The Employees Provident Fund has lost a mammoth Rs. 4 billion in controversial investments in just five companies. All the investments violating internal guidelines were carried out since Nivard Cabraal took over as Governor of the Central Bank.
Senior Bank officials say these transactions are the ‘tip of the iceberg’ and many more share transactions have been ‘fixed’ with a group of politically connected people artificially pumping up the value of shares after agreeing to the buying price with the EPF before hand.
Out of all EPF investments, little over 6 per cent of the total fund exceeding Rs.1 trillion is invested in 119 companies at CSE, in a mix of voting and non-voting shares. Unfortunately, most of these companies are running at a loss or exposed to price manipulations leading to a capital loss. Piramal Glass Ceylon PLC, Galadari Hotels (Lanka) PLC, Laugfs Gas PLC, Ceylon Grain Elevators PLC, and Browns and Company PLC are a few examples identified as the ‘tip of the iceberg’.
EPF held 18.87 million shares or 1.98 per cent stake of Piramal Glass (Ceylon) Ltd by the end of financial year 2010/11. Since then, EPF has been continuously collecting the particular stock using almost all the brokering firms it is dealing with and have increased the total stake to 10 per cent with the purchase of 5 percent made in April for Rs. 280.5 million paying Rs. 6.20 per share. According to Friday’s trading, the company is transacted at an average price of Rs. 5.20 incurring a capital loss of close to 50 million rupees to EPF investments within weeks of buying the share.
One of the most controversial ‘push and dump’ transactions in the share market was the EPF buying Galadari Hotels (Lanka) PLC shares.
Despite the debt of Rs. 6.2 billion incurred by the company, EPF increased its stake by 13 per cent by purchasing 23.7 million shares at Rs. 32.50 in 2010. These shares were previously held by Nawaloka Hospitals and related parties. According to Nawaloka Hospitals Deputy Chairman and Chief Executive Officer Jayantha Dharmadasa it has been “a great relief” for them to get rid of the “burden” – Galadari Hotels (Lanka) PLC. According to last Friday’s average trading, Galadari Hotels (Lanka) PLC is now transacted at Rs.11, which works out to a loss that exceeds Rs. 500 million.
In another transaction that is now haunting the EPF, on October 10, 2011, it bought 8 per cent stake or 33 million shares in Laugfs Gas PLC on for Rs. 1.6 billion. Since then, by using different brokering houses the EPF increased its shareholding to 57.89 million ordinary shares or 17.28 per cent of the stake followed by 18 million or 35 per cent of the non-voting shareholding.
Inter Company Employees’ Union (ICEU) President and former Member of Parliament (Janatha Vimukthi Peramuna) Wasantha Samarasinghe eager to take the culprits to book said: “An ordinary share of Laugfs Gas PLC was traded between Rs. 38 – Rs. 41 during the period. However, the price increased to Rs. 51 on the particular day. Transaction completed before 11.30 am and the price came down to Rs. 40 by noon.
They appreciated the price to complete the particular transaction, which is manipulation. I trust the Investment Advisors are not a bunch of grass eaters. They should know where the market is heading and to avoid such artificial price appreciated transactions. The profit incurred per share is Rs. 10 out of which Rs. 8 was shared among the decision makers and the agents involved. We state this with responsibility. Today the particular ordinary share is traded at Rs. 19 and the non-voting at Rs. 11”. The Total loss in these transaction amounts to a whopping 1,389 million rupees. Ceylon Grain Elevators PLC is another company EPF has invested during the market peak although some identifies the respective transaction as another case of price manipulation. Going through the interim financial statements for the three months period ending March 31, 2012 EPF is the third largest shareholder, which enjoys 5.35 million shares or 8.92 per cent stake of the Ceylon Grain Elevators PLC. However, United National Party Member of Parliament, Dr Harsha de Silva estimates the capital loss incurred from the particular deal to exceed Rs.1.02 billion.
Last but not least, Browns and Company PLC is another debunk investment of the EPF, which owns 6.43 million or little over 9 per cent of the company. According to Dr. Harsha de Silva, Rs. 854 million has been lost by investing in the company. Wasantha Samarasinghe believes that in most occasions, these transactions have taken place purely on market manipulation triggered by the well-organized “Famous Five” investors engaged in CSE during the bullish trends, leading the EPF to pay a peak price for listed companies deemed unfit for secured investment and provide a stable ROI.
“The same people who are destroying archseological sites in search of hidden treasures are also engaged in EPF frauds at leisure, under the protection of law. EPF is neither private property of Mahinda Rajapaksa nor the earnings accumulated from Medamulana estates but hard earned moneys of the private sector employees. The fact is Rajapaksa family invested companies rarely trades at CSE or underpriced sales are not allowed with junior Rajapaksa’s readily awaiting with increased bids. For an instance, how did a Sri Lankan Naval Officer find Rs. 10 million to invest in the stock market? Having discovered the EPF as an easy treasure, now they are trying to open all possible doors to make use of it. Not only the stock market, details were unearthed where government bonds are used to earn easy money within three days based on inside information and riding the interest rate fluctuations. This is how the kith and kin are treated,” said Samarasinghe.
Although, it is mandatory according to Investment Policy Statement and Standards of Professional Conduct of EPF to carry out a thorough study of the particular listed company it intended to invest while relating to the macro factors, which recounts the future performance of the particular share prior to recommending it to the investment committee “the Famous Five” were successful on all occasions to use the country’s largest reserve for their own benefit. Section 184.108.40.206 of this code has limited the investments to blue chip securities in CSE under all circumstances. Meanwhile, United National Party Member of Parliament Ravi Karunanayake has written to the Committee on Public Enterprises (COPE) Chairman, Member of Parliament Dew Gunasekera highlighting the economic turbulence experienced during the past six months owing to arrogance, ignorance, corruption, and manipulative practices where insider trading is being pursued while requesting to summon all former and current officials of Securities Exchange Commission of Sri Lanka and CSE to COPE for immediate investigation.
“Ministry of Finance says that they are not involved in TFC transaction. If so, it has to be approved by the Monetary Board, which is occupied by people handpicked by the Governor. He is the person who appointed Ajith Devasurendra on TFC board and the other people on Taprobane Board. Then the Governor gets them to buy shares where innocent people resign for no crime committed. Why can’t the government bring the culprits to book?” said Karunanayake.
Since the EPF was set up as the premier pension fund, the Central Bank has prudently invested the money in long term safe investments with no interference by the government or the Governor of the Central Bank. However, this changed with the Election of President Mahinda Rajapaksa in 2005 and him appointing Nivard Cabraal, a known shady character as the Bank’s governor. It is since then that EPF funds were utilized to buy dud companies after its share price were artificially ‘pumped up’ by a cabal of politically powerful people. Even by Sri Lanka’s standards of corruption, the manipulation of the Colombo Stock Market by this group is mind boggling.
In fact it is not only the EPF but funds of other government institutions such as Sri Lanka Insurance, the Employees Trust Fund and state banks have also been utilised to ‘dump’ artificially inflated shares. Central Bank Governor Ajith Nivard Cabraal and Ministry of Finance Secretary Dr P. B. Jayasundara were not available for comments.