By MaheeshaMudugamuwa
The crisis involving the depositors of the embattled Edirisinghe Trust Investment (ETI) has deepened. The depositors are demanding that the full amount realised from the deal to sell the company to a foreign bidder be used to pay the depositors.
The depositors of ETI, a non-banking financial institution, also lodged a complaint with the Special Presidential Commission that looks into fraud and malpractices, demanding the payment of their deposits.
Speaking to The Sunday Morning, the Independent Association to Protect the ETI Depositors President AnushaJayanthi alleged that even though the Central Bank of Sri Lanka (CBSL) was appointed to oversee the beleaguered ETI Finance Ltd. (ETIF) and Swarnamahal Financial Services PLC (SFSP) was listed to safeguard the interests of the depositors and ensure stability of the financial system, it was currently doing the opposite by defending ETI and not the depositors.
In 2013, Fitch Ratings, the financial ratings agency, issued the first warning against ETI, the core company of Sri Lanka’s well-known family-controlled entity EAP Edirisinghe Group, that it need to be sold if external funding didn’t materialise. Fitch downgraded ETI’s National Long-Term rating to “CC (lka)” from “BB-(lka)”.
The downgrade followed the restructuring of ETI’s operations and the subsequent restatement of its financial accounts for the year ended March 2012 which showed capital adequacy ratios (CAR) and liquid assets below their respective minimum regulatory thresholds.
Last year, the CBSL appointed a new management to ETI Finance (ETIF) and its subsidiary Swarnamahal Financial Services, restricting withdrawals – maturing deposits were extendedby six months – and ensuring interest payments to depositors. ETI’s deposit base was around Rs. 35 billion and Swarnamahal’sRs. 3.5 billion at the time the appointments were made. The CBSL restricted the two finance companies from mobilising new deposits and issuing new loans.
ETI’s other subsidiaries consist of 100% of EAP Broadcasting, which controls several television and radio channels, EAP Films and Theatres, which produces and distributes movies, Swarnamahal Jewellers, and 98% in Hotel Sapphire.
Approximately Rs. 34 billion was deposited with ETIF by over 24,000 persons at the time the financial crisis hit the company.
Bids
In the period of 2015-2018, three institutions had agreed to buy ETI, two of which were Sri Lankan companies and one was foreign.
However, the only foreign company – Blue Summit Capital Management Ltd. (BSCM) – succeeded in the bidding process at a total of $ 75 million.
The investorhas already paid $ 54 million out of the $ 70 million and another $ 16 million had to be paid. The Central Bank noted that the remaining $ 16 million was transferred to a local bank, but as a result of the uncertainty surrounding the transaction, the investor subsequently withdrew that amount.
Over the past few years, the depositors continued to demand their deposits be repaid.
In addition to the CBSL’sappointment to oversee company transactions and provide relief to the depositors, the National Economic Council (NEC) is also involved.
ETI Depositors Association President Jayanthi said: “Fourteen months passed since the foreign investor came forward to buy ETI for $ 75 million, but still the responsible local authorities couldn’t complete the transaction and repay the depositors.”
The initial investment was $ 75 million but was later reduced to $ 70 million as they decided to exclude Swarnamahal, which was valued at $ 5 million,” she added.
“If we received $ 70 million, we should have paid off 46% of the deposits. But only 20% has been paid so far. And they are now claiming that an additional 10% can be paid, bringing the total to 30%. Our question is, what happened to the rest of the 16%?” she questioned.
However, the National Economic Council (NEC) focused its attention on the liquidation of the company’s assets to compensate the aggrieved depositors while the CBSL was monitoring the exchangesin the latest round of investment expected to reach Sri Lanka.
CBSL scrutiny
NEC Deputy Secretary General – Financial Affairs Prof. HareendraDisabandara told The Sunday Morning that they had no issues with the CBSL.
“We haven’t said whether this was legal or illegal. We expressed our opinion based on our studies. The studies were based on the information given by the CBSL. We are a third party. The CBSL handled the transaction. We requested more information from the CBSL and other interested parties. We need to have a proper inquiry,” he added.
Recently, the Association to Protect the ETI Depositors met with the Minister of Power, Energy, and Business Development Ravi Karunanayake.
Karunanayake said that they received the bid for $ 75 million but that later, it was reduced to $ 70 million by the Monetary Board, questioning the role of the CBSL in the said transaction. Further, Karunanayake questioned why this group in particular was given such a long time. He noted that the Central Bank generally highlighted even minor issues.
However, the CBSL explained that the Monetary Board (MB) always maintained that any negotiations pertaining to investments in a regulated entity or to the purchasingof assets of such an entity should be dealt directly with the respective entity. As such, all requests made to invest and/or purchase assets of ETIF were directed to the company.
Accordingly, the selection of a party to which the assets of ETIF were to be transferred was done by the Board of Directors (BOD) of ETIF and the MB only granted the necessary approvals from the perspective of protecting depositors’ interests, subject to various conditions including carrying out the transaction in compliance with all applicable laws and regulations in the country.
Whilst various bids were made by the prospective buyers ranging from $ 61 million to $ 75 million, the party proposed by the BOD of ETIF, subsequently approved by the MB, had in effect made the highest bid of $ 75 million –$ 14 million more than the second highest bid.
Further, the current buyer was the only party recommended by the BOD of ETIF. The MB was instrumental in increasing the initial bid of $ 60 million to $ 75 million, pursuant in obtaining the best possible benefit for the depositors of ETIF, the CBSL stated.
Meanwhile, responding to the allegations levelled against the Board of Directors of ETI, they said that the companies and their corresponding assets were private interests. Therefore, this sale was at the complete discretion of the original owners, subject to ensuring that the proceeds realised were entirely utilised to settle depositors.
The mandate of the CBSL, in this regard, was in protecting the interests of the depositors of ETI Finance Ltd. by obtaining the maximum value from the sale.
The statement signed by ETI Finance Chairman JeewakaEdirisinghe said the process for the sale of ETI assets commenced in 2015. Despite numerous negotiations, there were no firm offers made by the parties with whom the owners had discussions.
On 19 December 2017, Shri Krishna Investments Ltd. offered the equivalent of $ 61 million in rupees. Upon inquiry, this company was in the process of being incorporated (and remains at this same stage to date) and had no visible financial background. On this basis, the owners of ETI informed the CBSL that it would not be pursuing this offer any further.
The current owners expressed their interest in purchasing the aforesaid companies and their assets in December 2017. The offer was to purchase the assets of ETI and not the ETI company itself and accordingly, due diligence commenced on the assets of ETI.
On completion of the financial and legal due diligence, a final negotiated price was arrived at. Upon reaching the agreement on a price, a sum of $ 54 million was received to date.
The proceeds received thus far were paid to ETI and were utilised to settle deposit holders. The balance was to be completed before the end of February.
The entire transaction and all the payments to date have been under the close scrutiny of the CBSL, which is guided by strict anti-money laundering provisions.
The crisis involving the depositors of the embattled Edirisinghe Trust Investment (ETI) has deepened. The depositors are demanding that the full amount realised from the deal to sell the company to a foreign bidder be used to pay the depositors.
The depositors of ETI, a non-banking financial institution, also lodged a complaint with the Special Presidential Commission that looks into fraud and malpractices, demanding the payment of their deposits.
Speaking to The Sunday Morning, the Independent Association to Protect the ETI Depositors President AnushaJayanthi alleged that even though the Central Bank of Sri Lanka (CBSL) was appointed to oversee the beleaguered ETI Finance Ltd. (ETIF) and Swarnamahal Financial Services PLC (SFSP) was listed to safeguard the interests of the depositors and ensure stability of the financial system, it was currently doing the opposite by defending ETI and not the depositors.
In 2013, Fitch Ratings, the financial ratings agency, issued the first warning against ETI, the core company of Sri Lanka’s well-known family-controlled entity EAP Edirisinghe Group, that it need to be sold if external funding didn’t materialise. Fitch downgraded ETI’s National Long-Term rating to “CC (lka)” from “BB-(lka)”.
The downgrade followed the restructuring of ETI’s operations and the subsequent restatement of its financial accounts for the year ended March 2012 which showed capital adequacy ratios (CAR) and liquid assets below their respective minimum regulatory thresholds.
Last year, the CBSL appointed a new management to ETI Finance (ETIF) and its subsidiary Swarnamahal Financial Services, restricting withdrawals – maturing deposits were extendedby six months – and ensuring interest payments to depositors. ETI’s deposit base was around Rs. 35 billion and Swarnamahal’sRs. 3.5 billion at the time the appointments were made. The CBSL restricted the two finance companies from mobilising new deposits and issuing new loans.
ETI’s other subsidiaries consist of 100% of EAP Broadcasting, which controls several television and radio channels, EAP Films and Theatres, which produces and distributes movies, Swarnamahal Jewellers, and 98% in Hotel Sapphire.
Approximately Rs. 34 billion was deposited with ETIF by over 24,000 persons at the time the financial crisis hit the company.
Bids
In the period of 2015-2018, three institutions had agreed to buy ETI, two of which were Sri Lankan companies and one was foreign.
However, the only foreign company – Blue Summit Capital Management Ltd. (BSCM) – succeeded in the bidding process at a total of $ 75 million.
The investorhas already paid $ 54 million out of the $ 70 million and another $ 16 million had to be paid. The Central Bank noted that the remaining $ 16 million was transferred to a local bank, but as a result of the uncertainty surrounding the transaction, the investor subsequently withdrew that amount.
Over the past few years, the depositors continued to demand their deposits be repaid.
In addition to the CBSL’sappointment to oversee company transactions and provide relief to the depositors, the National Economic Council (NEC) is also involved.
ETI Depositors Association President Jayanthi said: “Fourteen months passed since the foreign investor came forward to buy ETI for $ 75 million, but still the responsible local authorities couldn’t complete the transaction and repay the depositors.”
The initial investment was $ 75 million but was later reduced to $ 70 million as they decided to exclude Swarnamahal, which was valued at $ 5 million,” she added.
“If we received $ 70 million, we should have paid off 46% of the deposits. But only 20% has been paid so far. And they are now claiming that an additional 10% can be paid, bringing the total to 30%. Our question is, what happened to the rest of the 16%?” she questioned.
However, the National Economic Council (NEC) focused its attention on the liquidation of the company’s assets to compensate the aggrieved depositors while the CBSL was monitoring the exchangesin the latest round of investment expected to reach Sri Lanka.
CBSL scrutiny
NEC Deputy Secretary General – Financial Affairs Prof. HareendraDisabandara told The Sunday Morning that they had no issues with the CBSL.
“We haven’t said whether this was legal or illegal. We expressed our opinion based on our studies. The studies were based on the information given by the CBSL. We are a third party. The CBSL handled the transaction. We requested more information from the CBSL and other interested parties. We need to have a proper inquiry,” he added.
Recently, the Association to Protect the ETI Depositors met with the Minister of Power, Energy, and Business Development Ravi Karunanayake.
Karunanayake said that they received the bid for $ 75 million but that later, it was reduced to $ 70 million by the Monetary Board, questioning the role of the CBSL in the said transaction. Further, Karunanayake questioned why this group in particular was given such a long time. He noted that the Central Bank generally highlighted even minor issues.
However, the CBSL explained that the Monetary Board (MB) always maintained that any negotiations pertaining to investments in a regulated entity or to the purchasingof assets of such an entity should be dealt directly with the respective entity. As such, all requests made to invest and/or purchase assets of ETIF were directed to the company.
Accordingly, the selection of a party to which the assets of ETIF were to be transferred was done by the Board of Directors (BOD) of ETIF and the MB only granted the necessary approvals from the perspective of protecting depositors’ interests, subject to various conditions including carrying out the transaction in compliance with all applicable laws and regulations in the country.
Whilst various bids were made by the prospective buyers ranging from $ 61 million to $ 75 million, the party proposed by the BOD of ETIF, subsequently approved by the MB, had in effect made the highest bid of $ 75 million –$ 14 million more than the second highest bid.
Further, the current buyer was the only party recommended by the BOD of ETIF. The MB was instrumental in increasing the initial bid of $ 60 million to $ 75 million, pursuant in obtaining the best possible benefit for the depositors of ETIF, the CBSL stated.
Meanwhile, responding to the allegations levelled against the Board of Directors of ETI, they said that the companies and their corresponding assets were private interests. Therefore, this sale was at the complete discretion of the original owners, subject to ensuring that the proceeds realised were entirely utilised to settle depositors.
The mandate of the CBSL, in this regard, was in protecting the interests of the depositors of ETI Finance Ltd. by obtaining the maximum value from the sale.
The statement signed by ETI Finance Chairman JeewakaEdirisinghe said the process for the sale of ETI assets commenced in 2015. Despite numerous negotiations, there were no firm offers made by the parties with whom the owners had discussions.
On 19 December 2017, Shri Krishna Investments Ltd. offered the equivalent of $ 61 million in rupees. Upon inquiry, this company was in the process of being incorporated (and remains at this same stage to date) and had no visible financial background. On this basis, the owners of ETI informed the CBSL that it would not be pursuing this offer any further.
The current owners expressed their interest in purchasing the aforesaid companies and their assets in December 2017. The offer was to purchase the assets of ETI and not the ETI company itself and accordingly, due diligence commenced on the assets of ETI.
On completion of the financial and legal due diligence, a final negotiated price was arrived at. Upon reaching the agreement on a price, a sum of $ 54 million was received to date.
The proceeds received thus far were paid to ETI and were utilised to settle deposit holders. The balance was to be completed before the end of February.
The entire transaction and all the payments to date have been under the close scrutiny of the CBSL, which is guided by strict anti-money laundering provisions.