Sri Lanka state sell-down proposals spell new direction

Oct 09, 2010 (LBO) – Planned sell-downs of two state enterprises charts a new direction in Sri Lanka’s post-war economic strategy that can make state firms more transparent and also boost capital markets, analysts said.

During the year the firm had given back 4,000 billion rupees to the parent in a share-buy back, which earned a 3.97 billion for the parent.

But the catering firm’s dues from the parent were also brought down to 2.3 billion rupees from 5.7 billion rupees.

Even at a profit of 635 million rupees, the firm would be worth about 6.3 billion rupees, on a price earnings multiple of 10 times. The broader Colombo market is trading at more than 25 times now basking in a post-war euphoria and low interest rates.

Of the 2.7 billion rupee revenues of SriLankan Catering, 1.6 billion rupees came from the parent. Future profits of the firm will depend on transfer pricing mechanism it will employ.

SriLanka chief executive Manoj Gunewardene says catering transactions are already ‘arms length’ but before a sell down a policies on transfer prices will have to be disclosed.

So far the catering firm has been profita