23 January, 2021

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An Open Letter To Securities Exchange Commission On MTD Walkers Issue

By Rusiripala Tennakoon –

Rusiripala Tennakoon

People live in full expectation to see justice is done in respect of certain glaring wrongdoings during the ‘good governance’ Regime. Many exposures and revelations made then and after through write-ups, in social media, newspapers and disclosures at discussions in TV shows have gone down the drain and into deaf ears of policy makers, mainly because of the influential high-level connections of the perpetrators wielding power conferred on them by those in authority. They manage to keep the allegations and the offences shielded without any action being taken against those. Hence todays’ news item in the Government controlled newspaper Ceylon Daily News under the Caption “SEC takes action on MTD Walkers” has to be considered as a welcome swing. The affairs of this Organization remained in Public focus openly discussed over a period of time without any effective outcome.

The MTD Walkers affair was like an octopus with so many tentacles spreading into highly vulnerable areas. The worst of the controversial happenings have taken place at the Peoples Bank. They were exposed publicly, culminating into investigations at the parliament COPE committee. Questionable appointments made to Directorate of the Bank, misuse and abuse of power, corrupt deals, conflict of interests and undue influences, are only a few among the irregularities associated with this episode.  The involvements and the impugned transactions have been carried out so blatantly as if they were above the Law. 

When the matter came up before the COPE for Investigation into some incredible transactions highlighted by the Auditors, relating to this Company, the officials who represented the People’ Bank, very astutely managed to glide safe, ostensibly maintaining their actions were in compliance with normal lending practices. The issue vanished into thin air sublimed in complete evaporation leaving no residues. Our interest in this issue is not centered on the Company or any individuals involved. But in Public interest about a State Bank which is not only 100% owned by the Government but also controls its affairs through a MINISTER appointed Board of Directors. Any allegations of bribery, corruption, accountability and principles of good governance associated with a government owned institution becomes relevant as legitimate concerns of the members of the Public. As the governed, people have a legitimate claim to be ensured of the fairness and accountability in the exercise of power by officials. Hence this focus to complement the proposed action by SEC.

COPE is the highest body, that has been entrusted with the responsibility to ensure the observance of Financial discipline in Public Corporations in which the Government has a financial stake. The accounts of any Public Corporation audited by the Auditor-General which needs to be reported on to the COPE form the basis of the investigations of the Committee. It has the power to summon the relevant officials and such other people as it thinks fit to obtain evidence and call for documents. The Committee has to report to the Parliament and the recommendations contained in their reports are deemed to be directives to the respective Corporations or Statutory Boards for due compliance. 

Peoples’ Bank is a 100% state owned organization, hence fully covered within the ambit of the above provisions, to be reported to COPE, investigated by the COPE and also subject to compliance of any directives issued by the COPE after such investigations. The annual audit reports were taken up by the COPE in September 2019.Due to certain adverse highlights made by the Auditor General in his report on the PB, the COPE initiated an investigation and summoned the Board of Directors and some of the Senior most officials to appear before the COPE on 5th September. Among many other areas subject to this investigation certain highly questionable transactions of CML-MTD Construction Ltd. pinpointed in the Audit report were examined in Public. Unfortunately, due to many factors such as, time, specialist knowledge and exposure on the subjects queried on etc. the investigative role of the COPE was seriously limited. The bank officials summoned, however, managed to shrewdly slip away and convert the mountain to a molehill with their high sounding technical explanations. 

My observations and views expressed here will not be justified without specific references to what transpired at the parliament COPE committee investigation. Hence the following account of issues raised there about MTD Walkers supported with quotes from the verbatim report of the Parliament COPE committee, translated by me E&OE.

COPE Chairman; “the audit report on page 06 shows a sum of Rs. 37727 mn. as the total of interest due from the 10 largest non- performing customers. Bank has rescheduled their facilities 219 times. CML-MTD Construction Ltd included in this list has been rescheduled 31 times.

GM/CEO of Peoples’ Bank, G.B.R.P. Gunawardhana, in replying stated, “this was done in respect of construction sector companies such as CML-MTD Construction Ltd. Due to certain difficulties faced by the construction industry they have not being able to repay their loans. But CML-MTD Construction Ltd. Is planning to change the ownership and the bank is arranging to reschedule the facilities with the new owners. We believe that we would be able to recover the facility. CML-MTD Construction Ltd. owes about Rs.7000 mn. now. But we can recover this in the long term from the new owners. Buyer is a  local individual. We cannot divulge the names at the moment. That is the position. Even today, they had a discussion with us” 

How convincing! Even on the very day of the COPE investigation, negotiations were being conducted! This reply was intended to imply that the bank was seriously pushing recovery action. But the truth of the matter was that the entire balance outstanding as payable by this company has been consigned to Non performing section after long overdue periods of gestation in the regular sections lying there with no visible action by the bank. This story of the company shares to be bought over by someone appeared to be an ostensible makeshift, serving as an eyewash to mislead the COPE members. Reminds us of the lyrics of an old song, “……..you got me going round in circles….” . But before long the true color of this stunt got exposed. On Feb 2nd, 2020 , ‘Sunday Morning Business’ reported that “Following the collapse of a deal with prominent casino operator Ravi Wijeratne , cash strapped construction company MTD Walkers PLC is in advanced discussion with another investor to acquire the Company. The official reason that had been provided in the disclosure is that there was no positive development and/or progress on the transaction”. Since the deal was first announced to the CSE in September 2019 two enjoining orders have been obtained by CBC and PB preventing MTD Walkers from being taken over by Wijeratne. Is it a coincidence for this buying proposal (which became an aborted deal soon after), to come up just before the PB was summoned before the COPE on 5th September 2019?

COPE specifically referred to Peoples bank granting credit facilities without adequate securities to CML-MTD Construction Limited. The COPE Chairman stated, “Jehan Amaratunga has been a Director of that institution. He has been a director of the Peoples Bank at the same time. Jehan Amaratunga while serving as a Vice Chairman of Walkers CMA and as a director of MTD Walkers PLC, has also been serving as a director of the PB. He has been a director of CML-MTD Construction Ltd. Walkers Equipment Ltd. during the same period. The facilities granted to the Walkers CML group have been transferred to non-performing category. As at 27/08/2019, the arrears remained at RS.3,936 mn. An amount of Rs. 3339 mn out of this has been (which is about 85% of the total) granted without tangible security.”

The answer given to the COPE by the CEO/GM , PB is preposterous to say the least which In the eyes of any prudent banker and those in the formal financial sector will be regarded as hilarious, crafty and nonsensical besides being belittling and insulting in a forum such as the COPE. He said the consideration for granting these facilities was that it was a corporate entity managed professionally. Bank also took into account the quantum of contracts they had received and the projected cash flow from those.  He also stated that they had a trust that the company would be managed correctly. He said he relied on the controls that would be applied on them as a listed company in the stock exchange. 

He very insidiously concealed the cardinal factor in a lending process, the risk evaluation. By limiting the decision making to the trust they had and future cash flows anticipated from future contracts, the bank exposed itself to the high security risk. Eventually the facilities were transferred to non performing category. If that GM was in service till now we could have asked him a few pertinent questions. 

Were you able to recover the loans despite the so-called Trust?

Bank after a long delay instituted legal action, that too reportedly, after the CBSL bank supervision department made queries.

Do you honestly think that the legal action you have initiated {for the sake of requirements under CBSL supervisory regulations} would grant the bank any relief? 

Will the bank hold any one responsible for the lapses and shortcomings in the credit approval process? 

Isn’t there a risk of the  bank being held responsible for connivance and contributory negligence in their dealings with this Public Listed Company?

We have to {COPE also} ask the Peoples Bank whether they are now having any negotiations with the new investor to come to terms with the bank to recover the dues amounting to billions from the company towards the Peoples bank transferred to NPL. But those responsible for the lending decisions have gone!  Only a few are still in service of the bank, of those who were summoned before the COPE. How many of them got heavily loaded extraordinary retirement packages from the bank for all this ‘good’ work? Some were even granted ex-gratia additional annual increments on the verge of retirement enabling them to further enhance their huge pensions running into sums equal to a few lakhs each. 

According to the Published Financial Statements of this Group of companies in 2016, the company had borrowed from 9 other LCBs and 6 Leasing companies while having several law suits pending mainly for revision of orders against the Company on liability issues. The Company floated a debenture issue in 2016 for Type A and Type B, about which the SEC is contemplating action now. But the peoples bank also decided to invest Rs.500 mn in this debenture issue when their Obligations outstanding towards the bank was over Rs.4 billion!

It is interesting to recall how the Bank defended when these issues were raised in Public then.  

A letter signed by the chairman of the People’s Bank Hemasiri Fernando released to media says the loan obtained by MTD Walkers PLC is at present considered to be a performing loan. The letter says that as a step to reduce the risk while carrying out daily business activities, banks offer various loans and it invests in the stock market, treasury bonds and treasury bills as well as on debentures.

The letter confirmed that the People’s Bank invested 500 million rupees in debentures in 2015 issued by MTD Walkers PLC. at an interest rate of 9.75 percent. 

According to Chairman Hemasiri Fernando, (who subsequently tendered his resignation and continued further for some more time as an ordinary director of the same Board),“ banks offer loans (not grant) and looks for investment opportunities” and finds the MTD Walkers debenture issue is a safe and sound investment for the bank to invest Rs.500 million, despite the fact that facilities already granted to this company were in the category of being considered as performing! 

During the period August 2018, there was a public furor over the loans granted to MTD Walkers Group by the Peoples Bank. Questions were raised in the parliament, Minister in charge of the subject of state banks agreed to inquire into the matter. The Ceylon Bank Employees Union ,the leading Trade Union of the banking Industry raised an issue about the loans granted to MTD Walkers while its executive chairman was a serving member of the Peoples Bank Board. The Union presented a written inquiry to the People’s Bank in order to clarify the procedure followed in granting a loan of Rs. 10bn to the MTD Walkers PLC. Executive Deputy Chairman of the MTD Walkers Jehan Amaratunga, for whom the loan was approved also serves as a Board member of the Peoples’ Bank.

There were many exposures and Public criticisms levelled against the bank about this matter during this period.  

Media Station News 1st in an exclusive exposé on a conflict of interest involving Jehan Amaratunga who served as the Director of Peoples Bank and as the Chairman of MTD Walkers PLC has now uncovered yet another irregular business dealing.

The People’s Bank granted MTD Walkers PLC various types of borrowings at times amounting to Rs 10 billion. These borrowings were granted without sufficient and easily realizable assets. Without proper securities in place, the bank will be unable to recover the monies owed to it in the event of default of the loan and being classified as a non-performing loan.

On 6th October 2020 the daily Mirror reported “MTD Walkers yet to settle Rs.36 mn. SEC fine” stating that MTD Walkers PLC is yet to settle the aggregate fine imposed for not complying with the listing rules.

Jehan Amaratunga was the Executive chairman of this Company when the peoples bank granted huge facilities to it. Besides serving as a Director in the Board, Jehan Amaratunga was serving as a member in several important board sub-committees vital to decision making for rsk control and credit control. According to the Annual reports his portfolios comprised of the following;   

* Board intergrated Risk Management committee, from 2010 continously

* Board Audit Committee ( as its chairman from 2010)

* Board Investment banking Committee

* Board strategic plan review Committee

* Board IT committee

* Board Nomination Committee from 2010

This shows how powerful and influential he has been with powers serving in these committees, strangely under two government regimes, continuously, and thereby having great opportunities in a self- serving capacity to grant facilities to his group of companies from this State Institution. According to banking practice there have been several constraints for him to have continued holding such positions, such as;

a) Potential to abuse related party transactions

b) Failure to discharge duties devolving on the Board Audit Committee where he was the chairman,

c) Violation of provisions under the Code of Conduct by not obtaining expert opinions to assess all aspects of related party transactions,

d) Peoples’ Bank has  invested in shares in this Group to an extent of Rs.26.77 mn. As at 31-12-2015 PB was its 4th largest share-holder and Jehan Amaratunga was serving in the above capacities at the PB and representing the Company as its Executive Chair person.

The observance of directives issued by the Central Bank of Sri Lanka on Corporate Governance for LCBs, compliances under practicing of Good Governance and procedures calling for Fit and Proper performances are more relevant to the Peoples Bank being fully State Owned, morally, ethically as well as legally. Allegations on such matters should not be allowed to evaporate without proper follow up.

 In such a background it is not unfair for the Public to expect the Accountability of persons appointed to State Organizations and to properly account for their activities, accept responsibility and disclose in a transparent manner how the impugned decisions have been taken before a legitimate forum. Corruption is the abuse of power for private gain. Both Bribery and Corruption are Criminal offences in this country. They should be addressed because such deeds will have far- reaching social, economic and political consequences to the citizens.  

The contemplation of action to be taken by Securities and Exchange Commission against MTD Walkers for the default on payment on type B debentures issued by the Company, non-submission of annual reports for 2018/19 and the interim financial statements after June 30th, 2019, shows that this Public Listed Company is  carrying on regardless. Let those who investigate into these matters also look into the critical information given above to be authentically verified.

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    Ramona,
    Come on, will you please? Say something to encourage Mr. RT ?

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