire transaction, assuming all Option Shares are subscribed for, will be 104,067,210, thereby capping the post-issue dilution on the conclusion of both phases to a maximum of 7.31 per cent.

The salient details of the Options are as morefully detailed in the Shareholder Circular dated 29 November 2021. Based on the subscription date of the Initial Placement Shares, the Option Exercise Period will be from 19 October 2022 to 18 January 2023.

Continue Reading

Business

Bangladesh – Sri Lanka Preferential Trade Agreement: Gains and policy challenges

Published

on

By Asanka Wijesinghe and Chathurrdhika Yogarajah

0espite enhanced trade partnerships in South Asia, intra-regional trade is far from reaching its theoretical potential. Similar production patterns and competitive sectors can be the causes. However, bilateral discussions to further lower trade costs continue. The ongoing Bangladesh-Sri Lanka discussions on a preferential trade agreement (PTA) will benefit from knowing the potential gains from reducing bilateral trade costs. In addition, knowledge of products with higher potential for export gains will help optimise the economic benefits from a trade deal.

Bangladesh – Sri Lanka Trade:
The Current Status

In 2018, when discussions on a PTA began to firm up, Sri Lanka’s exports to Bangladesh were USD 133 million, while imports from Bangladesh were USD 37 million. Despite the low trade volume, Sri Lanka’s exports to Bangladesh have grown (Figure 1). In addition, Sri Lanka records a bilateral trade surplus with Bangladesh, which is encouraging given the country’s trade deficit concerns. However, weak growth of exports from Bangladesh to Sri Lanka can be seen from 2001 to 2016 (Figure 1).

The current trade deals between the two countries are still partially restrictive. Both countries keep a sensitive list of products that are not eligible for tariff cuts. Sri Lanka maintains a list of 925 products sanctioned by SAFTA (South Asian Free Trade Area) while Bangladesh keeps 993 products. Sri Lanka’s sensitive list covers USD 6.2 million or 23.8% of imports from Bangladesh. The sensitive list of Bangladesh covers USD 77.6 million or 62% of imports from Sri Lanka. Thus, the elimination of sensitive lists may benefit Sri Lanka more.

Figure 1: Trade Intensity between Bangladesh and Sri Lanka

Source: Authors’ Illustration using Trademap Data.

Theoretically, bilateral alliances deepen trade by removing weaknesses in existing multilateral trade arrangements. A trade deal between Bangladesh and Sri Lanka can simplify trade regulations further. In addition, Bangladesh needs alternative preferential access as graduation from Least Developed Country (LDC) status will take away preferential access to its key markets. For Sri Lanka, increasing bilateral participation in production value chains, especially in the textiles sector, might be an economic motivation. Financial support extended by Bangladesh to manage Sri Lanka’s foreign currency pressures might be a political motivation for a trade deal.

Eliminating sensitive lists can lead to trade creation, although it may not happen due to political and economic reasons. When it comes to tariff cuts, both countries will act defensively as certain products in the sensitive lists are vital for employment and revenue generation. Thus, the success of a trade deal depends on how many products with high export potential are under its purview. In this direction, a group of products with specific characteristics can be identified as an offensive list. For example, Sri Lanka’s offensive list includes products that Bangladesh imports from anywhere in the world, produced by Sri Lanka with a capacity for expansion. Sri Lanka has a comparative advantage in exporting that good, and Bangladesh already has a tariff on the product.

Export Gains from Tariff Elimination

If tariffs on the sensitive lists are eliminated, there will be modest export gains for Bangladesh and Sri Lanka in absolute terms. Sri Lanka will gain USD 24.7 to 49.7 million of exports to Bangladesh, while Bangladesh will gain USD 2.1 to 4.5 million of exports to Sri Lanka. Potential export gains are given in a range due to assumptions on elasticity values used in the partial equilibrium model. Elimination of sensitive lists will generate a higher tariff revenue loss to Bangladesh, ranging between USD 13.5 million to USD 19.1 million. By contrast, Sri Lanka’s revenue loss will be slight at USD 1.4 million to USD 1.9 million.

Whatever the arrangement, it is crucial to include the products with high export potential in the offensive lists (See Table 1 for the major products). Out of 39 products in Bangladesh’s offensive list, 21 are intermediate goods, while 18 are consumption goods. Similarly, 75 out of 115 products in Sri Lanka’s offensive list are intermediate goods. Tariff cuts on intermediate products may induce fragmented production between two countries, which would harness country-specific comparative advantages. Major intermediate goods in the offensive lists are dyed cotton fabrics, cartons, boxes, and cases, plain woven fabrics of cotton, denim, natural rubber, and smoked sheets of natural rubber (Table 1).

The ex-ante estimates predict modest gains for Sri Lanka and Bangladesh in absolute terms, even after completely removing the sensitive list. But complete removal is politically challenging for both countries. Moreover, Bangladesh as an LDC may expect special and differential (S&D) treatment. Thus, the outcome can be a limited PTA in line with weaknesses in existing trade agreements governing South Asian trade. The impact on trade of regional trade agreements in force is negative primarily due to stringent general regulatory measures, including rules of origin (ROO), sensitive lists, and prolonged phasing-in. Given that the estimated modest economic gains of a Bangladesh-Sri Lanka PTA do not justify a trade deal that requires substantial resources for negotiations,the PTA should have fewer regulatory measures and tariff concessions for the products on the offensive lists to maximise the economic benefits of a PTA between the two countries.

Link to the full Talking Economics blog: https://www.ips.lk/talkingeconomics/2022/01/20/bangladesh-sri-lanka-preferential-trade-agreement-gains-and-policy-challenges/

Asanka Wijesinghe is a Research Economist at IPS with research interests in macroeconomic policy, international trade, labour and health economics. He holds a BSc in Agricultural Technology and Management from the University of Peradeniya, an MS in Agribusiness and Applied Economics from North Dakota State University, and an MS and PhD in Agricultural, Environmental and Development Economics from The Ohio State University. (Talk with Asanka – asanka@ips.lk)

Chathurrdhika Yogarajah is a Research Assistant at IPS with research interests in macroeconomics and trade policy. She holds a BSc (Hons) in Agricultural Technology and Management, specialised in Applied Economics and Business Management from the University of Peradeniya with First Class Honours. She is currently reading for her Master’s in Agricultural Economics at the Postgraduate Institute of Agriculture, Peradeniya. (Talk with Chathurrdhika: chathurrdhika@ips.lk)

Continue Reading

Business

Expolanka boosts bourse by adding 21.7 points to ASPI

Published

on

By Hiran H.Senewiratne

CSE trading started in negative territory yesterday due to heavy profit- takings but after 1 pm the market began to recover, triggered by index heavy counter Expolanka, which gained by adding 21.7 points to the All-Share Price Index. The stock market yesterday produced a creditable recovery to finish on a positive note after early losses amid a relatively low but healthy turnover level. The Expolanka share price appreciated by 2.5 per cent or Rs 9.50. Its shares started trading at Rs 386 and at the end of the day they shot up by Rs 9.50.

Amid those developments both indices moved upwards. The All -Share Price Index went up by 42.8 points and S and P SL20 rose by 7 points. Turnover stood at Rs 4.9 billion with a single crossing. The crossing was reported in Expolanka, which crossed 100,000 shares to the tune of Rs 39.5 million and its shares traded at Rs 395.

In the retail market, top seven companies that mainly contributed to the turnover were, Expolanka Rs 715 million (1.8 million shares traded), Browns Investments Rs 336 million (19.9 million shares traded), ACL Cables Rs 261 million (2.1 million shares traded), LOLC Finance Rs 231 million (8.1 million shares traded), JKH Rs 193 million (1.2 million shares traded), Expack Corrugated Cartons Rs 162 million (seven million shares traded) and  Softlogic Capital Rs 161 million (11.3 million shares traded). During the day 154 million share volumes changed hands in 37000 transactions.

Yesterday, the US dollar was quoted at Rs 202.91, which was the controlled price of the Central Bank. The actual price would be more than Rs 250, market sources said.

Continue Reading

Trending