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Saturday May 25th, 2024

SriLankan Airlines to restructure US$680mn in debt, slashing costs to survive after Covid-19

AFRICAN AIRLIFT: Three SriLankan Airlines discharging supplies at O R Tambo International Airport in Johannesburg, South Africa.

ECONOMYNEXT – SriLankan Airlines is in talks to get 75 million dollars of new finance, re-structure around 400 million in bank debt and also reduce staff to survive in the post-Covid-19 environment, top officials said.

SriLankan owes about 220 million US dollars to state-run Bank of Ceylon and 187 million US dollars to the People’s Bank on which they are paying interest on time.

Chairman Ashok Pathirage said the cabinet of ministers had given the approval to re-structure the debt and also get 75 million US dollars in new loans from the two banks.

The airline wanted to convert the short term debt to long term debts with a grace period so that a part of the capital could also be serviced.

“That will also be good for the banks,” Pathirage said.

SriLankan has been paying interest on time, but the loans had been rolled over. A 6 million dollar interest payment on dollar bond would also be paid this month on time, he said.

SriLankan owed 275 million US dollars to state-run Ceylon Petroleum Corporation, which has been bank rolling its operations.

Pathirage said the airline also wanted to re-structure, the debt in whole or in part.

SriLankan also had a 30 million dollars remaining in a facility from Credit Suisse which was being paid down.

SriLankan had also asked for a capital infusion from the government in an original restructuring plan approved early this year, which could not be fully put into effect when the Coronavirus crisis hit.

The cabinet of ministers had agreed to lift withholding tax from aviation which would save the airline about 30 to 40 million US dollars a year. Interest costs were about 67 million US dollars.

In the year to March 2020 SriLankan had lost about 130 million US dollars.

SriLankan was internally cutting costs to make it viable in the long term.

“We started the process of before the crisis,” Pathirage said. “If anything it accelerated it. We have to make hard decisions. The airline does not want to be a burden.”

He said SriLankan had an important role to play in the growth of Sri Lanka but that had to be done without making large losses.

SriLankan was one of the few airlines that were operating as many airlines were grounded as the Coronavirus crisis worsened.

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SriLankan’s 80 million dollar revenues had dropped to about 20 million US dollars now with carrier taking cargo and repatriating passengers.

The airline had sent 407 contract staff on no pay leave, cut salaries and also halted about 500 outsourced workers to survive the crisis, taking the cadre to about 6,000, saving about 30 million US dollars a year in costs.

SriLankan was planning a voluntary retirement scheme for about 500 staff, subject to regulatory approval.

“This will be completely voluntary, nobody would be forced to leave,” Pathirage said.

Chief Executive Vipula Gunatilleke said the carrier had re-negotiated with suppliers and shaved off about 30 million US dollars a year in costs.

Talks were also underway with lessors on aircraft for which high lease rentals are being paid.

“We are negotiating with the lessors,” Pathirage said. “These are legacy costs that we have to deal with.”

SriLankan had lost about 130 million US dollars in by March 2020, but had broken even in the month of January when Covid-19 hit, Pathirage said. (Colombo/June22/2020)

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Melco’s Nuwa hotel to open in Sri Lanka in mid-2025

ECONOMYNEXT – A Nuwa branded hotel run by Melco Resorts and Entertainment linked to their gaming operation in Colombo will open in mid 2025, its Sri Lanka partner John Keells Holdings said.

The group’s integrated resort is being re-branded as a ‘City of Dreams’, a brand of Melco.

The resort will have a 687-room Cinnamon Life hotel and the Nuwa hotel described as “ultra-high end”.

“The 113-key exclusive hotel, situated on the top five floors of the integrated resort, will be managed by Melco under its ultra high-end luxury-standard hotel brand ‘Nuwa’, which has presence in Macau and the Philippines,” JKH told shareholders in the annual report.

“Melco’s ultra high-end luxury-standard hotel and casino, together with its global brand and footprint, will strongly complement the MICE, entertainment, shopping, dining and leisure offerings in the ‘City of Dreams Sri Lanka’ integrated resort, establishing it as a one-of-a-kind destination in South Asia and the region.”

Melco is investing 125 million dollars in fitting out its casino.

“The collaboration with Melco, including access to the technical, marketing, branding and loyalty programmes, expertise and governance structures, will be a boost for not only the integrated resort of the Group but a strong show of confidence in the tourism potential of the country,” JKH said.

The Cinnamon Life hotel has already started marketing.

Related Sri Lanka’s Cinnamon Life begins marketing, accepts bookings

(Colombo/May25/2024)

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Sri Lanka to find investors by ‘competitive system’ after revoking plantations privatizations

ECONOMYNEXT – Sri Lanka will revoke the privatization of plantation companies that do not pay government dictated wages, by cancelling land leases and find new investors under a ‘competitive system’, State Minister for Finance Ranjith Siyambalapitiya has said.

Sri Lanka privatized the ownership of 22 plantations companies in the 1990s through long term leases after initially giving only management to private firms.

Management companies that made profits (mostly those with more rubber) were given the firms under a valuation and those that made losses (mostly ones with more tea) were sold on the stock market.

The privatized firms then made annual lease payments and paid taxes when profits were made.

In 2024 the government decreed a wage hike announced a mandated wage after President Ranil Wickremesinghe made the announcement in the presence of several politicians representing plantations workers.

The land leases of privatized plantations, which do not pay the mandated wages would be cancelled, Minister Siyambalapitiya was quoted as saying at a ceremony in Deraniyagala.

The re-expropriated plantations would be given to new investors through “special transparency”

The new ‘privatization’ will be done in a ‘competitive process’ taking into account export orientation, worker welfare, infrastructure, new technology, Minister Siyambalapitiya said.

It is not clear whether paying government-dictated wages was a clause in the privatization agreement.

Then President J R Jayewardene put constitutional guarantee against expropriation as the original nationalization of foreign and domestic owned companies were blamed for Sri Lanka becoming a backward nation after getting independence with indicators ‘only behind Japan’ according to many commentators.

However, in 2011 a series of companies were expropriation without recourse to judicial review, again delivering a blow to the country’s investment framework.

Ironically plantations that were privatized in the 1990s were in the original wave of nationalizations.

Minister Bandula Gunawardana said the cabinet approval had been given to set up a committee to examine wage and cancel the leases of plantations that were unable to pay the dictated wages.

Related

Sri Lanka state interference in plantation wages escalates into land grab threat

From the time the firms were privatized unions and the companies had bargained through collective agreements, striking in some cases as macro-economists printed money and triggered high inflation.

Under President Gotabaya, mandating wages through gazettes began in January 2020, and the wage bargaining process was put aside.

Sri Lanka’s macro-economists advising President Rajapaksa the printed money and triggered a collapse of the rupee from 184 to 370 to the US dollar from 2020 to 2020 in the course of targeting ‘potential output’ which was taught by the International Monetary Fund.

In 2024, the current central bank governor had allowed the exchange rate to appreciate to 300 to the US dollar, amid deflationary policy, recouping some of the lost wages of plantations workers.

The plantations have not given an official increase to account for what macro-economists did to the unit of account of their wages. With salaries under ‘wages boards’ from the 2020 through gazettes, neither employees not workers have engaged in the traditional wage negotiations.

The threat to re-exproriate plantations is coming as the government is trying to privatize several state enterprises, including SriLankan Airlines.

It is not clear now the impending reversal of plantations privatization will affect the prices of bids by investors for upcoming privatizations.

The firms were privatized to stop monthly transfers from the Treasury to pay salaries under state ownership. (Colombo/May25/2024)

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300 out of 1,200 Sri Lanka central bank staff works on EPF: CB Governor

ECONOMYNEXT – About 300 central bank staff out of 1,200 are employed in the Employees Provident Fund and related work, Governor Nandalal Weerasinghe said, with the function due to be transferred to a separate agency after a revamp of its governing law.

“When it comes to the EPF there is an obvious conflict of interest. We are very happy to take that function out,” Governor Weerasinghe told a forum organized by Colombo-based Advocata Institute.

“We have about 300 staff out of 1,200 including contract staff, almost 150 of permanent staff is employed to run this huge operation. I don’t think the central bank should be doing this business,”

The EPF had come under fire in the past over questionable investments in stocks and also bonds.

In addition, the central bank also faced a conflict of interest because it had another agency function to sell bonds for the Treasury at the lowest possible price, not to mention its monetary policy functions.

“There has been a lot of allegations on the management of this fund. This is the biggest fund of the private sector; about 2.6 million active, I think about 10 million accounts.

“When it comes to EPF, obviously there’s another thing. We obviously have, in terms of resources, on the Central Bank, that has a clear conflict because we are responsible for the members.

“We have to give them a, as a custodian of the fund, we have to give them a maximum return for the members.

“For us to get the maximum return, on one hand, we determine the interest rates as multi-policy. On the other hand, we are managing public debt as a, raising funds for the government.

“And on the third hand, this EPF is investing 90 percent in government securities. And also, interest rates we determine, and they want to get the maximum interest. That’s a clear conflict, obviously, there’s no question.”

A separate agency is to be set up, he said.

“It’s up to the government or the members to determine to establish a new institution that has a trust and credibility and confidence of the members that this institution will be able to manage and secure an interest and give them a reasonable return, good return for their lifetime savings,” Governor Weerasinghe said.

“The question is that how whether we have whether we can develop that institution, whether we have the strong institution with accountability and the proper governance for this thing.

“I don’t think it should be given completely to a private sector business to run that. Because one is that here we have no regulatory institution. Pension funds are not a regulated business.

“First one is we need to establish, government should establish a regulatory agency to regulate not only the EPF business fund, there are several other similar funds are not properly regulated.

“Once we have proper regulations like we regulate banks, then we can have a can ensure proper practices are basically adopted by all these institutions.

“Then you can develop an institution that we who can run this and can be taken back by the Labour Department. I’m not sure Labour Department has the capacity to do all these things.”

While some EPF managers had come under scrutiny during the bondscam and for questionable stock investments, in recent years, it had earned better returns under the central bank management than some private funds that underwent debt restructuring according to capital market analysts with knowledge of he matter. (Colombo/May24/2024)

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