Chief Justice Sarath. N. Silva, by accident or design, heightened the drama of the Supreme Court judgment on the privatization of the Sri Lanka Insurance Corporation, by reserving its delivery for the day before his retirement. The case itself had all the ingredients for whetting the public appetite for sensation. In the first instance, Mr. Don Harold Stassen Jayawardena, Harry J in short, was pre-eminent among the dramatis personae given the colorful character he is with both fans and detractors. SLIC, with a blue chip equity portfolio mainly acquired pre-privatization, was an entrée into many of the country’s best privately owned listed companies and Harry J in there meant that many waves were made.
This was the prize acquired by Jayawardena through the Distilleries Company, among the richest cash cows in the country, another privatization plum earlier acquired by him. Post privatization too, the Insurance Corporation had acquired valuable businesses like the Apollo Hospital in Colombo and the telecommunications company, Lanka Bell. Harry J is locked in battle with the co-founders of Stassen, the tea company a group that had worked together at Consolexpo, the state-owned commodity exporter, had floated, chriostening the company with Jayawardena’s third given name. This was the ladder on which he climbed to fame and fortune. His partners feel strongly that they have been short-changed by their partner, deeply resent his authoritarian bent, and have gone to court demanding that he buys them out at a fair price or that they buy him out at a 10% premium on a valuation they have obtained at which price they are willing to sell.
No wonder then the public awaited the judgment with bated breath. There had been suspicion and, indeed open allegations, about less than best practices adopted in selling off some of Sri Lanka’s family silver - state-owned assets which belonged to the people. Although demonstrating most of the weaknesses common to state enterprises in this country, the Insurance Corporation of Sri Lanka long enjoyed a monopoly in its business before the private sector was re-admitted to the industry. It was thus able to build up a veritable fortune when the UNP government of the day, under Prime Minister Ranil Wickremesinghe, decided to open it for grabs. Harry Jayawardena threw his hat into the ring and was adjudged the winner of a race the court has now ruled was not fairly run.
Friend and foe alike must admit that Jayawardena is not only an astute businessman. He also runs a very tight ship wherever he is in control. He stopped the pilferage that was endemic in the pre-privatization Distilleries Corporation when he took over that institution. Likewise, the Insurance Corporation he is returning to the Treasury under the orders of the Supreme Court is a much better company than what he took over. This is a fact that many of its customers are well aware of. No wonder then that some employees of SLIC, probably not votaries of discipline in the workplace, danced with joy when the judgment was delivered. More ominously, some of the company’s top management was not permitted entry into their offices on Friday. We are told that there had been nobody in the corporation to accept an urgent letter sent to SLIC by the regulator.
The Colombo stock market took a tumble even as the long-awaited judgment was being delivered in Hultsdorf. This was unsurprising given the ramifications of the Distilleries Company losing its tentacles running into many other listed and unlisted companies by the loss of control of the SLIC portfolio. But the court has not hit Distilleries on the head with its gavel, fairly ruling that the Rs. 6 billion purchase consideration be repaid with government bonds and that the company be permitted to take the profits earned by SLIC while it possessed and managed the company. Identifying such profits will, no doubt, be a task for skilled accountants but some analysts believe that these may run at Rs. 400 to Rs. 500 million per year. Whether such profits have already been paid as dividends or held in the company we do not know. But it is well known that Harry Jayawardena is not a believer in fat dividends, preferring to hold his profits in the companies earning them and grow the companies themselves with investment.
Even as the Distilleries share price plunged in the immediate wake of the judgment, it began regaining some of the lost ground very quickly as the market absorbed the realities of the situation. The interest on the bonds through which the purchase consideration will be refunded will be a cash flow for Distilleries. If it chooses to encash the bonds, albeit at a discount prior to their five-year maturity, there will be a nice pile of capital for investment. Rumour has it that Jayawardena may not exit the insurance business merely because he has lost control of SLIC. There may be other companies he can buy given market opportunities. Who the government will appoint to run SLIC has still not been announced but it appears that the court want a say in that. Sri Lankans are too well aware of how governments, of whatever political complexion, have blatantly extended political patronage to friends and supporters by often anointing incompetents and nincompoops to head state-owned enterprises at great cost to the country and its people. How well a government appointed management will compare with Harry J and his team they will replace remains an open question. It must be remembered that insurance is no longer the monopoly it was during SLIC’s heyday. It is today a fiercely competitive business.
There are those who believe that the judgment was a foregone conclusion because SLIC was worth much more than what the buyer paid for it. The court, of course, could have considered getting the company properly valued and asked the buyer to pay the difference if he wished to hold on to his purchase. The other option was to give it back to the government. It was clearly a tough call and the three judges chose the latter course. The government can still privatize the company and do a proper job of it this time round. However, President Mahinda Rajapaksa is clearly on record saying there will be no more privatization of state assets. It is also clear that any such move will be fiercely resisted by the company’s employees. The magic of successfully running any enterprise is in the management. At least this time round let the government find the best people available to run the company. And let not SLIC use the voting muscle that is very much a part of its equity portfolio to make waves in companies where it has sizable stakes.