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Tuesday March 28th, 2023

Sri Lanka protestors determined to see back of president despite surprise curfew

GotaGoGama, the makeshift agitation site, was attacked by government supporters by May 09, leading to retaliatory mob violence

ECONOMYNEXT – Thousands of Sri Lankans plan to march into Colombo on Saturday July 09 demanding the resignation of President Gotabaya Rajapaksa and his government, and despite police throwing a spanner in the works by imposing a surprise curfew Friday evening, organisers are determined to go ahead.

Protestors had planned to congregate in the heart of the capital and occupy the Colombo Fort area adjacent to the President’s House, forcing him to finally step down after nearly four months of vociferous, nationwide demands for his departure.

Sri Lanka’s youth-led anti-government protests, launched in late March, have been largely leaderless, but several organisations and groups have come to represent the movement over the past few months, though not without allegations of indirect opposition party involvement.

One of the organisers of Saturday’s planned events, Nipun Tharaka, said the curfew will not stop them.

“This is Gotabaya Rajapaksa’s handbook. We came to the streets last time. He can expect the same tomorrow. We’re not afraid of their guns, tear gas or their water canons. Hit us or kill us, we’re ready,” he said.

“We joined the protest prepared to sacrifice ourselves, and that has not changed. We are ready,” he repeated.

The Bar Association of Sri Lanka (BASL) has come out strongly against the curfew order, noting that it is illegal and that the police have no authority to impose such a curfew.

Chaminda Dias, another protestor, said soon after the news broke about the curfew: “We will go ahead. I’m seething right now. What a spineless coward.”

The curfew, imposed in seven police divisions across Colombo, has been imposed “until further notice”, and police said anyone living within those boundaries must stay indoors. Violating the curfew, police said, will be considered disturbance of the peace.

Udara Prasad, 27, from the central district of Kandy, left his three sisters and mother for the protests, mainly to “fight for his sister’s future.”

“We are seasoned protestors now, used to tear gas and water canons. So shoot us, disperse us; we will come back stronger. Last time, it was the same story, as it will be this time. Now that we have experience on the battlefield, we are coming back stronger,” said Prasad.

If the protest proceeds as planned, both the youth participants and some opposition parties will engage in separate protests demanding the resignation of Rajapaksa, Prime Minister Ranil Wickremesinghe and the rest of the government.

Sri Lanka is in the throes of the worst economic crisis in its 74-year post-Independence history, with unprecedented forex shortages leading to crippling shortages of essentials including fuel. The ongoing protests, referred to as the Aragalaya (or struggle), which began in late March culminated in an Occupy Wall Street-style permanent agitation site named GotaGoGama (Gota Go Village) right outside the presidential secretariat near Galle Face, Colombo.

The protests had remained peaceful until things took a turn when supporters of former Prime Minister Mahinda Rajapaksa launched an unprovoked attack on peaceful protestors at GotaGoGama (GGG) and its sister site MynaGoGama (aimed at the then PM) on May 09, which triggered a storm of retaliatory mob violence against government ministers, MPs and their backers. One ruling party MP was killed.

The Galle Face protests subsequently reduced in intensity and crowd strength, particularly following incumbent Prime Minister Ranil Wickermesinghe’s replacement of Mahinda Rajapaksa, but skyrocketing commodity prices and a worsening fuel situation that’s resulted in miles-long queues for petrol have seen a quiet resurgence of public anger against the government.

Organisers expect Saturday’s protest to revitalise the Argalaya.

Sarika Siriwardhane, founder of Yellow for Democracy, said trains will be coming from Kandy with protestors, but it is unclear at present how the curfew will affect these plans.

“Some protestors started walking from Kurunegela to Colombo on Thursday. This is also seen as the End Game, having one final push to remove President Rajapaksa. The date was chosen as it marks two  months since the May 09 incident,” she said, Friday morning.

Sri Lankans abroad will also be joining the protest from their cities in support of the movement, particularly in countries like Canada, France, the Netherlands, Germany and Switzerland.

One protestor, who is a celebrity actor and a known affiliate of the opposition Janatha Vimukthi Peramuna (JVP)-led National Peolpe’s Power (NPP), Jagath Manuwarana, told EconomyNext on Friday that the organisers have reached outto all political parties who he said have expressed their support in urging the president to step down.

“Mutual agreements have been made with these parties. Upon sending Rajapaksa home, they can resume their own political agendas,” he said.

Government members have accused the leftist JVP and the Frontline Socialist Party (FSP) of being behind some of the retaliatory violence on May 09, an allegation both partie have flatly denied. Some other protestors have also complained of the Aragalaya being “hijacked” by parties with vested interests, pointing in particular to the Inter University Student Federaton (IUSF) widely seen as being affiliated with the FSP.

The IUSF organised a protest march to Colombo on the eve of the July 09 mass agitation, as a curtain raiser for Saturday’s event. The march came under heavy police teargas fire Friday afternoon as the protest intensified.

The authorities, meanwhile, continue to warn against possible outbreaks of violence on Saturday, but the organisers say they’re determined to keep the proceedings free of incident.

US Ambassador to Sri Lanka Julie Chung asked both sides to act peacefully. Violence is not the answer, she tweeted Friday afternoon.

Resident Coordinator for UN Sri Lanka Hanaa Singer-Hamdy echoed similar sentiments.

Fr Jeewantha, a Catholic priest who has become a face of the GotaGoGama agitation site, said: “People assume there will be violence because of the numbers turning out and news about the protest has circulated on social media. We have always been protesting peacefully and will continue to do so.”

Organisers expect a crowd of 60,000 protestors that will occupy Fort and sine 40,000 rolling in protestors that will come and go from the site.

Nuzly Hameem, civil activist and active protestor at GotaGoGama said: “The people are angry, overall people are angry and frustrated over the turn of events with the government.”

W P Harin, 26, said the fight isn’t over yet.

“This country is ours, ours to live in, ours to fight for. Just because some goon imposed curfew doesn’t mean the fight stops. It means the battle begins,” he said. (Colombo/Jul08/2022)

Comments (2)

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  1. Bandu says:

    I would prefer to say, said Rajapakse regime actually exacerbated and helped daylight the downfall of the economy and governance, which has been happening for the past 30 to 40 years since JRJ’s ‘almost can make a man a woman’s constitution. Ills were hidden for seasonal and periodical reasons but were existing to a greater or lesser extent.
    No excuses. Every politician since getting rid of the British Rule must bear the responsibility to a greater or lesser extent. True, during the past 10 years, the downfall was accelerated, became obvious and created the current pitiful situation.
    Why didn’t they see they needed to pay off the part of the foreign debts in 2021 and thereafter have a honeymoon period prior to and save for that? Curtail borrowing? Corruption? Lack of common sense? This has only highlighted the ineptness of the self-centred, selfish, corrupt, ignorant lot of politicians and their administrative and civil acolytes. Their sins created the current suffering of ordinary citizens, while they enjoyed the pleasures of power and money they have acquired and accumulated through legal and illegal means. That’s where the root was and is.
    Time to destroy this system and start the painful process of rebuilding. Most people would be ready to bear the pain happily, knowing it is for the sake of future generations.

  2. bandu says:

    It is disappointing to hear only 100,000 people would take part in the July ’09 protest (in Colombo) to represent 22 million citizens. I’d expect at least a million people, countrywide should protest, not only to warn the current regime and its stooges but the international community, including the US, who overtly and covertly support and supported the corrupt regimes globally through and throughout history.
    This behavior of most Lankans who wait on the sidelines at home safe and sound for the others to suffer for them is pathetic.

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Your email address will not be published. Required fields are marked *

  1. Bandu says:

    I would prefer to say, said Rajapakse regime actually exacerbated and helped daylight the downfall of the economy and governance, which has been happening for the past 30 to 40 years since JRJ’s ‘almost can make a man a woman’s constitution. Ills were hidden for seasonal and periodical reasons but were existing to a greater or lesser extent.
    No excuses. Every politician since getting rid of the British Rule must bear the responsibility to a greater or lesser extent. True, during the past 10 years, the downfall was accelerated, became obvious and created the current pitiful situation.
    Why didn’t they see they needed to pay off the part of the foreign debts in 2021 and thereafter have a honeymoon period prior to and save for that? Curtail borrowing? Corruption? Lack of common sense? This has only highlighted the ineptness of the self-centred, selfish, corrupt, ignorant lot of politicians and their administrative and civil acolytes. Their sins created the current suffering of ordinary citizens, while they enjoyed the pleasures of power and money they have acquired and accumulated through legal and illegal means. That’s where the root was and is.
    Time to destroy this system and start the painful process of rebuilding. Most people would be ready to bear the pain happily, knowing it is for the sake of future generations.

  2. bandu says:

    It is disappointing to hear only 100,000 people would take part in the July ’09 protest (in Colombo) to represent 22 million citizens. I’d expect at least a million people, countrywide should protest, not only to warn the current regime and its stooges but the international community, including the US, who overtly and covertly support and supported the corrupt regimes globally through and throughout history.
    This behavior of most Lankans who wait on the sidelines at home safe and sound for the others to suffer for them is pathetic.

Sri Lanka stocks weaken for the second session on profit taking

ECONOMYNEXT – Sri Lanka’s stocks closed weaker on Tuesday for the second consecutive session mainly driven by month-end profit-taking by investors, according to brokers.

The main All Share Price Index (ASPI) closed down 0.56 percent or 51.81 points to 9,233.40.

The market has been on a downward trend since last week as investors are adopting a wait-and-see approach until more clarity is given regarding local debt restructuring after the International Monetary Fund approved the extended loan facility.

“The market is down as the selling trend continues,” said Ranjan Ranatunga of First Capital Holdings, speaking to EconomyNext.

“As there is a price decline in all shares across the board, combined with the month ending followed by margin calls, the market continued on a downward trend.”

The market generated a slow and thin turnover of 860 million rupees.

The main contributor to the turnover is Lanka IOC, following news that the Sri Lanka cabinet has granted approval for three oil companies from China, the United States, and Australia in collaboration with Shell Pl to lease 150 fuel stations for each company to operate in the local market.

The fears of debt restructuring mainly affected the banking and financial sectors, which dragged the index down for the day.

The market saw a net foreign inflow of 30.9 million rupees, and the total offshore inflows recorded so far in 2023 are 1.01 billion rupees.

The most liquid index, S&P SL20, closed 0.81 percent or 21.68 points down at 2,656.30.

The market saw a turnover of 860 million on Tuesday, below this year’s daily average of 1.8 billion rupees.

Top losers were Vallibel One, John Keells Holdings, and Hatton National Bank.

Analysts said the downward trend is expected to continue for the rest of the week as profit-taking is expected to continue. (Colombo/March28/2023)

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Sri Lanka rupee closes weaker at 325/328 to dollar, bond yields up

ECONOMYNEXT – Sri Lanka’s treasury bond yields were up at close on Tuesday and the rupee closed weaker in the spot market, dealers said.

A 01.07.2025 bond was quoted at 31.20/60 percent on Tuesday, up from 30.75/31.00 percent on Monday.

A 15.09.2027 bond was quoted at 28.25/29.00 percent, up from 28.10/60 percent from Monday.

Sri Lanka rupee opened at 325/328 against the US dollar steady, from 322/325 from a day earlier. (Colombo/ March28/2023)

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Sri Lanka Telecom on track rating upgrade track on planned stake sale: Fitch

ECONOMYNEXT – Sri Lanka Telecom has been place on watch for a possible rating upgrade after the government, which has defaulted on its sovereign debt said it will sell down its majority stake.

“The rating reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5 percent stake in the company,” the rating agency said.

“Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which
may take more than six months.”

The agency said it expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending due to consumers increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation.

The full statement is reproduced below;

Fitch Places Sri Lanka Telecom’s ‘A(lka)’ Rating on Watch Positive

Fitch Ratings – Colombo – 27 Mar 2023: Fitch Ratings has placed Sri Lanka Telecom PLC’s (SLT) National Long-Term Rating of ‘A(lka)’ on Rating Watch Positive (RWP).

The RWP reflects the potential rating upside due to weakening linkages with SLT’s parent, the government of Sri Lanka (Long-Term Local-Currency Issuer Default Rating: CC), due to the government’s plan to sell its 49.5% stake in the company. Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months.

SLT’s ratings are currently constrained by its parent’s weak credit profile under Fitch’s Parent and Subsidiary Linkage (PSL) Rating Criteria. SLT’s Standalone Credit Profile (SCP) is stronger than that of the state, reflecting the company’s market leadership in fixed-line services, second-largest share in mobile, ownership of an extensive optical fibre network and a strong financial profile. The extent of SLT’s rating upside, following the proposed disposal, will depend on the credit profile of its new parent, the linkage strength with SLT according to our PSL criteria, and the proposed funding structure.

KEY RATING DRIVERS

Disposal Plan: SLT announced on 20 March 2023 that the Sri Lankan cabinet has granted in-principle approval to sell the 49.5% stake in SLT held by the state. The disposal is part of a plan to restructure state-owned entities (SOEs) to improve the state’s financial position. SLT said steps have yet to be taken to identify potential buyers and it will take at least eight to 12 months to finalise the transaction. We believe the government will push through the disposal as SOE restructuring is an integral part of the IMF’s financial support to Sri Lanka.

Sovereign Ownership Pressures Rating: We assess the legal ring-fencing and access and control between SLT and the state as ‘Open’ under the PSL criteria, given the absence of regulatory or self-imposed ring-fencing of SLT’s cash flow and the government’s significant influence over the subsidiary’s operating and financial profile. SLT’s second- biggest shareholder, Malaysia-based Usaha Tegas Sdn Bhd with a 44.9% stake, has no special provisions in its shareholder agreement to dilute the government’s influence over SLT.

Higher Rating: However, the PSL criteria allows for a stronger subsidiary to be notched above the weaker parent’s consolidated profile in extreme situations, such as when a parent is in financial distress but the subsidiary continues to operate independently and its banking access appears unaffected. We do not believe SLT is at risk of default in the next 12 months, as it has sufficient liquidity and its debt does not carry cross-default clauses that can be triggered by the parent’s distress.

SLT’s ‘A(lka)’ rating therefore reflects its relativities with national peers, but is still below its SCP due to the drag from state ownership. We apply our PSL criteria because our Government-Related Entities (GRE) Rating Criteria states that in cases where the SCP of the GRE is higher than the government’s IDR, the relevant considerations of the PSL criteria will be applied to determine whether the IDR of the GRE is constrained or capped at the government’s rating level.

Weak Demand in 2023: We expect SLT’s revenue growth to slow to a low single-digit percentage in 2023 amid weakening consumer spending. Consumers are increasingly prioritising essential needs, such as food and medicine, as real income has fallen significantly following the currency depreciation and unprecedently high inflation. SLT’s subscriber numbers and minutes of usage have already fallen in 2022. Competition has also intensified, especially in the mobile segment, leading to lower realisation of recently introduced tariff hikes.

Weak demand should be offset to an extent by increased migration to SLT’s fibre-to-the- home (FTTH) network, from its own copper network, and subscriber additions. FTTH carries higher revenue per user than the copper network. SLT had 475,000 FTTH connections, a 35% increase yoy, by end-2022.

Weakening Profitability: We expect SLT’s EBITDA margin to narrow to around 34% in 2023 (2022: 35.6%) amid lower demand and ongoing cost escalations. All telecom operators increased tariffs by 20%-25% in late 2022 to tackle falling margins. However, the realisation into revenue remains weak, especially in the mobile segment, due to deep price cuts by one of the smaller operators and falling demand. SLT’s fixed-line business is able to maintain stable EBITDA margins due to the recent tariff hike and the FTTH segment’s higher revenue per user.

Leverage to Stabilise: We expect SLT’s EBITDA net leverage to remain around 1.3x in 2023 (2021: 0.9x, 2022: 1.3x) amid falling profitability. However, its leverage is strong for the rating. We expect capex of around LKR25.0 billion annually over 2023-2024 on network upgrades and expanding its fibre infrastructure.

Interest-Rate Hikes, Currency Depreciation Manageable: We expect SLT to maintain its EBITDA interest coverage closer to 4.0x over 2023-2024 (2022: 4.4x) despite interest rates rising almost threefold. Most of SLT’s debt is on variable interest rates, which will raise costs. SLT’s foreign-currency revenue, which accounts for 10%-12% of group revenue, is more than sufficient to meet the group’s foreign-currency operating expenses and interest costs. SLT had around USD10 million in foreign-currency debt at end-
December 2022, compared with USD40 million in foreign-currency cash deposits.

Sector Outlook Deteriorating: Fitch expects the average 2023 net debt/EBITDA ratio for SLT and mobile leader Dialog Axiata PLC (AAA(lka)/Stable) to remain around 1.3x (2022: 1.3x) amid weak margins and high capex. We expect sector revenue growth to slow to 8% in 2023 (2022: 15%), while the average 2023 EBITDA margin for SLT and Dialog should narrow to 31% (2022: 32%) amid low usage and high costs.

DERIVATION SUMMARY
SLT’s SCP benefits from market leadership in fixed-line services and the second-largest position in mobile, along with ownership of an extensive optical fibre network. SLT has lower exposure to the crowded mobile market and has more diverse service platforms than Dialog. However, Dialog has a larger revenue base, lower forecast EBITDA net leverage and a better free cash flow (FCF) profile than SLT. Dialog is rated at ‘AAA(lka)’, while SLT’s rating is under pressure because of the state’s weak credit profile.

SLT has a larger operating scale than leading alcoholic-beverage manufacturer Melstacorp PLC (AAA(lka)/Stable), which distributes spirits in Sri Lanka through its subsidiary, Distilleries Company of Sri Lanka PLC (AAA(lka)/Stable). Melstacorp is exposed to more regulatory risk in its spirits business because of increases in the excise tax, but this is counterbalanced by its entrenched market position and high entry barriers.

Consequently, the company can pass on cost inflation and maintain its operating EBITDA margin, supporting substantially stronger FCF generation than SLT.

KEY ASSUMPTIONS

Fitch’s Key Assumptions within Our Rating Case for the Issuer:

– Revenue growth to slow to 4% in 2023 amid falling subscriber numbers and lower usage due to weakening consumer spending;

– Operating EBITDA margin to narrow by 150bp to 34% in 2023 due to higher costs and lower volume;

– SLT to continue capex on expanding its fibre and 4G network with LKR25 billion spent annually in 2023 and 2024;

– Effective tax rate of 28% from 2023;

– Dividend payout of 33% of net income over 2024-2025

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

– Fitch will resolve the RWP when the proposed disposal becomes practically unconditional, which may take more than six months, and once Fitch has sufficient information on the new majority shareholder’s credit profile and linkages with SLT and the proposed funding structure.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– Fitch would remove the RWP and affirm the National Long-Term Rating at ‘A(lka)’ with a Stable Outlook if the proposed disposal does not proceed and the linkages with the state remain intact.

LIQUIDITY AND DEBT STRUCTURE

Manageable Liquidity: SLT’s unrestricted cash balance of LKR14 billion at end- December 2022 was sufficient to redeem its contractual maturities of around LKR11 billion. SLT’s short-term working-capital debt amounted to another LKR10.0 billion and we expect the company to roll over the facilities given its solid access to local banks.

Liquidity is further enhanced by about LKR15 billion in undrawn bank credit facilities, although these are uncommitted. SLT typically does not pay commitment fees on its undrawn lines, although we believe most banks will allow the company to draw down the funds because of its healthy credit profile.

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