Financial Times

No end to Lanka's woes

 

Over the past few months the issues and problems arising out of the global financial uncertainty is finally hitting home going by the crisis triggered by the failed Golden Key (GK) Group and dwindling business for many other companies.

Events this week alone prove - and as repeatedly stated in these columns - the problems Sri Lankan companies, the economy and the public are going to face in the future. These developments are too many and cannot be isolated from one another as they are inter-connected similar to the complex structure of some of mega groups like Ceylinco or the Harry Jayawardena-led Stassens.

For example, the Supreme Court (SC) ruling this week banning the sale of assets of Golden Key and its subsidiaries, its directors and that of Ceylinco Consolidated effectively halts a process that began in the Chief Magistrate's Court at Mount Lavinia. There, the Attorney General's Office had initiated the formation of a Trust, independent of the Ceylinco Group, to take over assets of GK and use them to pay off liabilities (depositors) amounting to Rs 26 billion. That process is now on hold in view of the SC order which was made on a fundamental rights application by two depositors. Furthermore depositors at a F&G have rejected a repayment plan put together with a new management council.

Then on Thursday, the Commercial High Court ordered that land on which a Ceylinco hospital is being built at Kirimandala Mawatha, Narahenpita be seized after its contractor said the company owes it millions in payments. This would conflict with the SC ruling barring any action relating to GK properties since it comes under its purview (as per list available by the Trust).

Issues at Ceylinco Group and its subsidiaries dominated the news this week. When desperate Finance and Guarantee (F&G) depositors confronted Group Chairman Mervyn Jayasinghe demanding their money, the latter began issuing letters providing land in lieu of the investments. At one point one investor tried self-immolation - pouring petrol on himself - and as he was striking a match, was stopped by others. Another old female investor collapsed and had to be taken for medical treatment.

Such incidents may be few in Colombo but given the desperation faced by many investors in these companies and other dubious ones like Sakvithi, Danduwam Mudalali and so on, there is likely to be the same amount of desperation, which goes unreported. On the other hand, serious questions are being raised as to the propriety of bailing out these companies with public money and also paying fees to management councils or managers (Merchant Bank of Sri Lanka and Lankaputhra Bank) which is reported to be upto Rs 10 million a month. Throwing money into bailout plans is a big issue in the United States where public anger is growing over billions of dollars being spent on reviving groups like AIG and several banks. Another related issue is that such efforts by the US is leading to a new wave of protectionism in the west (some countries in Europe are increasing subsidies to local farmers and industrialists) which will boomerang on Sri Lankan exports. This was essentially the message by economists at a forum this week where they emphasised the need to look for new markets amidst these protectionist moves.

Some depositors have told this newspaper that it’s unfair for their money to be used as fees for management councils (Rs 60 million for six months). "I have less than a million rupees and cannot get it out but they are spending 10 times that amount on someone else," an angry depositor said. "This is our money … how can they decide on this?" However an expert panel appointed by the Central Bank (CB) to monitor and supervise the process is doing an honorary job.

Given the complex situation emerging from the finance and non finance companies' scenario, chances are that someone is bound to go to the SC one of these days and challenge these decisions (payment to managers-repayment structure) by the Central Bank. Just like this week's ruling by the highest court in the land barring the sale of GK assets - just as a Trust was preparing to dispose of the assets.
Given the magnitude of the problem at Ceylinco where many subsidiaries are facing problems outside the ones that have been reported, depositors are raising a fresh problem - an issue that the CB has been saying over and over again: Check before investing as to whether the company is registered with the CB.

For example another depositor said this week that she didn't know that a F&G related company in which she invested her savings was not registered. "Since F&G is registered we assumed other companies in the group too are registered. No one told us when we invested that these are not registered," she said. In fact most Ceylinco-related groups have set up subsidiaries that are not registered but collect deposits and in most cases despositors were unaware of this fact. Depositors seem to have been misled or not properly informed at the time of the deposit.

However that's all water under the bridge now and what is urgently needed is an overall review of the process of bailout plans to take into account all the issues raised here. Being an entirely new process (in handling many companies at the same time), mistakes are bound to be made while fresh issues emerge.


 
Top to the page  |  E-mail  |  views[1]
 
Other Financial Times Articles
> Sri Lanka urged to find new export markets
> Extended April holidays for some workers
> F&G payment plan rejected, investor attempts to commit suicide
> Zero duty for Lankan goods in Pakistan
> Galleon sells JKH stock
> Rs 500 mln loan for Mihin
> CB calls for Seylan EOIs
> SMS alert from Passport office
> No end to Lanka's woes
> Regional imbalances are a normal process of development – World Bank
> Consolidation might be option for The Finance
> Asiri Surgical Hospital completes Stage II Expansion
> Benefits of cleaner production for hotels
> Asian Paints launches special effects paints
> Singer says confident of meeting re-finance needs
> Sinhaputhra Savings link up with ATMs
> Toss Lanka finds Norwegian partner from CCC match-making
> Hirdaramani green factory aims for Gold
> Banners to bags – cleaning up the system
> Good governance recommendations for primary dealers
> FM Derana launch today
> Lalith Peiris bids adieu to a 43-yr career with George Steuarts
> World Telecom Forum to be held in Sri Lanka
> Lankan tea exporters invited for Hong Kong Tea Fair
> New certification unit steps in to ensure safer food in Colombo
> Soon - First Islamic Bank in Sri Lanka
> Tourist arrivals’ statistics misleading
> ACCA emphasizes greater sustainability reporting
> Restructuring The Finance Company in three months
> SMLL divestiture will see Seylan Merchant high on liquidity
> HNB wins award for Best Retail Bank in Sri Lanka, 2008
> Golden Key repayment plan suspended
> IMF revamps lending and conditionality framework
> Increasing wages costly to plantation sector
> New lease of life for Atta Flour
> Neither GK nor the depositors are innocent
> Central Finance continues steady growth
> JWT duo bring international fame to Sri Lanka
> First two lucky winners drawn in Abans twenty-20 win win promotion
> Laws to govern not only golden and silver companies but also bronze companies
> SMS alert for passport collection

 

 
Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 2008 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved.| Site best viewed in IE ver 6.0 @ 1024 x 768 resolution