Fairway Gives Rs 550M Boost For Multi Finance

• Central Bank Yet To Strengthen NBFI Sector

by Dinesh Isuru

One of Sri Lanka’s leading private sector organizations – Fairway Holdings this week  infused Rs 550 million much-needed capital by way of private placement for the troubled registered finance company (RFC) –  Multi Finance PLC, which many believe became distressed along with several other RFCs due to unfarsightedness of Sri Lanka’s banking watchdog – the Central Bank.

Multi Finance announced to CSE this week that that 41,110,075 shares issued at a price of Rs 13.40 were allotted and listed on 23 February 2017.

In October 2016, CBSL announced that it would set up a new Enforcement Division in order to bring fraudsters in Non Bank Financial Institutions (NBFIs) to book, which some had likened to closing of stable doors after the horses had bolted (See http://www.thesundayleader.lk/2016/10/23/central-bank-throws-in-the-towel/) . However, no culprit has been so far brought to the book even after a lapse of three months.

“Central Bank will set up a new Enforcement Division in the Department of Supervision of Non Bank Financial Institutions to institute legal action against Directors and managers who have been responsible for fraud and misappropriation of funds and to make every effort to recover such funds from them,” Central Bank said.

Accordingly, three troubled finance companies – The Standard Credit Finance Ltd, City Finance Corporation Ltd, and Central Investments and Finance Ltd along with distressed primary dealer – Entrust Securities PLC, a sister company of Multi Finance PLC are to be bailed out by the watchdog.

However, many good governance activists question as to why the Central Bank would allow NBFIs to become errant companies in the light of The Sunday Leader exposing during the recent weeks how several entities in the finance sector are facing liquidity and regulatory issues mainly due to alleged collusion between corrupt individuals in the top management and the authorities.

“Irregularities of Entrust Securities PLC and the other three NBFIs have been brought to the notice of not only the CBSL but even the Criminal Investigations Department (CID) and Police many times, but why wasn’t any proper action taken to prevent a repeat of Golden Key Credit Card Company by authorities?  Is it because authorities had been complicit in this horrendous crime with them?” several disgruntled investors told The Sunday Leader.  

“There are so many questions about the role of the regulator here,” he lamented.

“This is just one of a series of serious lapses on part of the Central Bank,” charged Wasantha Samarasinghe, Convener of the Voice Against Corruption Movement. “Not only this company in question, we have conducted our own probing and uncovered out a number of serious lapses on part of the authorities. Not only the companies that were caught during the fallout of the 2008 Global Financial Crisis (GFC), but we have evidence of scores of illegal financial institutions and unauthorized deposit taking entities operating with the knowledge of the regulator,” lamented Samarasinghe. (See http://www.thesundayleader.lk/2016/09/05/finance-companies-debacle-credibility-of-cbsl-at-stake/)

“Our fear is not the mere collapse of Entrust per se but that this could spill over to other finance companies or other entities since many are questioning the role and mitigatory measures of Central Bank in preventing such contagion or lack of such. No point in this government being clean and corrupt-free if it can’t prevent the corruption of the Rajapaksa regime spilling over to this administration,” lamented high-ranking official.

When The Multi Finance Company Ltd, a registered finance company incorporated in 1974, was hit in the aftermath of the financial crisis of 1997-98 (in which Pramuka Bank collapsed) Lalith Kothalawela-owned Ceylinco Shriram Securities Holdings Ltd (CSSHL) bought a 70 percent stake in the company with Rs 70 mn investment. When the Ceylinco Group took the hit in the wake of the 2008 global recession, Ceylinco Sriram also was badly impacted. CeylincoSriram Group companies- Sriram Securities (Pvt) Ltd., Sriram Asset Management (Pvt) Ltd and Sriram Capital Management Services (Pvt) Ltd (along with the latter’s subsidiaries Ceylinco Leasing and CLC Asset Management Company- which had accepted public deposits) collapsed and most depositors are still fully unpaid to this day.

The two Sriram subsidiaries were later renamed and functioned as Entrust Limited (EL), Entrust Securities Limited (ESL), along with The Multi Finance Company Limited (TMFCL).

Supreme Court had directed the Committee of Charted Accountants (CCA) headed by Prof. Lakshman Watawala to work with auditors Ernest & Young (E&Y) in analysing this amount and personally call for confirmation letters with assistance of the Central Bank of Sri Lanka, local media reported.

Entrust Limited (EL) earlier announced that it was supported by two regulated subsidiaries- Entrust Securities Limited (ESL) a Primary Dealer appointed by the Central Bank of Sri Lanka and The Multi Finance Company Ltd (MFCL) a finance company licensed by the Central Bank of Sri Lanka. It is also the holdings company for Entrust Investments Limited.

The two Ceylinco Shriram subsidiaries – Ceylinco Capital Investment Company Ltd and CLC Asset Management Ltd were accepting deposits from the public in breach of the Finance Companies Act and Central Bank’s regulations without CBSL being aware of it. A third company Ceylinco Shriram Capital Management Services Ltd, not authorized by the Central Bank, has been lending and re-investing money of depositors. Five Ceylinco entities – Ceylinco Golden Key Credit Card Company Ltd, Ceylinco Finance and Guarantee (F&G), Ceylinco Investment and Realty (CIR), Ceylinco Profit Sharing Ltd, and Ceylinco Shriram, were hit during the recent global financial crisis.