A group of companies holding majority shares in each other, trading with each other and failing to present a clear picture of their combined profitability and financial worth is never a good thing to deal with.
When one company within that group comes a cropper the chances are that its investments in other companies within that group will need to be liquidated putting pressure on all those companies that have borrowed from the collapsing unit and in which the sick unit has invested. Given the economic context where realization of assets is difficult, such a situation can be life threatening to the group as a whole.
Government securities purchased outright and therefore owned by the investor and not by the company through which investment is purchased and held in a government owned depository are by and large safe. Equity investments made through a company but purchased outright and held in a government owned depository such as the CDS are also by and large safe in as far as the stocks themselves retain their value on the market.
Current account balances, fixed depositors savings accounts and term deposits are not safe unless guaranteed by the government by law.
The safety of assets pledged against loans and mortgages are in general dependent on the performance of such loans.
Their position if they have been securitized and resold to raise funds is unclear.Given the current context the taking of risks is unwarranted. These are general comments not pertaining to any particular individual or organization, and a merely observations made on the basis of common sense.
Nirmalan Das
Colombo
(These comments were made in an email exchange relating to the safety of investing in some companies facing a crisis) |
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