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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Not good for market

Not good for market

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1Not good for market  Empty Not good for market Wed Feb 20, 2013 10:11 am

RANGANA PERERA


Manager - Equity Analytics
Manager - Equity Analytics
ex - CARS 100 SELL- 430.00 MARKET DOWN ASI 17 POINT
CARS 1 SELL- 456.50 MARKET UP ASI 18 POINT

WOW ONLY RS 456.50 MARKET UP ASI 18 POINT

SAME FOR GSF, CTC, SLTL,BUKI,NEST......




2Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 10:48 am

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
ASPI based on Weighted Average. What else we can expect?

3Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 12:53 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Carsons is one of the biggest rule breakers of the Companies Act.
They engage in the following:
1. Tunnelling
2. Cross-holding

Tunnelling is where Carsons funnels shareholder money into private entities which are controlled exclusively by a few of the top shareholders.

Crossholdings are common in the CSE. But Carsons takes this to an extreme by getting Shareholder money to invest in Trusts that then invest in the Company (Rainbow Trust) etc. Different Carson entities own each other.

I suggest you see "Ownership of Companies and Corporate Governance in Sri Lanka" - you can buy this at Sarasavi or see the online version at Google Books.

Note: Harry J also does the following. Aitken Spence's largest long term loan is in Milford Pvt. After that Milford upped its stake in quite a few firms

4Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 1:10 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:Carsons is one of the biggest rule breakers of the Companies Act.
They engage in the following:
1. Tunnelling
2. Cross-holding

Tunnelling is where Carsons funnels shareholder money into private entities which are controlled exclusively by a few of the top shareholders.

Crossholdings are common in the CSE. But Carsons takes this to an extreme by getting Shareholder money to invest in Trusts that then invest in the Company (Rainbow Trust) etc. Different Carson entities own each other.


Re Carson - Cannot agree with your above assertion. Please give us at least one example where

a) Carsons has "funneled" shareholder money into private entities which are controlled exclusively by a few of the top shareholders ?

b) Carsons has used shareholder money to invest in Trusts that then invest in the company ?

5Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 1:27 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@The Alchemist wrote:
@rainmaker wrote:Carsons is one of the biggest rule breakers of the Companies Act.
They engage in the following:
1. Tunnelling
2. Cross-holding

Tunnelling is where Carsons funnels shareholder money into private entities which are controlled exclusively by a few of the top shareholders.

Crossholdings are common in the CSE. But Carsons takes this to an extreme by getting Shareholder money to invest in Trusts that then invest in the Company (Rainbow Trust) etc. Different Carson entities own each other.


Re Carson - Cannot agree with your above assertion. Please give us at least one example where

a) Carsons has "funneled" shareholder money into private entities which are controlled exclusively by a few of the top shareholders ?

b) Carsons has used shareholder money to invest in Trusts that then invest in the company ?

You really want to test my knowledge????

Ok

Crossholding via Trust:

1. Carsons owns 100% of Rubber Investment Trust Limited
2. Rubber Investment Trust Limited owns 20% of Bukit Darah
3. Bukit Darah owns 46% of Carsons
4. Then Carsons owns 7% of Bukit Darah

I can go further

1. Carsons owns 86% of Good Hope
2. Good Hope owns 8% of Bukit Darah
3. As per (3) above Bukit Darah owns 46% of Carsons

Krish Family controls (not owns!!) the following:
1. S K Chetty Limited
2. Skan Investments
3. Tower Investments
4. Lake View Investments
5. New Greens
6. Krish Investments
7. InterKrish Investments
8. Fulcrum Limited
9. Porlet Limited

And these investments own stakes in Good Hope, Carsons, Bukit, each other, each of each other, each of each of each other

Money gets tunnelled into all these private investments for various purposes ie. investmnets etc.



6Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 2:41 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:
@The Alchemist wrote:
@rainmaker wrote:Carsons is one of the biggest rule breakers of the Companies Act.
They engage in the following:
1. Tunnelling
2. Cross-holding

Tunnelling is where Carsons funnels shareholder money into private entities which are controlled exclusively by a few of the top shareholders.

Crossholdings are common in the CSE. But Carsons takes this to an extreme by getting Shareholder money to invest in Trusts that then invest in the Company (Rainbow Trust) etc. Different Carson entities own each other.


Re Carson - Cannot agree with your above assertion. Please give us at least one example where

a) Carsons has "funneled" shareholder money into private entities which are controlled exclusively by a few of the top shareholders ?

b) Carsons has used shareholder money to invest in Trusts that then invest in the company ?

You really want to test my knowledge????

Ok

Crossholding via Trust:

1. Carsons owns 100% of Rubber Investment Trust Limited
2. Rubber Investment Trust Limited owns 20% of Bukit Darah
3. Bukit Darah owns 46% of Carsons
4. Then Carsons owns 7% of Bukit Darah

1. Firstly, Carsons does not own 100 % of Rubber Investment Trust (RIT) and RIT is not a trust. RIT is a limited liability company which is co-owned by Ceylon Guardian (GUAR) - 50.2 % and Ceylon Investments (CINV) - 49.8%. Carsons (CARS) owns 67.15 % of GUAR which in turns owns 64.36 % of CINV. - So far, no "funelling" via trust
2. Yes RIT (not a Trust) owns 20.02 % of Bukit Darah - Not a problem.
3. Yes Bukit Darah owns 46 % of Carsons - Not a Problem.
4. Yes Carsons owns 7 % of Bukit Darah - Not a Problem either. held for a long time. Remember that Bukit Darah was just a malaysian company 10 years ago.



I can go further

1. Carsons owns 86% of Good Hope
2. Good Hope owns 8% of Bukit Darah
3. As per (3) above Bukit Darah owns 46% of Carsons

1. Carsons does not own 86 % of Good Hope Asia Holdings Limited (GHAHL). Carsons owns approx 53 % of GHAHL and Buki owns approx 35 %. The balance approx 12 % is held by the Selvanathan's private company called Rim Capital.
2. Good Hope Asia does'nt own a single Buki Share. In fact Buki owns approx 35 % Directly in GHAHL and further approx 29 % further indirectly through its holding in Carsons.
3. Yes Buki owns 46 % of Carsons. so ?

So far i dont see any "tunelling" or "funelling" .



Krish Family controls (not owns!!) the following:
1. S K Chetty Limited
2. Skan Investments
3. Tower Investments
4. Lake View Investments
5. New Greens
6. Krish Investments
7. InterKrish Investments
8. Fulcrum Limited
9. Porlet Limited

These are The Selvanathan Brothers companies that own and control Buki and Carsons. So what. these are their companies. somebody has to own and control them. is that illegal ?


And these investments own stakes in Good Hope, Carsons, Bukit, each other, each of each other, each of each of each other

No only Rim Capital, Buki and Carsons own Good Hope. Yes They own stakes in Buki and Carsons. so what. its their own companies.



Money gets tunnelled into all these private investments for various purposes ie. investmnets etc.


So i come back to my original question
Re Carson - Cannot agree with your above assertion. Please give us at least one example where

a) Carsons has "funneled" shareholder money into private entities which are controlled exclusively by a few of the top shareholders ? - what are these private entities ? no reply yet.

b) Carsons has used shareholder money to invest in Trusts that then invest in the company ?
what are these Trusts ?

7Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 4:02 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@ Alchemist, I said I was referring to a book above which is a few yrs old.

Look at the 2011 Carsons Cumberbatch Annual report page 11 at the bottom: Rubber Investment Trust 100%

Nevertheless, I will answer your question:

From the book:

Carson Cumberbath has 73% of its net worth invested in other "related" companies. Yet these investments made a low rate of return which results in an intra-corporate transfer of resources to private entities which a few shareholders who have larger economic stakes

The cross holding pattern of enables a few shareholders to hold controlling stakes larger than their economic stakes. This is detrimental to the minority shareholders of Bukit Darah. The circular holdings enable family X who control Bukit Darah to control Carson with little direct investment. Carson's stake in Bukit Darah drowns out competitor stakeholders and thus increases the controlling power of family X in Bukit Darah.


It's not had to find Carson Cumberbatch or Bukit Darah shareholder money ending up in private companies with little overview. Just look for loans, loan writeoffs, extra issuing of shares, investments in private companies etc

But I think you get the point. Referring to the first post, these things are against the Companies Act -> subsidiary cannot invest in the holding company -> subsidiary is shareholder/creditor money

8Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 5:13 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:@ Alchemist, I said I was referring to a book above which is a few yrs old.

Look at the 2011 Carsons Cumberbatch Annual report page 11 at the bottom: Rubber Investment Trust 100%

Nevertheless, I will answer your question:

From the book:

Carson Cumberbath has 73% of its net worth invested in other "related" companies. Yet these investments made a low rate of return which results in an intra-corporate transfer of resources to private entities which a few shareholders who have larger economic stakes

The cross holding pattern of enables a few shareholders to hold controlling stakes larger than their economic stakes. This is detrimental to the minority shareholders of Bukit Darah. The circular holdings enable family X who control Bukit Darah to control Carson with little direct investment. Carson's stake in Bukit Darah drowns out competitor stakeholders and thus increases the controlling power of family X in Bukit Darah.


It's not had to find Carson Cumberbatch or Bukit Darah shareholder money ending up in private companies with little overview. Just look for loans, loan writeoffs, extra issuing of shares, investments in private companies etc

But I think you get the point. Referring to the first post, these things are against the Companies Act -> subsidiary cannot invest in the holding company -> subsidiary is shareholder/creditor money


1. Is this your conviction or are you just referring a book that may be outdated ?
2. RIT is not a Trust. It is a limited liability company co-owned by CINV & GUAR. Carsons cannot own it 100 % since there are minority shareholders of CINV & GUAR.
3. From YOUR Book: Carson Cumberbatch has 73% of its net worth invested in other "related" companies. Yet these investments made a low rate of return which results in an intra-corporate transfer of resources to private entities which a few shareholders who have larger economic stakes
The other related companies they may be referring to are Buki, LION, BREW, GUAR, EQUITY 1 etc. These are subsidiary or associate companies. Their Investment rate of return will vary over time. this must be an old book. What are the private entities in which few shareholders have larger economic stakes ?

4. The cross holding pattern of enables a few shareholders to hold controlling stakes larger than their economic stakes. This is detrimental to the minority shareholders of Bukit Darah. The circular holdings enable family X who control Bukit Darah to control Carson with little direct investment. Carson's stake in Bukit Darah drowns out competitor stakeholders and thus increases the controlling power of family X in Bukit Darah.

This is a totally invalid argument since 90-95 % of both BUKI & CARS are owned & controlled by the Selvanathan brothers family. Their controlling stakes and their economic stakes are one and the same. They control and own the joint ! The author of your book has missed this little titbit of information.

5. It's not had to find Carson Cumberbatch or Bukit Darah shareholder money ending up in private companies with little overview. Just look for loans, loan writeoffs, extra issuing of shares, investments in private companies etc

Again, what are these so called private companies with little overview? They cannot be referring to Good Hope Asia as its controlled by Buki & Carsons. In any case, this was done as a strategic restructuring of their Palm oil business.

6. But I think you get the point. Referring to the first post, these things are against the Companies Act -> subsidiary cannot invest in the holding company -> subsidiary is shareholder/creditor money

No actually i dont get the point. A subsidiary has not invested in the Holding Company. Carsons is an associate company of Buki, not a subsidiary. Buki is the the ultimate parent and consolidates the Carsons holdings. so whats actually bothering you about Carsons owning 7 % of Buki ? As mentioned before, 90-95 % of both these companies are owned by the Selvanathan Brothers family. If they were circumventing any company law, the authorities would have taken them to task. Besides, the Former Registrar of Companies and the Former Deputy Governor of the Central Bank are on their Boards.

9Not good for market  Empty Re: Not good for market Wed Feb 20, 2013 9:20 pm

Backstage

Backstage
Moderator
Moderator
ranganaperera , you still there ? Shocked

10Not good for market  Empty Re: Not good for market Thu Feb 21, 2013 10:25 am

speculater

speculater
Senior Equity Analytic
Senior Equity Analytic
Wow nice argument.......We need once in a while these constructive criticisms to enhance our knowledge.......

11Not good for market  Empty Re: Not good for market Thu Feb 21, 2013 1:44 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yes nice discussion.

I wish you were the shareholder of Goodhope when it was forced to buy the overpriced Malaysian palm oil companies that were sold by Rubber Investment Trust Limited. But karma is a bastard - palm oil is now expensive

The family does not have enough funds to control 90% of Bukit Darah, Carsons, Good Hope, Selinsing, Indo Malay. He controls them by owning a stake in one and then crossholding all the stakes so that no one can challenge him ----- That is what you mean by: having a "controlling stake" that is larger than your "economic stake"

If the family has the money, why not establish a holding company so that profits go straight to them instead of circulating around the group

BTW Rubber Investment Trust Pvt Ltd is a Trust contained within a private company. It was a trust that was set up by a British family. The trust inside a Company trick is a classic!! However I must say the family has been amongst the best in the business.

12Not good for market  Empty Re: Not good for market Thu Feb 21, 2013 3:35 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:Yes nice discussion.

I wish you were the shareholder of Goodhope when it was forced to buy the overpriced Malaysian palm oil companies that were sold by Rubber Investment Trust Limited. But karma is a bastard - palm oil is now expensive

I wish i am a shareholder of Goodhope ! It was not forced to buy the overpriced Malaysian Palm Oil companies. It did so as part of an internal restructure which in the first place created the critical mass for Good Hope Asia's existence and to now become a Billion Dollar company. BTW, Goodhope bought these "overpriced" Malaysian palm oil companies from RIT at around Rs 120-125 in March 2009. Today they are buying all qty's available in the market for over Rs 1000. These "overpriced" companies could be worth in the region of Rs 2000 per share !

The family does not have enough funds to control 90% of Bukit Darah, Carsons, Good Hope, Selinsing, Indo Malay. He controls them by owning a stake in one and then crossholding all the stakes so that no one can challenge him ----- That is what you mean by: having a "controlling stake" that is larger than your "economic stake"

The companies you mentioned previously, Krish, Interkrish, Portelet, Skan, Tower, Fulcrum, New Greens, Tower etc etc are owned by the Selvanathan Brothers Family. They are the Beneficial Owners. These are the companies that own and control 90-95 % in Carsons and Bukit Darah who in turn own 88 % in GoodHope Asia.

If the family has the money, why not establish a holding company so that profits go straight to them instead of circulating around the group

I dont understand the question. do you mean instead of numerous companies like Krish, Portelet etc have one company ? If this is the question, for Legal and Domicile and Tax reasons etc. Also remember 2 Brothers numerous children so different companies - one family. Like in Hemas (similar family structure 2 brothers - 4 children), 4 companies hold the 80 % viz Saras, AZ Holdings, Mulberry, Ama Group.

BTW Rubber Investment Trust Pvt Ltd is a Trust contained within a private company. It was a trust that was set up by a British family. The trust inside a Company trick is a classic!! However I must say the family has been amongst the best in the business.

Please provide source and proof that RIT is a Trust within a private company. Just because the company has "Trust" along with its name, it does not mean its a legal Trust. (like Capital Trust Securities is also not a trust ! ) Even GUAR goes as Ceylon Guardian Investment Trust. CIT is also Colombo Investment Trust. This is how they named companies 60-100 years back. I am not a lawyer but i dont think a Legal Trust can be a limited liability company, because a LLC is governed by its Memorandum and Articles of Association and Directors and a Trust by its trust Deed Document and Trustees.

The cross holding pattern of enables a few shareholders to hold controlling stakes larger than their economic stakes. This is detrimental to the minority shareholders of Bukit Darah. The circular holdings enable family X who control Bukit Darah to control Carson with little direct investment. Carson's stake in Bukit Darah drowns out competitor stakeholders and thus increases the controlling power of family X in Bukit Darah.

Please also tell the author of your book that nothing detrimental has happened to the minority shareholders of Bukit Darah. If anybody has bought a Buki share in 2002/2003, which was going for around Rs 700-Rs 800 then (only 441,000 shares issued then) and held it for 10 years upto today, the return would be a staggering 24,000 % or a 240 Bagger ! I dont think any other share in the CSE has come even close. Suffice to say that the minority shareholders have done very well, thank you very much !


13Not good for market  Empty Re: Not good for market Thu Feb 21, 2013 4:13 pm

lion


Senior Equity Analytic
Senior Equity Analytic
Rainmaker, bluff bluff......

please see the comments on your post on CDB..,
http://forum.srilankaequity.com/t26015-cdb-perfomance-for-the-last-quarter

14Not good for market  Empty Re: Not good for market Thu Feb 21, 2013 4:56 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Wow what a discussion!!!

There aren't many people who know the Carson story. May I know how you know so much?

Goodhope is lucky that the palm oil prices recovered. Palm oil fluctuates base on the supply from Indonesia. What happened was that a major Palm oil supplier stopped paying debenture interest and the collapsed. The price went up and it really hasn't stopped.

But this was pure luck. When the restructure occurred Guardian was laughing to the bank with 2 Billion in profits. Also note that even the family thought the palm oil days were over. They sold a valuable estate for 35M USD in the early 2000s.

I don't have a clue about those private companies. But the family didn't just wake up with millions of USD in private companies ready to invest.

The Rubber Investment Trust Pvt Ltd is a trust inside a private company. This is done for Employee share trust schemes as well -> the lawyer who recommends this is the same one who defended the CJ.

A few old trustees of this trust were:
1. G N Russell
2. O.S Forbes
3. G.X. Newton
4. R.J. Barrow
5. P.R. Candappa

The Ceylon Investment Company Ltd and the Ceylon Guardian Investment Trust Ltd subscribed to 11.3 Million and 10.6 Million rupees each in 1959 (yes - a hell of a lot on those days). The trust invested 67% in plantations and the rest in insurance and brokerages. The trust also had the Mackwoods Agency - yes the tea firm.

I honestly don't know who the beneficiaries of these trusts are right now.

I'll stop now because there are secrets that should never be told. But I'll give you a hint. Inside one of the sister trusts of Rainbow (I don't think it's Rainbow) there is a private pension fund that was set up a long time ago 1940s. Those employees over the years never saw the full profit of this trust. Some of the documents relating to this trust were distroyed in a major explosion - you should know the event.







15Not good for market  Empty Re: Not good for market Thu Feb 21, 2013 5:28 pm

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@rainmaker wrote:Wow what a discussion!!!

There aren't many people who know the Carson story. May I know how you know so much?

Goodhope is lucky that the palm oil prices recovered. Palm oil fluctuates base on the supply from Indonesia. What happened was that a major Palm oil supplier stopped paying debenture interest and the collapsed. The price went up and it really hasn't stopped.

But this was pure luck. When the restructure occurred Guardian was laughing to the bank with 2 Billion in profits. Also note that even the family thought the palm oil days were over. They sold a valuable estate for 35M USD in the early 2000s.

I don't have a clue about those private companies. But the family didn't just wake up with millions of USD in private companies ready to invest.

The Rubber Investment Trust Pvt Ltd is a trust inside a private company. This is done for Employee share trust schemes as well -> the lawyer who recommends this is the same one who defended the CJ.

A few old trustees of this trust were:
1. G N Russell
2. O.S Forbes
3. G.X. Newton
4. R.J. Barrow
5. P.R. Candappa

The Ceylon Investment Company Ltd and the Ceylon Guardian Investment Trust Ltd subscribed to 11.3 Million and 10.6 Million rupees each in 1959 (yes - a hell of a lot on those days). The trust invested 67% in plantations and the rest in insurance and brokerages. The trust also had the Mackwoods Agency - yes the tea firm.

I honestly don't know who the beneficiaries of these trusts are right now.

I'll stop now because there are secrets that should never be told. But I'll give you a hint. Inside one of the sister trusts of Rainbow (I don't think it's Rainbow) there is a private pension fund that was set up a long time ago 1940s. Those employees over the years never saw the full profit of this trust. Some of the documents relating to this trust were distroyed in a major explosion - you should know the event.


I can respond once again point by point and show that what you are saying doesn'nt make much sense. i think other members must be bored by now of this back and forth. Your "Trust" angle is not accurate and true. In a lighter vein, i find it ironic that the Rainmaker is looking for Rainbows !

16Not good for market  Empty Re: Not good for market Fri Feb 22, 2013 12:48 am

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Ok Alchemist. I will agree with you to end this discussion.

So we are to believe Rubber Investment Trust which was set up in 1900s by the British for the British to invest in plantations. The trustees were British men -> can you ever disprove that? Then one fine day they decided to hand over this cash rich trust. Ok we'll believe you.

The British trustee is long dead. But his legacy lives on in the shareholdings of Ceylon Guardian Investment Trust - Mr G. N. Russell.

He also is there in the top 20 of Carson Cumberbatch.

I will admit the only thing I don't know is how this and the related firms ended up in the hands of the family. Perhaps you could enlighten me on this as I would really appreciate it?????


-----------------------------------------------------------
Read the book: Political Economy of Underdevelopment in Sri Lanka.

As per why this ownership structure was maintained, see Neelakandan Neelakandan's explanation in:

http://www.neelakandan.lk/pages/Legal-Aspects-of-doing-Business-in-Sri%20Lanka.pdf

17Not good for market  Empty Re: Not good for market Fri Feb 22, 2013 7:41 am

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
Good that u guys have constructive arguments rather than throwing stones Wink

Hats off for all of you for the enlightenment..

18Not good for market  Empty Re: Not good for market Tue Feb 26, 2013 1:43 pm

madhatter


Stock Trader
Rainmaker's source: The Political Economy of Underdevelopment by S. B. D. De Silva is just a wee bit outdated. Here's a synopsis from Google books - where you can read the book online - or just search for the relevant passages using keywords.

First published in 1982, this reissue deals with the theory of underdevelopment, as Dr. de Silva attempts a synthesis between the internal and external aspects of underdevelopment and, in the Marxist tradition, focuses on the impact of the external on the internal as the dominant reality.

Viewing underdevelopment as a problem in the non-transformation to capitalism, this analysis is in terms of the character of the dominant capital and of the dominant classes. Underdevelopment thus encompasses the 'traditional' peasant economy and also the export sector where the 'modernizing' influence of colonialism was felt. The book finally considers how the contemporary internationalization of capital affected the economies of the Third World.

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