Sri Lanka tourist arrivals fall sharply as violence escalates

Tourist arrivals in Sri Lanka fell by 36 percent to 35,031 in March 2007 compared with the same month last year as escalating fighting between government forces and Tamil Tiger rebels deterred holiday travel.
The fall in arrivals came on the back of an 18 percent drop in arrivals in February with key markets such as Western Europe, India and East Asia being the worst affected, according to Tourist Board statistics.

The downturn has badly affected the hotel industry, especially up-market resorts that cater to the more well-to-do travelers.

Arrivals from traditional markets like Western Europe have been affected by adverse travel warnings issued by their governments in response to increased violence in the island.

Arrivals from Western Europe, the main market for Sri Lanka, fell by 25.7 percent to 52,572 in the January-March period.

However, visitors from Eastern Europe, who appear less concerned about political troubles, increased during the period.

Total arrivals in Sri Lanka up to February were down 15.6 percent to 134,635 from 159,536 in 2006. A total of 559,603 tourists visited Sri Lanka in 2006.

Visitors from the UK, an important traditional market, fell by 5.8 percent to 22,888 in the first quarter of this year and from Germany 29.9 percent to 11,048.

More worryingly there was a 3.3 percent drop in arrivals from South Asia, especially India from where Sri Lanka has been trying to attract more visitors as Western tourist markets decline.

Visitors from India fell 7.7 percent to 31,106 and from Pakistan by 27.1 percent to 3,727 in the first quarter.

The downturn has begun to affect investment in the industry with some big players putting off planned expansions and upgrades because of dwindling numbers of visitors.

Earlier this week, Hemas Holdings subsidiary Serendib Hotels announced it was putting off plans to reposition Hotel Serendib, Bentota under the ‘Anantara’ brand of the Minor Group of Thailand.

The company said the 500 million-rupee plus investment was not considered worth it right now as there were not enough visitors for them to recover the investment.

The announcement came in the wake of a daring Tiger rebel air strike on the military’s main airbase next to the island’s only international airport in March.

That attack, although it failed to cause much damage, raised fears the conflict would worsen further.

Tourists from East Asia, including China, Japan and Malaysia also reduced their travel to the island in the first three months of the year.

But arrivals from Eastern Europe increased 60 percent with the number of Russian visitors increasing by 45.2 percent to 3,682.

Sri Lanka telco earnings to be boosted with rural telephony subsidies

Incumbent Sri Lanka Telecom (SLT) will get the largest slice, boosting its 2nd quarter earnings by up to three billion rupees.

Other telecom operators who channeled calls through their international gateways will collect two billion rupees.

International Telecommunications Operators’ levy or ITL is charged at three rupees and 80 cents per incoming minute from external gateways.

Although there are many licensed gateways, only ones owned by telecom companies actually bring ITL revenue generating traffic.

Operators were unable to tap the fund because the telecom regulator had not decided on the basis for its distribution till last week.

Telecom operators are able to reclaim two thirds of the money they pay to the “international telecom operators levy” to finance rural rollout.

The telecom regulator says cellular and CDMA operators can reclaim the cost of towers in all districts except for the main city in that district.

Fixed line operators can claim twenty-five thousand rupees for every wire-line connection.

However no claims are possible for rollouts in the Colombo district.

Telecom regulator Kanchana Ratwatte, however, did not say how the other one-third of the ITL fund will be distributed.

Incumbent SLT didn’t transfer the funds to the ITL but gave reports on its network rollout to un-served and underserved areas.

However, it was also unable to recognize the money in its financial statements without TRC formula for its redistribution.

SLT’s windfall will be unmatched but other mobile operators Dialog Telekom, Celtell and Hutch will also get some refunds.

CDMA technology phone operators SLT, Suntel and Lanka Bell will also benefit from the refunds.

The telecom regulator did not say how much the ITL fund had collected in the three years since it was launched but SLT’s contribution to it tops 6.3 billion rupees, according to the company.

The regulator’s announcement comes on the back of a due diligence underway by Malaysian Global Telecommunications Holdings to buy out a part of the 35 percent stake held by NTT of Japan.

SLT made 5.4 billion rupees last year.

Stock analysts are forecasting 6.5 billion rupees in earnings for this year, a figure that’s now likely to get closer to 10 billion.

Telecom operators who rolled out rural networks in the last three years will get a five billion rupee refund of levies collected from every incoming international call minute.

Virtusa to expand in Sri Lanka and India with funds from $92mn US IPO

The company, headed by a Sri Lankan, filed for for the IPO last Friday with the US Securities and Exchange Commission.

The firm hopes to use 30 million dollars of the proceeds to fund the construction of a new facility on its planned campus in Hyderabad, India, over the next three years.

The balance will be used for working capital and other general corporate purposes, including to finance the expansion of its global delivery centres in Colombo and Chennai, India.

The proceeds would also be used to hire more people, sales and marketing activities, capital expenditures, and “possible strategic alliances or acquisitions”.

Virtusa did not say how many shares will be offered in the IPO or at what price.

Virtusa, co-founded by its chairman and Chief Executive Officer Kris Canekeratne, also has offices in the US and the United Kingdom.

The company has applied to list the stock under the symbol ‘VRTU’ on the NASDAQ Global Market.

“We have experienced compounded annual revenue growth of 47% over the four-year period ended March 31, 2006,” a company statement said.

“We may use a portion of these net proceeds (of the IPO) to expand our business into new geographic locations. We may also use a portion of these net proceeds to expand our current business through strategic alliances involving, or acquisitions of, other complementary businesses or technologies.”

However, it said it had no agreements or commitments for any specific acquisitions at present.

Virtusa reported a net profit of 15.5 million dollars for the nine months ended December 31, 2006, compared with a net loss of 625,000 dollars in the same 2005 period.

The company also said that under its dividend policy it had never declared or paid cash dividends on its common stock and does not expect to pay dividends in the foreseeable future.

“We currently intend to retain all of our future earnings to fund the operation, development and expansion of our business. In addition, the terms of our credit facility prohibit us from paying cash dividends,” the company said.

Massachusetts-based Virtusa Corp., an information-technology services firm with operations in Sri Lanka, is seeking 92 million dollars through a NASDAQ listing.

Sri Lanka's Seylan Bank needs more capital to maintain rating: Fitch

Seylan Bank, whose rating outlook was downgraded to negative by Fitch may need fresh equity in addition to boost solvency, the rating agency has said.
The bank is raising one billion rupees through a subordinated debenture to which for which a BBB+ (lka) rating was assigned.
Seylan itself has a long-term rating a notch higher, at A - (lka).
"The ratings reflect Seylan's systemic importance as the fifth-largest Licensed Commercial Bank in Sri Lanka and its established customer franchise," Fitch Ratings Lanka said.
"However, the ratings also factor in the bank's relatively weak solvency, capitalisation and asset quality."
The downgrade of the outlook came from concern over weak solvency (measured as net non-performing loans (NPL)/equity), slow NPL resolution, insufficient internal capital formation and challenges faced in raising fresh equity capital, Fitch said.
Last year 1,045 million rupees raised through a non-voting share issue had improved net NPL to equity ratio from 102.8 percent to 80.7 percent.
But Fitch says solvency would come under pressure if bad loan continue to accrue without fresh injections of share capital in the near future.
"The bank's internal capital generation also remains constrained on account of a high cost structure, taxes and dividend. Fitch views capital infusion and faster NPL resolution as crucial for Seylan to sustain its ratings," the rating agency said.
It noted that Seylan had consciously reduced loan growth to 14 percent during the 2006 financial year compared to an average loan growth of 21 percent maintained over the past five years.
Fitch said new NPL accretion (3.7percentO and the bank's overall NPL ratio (11.7 percent of gross loans) remained higher than that of its peers.
Seylan's loan loss provision coverage increased to 39 percent in 2006 from 37 percent.
"However, this is considered to be inadequate in light of its relatively weak capital position," Fitch said.
Seylan's regulatory total capital adequacy ratio at the group level was at 10.89 percent in 2006, while at the bank level total capital adequacy remained below the 10 percent regulatory minimum at 9.8 percent in 2006.
Capital adequacy fell because regulatory risk weights were increased in November 2006 by the Central Bank of Sri Lanka on 'loans secured by a primary mortgage over residential property' to 55 percent from 50 percent and 'other loans and advances' to 110 percent from 100 percent.
While the bank intends to maintain modest loan growth going forward, Fitch says that the current level of profitability (indicated by return on assets of 0.7 percent in the 2006 financial year) coupled with its dividend payout levels (42 percent of profit after tax in 2006) and credit costs do not allow for sufficient internal capital formation to improve solvency, calling for a further infusion of equity.
Started in 1988 and the bank has expanded aggressively accounting for 6.5 percent of banking system assets by 2005.
The Ceylinco group is the bank's main shareholder owning 23 percent of its voting equity while several employee share ownership trusts collectively own 27 percent of Seylan's voting equity.
Seylan currently has a network of 92 island-wide branches.

Sri Lanka electricity power fails nationwide

Sri Lanka lost electricity power Sunday as the entire national electricity grid failed shortly before 3.00 pm local time, officials said.
The Ceylon Electricity Board, the country's state-owned power utility, restored power to most parts of the capital Colombo about two hours later.
Officials have not yet pin-pointed the cause, but lightning strikes to main transmission lines have been blamed for previous failures.
The grid has shown a tendency to fail in recent years with the cash-strapped utility needing treasury handouts to pay its debts.
A national failure was last experienced on November 15, with the country plunging into darkness at the start of the evening peak demand hour at 7.30 p.m.
But today's failure occurred during a low demand hour, and at time when there were no reports of significant electrical storm activity, an official said.
Generators at the utility's Kelanitissa thermal complex which were frequently tripping during the last two months due to problems with fuel supply, were also not involved in Sunday's failure.
The CEB's finances are weak with the utility selling power below cost and reforms to the energy giant have also been delayed due to trade union action led by the Sri Lanka's Marxist-nationalist Janatha Vimukthi Peramuna party.
A total grid failure can have serious negative effects on an industrial economy. Such events happen very rarely in industrialized countries.
But the power failed over a holiday weekend with the country having celebrated a national New Year festival yesterday.
Power sector analysts have been warning that Sri Lanka is heading for another electricity shortage in early 2008 unless steps were taken to bring in additional private sector power early.
Sri Lanka has been under-investing in infrastructure for years, with most of the tax revenues going to sustain a bloated public service or the war.
In the last two years, the situation has got worse with 42,000 unemployed graduates being hired into the government and more planned this year.
According to the 2007 budget, 49 cents out of every tax rupee collected will go for wages and pensions of the public sector.
Public sector wages and pensions are not taxed in Sri Lanka.