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• Express readiness in writing to IMF Managing Director
• Keen to engage quickly and effectively with SL authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow country to regain access to international capital markets during IMF Program period
• Lists 3 conditions for successful finalisation of agreement
• Foreign private bond holders account for $ 14.5 b or 31% of the $ 46.6 b external debt outstanding 

The Ad Hoc Group of Sri Lanka Bondholders (Bondholder Group) yesterday informed the International Monetary Fund (IMF) of its willingness to engage in the efforts to restructure Sri Lanka’s external debt and restore its sustainability.

In a letter to IMF Managing Director Kristalina Georgieva, the Bondholder Group said through its Steering Committee it stands ready to engage quickly and effectively with the Sri Lankan authorities to design and implement restructuring terms that would help Sri Lanka restore debt sustainability and allow the country to regain access to the international capital markets during the IMF Program period.

The Bondholder Group’s written representation is following its acknowledgment of the Sri Lankan authorities’ engagement with their official creditors towards a resolution of the current crisis and restoration of debt sustainability. Foreign private bond holders account for $ 14.5 billion or 31% of the $ 46.6 billion external debt outstanding.

The Bondholder Group further acknowledged that such engagement has recently resulted in the Government of India (in its letter to the IMF, dated 16 January 2023 (the “India Letter”)) delivering letters of financing assurances, committing to support Sri Lanka and contribute to its efforts to restore debt sustainability by providing debt relief and financing consistent with the IMF Extended Fund Facility Arrangement (the “IMF Program”) and the IMF Program targets indicated in the India Letter.

“Based on the limited information available to us at this time, including information contained in the India Letter, we understand that the IMF Program’s debt sustainability targets are identified as (i) reducing the ratio of public debt to GDP to 95% by 2032, (ii) limiting the central Government’s annual gross financing needs to GDP ratio to 13% in the period between 2027 and 2032, and central Government annual foreign currency debt service at 4.5% of GDP in every year between 2027 and 2032 and (iii) closing of the external financing gap,” the letter said.

Via the letter, the Bondholder Group confirmed to the IMF it is prepared to engage, through its Steering Committee, with the Sri Lankan authorities in restructuring negotiations consistent with the parameters of an IMF Program and the targets specified therein (the “IMF Program Targets”), which the Bondholder Group understands to be the targets identified in the India Letter; it being recognised that these negotiations will necessarily be further informed by the receipt of the forthcoming DSA.

It noted that the finalisation of an agreement will also be subject to the satisfaction of the following conditions:

1. The central Government’s domestic debt – defined as debt governed by local law – is reorganised in a manner that both ensures debt sustainability and safeguards financial stability. 

Assuming that annual gross financing needs should not exceed 13% of GDP in the period between 2027 and 2032, whilst allowing for central Government annual foreign currency debt service to reach 4.5% of GDP in every year between 2027 and 2032, domestic gross financing should therefore be limited at 8.5% of GDP for the period 2027-2032

2. While we recognise that the determination of the economic assumptions underpinning the IMF Program Targets is ultimately the responsibility of the IMF and that the overall design of the IMF Program is one that is negotiated between the IMF and Sri Lanka, it is nevertheless important that the Bondholder Group has the opportunity to express its views on both the economic assumptions underpinning these IMF Program Targets and the adequacy and feasibility of the adjustment efforts contemplated under the IMF Program. 

When considering any restructuring proposal that is made to the Bondholder Group, it is the Bondholder Group’s intention to take into consideration the extent to which the economic assumptions and the adjustment efforts are consistent with these views

3. Recognising the important commitments made by India in the India Letter, the Sri Lankan authorities will apply the principle of comparable treatment in respect of the debt relief requested and obtained from all their remaining official bilateral creditors

• SLOTS polling shows public maintains unfavourable and worsening views of all, although President Wickremesinghe had the least negative ratings in November

The latest Sri Lanka Opinion Tracker Survey (SLOTS) polling shows that the public continue to have deeply unfavourable views of all major political party leaders. 

UNP Leader President Ranil Wickremasinghe has the least negative favourability ratings, although by a small margin. The past three months have seen a fresh decline in favourability for most, giving back some modest gains since August. 

In November, President Wickremesinghe was viewed unfavourably by a net 46% of Sri Lankans, but this was still marginally better than other party leaders.

Opposition Leader and SJB Leader Sajith Premadasa had a net negative rating of 57%, not significantly different to that of NPP and JVP Leader A.K. Dissanayake, who had a net negative rating of 55%. 

Recent interviews suggest that Gotabaya Rajapaksa’s ratings may have started to recover from the deep lows (-80%) they maintained for most of the year, with his favourability rating recovering to a net negative 51% in November.

SLOTS has been tracking favourability of leading politicians daily since August 2021. 

Through the end of 2021, SLPP Leader President Gotabaya Rajapaksa, maintained an edge in favourability over Opposition Leader Sajith Premadasa. The economic and political crisis that hit at the start of the year then collapsed President Rajapaksa’s favourability and dragged down the favourability ratings of all politicians SLOTS tracks, with the public expressing unfavourable views of all by April 2022. 

From June, the favourability of the other party leaders began to recover but remained deeply negative through October, after which the latest interviews suggest the public is becoming more negative in their views.

Ranil Wickremesinghe maintained modestly more negative ratings than Sajith Premadasa through the end of 2021, but since the current crisis hit and following his election as President, his ratings have generally been slightly less negative. However, public views of both of them appear to have become more negative since September 2022.

IHP’s Sri Lanka Opinion Tracker Survey (SLOTS) is a telephone survey that interviews nationally representative samples of the public every day. SLOTS tracks favourability by asking respondents if they have a favourable or unfavourable opinion of a public figure or institution; net favourability being the average of the positive and negative responses. 

The question that SLOTS uses is a standard one used in similar surveys around the world. Scores range from +100 (everyone has a favourable view) to -100 (everyone has an unfavourable view). 

This is more an indicator of general sentiment about politicians than how people will vote, something that SLOTS tracks separately. For example, United States President Bill Clinton’s favourability ratings slid in his second term following personal scandals and impeachment, but his political support and job approval were lifted by a booming economy. 

The Institute for Health Policy (IHP), is an independent, non-partisan research centre based in Colombo, Sri Lanka. The SLOTS Lead Investigator is Dr. Ravi Rannan-Eliya of IHP, who was trained in public opinion polling at Harvard University, and who has conducted numerous opinion surveys over three decades.

Visiting US Under Secretary Nuland gestures during her media conference yesterday at the Movenpick Hotel, Colombo – Pic by Sameera Wijesinghe

• Visiting US Under Secretary Nuland says all major creditors working with IMF but China needs to do more
• Assures US ready to do its part with Paris Club members
• US wants IMF agreement in place as soon as possible to assist SL to overcome economic challenges
• Underscores need to strengthen democracy and governance
• Says proceeding with LG polls part of the process of strengthening democracy
• Calls for national dialogue on reconciliation, reforming of PTA
• Announces addition $ 30 m for school lunch program; brings total US support in past year to $ 240 m

By Chandani Kirinde

A visiting senior US State Department official said yesterday that China needs to provide more credible and specific assurances on its readiness to join other Sri Lanka creditors in meeting IMF standards on debt restructuring.

“All Sri Lanka’s major creditors have been working with the IMF. As the largest bilateral creditor, we expect China to provide credible and specific assurances regarding its readiness to join the rest of us in meeting IMF standards regarding debt restructuring,” Political Affairs Under Secretary Victoria Nuland said.

Nuland, who was on a brief visit, told journalists that the rest of Sri Lanka’s creditors were increasingly coming forward with assurances and now all eyes are on China to do the same.

“The US is prepared to do our part and our Paris Club partners are ready to do their part. India has made strong commitments it will provide the credible assurances that the IMF is looking for. What China has offered so far is not enough,” Nuland said in response to questions raised by journalists at the press briefing in Colombo.

She added that the US wants to see an IMF agreement in place as soon as possible to help Sri Lanka overcome the economic challenges it faces.

Nuland who met with President Ranil Wickremesinghe during her visit said that while the Government works to stabilise the economy and put Sri Lanka back on track to recovery and growth, strengthening democracy and governance too is vital.

This, she said, includes proceeding with the local Government elections scheduled for March thus giving people across the country a voice in their future.

“Last summer the Sri Lankan people made it clear their desire for a cleaner, more accountable Government and more prosperous and inclusive democracy. The US is proud to be Sri Lanka’s partner as you do the hard work to secure the future that all Sri Lankans deserve,” she said.

Nuland added that restarting the national dialogue on reconciliation and taking it forward so that it shows results for all Sri Lankans as well as reforming the Prevention of Terrorism Act (PTA) so that it meets international standards too are important.

The US official announced that the US will contribute $ 30 million to go towards school lunches for 96,000 students in 850 public schools bringing the total amount of US support in the past year to $ 240 million.

Nuland met with Foreign Minister Ali Sabry, representatives of minority political parties as well as a group of young climate activists and environmentalists during her visit.

• 3Q Group revenue up 27% to Rs. 68.24 b and by 47% to Rs. 208.8 b in nine months
• EBITDA up 9% to Rs. 10.41 billion in 3Q; impacted by one-off deferred tax charge on SAGT
• Cumulative Group EBITDA up 60% to Rs. 33 b
• Group PBT dips by 53% to Rs. 2.9 b in 3Q; Cumulative Group PBT doubles to Rs. 20.28 b
• JKH bottom line up 60% in 3Q to Rs. 1.98 b and to Rs. 14.87 b in nine months
• Declares second interim dividend of 50 cents per share

Diversified blue chip John Keells Holdings (JKH) yesterday reported impressive growth in revenue and operating profit for the third quarter but profit before tax (PBT) was impacted by much higher interest costs in comparison to

Chairperson Krishan Balendra

a year earlier.

JKH said 3Q witnessed the continuation of normal day-to-day consumer and business activity, supported by continued political and social stability and less disruptions on account of the macroeconomic challenges.

The Group revenue grew in 3Q by 27% to Rs. 68.24 billion and by 47% to Rs.208.82 billion in the first nine months of FY23. Group earnings before interest expense, tax, depreciation and amortisation (EBITDA) grew by 9% to Rs.10.41 billion in 3Q.

Balendra said this growth is despite the significant decrease in the contribution from the Group’s Property business, as compared with the third quarter of financial year 2021/22, which included the revenue and profit recognition from the handover of the residential apartments and commercial office floors at ‘Cinnamon Life’.

During the quarter, Group EBITDA was negatively impacted as a result of a one-off deferred tax charge in the Group’s Ports and Shipping business, South Asia Gateway Terminals (SAGT) on account of the significant change in income tax rates, amounting to Rs. 764 million, as the share of results of equity accounted investees are consolidated net of all related taxes.

Excluding the impact of the one-off deferred tax charge, Group EBITDA at Rs. 11.17 billion in 3Q is a 17% increase.  Cumulative Group EBITDA for the first nine months rose by 60% to Rs. 33.04 billion.

Group profit before tax (PBT) declined by 53% to Rs. 2.91 billion in 3Q and excluding the impact of the one-off deferred tax charge, it was a 41% increase to Rs. Rs. 3.68 billion in 3Q.

JKH Chairperson Krishan Balendra said apart from the impact of the lower contribution from the Group’s Property business as compared to the corresponding period of the previous year, and impact of the SAGT deferred tax charge, the lower PBT is mainly the result of higher finance expenses due to the significant increase in interest rates and working capital facilities, particularly in the Retail, Leisure and Consumer Foods industry groups.

“The increase in working capital is largely temporary on account of interventions to ensure continuity of supplies to minimise disruptions. The improvement in supply chains will enable the businesses to gradually revert to more normalised levels of working capital,” he said.

The PBT of the Holding Company was impacted by the translation impact of the IFC loan interest payment and the notional non-cash interest charged on the convertible debentures issued to HWIC Asia Fund in August 2022, in line with the accounting treatment, due to the significant difference between the market interest rates and the 3% interest payable on the instrument. Cumulative Group PBT for the first nine months doubled to Rs. 20.28 billion.

Profit attributable to equity holders of the parent grew by 60% to Rs. 1.98 billion in 3Q and for the nine months it was up by a similar percentage to Rs. 14.87 billion.

JKH declared a second interim dividend of 50 cents per share to be paid on or before 1 March 2023, taking into consideration the recent trend of dampened consumer sentiment amidst the continued elevated inflation and high interest rates and the possible business impact on account of the significant increase in personal income taxes from January 2023 onwards.

Apart from the Consumer Foods and Property industry groups, the Group’s businesses recorded growth in EBITDA compared to the third quarter of the previous year.

Following are highlights of JKH Group’s sectoral businesses.

The Transportation industry group recorded an increase in profitability due to its USD denominated revenue streams and resultant translation gains due to the depreciation of the Rupee as compared against the previous year.

The groundwork on the West Container Terminal (WCT-1) at the Port of Colombo is progressing well with the dredging works being rapidly completed. The contract for the quay wall construction, a significant component of the overall construction works, was awarded in October 2022. Overall timelines for the project remain as originally envisaged.

The Leisure industry group recorded a strong performance driven by the Maldivian Resorts and Colombo Hotels segments.

The Supermarket business recorded an EBITDA growth of 26% to Rs.1.99 billion due to an increase in same store sales driven by a combination of higher customer footfall and basket values due to high inflation. The overall profitability in the Retail industry group was impacted by a substantial decline in the EBITDA of the Office Automation business compared to the third quarter of the previous year.

Profitability in the Consumer Foods businesses were impacted by volume declines reflective of dampened consumer sentiments, and lower margins, although margin pressure is expected to ease off from the fourth quarter of 2022/23 onwards.

The Property industry group recorded a decline in profitability as the third quarter of the previous year included revenue and profit recognition from the handover of the residential apartments and commercial office floors at ‘Cinnamon Life’. The recognition of revenue of all units sold at ‘Cinnamon Life’ up to 31 March 2022 was recorded across 2021/22.

The Insurance business recorded a growth in the life insurance surplus and gross written premiums whilst Nations Trust Bank recorded an increase in net interest margins and a reduction in costs.

Balendra noted that the Central Bank expects inflation to reduce to low single digits by the end of this year aided by the continued tight monetary policy and favourable base effects together with the easing of global inflationary pressures.

 “The gradual tapering of inflation, reduction in global commodity prices and a less disruptive operating environment are expected to ease the pressure on margins from the fourth quarter onwards, particularly as we deplete raw material inventory acquired at higher costs,” he added.

• Merchandise exports up 5% to $ 13.07 b; falls $ 1.03 b short of original $ 14.1 b goal
• Service exports drop by 6% to $ 1.87 b
• Apparel and textiles top exports with $ 5.9 b up by 10%
• Tea, rubber and rubber-based exports record billion mark but struggle to outshine
• EDB Chief Suresh de Mel commends hard work and resilience of exporters
• US continues as top export market, followed by UK, India, Germany and Italy

Sri Lanka’s merchandise exports in 2022 achieved $ 13.07 billion, up by 5% from 2021 sustaining its resilience, but fell short $ 1.03 billion from the set target.

Export Development Board forecasted a total exports target $ 16.1 billion for 2022, consisting $ 14.94 billion from merchandise exports and $ 2 billion from service exports. The highest performance of total exports was $ 15.91 billion in 2018.

As per provisional data released by EDB yesterday, merchandise exports have sustained the growth momentum in the 12-month haul up by 4.6% from 2021, though the estimated value of services exports of last year decreased by 6% to $ 1.87 billion. The services exports estimated by EDB consist of ICT/BPM, construction, financial services and transport and logistics.

Expect apparel and textiles, electrical and electronic components and diamonds, gems and jewellery, and all the other key export sectors like tea, rubber, coconut, seafood, and spices underperformed in 2022.

“The hard work and resilience of the export community were reflected in last year’s results amidst unprecedented socioeconomic conditions in most part of 2022. They convinced buyers and delivered despite the hardships they faced internally to ensure ‘Made in Sri Lanka’ was out there in the global marketplace,” EDB Chairman Suresh de Mel told the Daily FT.

He said that the forecast of $ 16.1 billion in 2022 was challenging, amidst the recovery of global demand post-COVID, which required not only strong efforts from local enterprises amidst long power outages, fuel shortages, political instability, social unrest, and professionals in the service sector leaving for greener pastures.

Although the expected targets for 2022 were not possible to achieve, EDB Chief said as a country everyone should be extremely proud and supportive of the export sector’s immense contribution to the national economy at the worst times.

“Exports was ‘the only’ sector that generated a steady foreign exchange inflow to keep the economy afloat. The entire export workforce contributed a great deal to keep the economy steaming ahead by attracting scarce foreign exchange amidst extreme operating conditions. Thus, boosting exports and facilitating exporters should be made everyone’s priority right now,” de Mel said.

As per data December export figures also fell by 9.7% to $ 1.04 billion from 2021 mainly due to the decrease in export earnings from apparel and textiles, tea, rubber-based products, coconut-based products, food and beverages, spices and essential oils and fisheries products. However, the month sustained over $ 1 billion in performance.

It added the decline was due to the also the recovery of global demand, ongoing recession in major markets due to the rising cost of production, energy and predictions of a contracting economy going forward.

Major exports during January-December 2022

Apparel and textile export earnings increased by 10% to $ 5.9 billion in 2022 from a year earlier. Although export earnings from apparel increased by 10.74% to $ 5.48 billion year-on-year earnings from textile exports declined by 3% to $ 450.7 million in 2022 compared to 2021.

Electrical and Electronic Components (EEC) export income increased by 14.68% to $ 483.28 million in the period of January to December 2022 compared to the corresponding period of 2021. The export of insulated wires increased by 14.51% in the year 2022 to $ 80.96 million compared with the corresponding period of 2021. 

In addition, the export of printed circuits, switches/ boards and panels, electrical transformers and other electrical and electronic products increased by 75.54%, 12.81%, 3.34% and 16.51% respectively in the period from January to December 2022 compared with the corresponding period of 2021.

However, export earnings from seafood decreased by 1.81% to $ 269.02 million in the period from January to December 2022 from a year earlier. 

Export earnings from ornamental fish increased by 3.67% to $ 21.74 million in 2022 compared to the corresponding period of the year 2021.

Tea export earnings decreased by 4.95% YoY to $ 1.25 billion in 2022. Exports of all the subcategories of the tea sector except tea bags; tea packets (-5.57%), bulk tea (-4.52%), instant tea (-6.78%) and green tea (-23.8%) decreased in the period from January to December 2022 compared with the same period of 2021.

Rubber and rubber finished products export earnings decreased by 6.79% YoY to $ 1.01 billion in 2022 attributed to lower export of industrial and surgical gloves (-19.0%). Despite the decrease recorded in rubber exports, earnings from exports of pneumatic and retreated rubber tyres and tubes increased by 0.35% in the period of January to December 2022 compared with the same period of 2021. 

Export earnings from coconut and coconut-based products recorded a decrease of 2.27% YoY to $ 817.09 million. Although the increase recorded in exports of coconut shell products (11.12%), earnings from coconut fibre products and coconut shell products decreased by 6.34% and 3.42% respectively in 2022 compared to a year earlier. 

Spices and essential oils decreased by 18.93% to $ 370.3 million in 2022 compared to 2021 due to the poor performance in all the sub-categories; cinnamon (-5.75%), pepper (-33.34%), cloves (-42.12%), cardamom (-53.33%) and essential oils (-33.83%).

Sri Lanka’s export performance in major markets

Moderate export growth was recorded for the top 15 export markets from the period of January to December 2022.

In 2022, exports to the US – Sri Lanka’s single largest export destination, increased by 8.19% to over $ 3.31 billion recording a substantial performance compared to 2021. The better performance was driven by a boost in exports of apparel and textile (10.38%). 

Exports to the UK, as the second largest trading partner, recorded an increase to $ 966.04 million, up by 11.68% YoY, which was mainly driven by the expansion in apparel and textile exports (5.37%).

Exports to FTA partners

Exports to Free Trade Agreement (FTA) partners in 2022 accounted for 7% of total merchandise exports, increasing by 3% YoY to $ 934.9 million.

Although exports to India increased by 5% YoY to $ 854.88 million, exports to Pakistan fell by 13.5% YoY to $ 79.51 million.

Growth in Exports to India was mainly supported by increased exports of animal feed (11.75%), areca nuts (45.24%), woven fabrics (46.33%), and wood pulp (18.06%) from January-December 2022.

Sri Lanka’s export performance in regions

On a region-wise comparison exports to all regions except African and CIS countries, and exports to other regions increased during the year 2022 compared with the year 2021.

In 2022, the breakdown of exports to the top five EU markets accounted for 78% of Sri Lanka’s merchandise exports — Germany $ 744.57 million (down by 1.27%), Italy $ 640.18 million (up by 10.58%), Netherlands $ 428.27 million (up by 0.60%), Belgium $ 307.68 million (down by 7.97%) and France $ 257.52 million (up by 4.72%).