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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » AAF unbecoming a Finance Company and shouldn't SEC investigate?

AAF unbecoming a Finance Company and shouldn't SEC investigate?

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Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
We have lot of news about AAF. Lets analyze!

AAF intended decision to have a cross holding with Chilaw Finance (CFL) is a good one for both majority shareholder of AAF and CFL but not so good for the two finance companies. By each Finance company having 10% holding in the each other, Shareholders of AAF (namely Asia Capital) and CFL would be able to drain out approximately Rs 100mn from each other finance companies to pocket of its shareholders.

As a result of this transcation the Cash per share and Core Capital of both finance companies would reduce as the cash balance would be replaced by the investments in shares which is considered high risk. This is a cause for concern for Depositors of both AAF and CFL, especially when considering the current crisis prevailing in Finance Companies due to sharp decline of interest rates and resultant increase in Non Performing Loans (NPL).

This fishy cross holding plan must be welcome news for the Asia Capital as they are continuously struggling to stay above water due to sever draining of money due to high cost of overheads and other administrative expenses which is in the region of Rs 800mn per annum.

Shouldn't the Central Bank, the guardian of the Depositors question this transaction and investigate the intentions of the majority shareholder of both these Finance Companies?

In so far as Foreign Party, I guess this is a ploy adopted by Asia Capital create interest in the AAF Share. If there is a real foreign investor I think its is good for them, but non disclosure of the name of the buyer is very fishy. After all, who care!!, the cost of Due Diligence will have to be borne by the Central Bank. (As per CB announcement of mergers)

Also SEC, should seriously look at what AAF has done. How could the board allow a unnamed company to carry out due diligence of the Company. Investor who is carrying out the Due Diligence will have inside information about AAF and they together with their Nominees would be able to buy shares based on such information. As minority shareholders we are not preview to such information and we all might get sucked in by the foreign investor who got Inside Information of AAF.

Therefore don't you think that SEC should immediately stop the Due Diligence or ask AAF to disclose the name of the buyer!!

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
CFL & AAF cross holding of 10%, was it announced to the trading floor? i search on the both compay cse info but couldn't find it?

About the CBSL paying the due diligence studies, if am not mistaken, they will pay for the mergers or acquisition in the local context, are they going to pay for all the foreign investors who are interested in?

Also i feel CBSL must have the full info about unnamed company who decided to use the service of the KPMG!!!

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
Also sometime back a member said there was a confirm news about the take over CFL by another company.

Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
AAF bought 10% of CFL few weeks ago. ACAP is yet to announce who bought 10% of AAF 2 days ago. If its CFL then cross holding is complete. If its the Indian/Foreign investor then we are look for potential takeover after due diligence.

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