CIFL case: Court further extends interim order till 24 February

Depositors of Central Investment & Finance Ltd. (CIFL) brought to the cognisance of the Court of Appeal that though the Directors of CIFL have sought permission from the Court to carry out certain functions of the CIFL, these activities are, in fact, not prevented.

When their Writ petition was taken up last week before the Bench comprising Justices Anil Goonerathne and Malinie Gunaratne, they moved the Court to record the functions indicating the paragraph 22 of the objections of the existing Directors in order to grant permission for (a) collecting monies due to the CIFL, (b) exercising the mortgages under the properties given as securities to CIFL and liquidate the same and (c) to recover the funds which had been siphoned out of CIFL to the subsidiary Companies of ASPIC Corporation by perpetuating a fraud on CIFL.

The Court further extended till 24 February the Interim Order issued on 27 September against Central Investment & Finance Ltd., staying the operation of the Monetary Board’s direction to convert its 60% deposit liabilities into Non-Voting Shares. The matter is fixed to be taken up on 21 February.

Depositors filed their Writ petition complaining of alleged unlawful and activities in breach of Finance Business Act by CIFL.

Deputy Solicitor General Janak de Silva undertook to obtain information from the Central Bank in relation to the minute paper of the Monetary Board decision in respect of the implementation of the appropriate regulatory measures to encourage cash-strapped institutions to revive and be restructured.

The Depositors cited the Monetary Board, Central Bank Governor Ajith Nivard Cabraal, Finance Ministry Secretary Dr. P.B. Jayasundera, the Central Bank, Director of the Department of Supervision of Non-Bank Financial Institutions, Chairman of CIFL Roscue A. Maloney, and its Directors.

Faisz Musthapha PC with Mangala Niyarapola instructed by Derrick Samarasekara Associates appeared for the Petitioners.

The Petitioners are seeking a Writ order from the Court compelling and/or directing the Monetary Board, the Central Bank Governor, the Finance Ministry Secretary, the Central Bank and the Director of Supervision of Non-Bank Financial Institutions to take steps to have the CIFL to pay the depositors the deposited monies in CIFL, the capital and interest.

They state CIFL represented that it was established in 1966 and registered with and/or licensed by the Monetary Board and that it was revealed from the Notes of the Auditors of the Annual Report of the CIFL the presence of certain irregular dealings of CIFL.

They complain that commencing from February 2013 CIFL has started refusing to release the deposits and the relevant interest payments of those deposits which had matured.

They allege they had been deliberately and fraudulently deceived and cheated by CIFL, which was facing severe liquidity issues.

They bemoan the true picture of unlawful activities, which were in clear breach of the Finance Business Act, began to emerge as the depositors intervened by demanding their investments and lament that they found CIFL severely experiencing liquidity problems due to unwise and reckless investments in properties and mismanagements and irregularities.

They state that they believe that CIFL Chairman Roscoe Maloney, Directors J.G.S. Maloney and D.A. Hettiarachchi have already left Sri Lanka despite repeated promises by the Director of the Department of Supervision of Non-Bank Financial Institutions to impound their passports preventing the Directors leaving the country.

They state CIFL, which made a profit of Rs 7.9 million as at 31 March 2012, was making a shocking loss of Rs. 330 million as at 31 March 2013 which was reflected online in the company network system and visible to the Account Manager working under the Central Bank who was directly responsible for monitoring the activities of CIFL.

They charge the Central Bank failed to take prompt action to rectify the situation immediately, as a result of which the CIFL too collapsed within less than two years.

They maintain it is the duty and responsibility of the Central Bank to penalise CIFL and its Board of Directors for resorting to unlawful and illegal practices by eroding billions of investors’ money, instead of allowing them to continue to operate as Registered Finance Company.

They allege the Monetary Board has failed to examine the maintenance of CIFL’s capital, liquid assets, and classification of investment schemes, provisions for bad loans, etc.

www.ft.lk

Jupiter Capital Partners to launch $75 mln SL Country fund

By Duruthu Edirimuni Chandrasekera

Jupiter Capital Partners (JCP), a South Asian focussed private equity firm is to set up a US$ 75 million country fund for Sri Lanka, officials said.

“We’re going to call it Jupiter Sri Lanka Investment Fund,” Indika Hettiarachchi, Managing Director JCP told the Business Times. This unit aims to fund Small and Medium sized firms (SMEs).

Currently many SMEs and high growth companies are faced with funding constraints. Although there are various loan schemes targeting SMEs, such loan schemes do not help long-term growth of such firms, or help increase equity value of such firms thus hindering the growth of entrepreneurship in the country, according to Mr. Hettiarachchi. He added that the private equity (PE) ownership model allows a professional team of fund managers to take large stakes in private companies, to ensure they are run in the best interests of the underlying investors.

“Our strategies are designed to benefit from high growth companies – in both private and public markets.”

When evaluating an investment, PE investors expect returns to be driven by many “internal factors”, he said, adding that growth in business volume, improvement in value-addition of products and/or services, improvement of margins (due to increased scale, operational efficiencies, new technology), improvement in value due to better risk management, governance and management and the entry price are some of them.

PE investors are required to deliver very high returns to investors in PE funds hence it is essential to earn high return on each investment – at least 25 per cent, according to Mr. Hettiarachchi.

At a recent seminar on PE, he said that firms can benefit from private equity through value-addition. “Strategic management support, improve governance, internal controls/systems, risk management, etc and new business development can be achieved.” PE is a catalyst to increase a company’s equity value and marketability, he said adding that PE investors are committed to ensure long term success of the business (even after they exit). “Oftenexits are planned in a way beneficial for all stakeholders (company, promoters, employees, business partners).”

Listing some points to note about PE, he suggested that one should seek PE funds only if there is a solid expansion/growth plan. “Usually PE investors do not invest in start-ups and green-field projects and PE funding takes time (difficult to meet urgent funding requirements),” he said, cautioning not to think PE as a “cheap” source of funding with “fixed cost/rate”. He also advised to be comfortable about dilution of ownership, corporatization, delegation of responsibilities to professional management. “Be comfortable about sharing information honestly and openly. Obtaining the service of an adviser (an advisory firm) could help, but it’s not essential.”

Success of PE investors are not only judged by how much financial return they made on investments, but also by how well their investments perform in the long term as good corporate citizens, even after PE investors exit.

JCP specialises in dedicated South Asia country funds, and its fund strategies are custom tailored to suit each country in which they operate. “Our strategies are designed to benefit from high growth companies-in both private and public markets. Investing in high growth SMEs is also an important part of our strategy,” the JCP Managing Director said .

www.sundaytimes.lk

Finance Act raises constitutional issues, top lawyer says

By Bandula Sirimanna

Has the judicial process been undermined by extreme powers to Central Bank ?

Wide ranging powers to the Monetary Board (MB) in the Finance Business Act of 2011 governing finance companies are raising serious constitutional issues, a top company lawyer said on Friday.

K. Kanag-Isvaran, PC, said provisions in the Act giving powers to ‘directors’ (meaning the MB of the Central Bank) to freeze passports or seize property infringes on the judicial process raises concerns whether this is the due process and infringes on the rule of law.

Interested panellists listen to a member of the audience. Pic by Managala Weerasekera

“Under the Companies Act, that process is vested in the judiciary,” he said. Furthermore Mr. Kanag-Isvaran pointed out another issue that is inconsistent with the constitution, in his view, was the powers to the Minister of Finance under the Act to decide the priority of money claims (in winding up). Under the Companies Act, a court-appointed adjudicator has to ensure the proceeds are equally distributed. “Isn’t there a constitutional issue here? Isn’t there an inconsistency in the law?” he asked.

He was speaking during a public interest seminar organized by public interest activist Nihal Sri Ameresekere’s consultancy firm, Consultants21 on “Repetitive Debacles of Finance Companies” at the Kingsbury Hotel in Colombo. Former Supreme Court judge Priyantha Perera, banker and former public servant Ranjit Fernando and Mr. Ameresekere were the other speakers.

The panel raised issues ranging from the plight of the depositors; the ineffectiveness of the Central Bank (CB); the need to severely punish and jail corrupt directors of finance companies, for respected people to be appointed as directors and cleared under ‘fit and proper’ rules; to wide ranging laws available under the 2011 Act to halt the debacle of finance companies.

Mr. Fernando criticized the new rules of consolidation of the financial sector, reducing the number of finance companies by half, asking “why are good companies being asked to merge?”

He said while trying to protect four or five failed companies, in most cases where the directors have misused funds or mismanaged depositors funds, the good finance companies are also being penalized. He said it was unreasonable to ask companies to increase their capital to Rs. 8 billion in two years, citing how some very good and well-run companies in Chilaw and Kandy would have to close under such, unrealistic capital targets. “Capital requirements should be based on the risk of each company … not across the board,” he argued.

Justice Priyantha Perera, who chaired a presidential commission of inquiry into failed finance companies in 2008, revealed that if the recommendations by this commission had been implemented the debacle of finance companies could have been avoided.

He said the commission had made recommendations to restructure or merge ailing finance companies. It had also proposed to introduce a deposit safety insurance scheme to safeguard the depositors in case of liquidity problems. The report which was handed over to the President (some years back) is yet to be published.

Calling it ‘draconian powers’, Mr. Kanag-Isvaran also said the powers of the MB under the Act could be abused and create a situation where people take the power unto themselves.

“The biggest issue the debacle of finance companies has raised is a creeping infringement of some fundamental rights of citizens,” he said. www.sundaytimes.lk

CEOs Positive Of Economy

Eighty two per cent of CEOs interviewed by a consultancy expects the economy to steadily grow or accelerate.

This was said by MTI CEO Hilmy Cader at a function in Colombo on Tuesday (January 28).

He said that the sample comprised 150 CEOs of whom 65% were from “CSE Top 100,” while the rest were from mid tier companies.

Cader who titled his presentation “MTI CEO Business Outlook Survey 2014” however said that 18% of those captured in the survey expected the economy to decline.

In regard to the performances of their own businesses, 58% expected high growth this year, 38% (moderate growth), while the rest expected business to decline over that of the previous year, 2013.

Pessimism had dropped to 18% from 27% of the previous, however in 2011 it was a low of 11%.

“New Sri Lanka is all about new opportunities,” said Cader.

What CEOs perceived as major challenges were economic governance (27%) and law and order (11%).

What they perceived as “major business challenges” in the new year were government regulations and policies (24%) and slow consumer demand (12%).

“Costs and human resources (HR)” didn’t figure among their major concerns.

These contrast to the concerns of HR managers which mainly revolved round the difficulty in finding talent.

Going forward, the challenges were the cost structures built during the euphoric period of 2010/11, which were the best years for corporate performances, said Cader.

He further said that in the first nine months of 2013, 60% of S&P SL 20 companies experienced a drop in their earnings, while only 35% suffered a drop in their revenues.

But the operation of a low interest rate regime will trigger demand and help SMEs, said Cader. He also said that 60% of the CEOs captured in the survey expected the global economy to recover this year.

The occasion was the feting of “CIMA Corporate Partners 2014.”

www.sundayleader.lk

James Packer Bets Big On Asia's Casino Sector

By Lucinda Schmidt

Like his late media mogul father, James Packer likes to bet big. The difference? While Packer senior punted millions at blackjack, poker and baccarat tables around the world, his son prefers to own the casino. Five of them, in fact, with another four in the pipeline.

Over the next few years Packer, 46, is making his biggest bet yet, gambling much of his fortune on Asia’s burgeoning casino sector. In Sri Lanka, he won government approval in December to build a five-star casino resort in Colombo. In the Philippines, his City of Dreams Manila will open later this year. And in the global gambling capital of Macau, his third casino is on track to open in mid-2015, and he’s now adding a fifth tower to the already massive casino resort, City of Dreams.

Packer’s also been busy in Australia. In his hometown of Sydney, final government approval came through in November for a controversial $1.8 billion casino resort on the harbor, targeting Asian high rollers and due to open in 2019. As the chairman and major shareholder of Crown Resorts, he’s overseen a seven-year, $1.3 billion makeover of Crown’s flagship casino, which spreads across two city blocks on the banks of Melbourne’s Yarra River. And in Perth, conveniently close to much of Asia, a $1.3 billion expansion is under way for Burswood casino, now renamed Crown Perth. “That’s a hell of a lot of money; they’re huge bets for me,” says Packer of the dollars he’s spending in Australia alone.

So far he’s on a winning streak. Crown’s market capitalization now tops $11 billion, up $3 billion in one year. Packer’s private company, Consolidated Press Holdings, owns 50.01% of Crown, so half of that cash splash? and the stock price gains? are on Packer’s personal ledger. Those gains boosted FORBES ASIA’s estimate of his wealth by 10%, to $6.6 billion, this year, making him once again Australia’s third-richest person.

Money in China
As Packer points out, what has the market excited is Crown’s 33.7% stake in Melco Crown Entertainment, a joint venture run by Lawrence Ho, the son of Macau casino tycoon Stanley Ho. It is Melco–which last year joined FORBES ASIA’s Fab 50 list of the top Asia-Pacific companies–that has taken Packer into Macau, Manila and Colombo. Japan, too, is on the agenda, if casinos are legalized before the 2020 Tokyo Olympic Games. Vietnam is another target.

Melco contributed more than a third of Crown’s net profit of $407 million for the year ended last June. After Crown released the annual results in August, analysts scrambled to upgrade their earnings forecasts on estimates that the Melco joint venture will contribute 40% to 50% of Crown’s profit for fiscal year 2015. “We put $750 million into Macau, and it’s now worth $8 billion,” says Packer during a telephone interview from Los Angeles. “I’ve now got more of my money in China than anywhere else, more probably than in Australia.”

It’s a remarkable turnaround from five years ago, after Packer had invested in Las Vegas, Pennsylvania and Canada. “I lost a bunch of money in America because of the financial crisis,” he says, adding that impairment charges totaled $1.4 billion. That included writedowns on investments in Fontainebleau Resorts, Station Casinos, Harrah’s, Gateway and Cannery Casino Resorts, as well as an ambitious but abandoned plan to build Crown Las Vegas.

Was he worried that the mistimed Las Vegas debacle would destroy his company? “I don’t want to answer that.” (Some estimate that he lost more than $3 billion in the financial crisis, and plenty were writing his business obituary.) He will, however, share the biggest lesson he learned from that dark period. “Don’t be too leveraged–our balance sheet is now much more conservative than it was in 2008″ after he reduced debt “significantly,” he says.

Major business flop
Las Vegas was Packer’s second major business flop after a disastrous foray into telecommunications in 2001. He and his good friend, Lachlan Murdoch, son of another Australian media tycoon, Rupert Murdoch, invested heavily in One.Tel, which collapsed. Although the Packer family’s $300 million-plus haircut on One.Tel was a fraction of the Las Vegas loss, it probably hurt Packer more, since his famously abrasive father, Kerry, was still around to see the debacle–and lash him for it. Shortly afterward his first marriage, to Australian swimsuit model Jodhi Meares, ended and a subdued Packer spent the next decade shunning the media spotlight.

He may not have been talking to the media, but behind the scenes Packer moved quickly to forge a new path after his father died in 2005 at age 68. His grandfather, Sir Frank Packer, had taken a few media assets inherited from his father, Robert, and built the family fortune on Australian magazines, newspapers and the Nine television network. Kerry Packer then expanded the family’s media interests into a $5 billion empire, almost entirely Australia-based. James Packer harbored global ambitions–and not for magazine or TV assets.

In October 2006, just ten months after his father’s death, Packer announced the sale of half of PBL Media (which housed his major media interests) to private equity firm CVC for $3.3 billion–a move later seen as almost perfectly picking the top of the market. He sold a further 25% to CVC in 2007 for $430 million. In 2012 he sold his last major media stake, in pay TV company Foxtel and Fox Sports, to News Corp. and used some of the $1 billion in proceeds to top up his stake in Crown. Packer, who describes casinos as his “true passion in business,” could see that Crown’s Macau punt was about to pay off big time. “One of the things that is attractive about Crown is that it is a globally scalable model,” he says. “And the Crown brand is a very strong regional brand already.”

Now his bold Asian casino play and swelling fortune (up by more than $2 billion over the past two years) has predictably prompted comments about him emerging from his father’s shadow to become a billionaire in his own right. “I think life’s more complex than that,” says Packer. “My father and I finished on good terms, and I’m very happy about that.”

Does he wish his father were still around to see the Asian casino success? “But then he would have also seen me in 2008,” Packer counters, presumably grateful not to have had to face a Kerry Packer meltdown over Las Vegas. He’s also mindful of his father’s urging to try to be realistic about business: “You’re never as good on your best day as everyone thinks, and you’re never as bad on your worst day as everyone thinks.”

Hit the jackpot
Still, Packer concedes that with Macau he has hit the jackpot. “The business in Macau is going amazingly; I’ve been very lucky that it has been more successful than I would have thought possible.” For that, he says, the Melco Crown cochairman (with Packer) and chief executive, Lawrence Ho, deserves much of the credit.

The pair joined forces in 2004 and faced a baptism of fire when their first project, the upmarket but poorly situated Crown Macau (now renamed Altira) in Taipa got off to a slow start in 2007. Then their second Macau venture, the $3 billion City of Dreams, opened in 2009 just as the financial crisis was biting. Unlike the Las Vegas gamble, however, Macau came good, with City of Dreams focusing on the premium mass market. Melco Crown also holds a 60% stake in a third Macau casino project, the $2 billion Studio City on the Cotai strip, due to open in mid-2015 with a movies theme –and with obvious potential tie-ins to Packer’s new venture, RatPac Entertainment.

Macau, a special administrative area of China, used to be called Asia’s Las Vegas–until its gambling revenue outstripped the U.S. gambling capital’s seven years ago. It rose 19% to $45.2 billion last year, according to Macau Gaming Authority. That’s seven times Las Vegas’. Melco Crown, one of six companies with a Macau casino license, has roughly 14% of the market.

Lawrence Ho says Packer has given him “100% trust and faith,” even during the tough times after the global financial crisis. He notes that both he and Packer have fathers who were “legendary businessmen,” perhaps one reason they get along so well. Concerns about China’s slowing growth rate–and a potential tightening of visa restrictions on the number of visits, length of stay and amount of cash mainland Chinese can bring to Macau–don’t faze him. “We uphold our optimistic view on China’s economy, as well as Macau’s,” he says. “The increasingly affluent PRC population has led to a greater demand for quality entertainment.”

Packer, too, is optimistic. “I don’t pretend to be an economist. But China’s growth rate is still the envy of most of the world. Half a billion people have moved from poverty to the middle class.”

Packer is used to placing big bets–and sometimes getting stuck with a losing hand. But this is by far his biggest roll of the dice, with four new casinos scheduled to open over the next six years at a combined cost of more than $5 billion–plus another couple of billion put into City of Dreams Macau’s new tower and Crown Perth’s upgrade. But he says he’s not nervous. “I’ve had my ups and downs, but our plate’s really full now. The rise of China within the Asian century–these are exciting times.”

This story appears in the February 10, 2014 issue of Forbes Asia
(Courtesy: Forbes Asia)

Investors pull $12bn from EM stock funds

By David Oakley, James Kynge and Thomas Hale

The four biggest global stock markets recorded sharp losses in January for the first time in four years, as weeks of turmoil in emerging markets spread to the developed world.

Stocks in the US, UK, Europe and Japan have not posted simultaneous declines for January since 2010 when the euro zone debt crisis was at its height, prompting investors to warn the inauspicious start did not bode well for the rest of the year. US central bank tapering and a slowing Chinese economy are likely to weigh heavily on sentiment.

The spreading gloom was prompted by a mass exodus from the emerging markets with investors pulling money out of the developing world at the fastest rate since 2011.

The biggest losers from the turmoil – most intense in the Turkish and South African currency markets – included big dedicated emerging market investment groups such as Franklin Templeton, First State and Ashmore. All three have suffered outflows and redemptions, according to investment managers.

Mark Mobius, Templeton’s top fund manager, refused to be rattled despite the hit to his portfolios, insisting the dive in some of the emerging markets offered opportunity rather than danger for his funds.

“We’re happiest when markets are down,” he said. “We want to take advantage of any declines in these markets.”

Others were less sanguine. “It has been a bloody week,” said a manager at an emerging market debt fund. “We can recover from one week. But if this goes on, then that will have big ramifications for our profit margins.”

The exodus from emerging markets has been led by retail investors, according to fund managers, while institutional groups, such as pension funds, have held their nerve and stuck to their positions.

“Retail investors are running for the exits. They see the turmoil, they read the newspapers and they have a shorter time horizon,” said Michael Ganske, head of Emerging Markets at Rogge Capital Partners, a fixed income fund with $59bn under management.”

“Whenever investors are panicking, that is a good buying opportunity,” he added.

The FTSE 100 finished down 3.5 per cent for January, the Eurofirst 300 was 1.9 per cent lower, the Nikkei 225 dropped 8.5 per cent and the S&P 500 fell 3.6 per cent over the month in New York.

Emerging market equity outflows rose to $6.3bn in the week up to January 29, the biggest weekly withdrawal since August 2011, with a total for the month hitting $12.2bn, according to data from EPFR Global, which tracks investment flows.

Emerging market bond funds also suffered, with $2.7bn in outflows over the past week and $4.6bn withdrawn so far this year.

However, there have been winners from the volatility. Some hedge funds such as Moore Capital have been shorting emerging markets while M&G Investments and Aberdeen Asset Management have also hedged positions in Turkey.

One emerging markets investor said: “A lot of funds saw this coming. Turkey has been an accident waiting to happen.”

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Sri Lanka bank, finance firm consolidation in progress: Central Bank

Jan 31, 2014 (LBO) - Sri Lanka's banks and non-bank firm consolidation was progressing with meeting with individual firms with the regulator with preliminary plans expected to be submitted by March 31.

The Central Bank said it was also in talks with consultancy firms to get valuation and other services for planned mergers.

Sri Lanka's central bank is trying to shrink the total number of banks and finance firms in the country which will make them larger and easier to regulate.

Following two balance of payments crises in rapid succession in 2008 and 2011, non-bank lenders in particular, that play in the sub-prime market have run into bad loans and capital deficiencies.

Banks usually run into trouble in any country following credit bubbles generated by prolonged periods of low interest rates.

Analysts say while credit cycles, and bank collapses can happens even in the absence of central banks, such as in free banking regimes.

But bubbles and bad loans with central banking have been greater as low interest rates persist for longer periods than in free banking allowing bigger bubbles to be blown, speculative activity and more severe mal-investment to take place.

The two most recent global credit bubble collapses and banking panics in the 1930s (Great Depression) and 2009 (Great Recession) was bigger in scale impact for example than the 1871/72 railway bubble collapse which happened before the US Fed was created.

The full statement from the regulator is reproduced below:-

Satisfactory progress being made on Consolidation effort

As already set out in the Road Map 2014 and beyond, the Central Bank conducted a seminar on 17 January 2014 to explain the need and the rationale for the Consolidation in the banking and non-banking financial institutions (NBFIs) beginning 2014. At such seminar, the key components of the Consolidation Plan were announced to the Chairmen and Chief Executive Officers of banks and non-bank financial institutions (NBFIs), key management of the audit firms which are eligible to audit banks and NBFIs, and representatives of the Institute of Chartered Accountants of Sri Lanka and the Institute of Personnel Management.

Subsequently, the Central Bank senior management held one-on-one meetings with almost all boards of directors and senior management of the local banks and NBFIs, at which the expectations of the Consolidation process was further clarified and specific issues pertaining to particular institutions were discussed in detail.

The Central Bank also informed the banks and NBFIs to approach the Consolidation process in a professional manner by seeking specialised IT, Legal, Tax and HR services in order to ensure the objectivity and integrity of the process.


In addition, the Central Bank requested all banks, NBFIs and others who are involved in the process to continue a close dialogue with the Central Bank and obtain guidance if the need arises. In this regard, the members of the special unit headed by the Assistant Governor were introduced to the banks and NBFIs at these meetings. In keeping with the request of the Central Bank, banks and NBFIs agreed to submit their preliminary proposals re. the Consolidation effort by 31March 2014.

A meeting was also held with key office bearers of the Ceylon Bank Employees’ Union, at which all clarifications sought were provided by the Governor of the Central Bank and other senior officials of the Central Bank. The Central Bank also held discussions with leading Consulting firms with regard to their provision of consultancy services in respect of valuations, accounting and other services. These meetings helped to provide a clear understanding of the process which will help all stakeholders to move forward with clarity and certainty.

In the meantime, the Central Bank also wishes to inform the general public that the Consolidation process will not, in any way, affect their current transactions and deposits with the banks and finance companies, with whom they are presently transacting.