Chambers, lawmakers call for impartial inquiry
* NSB says TFC purchase not viable, exposes TFC chairman’s statementsMay 9, 2012, 8:20 pm
* ‘Sophisticated bank robbery’ tarnishes honest officials
A leading chamber and the main opposition party have called on the government to conduct an impartial inquiry into the controversial purchase of The Finance Company (TFC) shares at a price inflated by more than 65 percent by National Savings Bank.
The Board of Directors of NSB yesterday issued a statement giving a long overdue explanation behind its decision to invest in TFC (see page 1 of today’s The Island).
"Since the Board was of the view that benefits of this investment is not as strong enough to proceed with, a decision was taken not to make the payment, due on this transaction. The above decision was conveyed to the Secretary to the Treasury, Dr. P. B. Jayasundera at the meeting held on 8th May 2012 with the entire Board of Directors of NSB. Other relevant parties too have been informed of this development, accordingly. The Secretary advised the Board that the Bank should not move out from its core activity and advised to promote NSB as a premier savings bank without exposing its risk profile to maintain public confidence," the statement said.
However, the short statement issued by bank failed to answer the most burning issue; why it was willing to pay an inflated price for the shares. The Island Financial Review also learns that the deal would have gone through if not for a senior official of the bank flagging the Ministry of Finance and Planning, which resulted in the President himself nullifying the deal after the transaction was done.
The bank also contradicts itself.
"… the Board Sub Committee on Corporate Lending and Equity Investment decided to re-look at the investment from a strategic initiative point of view with further analysis. Having done a further analysis, a favourable consideration was given to purchase voting shares of TFC, amounting to 10% - 15%. However, since the Board was of the view that benefits of this investment is not as strong enough to proceed with, a decision was taken not to make the payment, due on this transaction."
This statement also exposed the claims made by TFC in the media.
TFC Chairman Preethi Jayawardena is on record stating that, "the share price for a TFC share was highly undervalued owing to market conditions within the country and external factors such as economic factors on a global scale. Therefore, it can be safely said that the share price did not reflect the true worth of the company," added Jayawardena "This is a partnership for both entities. This was not a share bought over the counter and I am sure NSB would have done its homework before consideration. The benefits that would be reaped by the deal would augur well to all stakeholders of both companies and would provide horizontal integration to both companies in their future endeavours."
Analysts point out that NSB had not obviously done its homework well.
The President has stopped the payment being made but the deal is being investigated by the Securities and Exchange Commission (SEC).
A leading chamber issuing a statement yesterday called for an impartial inquiry and urged authorities to take action against any wrongdoers.
"The Ceylon Chamber of Commerce (CCC) notes with concern the recent transaction of approximately 13% of The Finance Company PLC. The Chamber believes that ensuring integrity and transparency are vital to maintain investor confidence in the Colombo Stock Exchange (CSE) for the capital market to remain robust,"
"Whilst appreciating the timely intervention by the officials in recognizing the possible governance issues in the transaction and for initiating measures to conduct an inquiry, the CCC urges policy makers and regulators to ensure that the outcome of the inquiries results in identifying any violations and that action be taken against any wrongdoers. The Ceylon Chamber strongly believes that there should be collective efforts to ensure transparency and governance in order to enhance investor confidence in the capital markets," the chamber said.
Meanwhile, Opposition lawmaker Dr. Harsha De Silva expressed the United National Party’s stance on the controversial deal at a press conference yesterday.
He called for the resignation of NSB Chairman Pradeep Kariyawasam and said authorities should be allowed to carry out an impartial inquiry and punish any offenders without fear and favour.
Citing the NSB Act, Dr. De Silva said any director acting in a way that was opposed to the bank’s interests should be removed.
"NSB is not any other bank. The country’s population stands at around 20 million. The number of savings accounts with NSB is 16.7 million. Every account is guaranteed by the government. This is public money. If the bank fails, then the government would have to raise taxes on milkpowder, dhal, salmon tins and everything else to bail out the bank.
"This transaction exposed only the tip of the ice burg. There is a mafia in the country’s stock exchange and this deal has exposed a few of them and we are not going to let go. We hope the regulators find the courage to carry out an investigation and give a fair judgement. If they do this, it will have a positive impact on the Colombo Stock Exchange, the inflow of foreign investments and the overall development of the country," Dr. De Silva, a trained economist, said.
Alluding to the deal as a ‘sophisticated bank robbery, the UNP Economic spokesman said the country needed sophisticated law enforcement officers and regulators to tackle such fraud.
Dr. De Silva said it was unfortunate that such bad governance tarnished the image of honest officials as well and that it was important to carry out a proper investigation. "Many people are afraid to speak out against the actions of their well connected superiors in such instances," he said.
"NSB is not any other bank. The country’s population stands at around 20 million. The number of savings accounts with NSB is 16.7 million. Every account is guaranteed by the government. This is public money. If the bank fails, then the government would have to raise taxes on milkpowder, dhal, salmon tins and everything else to bail out the bank," UNP MP Dr. Harsha De Silva said yesterday.
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