While Sri Lanka’s capital market watchdog Securities and Exchange Commission (SEC) further relaxed stock broker credit extension recently on 16 January 2012, it is now learnt from SEC inside sources that one influential individual in Colombo had been dragging the extension of broker provided credit due to vested interests he had in Colombo’s listed stocks, CSE Leaks learns.
SEC and CSE insiders outline that Sanjay Kulatunga who holds a series of Executive Directorships within the Beira Group of companies and a member among SEC Commissioners had been disliking the extension of broker provided credit to Sri Lankan investors since where he manage his stock investment portfolio the broker is not giving him credit at all.Some sources also outline that Sanjay Kulatunga is also one of the top investors who had invested in Rs.6 per share private placement of Expolanka Holdings (EXPO) which offered Rs.14 per share in the IPO that was termed to be one of the only overpriced IPO’s in Sri Lanka’s Capital Market history that ‘Robbed’ Sri Lanka’s poor retail investors money in a IPO.
CSE and SEC insiders say that Kulatunga is a nominee in EXPO’s Board of Directors by Sri Lanka’s premier Bluechip John Keells Holdings PLC since John Keells had invested in 83.3 million shares of EXPO through EXPO’s unpopularized Private Placement. Kulatunga is also a Director of Amba Research Lanka-a stock market research firm, which he helped setup in 2003.According to CSE sources Kulatunga had been appointed to SEC as a Commissioner by a top finance ministry official who had vested interests with a Chairman of a premier blue chip conglomerate which probably would have nominated him there too.
Kulatunga’s Beira Group of companies, is a Group that is engaged in export manufacturing and import substitution. Prior to his stints as an entrepreneur and manager, Kulatunga functioned as an equities analyst for Hong Kong based Jardine Fleming Securities, starting in Colombo and culminating as a
Regional Real Estate Analyst in Hong Kong. He has a 1st Class Degree in Commerce from the University of Poona, India and an MBA from the University of Chicago, Booth School of Business. Kulatunga is also as associate member of the Chartered Institute of Management Accountants (ACMA) as well as a Chartered Financial Analyst (CFA).
Kulatunga is Non-Executive Independent Director at Expolanka Holdings PLC (EXPO) and Odel PLC (ODEL) in which a Private equity investor Phoenix Ventures Limited (2.49 million shares; 1.72% stake) given pre-listing stakes in ODEL later sold out after its initial public offer which was heavily oversubscribed, according to the firm's accounts in September 2010 and December 2010.
Meanwhile it is questionable according some SEC insiders whether Sanjay Kulatunga had another deal involved in the latest revamping of SEC Official website (www.sec.gov.lk) by Cyber Concepts (Pvt) Ltd (http://cyberconceptslk.net/dev_sec/?page_id=137&lang=en) since it had learned from sources that Sanjay Kulatunga had earlier given a deal to the same company to develop a website for a company titled ‘Buzz Technologies (Pvt) Ltd. ‘ where Sanjay Kulatunga was the Chief Executive Officer.
That time Kulatunga had appreciated the work by Cyber Concepts (Pvt) Ltd adding that “We have worked with Cyber Concepts (Pvt) Ltd for the last 18 months, developing the…”
It is also learnt from industry sources that the latest development of SEC website was done by Cyber Concepts (Pvt) Ltd using a cheap web development technology such as wordpress freely available blog platform. Blog designs and Wordpress CMS designs are considered to be web platforms that are freely available which could be developed without much effort by changing few source codes.
Some investors and several top capital market industry professionals are also concerned how much SEC would have paid to the Ravi Rajapathirana (MD/CEO) of Cyber Concepts (Pvt) Ltd (ravi@cyberconceptslk.com) (skype id: ravira4437; mobile number +94 772242915) who is maintaining a foreign currency account number bearing 5011 4000 0026 or 5011 9000 0016 at Sampath Bank Ltd of Sri Lanka.
In Cyber Concepts official website it is clearly said that “We have successfully completed the securities exchange commission’s Content Management System. The CMS has been built on top of the popular blogging platform called WordPress”
“SEC is a body that is getting funded through public money and government funds.
It is a question; when there are top website developing companies in the country who can do a much better job why SEC had selected this particular company which had only done few simple website designs with free technology” another concerned investor and a member of the general public questioned.
It is anticipated that Price Bands will also be removed in next few weeks.
However, even certain insiders have been furious stating that all Commissioners of the SEC were keen to accommodate the Sri Lankan President’s wishes and Colombo Stock Brokers Association(CSBA) recommendations regarding Credit Extension and removal of price bands; except Sanjay Kulatunga. It is a well known fact that Sanjay Kulatunga and Sujeewa Mudalige had been against broker credit extension and blocked the removal of restrictions continuously at several past meetings according to known analysts and SEC insiders in the industry.
Over 100,000 investors at Colombo Stock Market have been deprived of credit from August 2010. They have been lobbying against the credit restrictions and have been pushing Brokers to the pressurize the CSE and the SEC to remove restrictions. Brokers in turn had met and made representation to the Board of the CSE and got their approval and then met the Commissioners of the SEC. Then;as usual one or two Commissioners wanted more time to obtain data without coming to the meetings with the data. Thereafter, the President’s Office invited representatives of all the Stock Broking firms according to sources.
“Thank god that Sujeewa Mudalige is no more in the SEC Commission as his term as the ICASL President has ended. Now Sanjaya Kulatunga alone is going against all others and was finding ways to delay the removal of the restrictions” a top investor told CSE Leaks.
CSE sources further point out that the CSE has Rs 2.5 billion in money market instruments of Unit Trusts.“In case if one of the brokers fails to settle Rs.100 million to the CDS one day, then CSE can advance the money, then could sell the stocks that had been overpurchased and recover the advanced funds. Even if any stock broking firm becomes a distressed one there are a number of companies that are willing to buy a stock broking firm within a day or two. Hence, there won’t any settlement failure” he added.
Meanwhile over 100,000 investors, 24 stock broking firms had been awaiting a positive decision on enabling Broking firms to leverage three times their net capital for which even the President of Sri Lanka had no objections. This is to enable Stock Broking firms to borrow from their holding companies or other financial institutions and lend to over 50,000 small investors.Finally SEC allowed it on Monday the 16 January 2012.
However at the Commission meeting held on 16thJanuary 2012, the Securities and Exchange Commission of Sri Lanka (SEC) had decided to permit Stock Broking Firms to leverage 3 times adjusted Net Capital with immediate effect. “Adjusted Net Capital” is the Net Capital computed as per the Colombo Stock Exchange (CSE) Member Regulations less 50% of Fixed Assets. In line with other regional markets, 50% was deducted to take into account the concerns of realizing illiquid assets into cash.
By permitting the Stock Broking Firms to leverage 3 times adjusted Net Capital, the additional credit available in the market will increase by Rs 5 billion resulting in the total credit available among Stock Broking Firms to Rs 8.7 billion.
