By Duruthu Edirimuni Chandrasekera
Sri Lankan businesses are experiencing distress investments leading to mergers and acquisitions which will increase in the coming months, industry officials say.
There will most definitely be distress investing which is essentially investing in good companies with bad balance sheets – possibly through foreign capital, Murtaza Jafferjee, CEO JB Stockbrokers told the Business Times on Monday.
Firms with unstable capital structures where the debt load is too high or difficult to refinance, or because they are restricted in meeting current debt covenants are susceptible for this type of investing.
Noting that the hotel sector is the most prone in this situation, Mr. Jafferjee said that it will also see the fastest upside.
He added that most firms are preparing for long winters (long periods to survive) and that pretty much all sectors except for specific projects are at a standstill.
Analysts say that most companies are doing the bare maintenance of Capital expenditures (CapEx). “There are definitely no Greenfield ventures,” an industry analyst in the finance sector said. A top accountant agreed noting that since it is exceedingly difficult for new businesses to borrow, the business landscape is very lacklustre.
He said that smaller companies are looking to exit and even big firms are looking to sell out. “They are looking to get out and start businesses and trading houses in neighbouring Singapore and Dubai.” He also added that larger businesses are buying the smaller companies at a bargain and sometimes these deals materialise. “As of now his company is doing some merger deals on hotels and construction companies,” he said. “Right now, firms are barely getting by. The petrol and diesel situation is not the only hurdle they have to battle. Incessant cost escalation, difficulties in importing raw materials and general government bureaucracy are stifling the mindset of businessmen and businesses in turn.”
Umasudhan Subramaniam, CEO Universal Mind Mapper, a firm dealing in business analysis, said that some companies with high financial leverage are expected to witness lower profit margins.
He added that the macro situation has to be stabilised and even then, it will take at least another 18 months for the companies to return to normal business.
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