“Kariyawasam Acted as De-Facto Agent for LOLC”
By Faraz Shauketaly
SEC Chairman Nalaka Godahewa raised the alarm bells over former NSB Chairman Pradeep Kariyawasams’ action as far back as 2010. At the time Pradeep Kariyawasam was Chairman, Sri Lanka Insurance and Godahewa was on his second stint as Managing Director Sri Lanka Insurance. Godahewa had previously served as CEO under Harry Jayawardena and left prior to the Supreme Court action which saw Harry J being asked to return the ownership of SLIC to the Treasury. In an e-mail communication addressed to fellow directors of Sri Lanka Insurance Corporation (SLIC) under the title “Leaking Confidential Information” Godahewa complained bitterly of Kariyawasam leaking information on a sensitive deal to a private company.
Godahewa did not mince his words: “it is clear that Chairman (Pradeep Kariyawasam) not only was passing sensitive information to which he was privy to as Chairman but was also acting directly as an agent to outside parties. He has openly acted for LOLC by making an offer on behalf of LOLC to Asia Securities”.
“It is clear that Chairman (Pradeep Kariyawasam) not only was passing sensitive information to which he was privy to as Chairman but was also acting directly as an agent to outside parties. He has openly acted for LOLC by making an offer on behalf of LOLC to Asia Securities”.
The e-mail dated February 22nd 2010, sent from Godahewa’s SLIC e-mail account was addressed to five other directors and seeks the counsel of Godahewa’s fellow directors on ‘how to proceed”.
Days earlier, on February 19th, Pradeep Kariyawasam, using Sri Lanka Insurance letterhead and signing off as Chairman Sri Lanka Insurance, wrote to the CEO of Asia Securities (Pvt) Ltd., referring to the letter Asia Securities had sent to SLIC, addressed to the Senior DGM of Investment, SLIC, Mr P.P.J. Perera in connection with the purchase of National Development Bank (NDB) shares.
Contrary to what had been agreed between the Treasury and the Central Bank, which was that SLIC would take 4.9% of the parcel of NDB shares being offered and that EPF/ETF would take the balance 4.7% of NDB, Chairman Kariyawasam made a sensational offer in his letter.
An extract of the Supreme Court order in the SLICL matter
The Chairman of Sri Lanka Insurance made a baffling statement apparently oblivious to the irony of what he was doing: he wrote to the brokers confirming that SLIC would take 4.7% and that he was enclosing a letter from LOLC for the balance 4.9% of the same stake on offer from Asia Securities. More to the point, Kariyawasam adds what must be the most memorable line – and one for students of insider information – “Kindly treat this letter from LOLC as a final and conclusive purchase offer.”
Pradeep Kariyawasam, acted utterly in contempt of fundamental corporate governance. His letter to Asia Securities and his reference to the offer from LOLC smacks of arrogance of the highest order. He acted recklessly and clearly did not care for the consequences.
The concerns of the Board of Sri Lanka Insurance were not shared by Kariyawasam. The Board clearly trying to distance themselves of this scandalous action by its very own Chairman, decided to notify the principal shareholder of Sri Lanka Insurance, the Treasury Secretary, Dr. P.B. Jayasundera.
Dr. Jayasundera wrote to Kariyawasam on the 2nd of March 2010 and explained the rationale to Kariyawasam. The objective of the acquisition of NDB shares is to ‘promote equity participation by public sector agencies and hence you should refrain from being associated with any private party transaction.’
Asia Securities Stockbrokers initially wrote to SLIC offering a strategic investment of 9.6% of NDB shares.
The offer gave details: 7,854,250 shares were on offer at an asking price of Rs. 200 per share. The market price of the share at the time was Rs. 218 per share. This meant that had the transaction gone through at the time, the unrealised capital gain for SLIC would have been some Rs. 141 Million.
However, as SLIC held nearly 10% of NDB at the time, SLIC needed special approvals from both the Central Bank and the Treasury Secretary to increase its stake to beyond 10%. After the SLIC Investment Committee consulted with both, it had been observed that SLIC ought to consider purchasing 4.9% of NDB so that its own stake would be capped at 15%. The balance 4.7% on offer it was decided should be offered to another state organ, either ETF or EPF.
Confidential discussions ensued thereafter between investment managers from SLIC and ETF where this strategy of splitting the strategic stake between two essentially state institutions was agreed upon formally.
The Investment committee strategy was explained to the Chairman and Board of SLIC by Senior DGM Investments around 17th / 18th February. Godahewa who was a board member at the time, was surprised to be made aware of the letter sent to Asia Securities by Kariyawasam. That particular letter was not seen or approved by the Board of SLIC and in any event that letter was totally against the investment strategy of the Committee at SLIC. In essence the strategy was to utilise state funds to purchase the entire 9.6% stake on offer in NDB.
By his actions Kariyawasam created a potential gain of Rs. 72 Million for a private, unrelated company. Kariyawasam appeared to be out of his league: he also openly flouted the rules by negotiating directly with stockbrokers and on behalf of a third party company – in this instance LOLC. It appeared that Chief Justice Sarath N. Silva had indeed recognised a need for competent, experienced professionals to be at the helm of an important state owned entity such as Sri Lanka Insurance when he made the order on who exactly should be considered for the Board of Sri Lanka Insurance after ordering a Harry Jayawardena connected consortium to return the ownership of Sri Lanka Insurance to the Treasury.
Kariyawasam of course apparently copied Treasury Secretary, the Group MD of LOLC, the MD of SLIC and the Senior DGM Investments SLIC with his letter to Asia Securities. It appears that Kariyawasam by ‘keeping those involved informed’ was on an adventure on his own but let others know, just in case he found himself lost in the jungles of corporate governance – especially if he lacked the experience to go on solo adventures.
The Supreme Court Order in the Sri Lanka Insurance Corporation matter is clarity personified. We publish an extract of the section that dealt with just who the Supreme Court ordered can run the affairs of SLIC. (firstname.lastname@example.org)