The Ministry of Finance has asked the board of directors of the state-owned National Savings Bank (NSB) to explain the controversial share market transaction over the purchase of shares of The Finance Company at an inflated price. The deal involved Rs. 390 million.
The Ministry wants to know how the NSB board approved the transaction to buy 13 per cent of The Finance Company shares from different parties at Rs.50 each when the trading price averaged at Rs. 30.
The major sellers were Dinal Wijemanne whose Tabrobane Securities was the buying broker and Raynor Silva who sold shares amounting to totalling 2.9 million (shares) each. Other sellers include Nandadeva Perera 669,700 shares and his brother Yogendra Perera 667,700 shares. They accounted for 89% of the TFC shares traded on the previous Friday, whilst NSB picked up the balance shares from the market.
As an initial step, action has been taken to reverse the deal. There was a possibility of cancellation of the four cross-trading or the whole days’ trading on Friday April 27, a senior official of the Finance Ministry said adding that both these options would affect the credibility of state banks and the Colombo Stock Market.
He noted that the transfer of TFC shares from NSB custodian account to Tabrobane Securities’ suspense account should be made and thereby Sampath Bank, the settlement bank would get the opportunity to recover the loss of more than Rs. 390 million and the market would return to normal. A major shareholder involved in the transaction said Tabrobane Securities which approached him had offered Rs. 50 a share which he had bought for Rs. 42 in October last year.
He gave his consent as a normal stock market investor, adding that he was not aware of the buyer at that time. He came to know about NSB involvement from newspapers, he said.
He charged that Tabrobane Securities had acted in an unethical manner in the whole transaction and that action should be taken against the NSB management and the stock broker but not against investors.
He said that he received the cheque for his sale of TFC shares to NSB from the brokers, and immediately a directive was issued to stop payment.
Raynor Silva and Dinal Wijemenne had been functioning as non-executive directors of the TFC since October last year. Mr. Wijemanne has resigned from the Board of Directors of the company, with effect from May 2 and has been appointed as an Alternative Director to Nirmala Anura Fernando, Independent Non Executive Director of the company, with effect from that date.
Anura Fernando has also sold his TFC stake to NSB in a separate deal. Their conduct amounts to serious conflict of interest, a Finance Ministry official said.
According to the NSB Act, the bank is legally entitled to invest in a public company listed in the stock exchange, but officials asked if Central Bank permission was required according to the directions of the Bank’s publication on Directions to Licensed Specialized Banks under the Banking Act No. 30 of 1988.
They said that the Central Bank’s Director of Bank Supervision had a duty to inform the general public and relevant authorities whether NSB had violated the general directions of the Central Bank
The Central Bank has remained silent on the matter throughout the week.