25th March 2011, www.lankabusinessonline.com
Fresh capital will soon be given to the remaining Sri Lankan finance companies that got into trouble two years ago, prompting intervention by the banking regulator, senior central bank officials said.
Strategic investors have been found for three finance companies and one leasing company while prospective strategic investors are being reviewed for the remaining four finance companies.
Three finance companies have started normal business operations and their boards reconstituted, said Nelumani Daulagala, director of the central bank's department of supervision of non-bank financial institutions.
Managing agents appointed by the central bank have been released in two finance companies while one public share issue has been completed to raise fresh capital.
Priyantha Fernando, central bank deputy governor, said the biggest of the troubled firms, The Finance Company, was on the road to recovery.
The Finance Company, earlier managed by the Ceylinco group, has raised 1.6 billion rupees from a share sale which was oversubscribed.
Fernando said The Finance was selected for restructuring first as it was bigger than the other troubled firms.
"We thought if we could bring it through that will boost the confidence of others and the general public," he told a public forum organised by the central bank on how the troubled finance companies were revived.
"The crux of the whole solution was capital infusion and conversion of deposits," Fernando said.
Altogether eight firms were affected by the crisis that began in 2008; five registered finance companies and a leasing company in the Ceylinco group and two finance companies in the Aspic group.
Talks are on with strategic investors to infuse fresh capital into the remaining troubled firms, Fernando said.
"We're at a very advanced stage of finalising discussions with capital infusion companies," Fernando said.
"We hope within a one-month period we would be able to . . . bring all the companies to a state of being rescued."
Daulagala told the forum restructuring can be considered successful only when the firms are turned around and deposit liabilities settled.
"The alternative was liquidation or winding up. Liquidation is a long drawn-out process which can take 10-20 years."
Six finance companies among 13 that collapsed in a crisis in the late 1980s were still under liquidation, she noted.
That bailout cost the central bank or the general public 2.5 billion rupees but this time the regulator decided not to risk tax payer money on bailouts.
"Under liquidation, depositors are ranked below secured creditors, hence they get lower priority."
She said the distressed finance companies are expected to list on the Colombo stock exchange in the next 12 months, which will provide an exit strategy to depositors who converted deposits into equity.
"It has taken over two years but was much quicker than the liquidation process."