Sri Lanka plantations say land limit unfair for shareholders, hit investor confidence
ECONOMYNEXT – Sri Lanka’s regional plantation companies said a government 2017 budget proposal to limit landholdings to 5,000 acres would be “potentially ruinous”, unfair for shareholders and erode investor confidence.
The PA said there was a “distressing lack of clarity” around core aspects of last week’s budget proposal, presented by Finance Minister Ravi Karunanayake in what he called an effort to make plantations more efficient.
The PA warned that the proposal would have a “detrimental impact . . . on domestic and international investor confidence” since it would mean the revocation of the 53-year land lease agreement between the government and RPCs.
“With 23 years currently completed on the lease, the Government’s proposal to disregard this agreement and totally disrupt the investments that have been made into these estates, half-way through a lease agreement, could only be seen as arbitrary and retroactive in nature,” the statement said.
The PA also warned against the injustice that such measures would cause RPC shareholders, made up of a diverse spectrum of institutional and private investors.
“Given that all of Sri Lanka’s RPCs are publicly listed companies, the proposals would amount to a serious disruption of prestigious publicly traded companies that have supported the development of the Sri Lankan economy for decades.”
The PA said the proposal would fragment plantation estates, which would compromise the sector’s ability compete within economies of scale, and lacked legal, regulatory or procedural mechanisms to enforce it.
“In the case of some RPCs, the proposal could result in a slashing of RPC estates from 25,000 acres down to 5,000, all with no clear mechanisms for objective evaluation of the lands, a review and appeals process or plans for the relocation of estate communities as a result of the proposed restructuring.”
The PA also drew attention to the impact of the proposals on RPC liabilities, which are funded through borrowing from domestic banks.
With substantial extents of RPC land having previously been advanced as collateral to support bank borrowing, the PA cautioned that Sri Lanka’s banking sector could also be placed in jeopardy. This was because of the high exposure that the banking sector maintains to date in the plantation industry.
(COLOMBO, Nov 17, 2016)