Hapless depositors caught in a web of red tape spun by the CSE
The Colombo Stock Exchange (CSE) has sent the following response to the article titled “Hapless depositors caught in a web of red tape spun by the CSE” published in the Business Times on 22nd November:“The CSE wishes to clarify certain issues raised in the said article in regard to the role of the CSE in processing applications for listings, submitted to the CSE by companies who wish to be listed on the CSE.At the very inception, the CSE wishes to place on record that the CSE does not as a practice, disclose to the public, any information relating to matters arising from a listing application submitted to the CSE or the review process followed by the CSE in this regard. However, since the said article contains several inaccurate and/or incorrect statements and attempts to grossly misrepresent the facts set out therein, the CSE wishes to make certain clarifications setting out the true position relating to the listing application submitted to the CSE by Standard Credit Finance Ltd and the review process followed thereon by the CSE.
When the initial listing application was submitted to the CSE on 11th November 2014 for the listing of Standard Credit Finance Ltd via an Introduction, the CSE made certain observations relating to the audit opinion on the financial statements of the company. In instances, where the CSE makes similar observations the CSE generally does not process the listing application concerned any further. However, in this instance, the CSE took the initiative and worked with the company in consultation with the company’s auditors for the purpose of resolving the issues relating to the financial statements of the company. As a result of this process, the auditors of the company were able to clear their opinion on the financial statements of the company for the period ended 30th November 2014.
Since the company had allotted shares during the 12 month period immediately preceding the submission of the listing application to CSE, the company was required in terms of section 28 A of the Securities and Exchange Act No. 36 of 1987 (as amended), to first obtain approval from the Securities and Exchange Commission of Sri Lanka (SEC) for the proposed issue of shares. The SEC granted approval for the application made by the company under Section 28A aforesaid on 31st December 2014 subject to receiving a confirmation from Central Bank of Sri Lanka (CB) on the concessionary finance facility that was agreed upon by CB to be granted to the company. However, the company was unable to comply with this condition imposed by the SEC until 29th September 2015. In the circumstances, it was only thereafter that the CSE was able to re-commence the review process with regard to the said listing application.
The CSE wishes to confirm that the listing application submitted by the company was processed by the CSE in an expeditious manner at all times and at no stage did the CSE delay the process of reviewing same. However, the CSE notes with regret that there were certain delays in regard to submission of responses to queries raised by the CSE during the process of reviewing the said application. It should be appreciated that the CSE cannot be held responsible for any delays on the part of any external stakeholder involved in the listing processFurther, we confirm that the CSE never requested the company to submit another audit opinion for the purpose of the said listing application.
We reject the assertion made in the said article that the staff of the CSE are bureaucrats who are appointed by any particular regime. Appointments to the management and staff of the CSE are made through a competitive selection process and those serving at the CSE are not political appointees but career professionals, some of whom have served long years at the CSE. The CSE reassures the public that the employees of the CSE have at all times worked for the well-being of the institution and the capital market of Sri Lanka.In conclusion, the CSE wishes to re-assure any concerned party that all matters relating to the listing process is conducted by the CSE in an independent and transparent manner while ensuring that an issuer company maintains the required standards to obtain a listing on the applicable board of the CSE without compromising the consistent standards maintained by the CSE.
What the depositors of Standard Credit say
Business Editor’s note: The article that was published came from the Deposit Protection Society of the Standard Credit Finance Company, who has sent the following response to the CSE position:The Standard Credit Finance Co (TSCFCL) issued shares to us in lieu of the deposits we held with them, on the directions given to them by the Monetary Board of the Central Bank (CB) under section 10 of the Finance Companies Act No.78 of 1988.This direction was intimated to us, the depositors, by the then Chairman of TSCFCL on 4th March 2011, and as our company was by then a Registered Finance Company with the CB bearing registration No: RFC /027 of 30th December 2005, we as depositors had no other alternative, except to, even reluctantly convert our hard earned deposits into shares in order to, as were assured, recover them in a short period of three months after they were listed.
Had at that point the CSE pointed out to us that we would have to get SEC approval prior to converting our deposit capital into shares, we would have refrained from consenting to the conversion, because most of our depositors, at that point of time did not know the difference between a ‘Supermarket’ and the ‘Share Market’. Soon after this direction was issued, on 22nd March 2011, under the aegis of the CB, our company signed a MOU with Entrust Ltd who took over as Managing Agents, and one of the signatories to the agreement, was a fellow depositor.After that we were given a deadline, and we hurriedly gave our consent to convert our deposits to shares, which exercise was completed by end April 2011. Therefore in the light of the above facts, it is indeed strange that the CSE now in December 2015 – more than four years later – states that approval should first have been obtained from the SEC for the proposed issue of shares. Besides the CSE has also entertained an application in October 2014 from the TSCFCL for listing of these shares, without ever referring to such a requirement.
It is also our humble opinion that the delay in processing the application was brought on partially by the CSE in December 2014 when they requested a reconfirmation of the directions issued by the Monetary Board of the CB under Section 25 (1) under the Finance Business Act No. 42 of 2011 which they intimated per their letter 24/03/005/0030/011 of 24th June 2014, in which is clearly spelt out the assistance they were giving TSCFCL in order to revive it. This call for a reconfirmation was placed under review by the new regime at the CB, who even put the proposals previously approved by the CB, before a panel of eminent bankers and financiers who after meticulously studying it, gave it the green-light. After that the CB in response to a query made by us, informed the depositors, per their letter No: 24/03/005/0030/014 of 18th September 2015 that approval had been granted for a liquid support facility of Rs. 2.5 billion, the first tranche of which Rs. 750 million, could be released on the submission of certain relevant documents.
We are shocked to learn that the CSE never requested another audit report from TSCFCL for the purpose of listing the shares after the application was resubmitted at the end of September 2015. It amuses us to think that any firm in its right frame of mind, will take all the trouble to get a fresh audit done for a specified period by a very reputed audit firm, incurring great costs thereon unless they are called upon to do so by an interested party for a specific purpose. No organisation will stick its neck out by submitting any report, leave alone an audit report that has not in the first instance been called for. We think the directors of TSCFCL will be the best people who will be able to answer this question. Anyway what is crystal clear to us depositors is that someone is not telling the truth.Finally we wish to inform everybody concerned that we do not wish to split hairs or throw mud at any one in this matter. We again appeal to the President to intervene in the matter and call together all the parties concerned for an open discussion with a view to bring about a speedy end to this crisis that has affected 4000 depositors and their families for the past seven years.