Sri Lanka cancels an unethical deal of Fake Stock Market Bulls

Sri Lanka’s top citizen appointed by the people for the rule of the island had cancelled the controversial National Savings Bank’s (NSB) deal pioneered by government appointed NSB Chairman Pradeep Kariyawasam that involved in buying a 13.02% stake of former Ceylinco owned The Finance Company, a deal pioneered by former First Capital Money Broker Ajith Devasurendra’s Taprobane Securities lead by Dinal Wijemanne,  top Sri Lankan’ Secretariat sources revealed CSE Leaks.

Accordingly a statement by the Top Sri Lankan’s Office had said the deal had been cancelled in a release at 8 p.m. to public.

Sri Lanka's state owned public deposit rich National Savings Bank bought a 13.02% stake of former Ceylinco owned oldest finance golden house of the island The Finance Company PLC (TFC) on 27 April 2012. After the transaction a filing by Sri Lanka's former Money Broker and Bond marketer Ajith Devasurendra lead Taprobane Securities said.

National Savings Bank had bought 7,863,362 ordinary voting shares of TFC at an average price of Rs.49.74 per share. TFC was the largest contributor to the day's turnover with Rs.394.09 million and a total of 7,982,705 shares traded via 58 trades. Several crossings were done whilst TFC stocks changed hands in parcels of 2,904,983  and 4,237,400 shares at Rs.50 per share and 701,761 shares at Rs.45 per share whilst the sellers were believed to be Taprobane Securities CEO Dinal Wijemanne, Raynnor Silva and former Chairman of failed Tea Company Fern Tea Nirmala Anura Fernando who sold 50,000 shares at Rs.45 per share.

Market Analysts said that after the deal NSB directors had been compelled to cancel the payment of the transaction cost that amounted to over Rs.390 million with the instructions of the Top Sri Lankan who had later scolded the NSB Chairman for carrying out the transaction.

Not knowing the circumstances Sampath Bank PLC the Central Depository System (CDS) settlement custodian of Taprobane Securities had then paid the total sum to main sellers including Dinal Wijemmane and others.

Since NSB had not paid to the transaction after losing the payment of over Rs.390 million Sampath Bank had then cancelled settlement for other share transactions that took place after 27^th April behalf of its other brokering clients which Sampath Bank acts as the settlement custodian, according to analysts.

Meanwhile it is learnt from inside sources that shares that were sold by Dinal Wijemanne were actually owned by Ajith Davasurendra and Nirmala Anura Fernando whilst on 3 May 2012 The Finance Company PLC (TFC) in a filling to Colombo Bourse said that company wish to inform Dinal G. Wijemanne has resigned from the board of directors of The Finance Company PLC (TFC) with effect from 2 May 2012.

However the company added that Dinal Wijemanne has been again appointed as an Alternate Director to Nirmala Anura Fernando - Independent Non Executive Director of The Finance Company PLC with effect from 2 May 2012.

However TFC on Wednesday issued a statement to Sri Lanka’s Pink paper writer defending NSB’s buy.

Pink Paper quoted that analysts said that it was NSB’s prerogative to clarify or deny allegations levelled by UNP MP Dr. Harsha De Silva over the investment of Rs. 400 million to buy a 13% stake amounting to nearly eight million shares at Rs. 50 each, when the TFC stock was trading around Rs. 30.

Sri Lanka’s Pink Paper said quoting analysts that “If the TFC is making a statement and in the process divulging various price-sensitive information, then such a move may have had the TFC Board sanction. In that context then the Board as well as the director who sold can run the risk of insider dealing,” analysts opined. Among major sellers last Friday were shareholder Director Dinal Wijemanne, who incidentally is also the CEO of Taprobane Securities, the broker picked by NSB for the purchase.

According to Pink Paper NSB’s buying into TFC stirred up a controversy due to multiple reasons. One is the alleged risk of public savings when NSB makes such investments into a company which has a negative net worth of Rs. 23 per share and is saddled with Rs. 9 billion retained losses.

Though the Rs. 50 is being perceived as expensive, sellers said the 13% stake had been originally bought in September 29011 at Rs. 48 per share, suggesting that NSB paid only Rs. 2 extra.

However, others pointed out that when there were thousands of those who were stuck with shares unable to sell at lower prices after having bought last year at higher level, because of the “Arranged Deal,” sellers of TFC shares indeed were the most fortunate couple in the market.

On the day the deal went through, a few others who had relatively large blocks offered to sell, however the NSB broker had declined to buy. Analysts said it was important for NSB to collect quantities from the market rather than buying from a favoured few. Nevertheless, NSB did mop up 98.5% of the 7.982 million shares of TFC traded on Friday, whilst the major sellers accounted for 89% or 7.1 million shares comprising 2.9 million each (Dinal and Rayynor), 669,700 (Nandadeva Perera) and 667,700 (Yogendra Perera).

In the Pink Paper in a statement, the UNP’s MP and its Chief Spokesman on economic matters, Dr. Harsha De Silva had said: “We note with serious concern the purchase of close to eight million shares of TFC by the NSB at 65 per cent above its current market price. What logic was employed to pay Rs. 49.75 for shares of this high risk and loss-making financial institution when it was last traded at the Colombo Stock Exchange for only Rs. 30 is more than a puzzle.”

“Perhaps one could argue that it is the business of the board and management of any institution to pay whatever price it feels is right for anything they purchase. But NSB is not, by any stretch of the imagination, just another institution. It is absolutely the only bank whose deposits are fully guaranteed by the Government of Sri Lanka as expressed explicitly in the statute governing the bank: NSB Act No. 30 of 1971,” the UNP MP had said.

“This necessarily means that NSB must maintain a risk-averse investment profile and transactions like the one just concluded are not what it should be engaging in,” Dr.De Silva had said.

In the Pink Paper Dr. De Silva had alleged that the husband of the Chief Justice of Sri Lanka, Pradeep Kariyawasam, who continues to enjoy power and position as the Chairman of the NSB among several other plum postings offered by the Government, was a glaring example of conflict of interest.

 “A number of colourful personalities including Anura Fernando whose name has been linked to the now-abandoned Central Bank investigation on the Gold Quest pyramid scam and a former Director of Capital Reach Leasing, a company in which Ajith Nivard Cabraal had a significant interest, also sit on its board,” alleged the statement by UNP MP.

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