Interview: Dilshan Wirasekara
Do you think the balance of payments deficit may necessitate privatisation of government assets?
DILSHAN WIRASEKARA: I do not believe that the balance of payments crisis caused the decision to privatise some of the government’s assets. It is the high debt burden and the inability of those assets to service the debt that has resulted in the government privatising part of these assets. The government is looking at more public-private partnerships (PPPs) in terms of these holdings rather than a complete sale of these assets. The main assets where PPPs have been successful are SriLankan Airlines, Mattala Rajapaksa International Airport and the Hambantota Port, where the government is expecting to turn around loss-making assets through these partnerships. This will also allow the government to stop pumping in public money to keep the ventures alive. In addition, the government is looking to completely privatise some of its non-strategic holdings, such as hotels and paid hospitals like Lanka Hospitals. As a result, we do not believe the balance of payments deficit will trigger a privatisation of government possessions. In fact, with increased earnings from tourism and capital flows for investments, we believe that Sri Lanka could end up with a balance of payments surplus this year.
How have global external forces impacted regional CEO confidence, and where are cash-rich corporates looking to expand?
WIRASEKARA: Regional CEO confidence levels are mixed at the moment. Though the global environment is weak for the time being, the expectations of growth for the region stand strong. This coupled with the improvement in the US economy, should raise the confidence levels of regional CEOs.
This will contribute to an accelerated expansion into the region. Cash-rich corporates are mostly looking at investments in South Asia and South-east Asia, where the bulk of global growth is centred around.
In what way can Sri Lanka kick-start the flagging initial public offering (IPO) culture?
WIRASEKARA: Sri Lanka’s IPO culture is already experiencing a boost. The debt stock available in the market has almost doubled with the recent debenture issues by the banking and financial sectors. Attractive rates are currently attracting investors, who are looking at fixed long-term returns. However, IPOs in the equity market have dried up significantly.
The main reason for this is the cheap equity multiples in the market. Market movement was stalled for a long period of time amidst the uncertainty in the country, which has resulted in attractive equity valuations. However, business owners in Sri Lanka are reluctant to divest equity stakes at current low equity valuations. Furthermore, given the uncertainty, even investors are avoiding committing capital for significant periods of time.
We believe that creating some sort of certainty would be a confidence booster and would attract long-term investors to the equity market. To attract IPOs and listings, market multiples need to increase in order to convince entrepreneurs to divest stakes in the equity market and attract funds.
How can small and medium-sized enterprises (SMEs) increase their share of private equity?
WIRASEKARA: Raising private equity is starting to become a popular strategy for entrepreneurs looking for expansion in Sri Lanka. A number of funds have recently started to invest in such SMEs. These funds help to expand the business into the next phase of growth. In recent times we have seen many enterprises successfully implementing growth strategies via private equity. The main constraint of most businesses is the fact that they are limited to the local market, which is just 21m people. This factor prevents most investors from investing, as it does not make business sense because there is such a small pool of demand.
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