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By Ravi Ladduwahetty

The returns of the Colombo bourse are the highest in the Asian region and that is why we are confident that we will get the anticipated returns from it, Veteran investor Dhammika Perera told the Daily News in an interview at the Colombo Hilton yesterday. His Fund Manager Nimal Perera was also present at the interview.

The market is still in the growth stage and has become very active over the past couple of months. It has provided good returns for investors. At present it is depressed because local investors are over-reacting to the political currents which are sweeping society today, he said.

He said that his message to investors was not to follow him:

When we are making a strategic investment, sometimes we pay a premium price in getting the required shareholding. Therefore it can be unwise to follow our purchases. So, if a retail investor merely follows us, he will be paying a premium price which he should not be paying. We may be buying on the short term so it will be unwise to chase the stocks that we are buying, he said.

Question : What prompted you to invest in the Colombo Stock Exchange?

Answer : We have been in the business of developing our own companies mainly in shipping, Hydro-power, entertainment and in specialized technology development. For the corporate growth, we wanted to see the opportunities offered by the Colombo Stock Exchange. The Colombo bourse offered a wide range of high potential, value- for-money investment opportunities and better returns than the other regional markets. I realised that by selecting certain investment sectors that we can cut down the time taken for the introductory phase of business and move directly into the growth phase.

Q: What is your assessment of the market today?

A: The market is still in the growth stage and has become very active over the past couple of months. It has provided good returns for investors. At present it is depressed because local investors are over reacting to the political scenario. I am confident that the market will turnaround after investors properly assess the ground situation and the fundamentals of both the country's economy and companies. It is a buyers' market. It offers substantial potential for medium to long term returns both in terms of capital gains and dividends.

With the political uncertainty looming over the market, foreign funds have taken over the investments. They have taken over the fundamentally sound stocks due to the panic buying. Looking at the purchases that is so. That is the situation as at now.

Q: Are you confident that you will get the anticipated returns?

A: Yes I'm very confident. In my strategic investments, I always look for Earnings Per Share, dividend yield. The capital growth will happen as a result of the improvement of Net Asset Value (NAV) of the business. If you look at the regional markets, LIBOR (the London Interbank Operating Rate) has come down which means that profits also have come down. The returns are not as high as in the Colombo Stock Exchange. That is why we are confident that we will get the anticipated returns from the Colombo bourse. If you look at the interest rates on the Fixed Deposits, and also the Treasury Bills, the returns are better in the stocks and equities.

Q:.What prompted you to invest in the National Development Bank, your first investment ?

A: We have been studying the market for a some time and looking for a strategic investment opportunity. At that moment with the advice of Nimal Perera, who has been my long term Fund Manager, we selected NDB as our first strategic investment. NDB was purchased purely on fundamental values of the stock. We considered it as one of the best buys at the time. We have been playing the share market for four years, prior to going for the NDB shares. That triggered the market, giving a lot of interest to the others as well.

Q: Today, you are the single largest equity stake of NDB (10 percent). Then 29 percent each of LB Finance and Royal Ceramics and now 38.65 percent of Connaisance De Ceylan. Your portfolios are well diversified. What is your ultimate aim ?

A: Firstly, I do not have the controlling shares of NDB, though I am the single largest individual shareholder. The main objective being to transfer our business acumen to the companies we participate and invest in, thereby adding value to these organisations. Ultimately we would be contributing to the economic development and well-being of our society.

Q: Is it that your aim to enter the Board of these companies through strategic investments or playing the market purely for short term/long term profits?

A: I would like to give you a good analogy regarding our standing on this issue. When you mine for gems, you get a variety of stones. With your senses you identify the valuable gems from the rest. These are just like our strategic investments, which synergies with our core business activities. NDB, Pan Asia Bank, Royal Ceramics, LB Finance and Connaisance De Ceylan are our strategic investments. We have board representation in these companies.

Vallibel Holdings have investments in gaming, power generation and shipping. The investment is done through the CSE. Vallibel comes under the investment part. We have these four core businesses. It is a large group turnover. Investments are a part of the business and that is driven through the Colombo Stock Exchange. These are long term strategic investments and the financial stability. This was done on the basis that the anticipated returns would come from another sector.

If the manufacturing sector is not doing well for some reason, then we have the stability and the returns coming from the financial and tourism sectors. We are in the process of construction of power generation projects. There is a third project in the pipeline and that is a 5 Megawatt hydropower project at Ginigathena around Rs. 400 million.

Q: Are you investing in these companies in an individual capacity as Dhammika Perera, or as from your company-Vallibel Holdings?

A: So far I have invested in these companies in an individual capacity. The reason behind this is that I always ensure that I take the personal risk and responsibility of identifying and selecting the most appropriate investments before it is transferred to our corporate portfolio. We are in the process of screening and we will be transferring to Vallibel Holdings. We are not going to take any risks.

Q: If it is under Vallibel Holdings, would you consolidate the earnings and have the company as a consolidated holding ?

A: We are looking into the possibilities of consolidating these holdings under Vallibel Holdings. Even now the Management expertise comes from Vallibel Holdings.

Q:. Now that you have the controlling shares of Connaisance, what are your development plans ?

A: We should stop the bleeding first. We have planned our medium term strategy to turn Connaisance in to a world class travel and leisure company.

In the long run we are planning to develop two more hotel properties, one in the East Cost and another down south. Investments are made very fast. The investments speed is one thing and the development speed is another, which is much slower. people think that these are the same. Connaissance has been making losses up to Rs. 90 million. At least, it should be reaching break even point.

Q: What are the motels that you are talking of ?

A: We are thinking of one in the Eastern Coast, which is very likely to be either Passikuddah or Tricomalee. The other will be in the South.

Q: How many rooms are you going to plan in the South ?

A: It has not been decided yet. That will be a long term plan.

Q: How long?

A: We would consider it as five years and beyond that.

Q: With this background, will you be investing in other hotel stocks such as Aitken Spence and John Keells, as most of the top hotels in the JKH Group are listed ?

A: No, at present I do not have any plans.

Q: You have invested in banking and finance, manufacturing and hotels. Will the next sector be plantations?

A: No, we already own a plantation company. Though, in the past I have bought plantations stocks as short-term investments at present we are not looking at the plantations as a strategic investment sector.

Q: Why ?

A: We have bought plantation stocks in the past and the market is rife with speculation as to whether we will be continuing to get into that as well. These were short term investments. Within two years, we will not be looking at the plantation sector as a strategic sector. We will consolidate in the sections those we are in.

Q: There is intense speculation that a part of the 29 percent equity stake in the Commercial Bank stake in the Insurance Corporation, amounting to 15 percent, will be offered to a party outside the strategic investor. Will you be interested ?

A: We have a large exposure to the financial sector and at present we are consolidating on it. We will not be interested in this stake. If you look at our diverse array of portfolios in the financial sector, we are already into commercial banking through our investments in Pan Asia Bank. We are already in development banking and investment banking through NDB. With our purchase of LB Finance, we are also into the leasing business. So, our exposure to the financial services industry is quite large. We would consolidate our investments in these rather than invest in other banks. We will not be interested in the Commercial Bank stake.

Q: You told this newspaper in an interview soon after the Connaisance purchase (Daily News-October 17, 2002) that your message to investors is not to follow the stocks you purchase. Why ?

A: Yes, I would say that again. When we are making a strategic investment, sometimes we pay a premium price in getting the required shareholding. Therefore it can be unwise to follow our purchases. So, if a retail investor merely follows us, he will be paying a premium price which he should not be paying. We may be buying on the short term so it will be unwise to chase the stocks that we are buying.

Q: What are your message to potential investors?

A: Look at stocks that are fundamentally strong, follow market research. Do not listen to rumours. Look at the research reports and the fundamental value of the stocks and buy those which are fundamentally good. Even if there is a dip in the price, there will be a higher return eventually. Following rumours is dangerous.

Q: What are your future plans and what are the new stocks that you are aiming at?

A: We are opportunity driven - no new plans at this moment of time.

Q: What is your source of funds?

A: Vallibel Holdings core business activities are divided into five main sectors namely Power and Energy, Shipping, Entertainment, Technology and Investments.

Our sources of funds are from internally generated funds from our core business activities and facilities obtained from Seylan, Sampath and Commercial Banks.

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