Share windfall for Hayleys employees by dissolution of Share Trust

Employees of Hayleys PLC, one of the country’s strongest business conglomerates, and its subsidiaries have received a share windfall worth what some analysts estimate would top a billion rupees following the dissolution of its Employees’ Share Trust set up over 10 years ago when the company feared a hostile takeover.

The trust owning 6.85 million ordinary shares or 9.14 percent of the company was created in a bid to fight a takeover bid by the Carsons Group. Hayleys, with requisite shareholder approval, issued new shares to the trust at the then prevailing market price of the share by making an interest free loan to the trust to pay for the shares.

"It was merely a book entry because Hayleys itself received the payment for the new shares and there was no cash outgoing. But the new shares issued to the Employees Share Trust controlled by the directors prevented any hostile takeover," an analyst explained.

Although over a decade had passed since the Share Trust was created, there was no serious attempt to repay any of the capital that was lent. Dividends paid by the company on the shares held by the trust were distributed to employees with the executive directors opting out of receiving any share of the proceeds.

Well informed sources said that the Securities and Exchange Commission has given a deadline for such Employee Share Trusts, many set up to enable companies to use their own funds to buy their own shares and prevent takeover bids, to make certain adjustments.

Senior Hayleys executives said that all dues to the company from the trust had been recovered before the share distributions were made on the basis of a formula which included the number of years of service and the salaries of the various employees.

The debt to the company stated at Rs. 488.3 million in the 2013/14 annual report of the company was repaid by the sale of Hayleys shares held by the trust in the market, a senior executive said.

The value of the shares the employees received was taxed as this was considered an employment benefit. When the shares were being distributed, representatives of broker firms visited Hayleys and various group factories to complete the paper work for benefiting employees to open Central Depository System (CDS) accounts into which the shares were deposited.

"Sale of these shares was not possible without a CDS accounts," a broker explained. "Quite a few of the shares are being sold on the market at prices which reached Rs. 333 per share on Friday."

Mr. Mohan Pandithage, Hayleys Chairman/CEO who is a very long serving employee of the company was believed to have been one of the major beneficiaries of the dissolution of the Share Trust, analysts said.

The Hayleys Employees’ Share Trust was the company’s fourth largest shareholder behind Mr. Dhammika Perera (40.93%) on his own account, a further 4.53% through an account held at the Seylan Bank and 2.91% through Vallibel One, a company he controls. The other large shareholder is the D.S. Jayasundera Trust with 11.60%.

The late Mr. Lal Jayasundera, an iconic business leader who led Hayleys thorough a massive expansion phase, set up this trust supporting various charities.


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