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BT expands network in Asia with SatLink service BT announced the expansion of its portfolio of telecommunications services in Asia with the launch of SatLink Asia, a transborder service now available in Sri Lanka and five other markets. SatLink Asia, developed by BT's satellite experts, is the first pan-Asian satellite service offered by BT, and will extend the company's coverage across the region into key markets. Mr. Ian McKenzie, Chief Operating Officer, BT Global Strategic Markets said: "SatLink Asia was developed to meet the increasing demands of multinationals and large regional corporates for dynamic and reliable telecommunications services wherever they do business in Asia. SatLink Asia offers them connectivity into remote areas where infrastructure is poor or service is unavailable. By providing a reliable, resilient and highly secure solution, SatLink Asia is a real and attractive alternative to current communications available in the region." "By strengthening our service offerings, SatLink Asia will build the overall portfolio available to business customers through BT and, when the deal closes, our new joint venture with AT & T." The service will provide sophisticated and reliable telecommunications connectivity for organisations across Asia and enable them to operate at the same level of business efficiency no matter how remote their sites. SatLink Asia is specifically designed to meet the needs of all sectors for connectivity across Asia, and will especially meet the needs of corporate customers in the sectors of manufacturing. IT and high technology, banking and financial services, and energy and resources. Mr. Mackenzie said: "These business sectors tend to have geographically remote sites for functions such as production or customer support facilities or, in the banking sector, local branches to service local customers. SatLink Asia meets their need for regular, efficient communications and will enable the use of standard management and operating systems across their whole organisation." "This service will be most attractive and beneficial when it is used to meet customer requirements for connectivity between regional headquarters sites and facilities in remote or emerging markets." The service provides a complete telecommunications solutions from network supply through to billing and maintenance. SatLink Asia supports a full range of voice and data services, including e-mail, Lan-to-Lan connectivity, Internet access, and video conferencing. The service can operate on both a point-to-point and point-to-point basis. In a typical service configuration, BT will install a small satellite dish at the user's site, which will establish a link, via an orbiting satellite, to a similar dish at the user's remote site. Mr. McKenzie added that SatLink Asia is based on a similar BT Satellite Service offering to companies around the world. Major customers for BT's satellite service include GTS CzechCom, Cadburys, Nissan, and John Brown Engineers & Constructors Limited, Evergreen Marine is SatLink Asia's first customer in this region. SatLink Asia is being introduced initially in Hong Kong, Taiwan, China, Indonesia, Sri Lanka, and Thailand. SatLink Asia will be expanded to other Asian markets later this year. Workshop on Business Law for Marketers A two-day management development workshop on Business Law for Marketers, organised by the Sri Lanka Institute of Marketing, will be held on Friday 28th and Saturday 29th August at Hotel Taj Samudra, Colombo. Based on the undeniable fact that "Ignorance of the Law is no defence," this workshop would be of immense benefit to participants, helping them develop an understanding of the legal relationships and obligations between stakeholders in the micro environment. Topics to be covered at the workshop include Consumer Law — New Directions for consumer welfare: Intellectual property law (infringement of Trade Marks, Internet and Copyright Law); commercial law for export markets with special reference to European Union Law; Debt Recovery Law, Sale of Goods and Services; Customs and Exchange control law and arbitration procedure. The workshop will be led by Mr. Nizam Razzaq, Attorney-at-law. The panel of resource persons includes a diplomat representing the European Union, President's Counsel, Senior Attorneys, Bankers, Senior Customs and Exchange Control officers. The Sri Lanka Business Development Centre (SLBC) and the Forbes ABN Amro Securities (Pvt) Ltd will conduct two workshops on Share Trading on August 29th at Wattegama Town Hall from 3.30 p.m. to 5.30 p.m. and on August 30th at Matale Government Circuit Bungalow from 9.30 a.m. to 12.30 p.m. The SLBDC and the Forbes ABN Amro Securities (Pvt) Ltd. are of the opinion that creating awareness on the securities market is very important in areas outside Colombo, as presently only a limited number of people in and around Colombo and main cities are aware of the share trade and securities market. The objective is to create awareness on share trading and investment in shares among potential investors in the rural areas. The Managing Director Mr. Ray Abeywardena from the Forbes ABN Amro Securities (Pvt) Ltd., and representatives from the Colombo Stock Exchange (CSE) will participate in this programme. UN assists in making Sri Lanka competitive United Nations Development Program (UNDP) in Sri Lanka has funded a comprehensive enterprise development program which is currently being implemented through the United Nations Industrial Development Organization (UNIDO), in cooperation with the Ministry of Industrial Development and the Ceylon National Chamber of Industries. As a part of this project, the Centre of Enterprise Management Information Services (CEMIS), a special service designed to provide Sri Lanka businesses with modern information technologies, will be opened shorty. It will provide business with a greater competitive advantage through better management information systems and decision support tools. The Centre has been established in the Department of Industrial Management, University of Kelaniya. CEMIS has been supplied with computer equipment, relevant software and resource personnel have been trained in Sweden, Singapore and Colombo. Computers are coming into increasing use in Sri Lanka but are being mainly used for accounting and payroll in businesses. This does not provide a basis for strategic management decisions. Computer software for management in the areas of marketing, production, financial, stock control are more complex because these have to be preceded by the establishment of internal management systems and procedures within a business. Hence it calls for consultants with both industrial management and software expertise. The Centre provides expertise in engineering, industrial management, finance, marketing and information technology. CEMIS will particularly help small and medium enterprises that cannot afford expensive consulting fees. Industrial competitiveness is the critical factor in sustainable long-term economic development. Up to about 1980, most developing countries had a strong focus on commodity production and exports from these countries were principally commodities (excepting petroleum). The trend in commodities since the 1960s has been one of falling international prices. By 1990, many developing countries had made the transition to manufacturing on a larger scale and exports of manufactured products exceeded the export of commodities (again excepting petroleum) by three times. But the weakness of exports from developing countries was seen even then in declining terms of trade vis-a-vis exports from developed countries. The United Nations Commission for Trade and Development (UNCTAD) estimates that the terms of trade for manufactured product exports from developing countries have been declining at the rate of 1% per annum. Altogether, it was calculated that the terms of trade for developing countries declined by 45% in the two decades between 1970 and 1990. Superior product innovation and marketing, coupled with more efficient management, enables developed countries to maintain their dominance of international markets. Since the Uruguay Round and the plans through the World Trade Organization of the UN (WTO) to progressively liberalize international markets, the situation of many developing countries will be more difficult. Additionally, the participation of Sri Lanka in SAFTA, with stronger industrial economies like India and Pakistan, requires that local industries should improve themselves to face competition and take advantage of greatly expanded market opportunities. UNDP has recognized that improving industrial competitiveness is a critical factor for the economic progress of developing countries like Sri Lanka. Cemis Release Turmoil in the Colombo Stock
Market Now we are witnessing the changes that have taken place since the liberalization of our economy. More and more economic activities are being privatized and big slice of this privatized economy is going into the hands of the Quoted Companies. For example fourteen (14) out of the twenty one (21) Tea and Rubber plantation companies have been bought over by Quoted companies. Port development is going to be entrusted to another Quoted company. Major infrastructure projects are to be handled through Quoted companies by them being the agents for foreign companies. Already Hotel and Tourism, Exports, Banking, Insurance are all in the hands of such companies. These developments are both good and bad. Good in the sense that these economic activities do not fall into the hands of the Mudalalis/Crony Capitalists and that they are being managed by professional Managers. Bad because of the vulnerability of the ownership structure. Only the other day the Opposition was criticising the Govt for selling more than 49% shares of some plantation companies indirectly to a foreign company through the PIMC. But what they and the Govt don't realise is that almost all the plantations companies which have been bought by the Quoted Companies can have the same fate should the majority stake in those quoted companies change hands to foreign ownership. Similar fate can befall on any other activity or industry which is prohibited or restricted for foreign ownership or participation. Already majority shares in some of the companies whose subsidiaries are engaged in such restricted area of business are owned by foreign funds. This situation not only defeats the purpose of imposing restriction in the ownership in certain sectors, it will also pave the way for the foreigners and not the locals to own and enjoy the benefits of economic liberalization and development that is taking place in this country. Some Realities It is a fact that most of the Investment companies, Unit trusts and merchant banks and inividuals who invested in the stock market have fared very badly incurring huge losses. Stock Broking companies excepting a few are no exception. Unfortunately their predictions, forecasts and the recommendations are far from the actual happenings in the Stock Market mainly due to the irrational behaviour of the foreign funds in relation to local context. The market is active only when the foreigners enter or leave the market. It means that it is the foreign investors, who hold a meagre 17% stake in the market determine whether our stocks will move up or down. In turn it means that they only could assess the potential or otherwise of the local companies since the share prices are linked to future performance of the companies. This is a precarious situation and a clear indication that there is something lacking in the local investment infrastructure such as the Investment base and the connected service providers, which need to be identified and rectified. There is also a school of thought that some of the listed companies are closely held and a large number of private companies are shy and unwilling to get listed because of dilution of ownership and too much exposure of their affairs to the public. This is also attributed to our cultural background. This may be true to some extent but isn't there a danger of total dilution to foreign investors? Now look at the Multinational Companies operating in this country. None of them have diluted their stakes in the local subsidiaries to desired levels. They either remain as a private company or only a fraction of their shareholdings are in the hands of the public. These are some issues our policy makers and other related institutions should take note of. Recommendations From the above analysis it has been shown that there is an urgent need for policy makers to make a through study of the Capital market and devise methods of attracting more local investments into the market mainly to help. (a) Formation of capital adequate to the requirements of the private sector and (b) Ensure bigger local stakes in companies, particularly Blue Chips which are bound to engage in multitude of business activities which are important to the Country's economy and some of them may be sensitive as well. We should not be averse to foreign investment through the CSE. In fact we should welcome them. But we should also devise and have the mechanism to counteract the threats they pose to the stability of the stock market and to the ownership structure of the economy. There is no magic or formula available to achieve the above objective and all the attempts so far have failed mainly due to reasons identified earlier. The following steps are also considered necessary ' (1) Liquidity Of Shares CSE should promote companies with large capital base and diversified shareholders to be listed in the exchange than having large number of closely held smaller companies. This will enable more liquidity in the market. Most of the Blue Chips are having large Market capitalization and diversified holding and therefore they are liquid. Some of these companies also have subsidiaries listed in the exchange. But unfortunately most of these subsidiaries have a small capital base and are owned more than 60% to 70% by the parent companies and due to this the shares of these subsidiaries are more illiquid. The objective of listing is not clear but one of the reasons being the concessionary rate of Income Tax offered to quoted companies by the Govt in order to promote more companies being listed. On the aspect of raising capital through a public issue, it is not very relevant because the parent companies are more than capable of funding the operation of the subsidiaries. When it comes to the development of the business activities of the subsidiaries, the Directors being the same, the public can perceive as discriminatory in treating the various subsidiary companes. In all if the subsidiaries are fully owned by the parent company it would be more beneficial and it will also help to increase the Market capitalization of the parent company. As for the concessionary rate of taxation made applicable to Quoted companies, the Government should look at it more rationally. If tax concessions are made available to Quoted companies they should also apply to all the 100% owned subsidiary companies even though they are technically private companies. On the other hand if two or more Quoted companies jointly form a private company, that company too should be eligible for the concessionary rate. Government should also consider concessionary tax rates say 25% for companies which have a large capital base, more than Rs. 1000 Mn and quoted. But having a subsidiary is sometimes justified where the market capitalization of the subsidiary exceeds about 40% that of the parent company or where other joint venture partners are involved. Having a number of smaller companies listed also causes additional unproductive expenditure to the companies such as AGM/EGM expenses, listing fees, transaction costs annual reports etc. (ii) Fiscal Measures There were thoughts that by exempting tax on Capital Gains arising from share trading the market could be developed. But what has happened was the opposite. A lot of speculators, margin trading and other uncontrollable activities all entered the market. Initially the so called development such as the No Of Trades, Volume/Market Capitalization, No of Investors etc all increased tremendously and then suddenly everything tumbled down when fundamentals did not justify the phenomenal growth. Many intermediaries have benefited by this but the investors have actually lost all their savings, never to return again. There is a basic flaw in this concession. By exempting all Capital Gains without considering the period of ownership of the shares the authorities have failed to distinguish the Speculative gains and the gains accrued through changes in the fundamentals of the companies. For example if an investment is made in a particular stock today at a certain price it has to move up only when the change in its performance is reported. It may take a minimum of six months to one year for the changes to happen and to be reported. It does not happen overnight. Only through speculation and or due to sensitive information being known, one can make gains in the very short term. In these instances it is more than justified to impose some kind of taxation. The exemption/reduction could be given for gains made after a longer period. It will also curtail Speculative trading and people who trade having access to sensitive information. Capital Gains Tax rates suggested for this are as follows: Tax administration should be easier as there is a centralised data capturing system available. All the net capital Gains made will have to be taxed using the above without any qualifying limits. Each broker should deduct the tax at the time of settlement and remit to the department. On a yearly basis the investor can submit a return and obtain refunds. The income Tax Department can organise the other administrative measures. The Important thing is the PRINCIPLE behind the concept of taxing the capital gains. It could be expected a decline in the volume of trades at the beginning but with improved price levels should gather momentum both in prices and in volume after sometime say one to two years. It will also being in additional revenue to the Government. (iii) Develop a Strong Investor base comprising of Local Funds If one looks at the composition of the CDS lodged shares, it will be observed that the foreign component is 40% and the local component is at 60%. But the foreigners hold proportionately lesser number of shares because their holdings are mainly in Blue Chip companies while that of the locals are in the smaller low priced companies. This is because of the poor holding power of the local investors of the highly priced Blue Chip companies. Ideally it has to be the other way about for reasons attributed elsewhere in this Article. The capital base of the local Institutional Investors appear inadequate and additional capital, may be in the region of Rs. 20 Bn would be necessary to get a stronghold in the market particularly that of the Blue Chips and to bring about stability. It was rumoured that EPF would be investing in the market but it is understood that it made a small investment and with the declining prices they have moved out. It is inconceivable if they have moved out mainly due to this short term price fluctuations as the investment should be on a long term basis, say with 10 to 15 years horizon, the short term fluctuations should be ignored. The reasons why a long term investor will not lose in this market have been given elsewhere. In fact this is the best time to buy and accumulate stocks. The Unit Trusts will not be in a position to raise more funds because of their poor performance and because the public do not perceive them to have the potential to grow at higher rates than that of the Fixed income securities such as Debentures or Fixed deposits at the lower end and at the same rate that of stocks. The new trusts too have found it difficult to raise funds. The only option is a closed end fund such as an Investment company with very large capital base say minimum of Rs. 1,000 Mn in subscribed capital. The Government should consider giving Investment relief by way of allowing the subscriptions to the Capital of the Investment companies which should also be quoted companies as a deduction from the income. It should be fully deductible with the provision of carry forward till they are absorbed. The government may lose on Income Tax revenue by giving this concession but it can recoup a sizeable portion from the capital Gains Tax mentioned earlier. Initially the government should set an example by forming such a big investment company with a capital of Rs. 5 Bn with the sponsorship of funds from the EPF, ETF, NSB, Insurance Corpn. and other private provident funds. Actually in the developed countries these are the funds which invest much in the Stock Market on a long term basis. Even the private sector and the public can participate in this and similar other projects. The government could also draw up a master plan with assistance and commitment from the private sector as to how it could mobilise the required amount of capital through the formation of several such investment companies which could be divested to the public later on. The reasons for this course of action by all concerned including the Government and the impending dangers in not addressing this problem have all been adequately dealt with earlier. Period
Of Holding Rate Let us hope that, as a urgent and immediate priority, the Government, the Opposition, the Policy makers and the national minded public will take note of the above observations, consider the crises as a national issue, address the problem in a fair and sincere manner and take measures as necessary, including some or all of those mentioned above. |
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