Ranil slams stock market mafia

Prime Minister Ranil Wickremesinghe on Tuesday slammed corrupt sections of Sri Lanka’s private sector to the extent of naming businessmen like Dilith Jayaweera and Nimal Perera.

“There are a number of allegations of violations of the Colombo Stock Exchange market rules and Securities and Exchange Commission regulations. The minor ones were compounded. Thirteen large cases were abandoned purportedly on a lack of evidence,” he told parliament. He noted that were not probed or were settled when it should have been probed further.

“I would like this to be recorded in the Hansard. I have requested the Securities and Exchange Commission to go into these cases. If necessary, I will bring legislation to permit such inquiry. I am also seeking the appointment of a Parliamentary Select Committee to inquire into these transactions. Since some of the issues raised are under consideration by the committee, I prefer to give an answer elaborately after the report is submitted. We plan to table this report in Parliament.”

He further said, “We have created a free and fair climate for the business community. They are free from fear and intimidation. This applies to the media in this country too. There are no threats, intimidation or trips in white vans.”

The Premier also said that ‘it’s high time they turn the searchlight into areas that have remained a virtual “no go zone” in the past.’

Nimal Perera unfit to head a bank

“Take for example the banking sector. Take the name of Nimal Perera at Pan Asia or Ranee Jayamaha of Hatton National Bank. Who are they and how did they benefit from certain political personalities of the previous administration? How can Mr. Perera head a bank given the large number of surveillance referrals made to the Colombo Stock Exchange?

The National Savings Bank purchased 13 per cent of The Finance Company at Rs. 50 per share. That is Rs. 20 above market value. The mastermind behind this was Ajith Devasurendera and Dinal Wijemanne. Today, The Finance Company has recorded accumulated net losses of Rs. 16 billion.”

He also added that former Chief Justice Shirani Bandaranayake’s private bank records were forcibly released by the then management of the National Development Bank (NDB) against all norms relating to confidentiality of client data. “It is for those in the banking industry to turn the searchlight inwards. They are not casinos or gambling dens. There are time-tested traditions and conventions.”

He said that similarly in the business sector a closer examination of some of the players becomes inevitable. “Take for example Dilith Jayaweera. His roles in the Colombo Land and Development Company and the Reef Comber have to be probed by the authorities. 

Another such instance is Scott Newman and Kosala Heengama. Similarly their roles in Environment Resources Investments require very close scrutiny. Take the case of John Keells – the Government’s decision to cancel the casino licences has resulted in shareholders dumping their shares. This is the only way to show their protest against questionable choices by the management.”

How much was spent for the country’s development and how much went to fatten the purses of those corrupt is slowly but surely unfolding, he said, adding that sooner than later, the people of this country will realise how their monies have been squandered.

“This sorry state of affairs came about against much touted claims of prosperity. The Central Bank had made losses for the past three years though self-acclaimed financial wizards, through devious campaigns, spoke of growth and gains,” he said, adding that millions of dollars were spent, without express approval by the Cabinet Ministers, on a string of public relations companies in an extravaganza of promoting Sri Lanka.
www.sundaytimes.lk

Pan Asia poised for expansion

By Duruthu Edirimuni Chandrasekera

The Pan Asia Bank is gearing to strengthen its Return on Equity (ROE) levels in a bid to attract more investment, primarily for expansion, officials say.

“Now ROE is at 10 per cent and our targeted ROE is 15-16 per cent by 3Q this year. This we feel will be an appropriate time for us to tap the shareholders (for funding) mainly for our expansions,” Dimantha Seneviratne, Director/CEO Pan Asia told the Business Times, adding that this is in line with the regulatory direction for higher capital requirement.

In the midst of the consolidation debate, the Rs. 80 billion balance sheet bank, Mr. Seneviratne said is gearing for organic growth. Mr. Seneviratne insists that Pan Asia is comfortable with retail and Small and Medium Enterprises (SME) driven organic growth. 

“When big banks are concentrating on large scale business, the scope for SME and retail become that much more. This is what we’re focusing on,” he added.During the past 3-4 years, Pan Asia has added 35 branches to its total of 78 branches. “We’re eyeing more expansion, he added. “We’re having an asset target of Rs. 100 billion by year end.”

The year began on a low key as the bank’s lending portfolio, which had a significant exposure to pawning related products, had taken a hit in 2013, as did the rest of the industry with the drop in global gold prices, he said, adding that this saw muted profits and higher Non Performing Advances. “We evolved our risk management strategies including hedging arrangements to manage the down side risk which enabled us to curtail losses and systematically reduce this exposure. The diversification of lending and focus on Retail and SMEs enabled us to record a 34 per cent growth in advances, well above the industry average”.

The CEO who’s an year old in this job added that in this challenging backdrop, it was indeed an honour to be recognised as the ‘Fastest Growing Commercial Bank in Sri Lanka 2014′ by London based Global Banking and Finance Review and also with the award for the ‘Most Innovative Banking Product in Sri Lanka 2014′ for Pan Asia Bank’s ground breaking product ‘Sammana’ which is a loan product for pensioners.

The bank has large plans to enhance its corporate image. “We have an idea to reorganise our image – it’s still at a nascent stage,” he added.

Pan Asia’s net interest income rose from Rs. 2.095 billion to Rs. 2.740 billion last year, recording a growth of 31 per cent. As a result, net interest margin improved by 13 per cent to 3.82 per cent. “We were also successful in improving our Non Interest Income by 21 per cent to Rs. 1.392 billion, diversifying the revenue sources,” Mr. Seneviratne added.

By the end of 2014 the bank’s Core Capital Ratio (Tier 1) stood at 8.97 per cent as against the statutory minimum requirement of 5 per cent whilst the Total Capital Ratio strengthened to 14.19 per cent (from 11.91 per cent in 2013) against the statutory minimum requirement of 10 per cent.
www.sundaytimes.lk

SEC halts UDA debenture, calls for audited accounts

The Securities and Exchange Commission (SEC) has halted the Urban Development Authority’s (UDA) Rs. 10 billion debenture issue and called for its audited accounts of 2012 and 2013, officials said.

The state entity was gearing to launch the bond for low-cost housing before last year end, but owing to the political changes it was put off. “When they had made a fresh application, we saw that they hadn’t audited their accounts for the past two years. 

Earlier they had approval to launch the debenture as they had got a state backed guarantee. Now they haven’t got it as the Treasury hasn’t done so,” a Colombo Stock Exchange (CSE) official told the Business Times. This was also confirmed by a SEC official.

Last week the UDA sent the 2012 accounts to the CSE but the exchange is awaiting the 2013 accounts.

“We’re waiting to close our financials and then we will announce the debenture,” a UDA official told the Business Times.

He said the UDA had got calls daily from interested parties on this debenture last year as the earlier budget proposed an exemption on the interest or discount accruing from the investment in any Corporate Debt Security issued by on or after 1 January 2015. This is not the case now.
www.sundaytimes.lk

SEC swamped with complaints over stock trades

The Securities and Exchange Commission (SEC) has received a ‘substantial’ number of complaints during the past two months pertaining to share market misconduct, SEC sources say.

“We have received files full of complaints. Some are with names and some anonymous,” a source told the Business Times. She said these complaints range from manipulation, insider dreading, pump and dump, stockbrokers and investment advisors misleading smal shareholders, trading on accounts under third party names, etc.

Recently addressing the National Law Conference of the Bar Association of Sri Lanka under the theme ‘Sri Lanka Legal Summit 2015 – Governance, Regulation and Investment – The Way Forward’, Thilak Karunaratne, Chairman SEC said many stocks were pumped and dumped on unsuspecting investors during a stock market bubble which peaked around 2011, adding that those who lost money during the period are still calling and making complaints against some brokers and margin providers to the SEC.

“I am trying to do justice to those who got really played out,” he said, adding that the amendments to the SEC Act may take up to 18 months to be passed in parliament. The new law will no longer allow serious frauds to be “compounded” or to settle with a fine without agreeing to guilt and there will be provisions to encourage whistle blowing and to give bounties.

According to the SEC official, it maybe sometime before all this will be screened. She added that they will have to prioritise.

“We don’t know where to start from, because we’re swamped,” she added.

Industry analysts noted that confidence in the new regime has prompted all these complaints.
www.sundaytimes.lk

Parliamentary probe on stock market ‘pump and dump’

Slow and steady wins the race. That appears to be the formula, with fresh winds blowing, at Sri Lanka’s watchdog stock market regulator, the Securities and Exchange Commission (SEC).

Slow, it seems, is the way it is progressing in investigations that were shelved by the former administration. To add to the woes, still around at the SEC are a few senior officials who went beyond their brief to woo the earlier powers-that-be. To the new administration’s dismay they continue to hold office and either block or slow the process of vigorously re-starting investigations against corporate fraudsters and white collar criminals who greedily resorted to ‘pump and dump’ in the market some years back.

This scenario is similar to what is happening at the Foreign Ministry where officials, who were at the beck and call of the former regime and did their biding, continue to hold positions. ‘Yahapalanaya’ means one is not guilty until decided by the law and thus these once arrogant and corrupt officers continue to hold sway. Action needs to be swift otherwise the public is losing patience with an administration that is only seen as talking, and not acting speedily against the enormous corruption that occurred during the last regime.

Pressure on the Government to deliver on what was promised may also be the reason why Prime Minister Ranil Wickremasinghe assured Parliament this week that a Parliamentary Select Committee (PSC) would be appointed to probe serious violations in the past few years in the stock market.

Thank heavens … he didn’t appoint a (in-house) committee – like the 3-member committee probing the allegedly, tainted Treasury bond issue – to oversee the manipulations of the stock market mafia.

The Prime Minister, in attacking mode in parliament, named and shamed prominent corporate personalities and professionals like Nimal Perera, Ranee Jayamaha, Ajith Devasurendera, Dinal Wijemanne, Dilith Jayaweera, Scott Newman and Kosala Heengama in driving home the corruption that prevailed in the past.

Conflict of interest questions have also been raised, in the past, over the appointment of retired Central Banker Dharma Dheerasinghe to the board of the Commercial Bank after heavy EPF investments in the banking sector. Along with him the appointment of Preethi Jayawardene was also questioned at that time. There are many others connected, directly and indirectly to the stock market whose names have figured in dubious transactions. All these need not only a proper but also a transparent investigation. 

Naming and shaming the earlier individuals seems unfair (furthermore protected by parliamentary privilege) if the due process of the law isn’t followed where they are able to clear their name if there is no evidence to prove they were guilty. On the other hand, finding hard evidence is what is grappling the Government at the moment as in many instances the culprits have left no paper trail or vanished with the files or hard disks!

PM Wickremasinghe has taken the right step in recommending a parliamentary-led probe which is as independent as it can get to investigate the stock market.

While a parliamentary committee could also include MPs who backed corrupt individuals who are being probed, this is still a welcome and transparent move unlike the step taken by former President Mahinda Rajapaksa to force the removal of Thilak Karunaratne (a few years after his predecessor Indrani Sugathadasa resigned in disgust over pressure from the ‘mafia’) at the behest of a group of powerful players in the market, who had the gumption to advise Rajapaksa that the SEC’s strict regime of rules was killing the market. The real reason for enforcing the rules was massive pump and dump trades in which small 

investors lost badly while other tainted deals like the NSB purchase of shares in The Finance Co (TFC) meant the SEC had to crack the whip. The NSB deal linked to insider dealing was subsequently reversed and is an example that is increasingly being suggested in the latest case of the Treasury bond issue (ie. cancel the February 27 bond issue). If matters are clean as the Government attempts to infer in the controversial bond issue, the Central Bank should have – as reported in the Sunday Times a few weeks back – officially informed market dealers on February 26 (when the Government decided to urgently raise Rs. 15 billion in bonds) that they plan to increase the accepted offer and submit fresh bids by the next day, February 27 when the auction was closing.

Meanwhile another step towards ensuring governance and ethics in the stock market is the formation of a body to protect small shareholders, primarily those who have invested their hard-earned retirement funds in multiple stocks in small quantities starting as low at 200-500 shares.

Such investor protection bodies are active in the West and parts of Asia and work closely with the regulator, while maintaining their independence. During a symposium in Colombo this week on protecting small investors, SEC Chairman Thilak Karunaratne referred to the emergence of such a small investors group mooted by the Business Times which however didn’t succeed due to infiltration by elements connected to the mafia.

Small investors fall into two categories – investors (who have assets and wealth) but belong to a minority in the overall shareholdings of a company and middle-class investors who buy a few shares in companies. Noted Good Governance activist K. C. Vignarajah, driver of the proposed small investors association, refers to both categories of investors as independent minority shareholders (IMS), a term he coined himself that has come to stay and accepted in the market.

The forum to create awareness about protection mechanisms while being a laudable idea didn’t appear to address the people who actually deserve to be protected. Small, middle-class investors cannot afford even a Rs. 1,000 fee to attend an event like this. In hindsight the SEC should have picked up the tab for this event and offered a free invitation to all – including for example members of the path-breaking Kurunegala Small Investors Association – to attend the event, which should also have had a Sinhala translation (or even presentations). That is if the motive and objective of the organisers of the event was to reach out to the majority of investors who are small, middle class individuals.

The forum was dominated by corporate lawyers (many who are like the metaphor “a double-edged sword”) spoke on the rights of small investors and providing them clues to assert their rights against the big corporates. In the presentations, there should have been a balance of both corporate lawyers and others who understand the simple needs of small investors like for example the inability to read annual reports (also in English) and now to challenge high profile board directors surrounded by corporate secretaries and powerful lawyers – and in quite a few cases where company employees have been donated shares to make up the numbers and shout down ‘troublesome’ small shareholders at AGMs!

In today’s world, money talks! Given a choice between being hired by a board of directors (read: fat fee) or a group of small investors, seeking justice and able to pay a small fee, to which side will a corporate lawyer eventually turn to? Your guess is as good as mine.

Here is a suggestion: The SEC needs to make small investors welcome to seek advise or make complaints at its head office. An environment must be created at the office where small investors are not only welcome but seen as being welcome (the front desk needs to be polite, warm and welcome to everyone irrespective of their status), and a special unit set up to meet investors and process their complaints, concerns and even suggestions.

Bringing sanity to the stock market and ensuring a level playing field for all investors – big or small – is a tall order for the new administration which many hope will succeed.
www.sundaytimes.lk

Aloysius family exits JV with Browns

By Duruthu Edirimuni Chandrasekera

Four days after the controversial Treasury bond issue on February 27, the Aloysius family exited from its joint venture with the Browns Group.

On March 3, the Aloysius family company Perpetual Holdings Ltd (part of Perpetual Capital) sold its 50 per cent stake in FLC Joint Venture Company (Pvt) Ltd to Brown Investments PLC, bringing Browns’ total ownership to 100 per cent. FLC Joint Venture Company (Pvt) Ltd was a joint venture between Browns Investment PLC and Perpetual Holdings Ltd.

Ishara Nanayakkara has been appointed new chairman of the company, taking over from G.R. Aloysius who resigned along with G.A. Aloysius.

It was a Perpetual firm, Perpetual Treasuries owned by bond trader Arjun Aloysius and family, that figured in the Rs.10 billion bond deal floated by the Central Bank. Following allegations of insider trading, Arjun’s father-in-law Central Bank Governor Arjuna Mahendran – who has vehemently denied any wrongdoing – went on leave on Monday pending the investigation, with an announcement that Senior Deputy Governor P. Samarasiri will act on his behalf.

It was unclear whether the Browns group bought out the Aloysius family stake to distance itself from the controversy surrounding the bond issue.

FLC Holdings PLC, formerly Free Lanka Capital Holdings PLC, is a diversified holding company operating as an investment holding company, with interests in plantation and power, leisure and real estate sectors, tea and rubber manufacturing, boutique hotels and hydro power generation.

With this latest transaction, the Aloysius family company Perpetual Capital has severed connections with the Browns Group, but sources close to both companies insist they remain great friends.

“This was purely a business decision for Browns. In the current business environment, Browns wants to expand in related sectors,” a Browns official told the Business Times.
www.sundaytimes.lk