Wednesday, May 31, 2023

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Sri Lanka to call for competitive bids for state owned enterprise sales

By: Staff Writer

Colombo (LNW): The Government has made a commitment to the International Monetary Fund to unlock the US$2.9 billion bail out loan. It will roll back the state’s involvement in the state owned enterprises and restructure it in public private partnerships or selling such assets to private investors.

But all previous regimes were compelled to continue to expand its holdings and tighten its control with their politically appointed stooges as heads of such state enterprises.

This practice has led to the downfall of these entities making it loss making institutions and burden to the country.

Sri Lanka will adopt a competitive bidding process for asset sales and will shortly call for expressions of interest from transaction advisors to support the divestment program, the state enterprise re-structuring unit sources divulged.

All assets will be sold through a competitive bidding process and no unsolicited bids will be accepted.The first step will be to select transaction advisors.

It will work with development financial institutions and qualified and experienced consultancy firms to provide transaction advisory services after the transaction advisors study the companies, the unit will call for bids.

Sri Lanka’s cabinet of ministers has given the go ahead for the sale of SriLankan Airlines including Sri Lankan Catering which has large volumes of debt from losses after it was taken back to state management from Emirates.

Sri Lanka Telecom, Sri Lanka Insurance Corporation, Litro Gas Lanka Ltd/Litro Gas Terminals Pvt Ltd, Canwill Holdings Pvt Ltd which owns the Grand Hyatt building, Hotel Developers (Hilton) are also in the list.

The total loss of the key 52 SOEs was Rs.726.9 billion for the first eight months of 2022 of which 31 SOEs recorded a profit before tax of Rs. 134.9 billion and the balance, 21SOEs reported a net loss of Rs. 861.7 billion.

Notably, 99 percent of the total loss has been generated by three SOEs namely, CPC, CEB, and Sri Lankan Airlines (SLA) totaling a cumulative loss of Rs. 854.5 billion from these entities. These three entities have been loss making for years which has resulted from debt overhang warranting cost reflective pricing for CPC and CEB and restructuring of SLA to mitigate large fiscal risks.

The levy/dividend collection dropped to about Rs. 17.8 billion in the first eight months of 2022 due to the contraction of the economy.

The transaction advisors will assist in “sell-side due diligence, valuation, data room creation, transaction strategy and marketing” of the firms, according to a statement from the re-structuring unit.

In addition to getting immediate cash from asset sales, helping boost cashflows, the government will also bet a share in any higher future profits under private management through corporate income tax, not counting turnover taxes.The debt of SriLankan Airlines will be re-structured before a divestiture.

According to IMF program related documents, a plan to restructure debt of several state companies including SriLankan Airlines has to be approved by cabinet by June 2023 under a structural benchmark involving a World Bank program.

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