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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Ripping off shareholders using private companies

Ripping off shareholders using private companies

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rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
A quick look at financial statements suggest that a few listed entities are funnelling funds to private companies - usually owned by directors.

No need to mention names ... but has anyone else noticed this?

kukumarx


Manager - Equity Analytics
Manager - Equity Analytics
Yes I have noticed, its quite widespread.

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:A quick look at financial statements suggest that a few listed entities are funnelling funds to private companies - usually owned by directors.

No need to mention names ... but has anyone else noticed this?

It depends on your definition of Funnelling. Is it a loan for a fixed tenor and a determinable interest rate ? RENU comes to mind. As long as its funds not raised by a rights issue, surplus funds not required for the day to day running of its core business, earning a competitive return for its shareholders, it should be ok. not ideal.
I haven't noticed any more. If you have, please share with us.

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
What I meant by funnelling is that a lot of firms have related party transactions with private companies - some going into 10s of millions.... I wasn't talking about not criminal theft!

Its similar to what was used to happen in some other markets where listed real estate companies used to funnel investments to private construction companies without any tenders.

Loans are quite common ... what is most common is the writing off of those loans as well !!

kukumarx


Manager - Equity Analytics
Manager - Equity Analytics
I know of one company which shifted very profitable functions to a unlisted subsidiary which does not come under as much scrutiny as the parent. In the companies annual report all that is listed is profit from the subsidiary. Nothing else about the subsidiary. Its a black hole. How much that subsidiary paid its directors, what were the sales of that subsidiary. Its expenses etc?

The company is still quite profitable but the shareholders don't know whats going on in this subsidiary I suppose one can go to the registrar of companies and get the accounts of that company but how many people would bother to do that? Besides, the detail of the accounts to be presented for unlisted companies is much less.

gamaya


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@The Alchemist wrote:
@rainmaker wrote:A quick look at financial statements suggest that a few listed entities are funnelling funds to private companies - usually owned by directors.

No need to mention names ... but has anyone else noticed this?

It depends on your definition of Funnelling. Is it a loan for a fixed tenor and a determinable interest rate ? RENU comes to mind. As long as its funds not raised by a rights issue, surplus funds not required for the day to day running of its core business, earning a competitive return for its shareholders, it should be ok. not ideal.
I haven't noticed any more. If you have, please share with us.

Since the gaining of Aus. Dollar against LKR, I remember this deal turned out to be favourable to RENU.

nirowat


Manager - Equity Analytics
Manager - Equity Analytics
Agree with the rainmaker that there is ripping off going on.
This at the end boils down to minority shareholder rights, which is non existent in Sri Lanka. I think there is some work going on to formalise related party transactions in the regulatory sector but feel this will still fall short of what is required.
As I would guess by looking at the recent cash flow statement for RENU, the Aus loan has been repaid, will have to wait till the annual report to confirm. If the minority shareholders have any say in the company RENU will be trading around 400

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