KPMG probe on EPF investments over 19-year period
KPMG India was asked by the Central Bank to undertake a forensic audit on investments by the EPF from 1998 to December 2017 .
Its report said that the EPF is the largest superannuation fund in Sri Lanka with 18.6 million members and approximately 86,200 employers as at December 31, 2018. Its assets under management are Rs. 2.29 trillion as at end December 2018. It receives a monthly contribution of about Rs.12 billion.
EPF investments were made in listed stocks – Browns, Ceylon Grain Elevators, Galadari Hotels, Laugfs Gas, Piramal Glass, Colombo Dockyard, Bukit Darah, Carsons, Hotels Corporation, Ceylon Guardian, JKH, Taj Lanka Hotels, TFC, Hayleys Fabric, Eden Hotels, Raigam Wayamba, PC House, Mackwood Energy, Dialog, and unlisted investments – Sri Lanka Catering, Canwill Holdings, SriLankan Airlines, among others.
Investigations revealed that various activities in the EPF including investment in trading or investment portfolio were performed without express approvals or mandate in the IPS/ITG (investment guidelines). This included investment of Rs. 500 million in SriLankan Airlines in 2010 and investment of Rs.1000 million in SriLankan Catering without Monetary Board approval. Also investment of Rs.1.5 billion in five banking stocks based on instructions/approval of the Governor during 2009 to 2010. These investments were subsequently ratified by the Monetary Board.
The EPF incurred a total impairment loss of Rs. 1,204 million in Browns. The impairment loss from the investment in Ceylon Grain Elevators was Rs. 651.9 million with the major counterparty to this transaction being Perpetual Capital Pvt Ltd. The Galadari Hotels investment resulted in an impairment loss of Rs, 620.6 million, Colombo Dockyard (impairment loss of Rs.1.8 billion) and Carsons (impairment loss of Rs.1.6 billion).
EPF invested Rs.11 billion in 17 unlisted companies during the review period.
The EPF made certain investments which appear to be on the basis of instructions from personnel outside the CB. Some of these investment were stated to be in “the national interest”. However due to such investments, EPF member funds have not resulted in gains.
As per the minutes of the Monetary Board papers, the EPF was restricted from buying banking stocks due to conflict of interest between the CB as the banking regulator and the CB as its shareholder. It was noted that participation of the EPF as a shareholder and voting against the appointment of directors in the banking sector appears to be a potential conflict of interest.
The report said that former Governor Arjuna Mahendran was requested to respond to a questionnaire and response for the same was not received. Former Governor Ajith Nivard Cabraal was also requested to respond to a questionnaire and for a meeting. No response was sent and he had communicated with the CB regarding his non-availability.
Mr. Mahendran had used an IPad during his tenure at the CB. The said IPad when obtained for forensic imaging was noted to be without a user profile. Hence forensic image of the said device could not be obtained.
During the course of the investigation, declarations were requested from 79 employees who worked in the EPF department. An analysis of these declarations revealed that 23 employees/their immediate families had executed transactions in listed equities.
The report revealed that despite objections by senior CB officials opposing the investment in Canwill Holdings, the Monetary Board approved the investment.
It was stated that though Ms. C. Premaratne, Deputy Governor said that the Investment Committee was not in favour of the investment proposal, the Governor had asked her to go ahead with it and Rs. 5 billion was invested in this company.