EBC received a fax Tuesday from the CSE at 11 30 a.m. requesting all its Directors to be present at a SEC Board meeting at 3 15 p.m. Given the short notice, only two of the Directors were able to meet with the SEC, whilst three other Directors sent communications indicating their inability to be present, due to being out of Colombo, ill-health and on-going commitments.
Late last evening CSE forwarded a SEC directive indicating that the SEC is unable to be satisfied that Lanka Rating Agency (LRA) had done a credible rating of the proposed debenture. EAP has been a client of RAM Rating (now named as LRA), which had given EBC a ‘BBB’ rating in 2013, which was reaffirmed (no change) by LRA on 30 September 2014.
The directive states that a Director of LRA and two Rating Committee members have become Directors of EBC. These happened in December 2014 and October 2014, respectively. Their appointments were notified in the newspapers. Since their appointments, (duly notified to the LRA,) EBC has been assured by LRA that these Directors have not participated in any rating activities pertaining to EBC. Nevertheless, SEC has pointed out that there is a prima facie case of conflict of interest due to a common director on the Boards of LRA and EBC, and two Directors of EBC, being Rating Committee members. In our view, any form of conflict of interest only occurs where individuals, subject to such circumstances, participate in deliberations relevant to such conflict of interest situations and not otherwise. Both of the situations in our view, do not fall into any such category of conflicts of interest.
It also must be noted that the rating given by LRA on 30 September 2014, re-affirming the ‘BBB’ rating was before all the Directors assumed duties on the Board of EBC.
The review of this rating which happened after this said Director assumed duties on the Board of EBC, did not change the original rating. Therefore, one can deduce that no benefit accrued to EBC as a result of the appointment.
In addition, disclosure of Directors’ positions in LRA were made clearly in the Prospectus of the Debenture by EBC.
Therefore, EBC feels that a further, more prominent disclosure, would have been sufficient, if the existing disclosure in Prospectus was deemed to be inadequate.
However, we defer to the directive of the SEC and have already taken steps to obtain another credit rating, in order to re-introduce the Debenture at the next earliest opportunity.
We thank all investors who, upto the point of the deferment of this Debenture, has shown tremendous interest and commitment in investing with us.
We also wish to place on record our deep appreciation of the support we have received from the Public, for EAP Group of Companies and, EBC in particular, even after the deferment notice was issued.
We hope to offer this opportunity to you in the very near future, so that you could make the same commitments at that point in time.
Courtesy: The Island 11 June 2015