Franklin Templeton has been advising the Sri Lankan government to begin listing the assets earmarked for sale as a mechanism to both raise short-term funds and provide better public oversight of state-owned enterprises.
Templeton, drawing on their experience in Romania noted that listing was one of their major goals as and when they took control of management and partial equity stake in entities within Romania.
Templeton Deputy CEO of Corporate Strategy Marius Dan noted that listing was a good way of raising short-term funds without losing any control. He said, “It could help Sri Lanka from doing any fire sales now. It would help the government with any short-term funding gaps.”
Dan was speaking at an International Chamber of Commerce Sri Lanka webinar on December 3 on the SOE Restructuring Options for Sri Lanka. Currently, the legal framework of the country and stock exchange have worked obstinately to prevent the functioning of a dollar settlement system locally. Listed entities with huge foreign currency receivables and operations are prevented from paying dividends in foreign currency. The dollar board of the local stock exchange is inactive as the simple procedural shift to allowing bids and asks in dollar terms isn’t functioning.
Even the tea auctions are prevented from invoicing in dollar terms and instead, the industry relies on the largesse of entities closer to the consumer to remit the funds back into the country. Recent falls in dollar liquidity in the banking sector can be attributed to large anomalies in the remittance base. Speculation against the local currency has become a self-fulfilling trading strategy.
Templeton benefitted hugely by first taking over Romanian assets and subsequently marketing them to international investors. Dan said, “We attracted a lot of institutional investors into the country. We marketed Romania globally. We attracted US 1.5 billion in portfolio investment which represents the largest foreign investment in any Romanian country since the fall of the communist regime in 1989.”
The State Milk Corporation for instance can attribute a large proportion of its losses to a nutritional subsidy provided to the broader populace. These losses were offset by taxes elsewhere in the economy, but such practices became unsustainable with the gutting of the tax base.
Dan noted that Templeton’s involvement in Romania was largely operational with no real investment. They noted that simple pricing fixes would easily make many state operations sustainable. Of the involvement in the Romanian electricity provider, he said, “The company was selling electricity with huge discounts and losing US 250 million to US 300 million annually. We took steps to stop that value destruction. In 2012 the company started making money and last year it made US$ 800 million and over 90% of that is distributed to the government.” DP