Ceylon Tourism Fund opens today to raise Rs. 500mn Tourism sector room capacity, service standards still low

July 28, 2010, 12:00 pm from island.lk  By Mario Andree

A mutual fund IPO is opening today to raise investments amounting to Rs. 500 million in listed stocks of companies in the leisure sector.

Ceylon Asset Management and Deutsche Bank AG have introduced a mutual fund, the Ceylon Tourism Fund, which would open today (28) for investments with a unit offered at an IPO price of Rs. 10.

The Fund hopes to mobilise Rs. 500 million within the next three months in hotels and tourism stocks listed on the Colombo Stock Exchange. The fund already has Rs. 200 million committed from both retail and institutional investors.

It will be invested in ten high performing companies, in the hotel and travel sector listed in the CSE. 95 percent of the funds will be invested in stocks while remaining five percent will be held as cash as per SEC guidelines (see Financial Review).

The country, at whole, is witnessing a huge tourism boom with the dawn of a new era. Hotel development projects are being worked out to cater to growing demand in many parts of the island, except in Colombo and the country’s infrastructure base is still inadequate to cater to top class tourists with high standards in service.

"Sri Lanka hopes to attract nearly 600,000 tourists this year, leading the way to achieving its goal of 2.5 million tourist arrivals by 2016. The Asian tourism market has substantially grown this year, and it has reached a growth rate of 11 percent for the first six months of the year," Chairman, Jetwing, Hiran Cooray said.

The growth rate of arrivals to Sri Lanka is a significant indicator that the hotel industry is on the verge of a boom and new projects are coming up to cater to the rising demand.

"Sri Lanka, before the war, enjoyed 400,000 tourist arrivals which declined significantly during the war period. The country now enjoys 450,000 tourist arrivals, which is a marginal growth for the last 30 years of development in the country," a report from John Keells Hotels said.

The country has a capacity of 14,000 hotel rooms, which are running at 50 percent occupancy levels on average. Hoteliers expect occupancy rates to increase substantially within the next year.

"The country needs more than 12,000 new rooms to cater to 2.5 million tourists by 2016 and the hotel industry would assist the government to achieve this goal, but in turn, the government needs to assist the hotel industry with much needed facilities for them to grow," a statement by Aitken Spence Hotels said.

Colombo is not expected to see more rooms developing in the zone to cater to the upcoming demand. It would at least be another 5 years for a project to take place in Colombo.

Colombo has a capacity of 3,200 rooms and only 2,000 of these are up to international standards, which is insufficient. Land prices in Colombo are too high for new projects to commence, sources said.