By Jithendra Antonio
Investment Banking is a quite a new area to Sri Lankan businesses. Top Investment Bankers, Nishan Sumanadeera had facilitated the top ‘Deals’, the biggest investments made by listed companies during last three years. In 2009, he facilitated the C.W. Mackie sale for Lankem Group worth over Rs.1.4 billion, in 2010 Confifi Hotel Group sale for LOLC and Browns group worth Rs.2.5 billion and this year Softlogic Holdings’ proposed acquisition of Asian Alliance Insurance worth over Rs.3.3 billion surpassing all big numbers of major acquisitions that took place in 2011. In an interview with Mirror Business, Sumanadeera said, Sri Lanka is not for Sale, but businesses will change hands at least one more time during the next decade, paving way for many opportunities. Excerpts:
Q: As an investment banker, explain how the Sri Lankan investment banking industry evolved in the last two decades?
Investment banking has evolved from being just an impressive word spoken in corporate boardrooms into real life, everyday solutions practiced and adopted by investment bankers and investors collectively to add shareholder value via capital market activities.
With the introduction of the Companies Act in 2007, legislation in Sri Lanka added more flexibility and diversity, which has undoubtedly helped investment bankers to innovate new solutions within the existing legal framework of the country. This was a welcome change, and I must say was the turning point of the industry.
With these changes together with capital market boom, current day Investment Bankers have the opportunity to provide a variety of services, which was far-fledged and unimaginable two decades ago.
Q: What are future Investment Banking opportunities?
Unprecedented. As an investment banker, you live in your own imagination; this is the essence of success. It is hard to find textbook investment banking solutions to complex real life opportunities. Every investment banking solution needs to be tailor-made and requires out of the box thinking. Imagination has no boundaries. It is only when the last tree has died and the last river has dried and the last fish been caught that the investment banker will run out of solutions.
Sri Lanka is not for sale but businesses will change hands at least one more time during the next decade paving way for many opportunities.
Decades ago, investment banking solutions revolved around resurrecting sick companies via restructuring, but today Merger and Acquisition (M&A) activities have become order of the day. I would see many opportunities in this area. Further, Sri Lanka needs capital to rebuild and grow in this post-conflict period. The capital available in Sri Lanka’s corporate sector is limited and it is here that Investment Bankers can play a major and catalytic role in promoting foreign direct and portfolio investment. Sri Lanka’s corporates must engage Investment Bankers with international reach in order to access foreign capital. For example, John Keells Holdings would not have been able to build South Asia Gateway Terminals if it did not access international capital markets via investment bankers in 1994. SAGT now contributes nearly 40% of JKH’s earnings.
Therefore, the role that Investment Bankers can play in developing Sri Lanka is immense.
Q: What are the future growth prospects, investment opportunities in Sri Lanka
Every emerging economy opens varying investment opportunities to investors. It is difficult to adopt one universally acceptable method to identify these opportunities. Opportunities are unique to each country, economy and market.
Sri Lanka is fortunate to be located in a strategic place on the world map. This is one of our biggest competitive advantages. Sri Lanka can easily emerge as the worlds next Transshipment/airline Hub, Financial Hub or the Tourism and Shopping Hub.
Q: What are the risks associated in investing in Sri Lanka?
Emerging Sri Lanka vouches for economic, regulatory and political stability, the hallmark of any good investment destination. No place on earth is risk-free, likewise no investment. Each country has its inherent risks factors, currently geopolitics affecting Sri Lanka should be an important factor in your watch list.
Private investment and Investment Banking needs policy consistency, coherence and transparency in order to flourish. Therefore the government should look to build on these areas which will in turn help build confidence in Sri Lanka’s capital markets.
Q: What are the best investment sectors in the CSE?
In an emerging market, as Jim Rogers said, you need to own a bank, brewery and a newspaper. The Banking sector will always remain, as a proxy to any emerging economy whilst beverages and media would have more than proportionate growth.
Sri Lanka is historically known to be a travel destination; hence the leisure and travel sector would always remain in the top drawer. There will be new lines of tourism; many people will come to Sri Lanka for their medical and higher education needs paving way for new opportunities. These new opportunities coupled with ageing Sri Lankan population will help health and education sectors to have a phenomenal growth. The infrastructure development, which is considered as the most, promising opportunity by emerging market investors, also should remain in your shopping list.
Q: How do you cope through CSE’s ups and downs?
It is generally easy to deal with matured investors because they understand the risk involved in capital market activities. It is retail investors that require frequent advise.
As a seasoned investor you generally invest funds in different asset classes with varying risk return combination. Investment in the stock market is an art not a science.
Q: In your observation, what factors are considered by mature companies when buying assets in certain sectors?
There are many factors considered by investors prior to engaging in an M&A deal. Some of these opportunities can be considered once in a lifetime, a dynamic businessman would not want to miss. It is their vision, dynamism, business acumen that drives them towards these opportunities. Mature companies and investors do not place too much significance on past financial performance, more weightage would be given for business synergies. Historical financial information cannot be considered a yardstick of the future growth potential as it has been proved wrong many times. Most of these mergers and acquisitions have happen depending on investment objective, appetite and style of the respective investor.
Q: What are the new investment banking deals you are working on?
There is considerable interest shown by some foreign and local corporates to utilize capital market activities to increase shareholder value to their businesses. Many deals are in the pipeline, and some of these are likely to unfold soon.
We are also looking to buy companies in key growth sectors as outlined previously.
Q: Which of your recent ‘Mergers’ excite your imagination most?
No transaction has yet reached my desired levels of satisfaction and excitement. Facilitation of reverse takeover of Kapila Heavy Equipment PLC (KAPI) by MTD Capital Bhd, excited me most.
Q: In an increasingly competitive environment, how do you source your deals?
It is the trust, respect and confidence; I have earned over the years as an investment banker helps me to secure mandates.
Q: How does your legal & financial background help you function as an Investment Banker?
To do an M&A deal, you need to have a lawyer, accountant and stockbroker. Each of these professionals looks after different aspect of the transaction. Having all 3 qualifications helps me understand and respect the viewpoints of the others while it gives me the competitive advantage in the industry.
View original article at source – Dailymirror.lk