Nalaka Godahewa

I am enjoying a retired life but some people call me to inform that I am in news again. They say it is linked to Dilith Jayaweera, the joint Managing director of Derana media house who is at the receiving end of a huge media attack by another media house Sirasa/MTV. Meanwhile FCID, the new police unit set up by the Prime Minister is busy investigating some share transactions related to Lanka Hospitals that took place in 2011 February.

The bulk of these transactions took place between two private parties, namely Distilleries Company owned by Mr. Harry Jayawardane and Forties Health Care of India. It appears to me that there is a deliberate effort to link our names into this and create a controversy. It is evident from the fact that the mud factories have already started announcing the conclusions even before the investigation is over.

What is special about this particular case of Lanka Hospitals Share Transaction, which is under scrutiny? This whole thing started when one specialist surgeon Neomal Perera, who served at the hospital, complained to FCID that Rs.600 million had been defrauded when 28.6% shares of Lanka Hospitals, owned by Harry Jayawardena’s Distilleries Company (DCSL) was sold to India’s Forties Health Care. As per the original complain which I also read only in the newspapers, former Chairman of Lanka hospitals, Gotabhaya Rajapaksa was accused as the beneficiary of Rs.600 million from this share transaction.

If a true professional who understands the capital market was occupying the chairman position of SEC when this complain was made, he or she would have pointed out to the honorable Prime Minister that this is an illogical argument and FCID should not have got involved. Unfortunately, it happened to be Mr Tilak Karunaaratne who was the new Chairman when the Prime Minister’s office contacted SEC for advice. Mr Karunaratne seems to battling his own credibility issue not being deliver any significant results since he took over as chairman SEC.

He also has a problem of not being able to find anything wrong done at SEC by the previous commission even after 5 months of serious digging for dirt. So he was better off by allowing FCID to continue an investigation of this nature, which involves some known political targets and continue the usual media show because so far SEC has no real market performance to show off.

What actually happened?
So let’s look at this complain in a bit more detail.
Mr Harry Jayawardane through Distilleries Company of Sri Lanka owned 28.66 % of Lanka Hospitals until 2011. Prior to June 2009 he also owned Sri Lanka Insurance Corporation Ltd. SLIC owned 54.61% of Lanka Hospitals. So through SLIC and DCSL he was controlling 83.27% of Lanka Hospitals until the Supreme Court returned the ownership of SLIC to the Government order in June 2009. As a result he lost control of the Lanka Hospitals and became a mere minority shareholder. Since then he was looking for a buyer for the 28.66% shares owned by DCSL.

It was this quantity, which was bought by Forties Healthcare in February 2011. It was the result of a direct negotiation between the two companies. Forties paid the value of the shares mutually agreed directly to DCSL and it was an absolutely transparent transaction that took place at Colombo Stock Exchange.

Was there a need for manipulation of share price?
According to CSE rules, there is no restriction for any party to pay more than the day’s market price for a negotiated share transaction if the total value of the parcel traded is more than Rs.20 million. Strategic share parcels are usually sold at a higher price than the market price and it was the same with Lanka Hospital shares purchased by Forties from Distilleries. Once price is negotiated and agreed between the buyer and the seller there was absolutely no need for neither Forties nor Distilleries to manipulate the market price.

The term manipulation is related to pumping and dumping of shares. This happens when some people artificially push the market price up of a particular share and dump their share to unsuspecting market followers at a higher price. In such a situation the buyers do not know who the sellers are as they buy from the market. But when two parties are directly negotiating the price of a large quantity there is no manipulation involvement. It is a business decision.

So someone should have asked Dr Neomal Perera who doesn’t seem to be familiar with the stock market, as to why he thinks that anyone would have manipulated Lanka Hospitals Shares when there was nothing to gain for the buyer or the seller. Particularly some one should have asked the good doctor how Gotabhaya Rajapaksa who was a total outsider, could have benefited from a share transaction that took place between two reputed commercial entities.

New twist every now and then
Having realized that they got the wrong end of the stick in relation to Gotabhaya’s involvement, FCID and SEC seem to have taken a different twist in their investigation. They want to know whether Dilith Jayaweera or myself were involved in any share transactions related to Lanka Hospitals during the said period so that they can claim that we benefited some way and transferred that benefit to Gotabhaya Rajapaksa.

It is important to point out that I was not attached to SEC during the period under discussion. I joined SEC much later in August 2012. So I was free to do any share transaction then. But unfortunately for SEC and FCID, I had not traded a single share of Lanka Hospitals during this particular period. SEC bosses can jolly well check my trading records and I am sure they must have done it many times over by now.

Dilith Jayaweera is a businessman who owns several companies. Some of them do trade in the stock market. I myself was on the boards of some of those companies in the capacity of a non-executive Director before I joined SEC. But I resigned from all those after joining SEC. I understand that the FCID on advice of SEC bosses are investigating to see whether any of those companies had bought any Lanka Hospital Shares during February 2011. Trading shares in the CSE is a not a crime unless a particular trade falls within a specific criteria of wrongdoing such as share manipulation or insider trading. I can imagine that someone with a political agenda is behind these investigations as there is no other justifiable reason.

So they are now trying to create an impression that there was an insider trading related to Lanka Hospitals Trades. In this country it is so easy to point figures and discredit people. While a confidential discussion is happening between two parties thousands of unrelated share transactions could take place in the market without any insider knowledge of these discussions. Neither Dilith Jayaweera nor myself have any formal relationship to Distilleries or Forties. So how could we have known details about a price negotiation that took place between two commercial organizations, which obviously would have happened in strict confidence?

How big was the trading opportunity?
I just checked the 2010 annual report of Lanka Hospitals. According to that by 2010 December, 95. 31% of Lanka Hospitals shares amounting to 213, 355,649 were owned by 20 companies and high net worth individuals. Looking at the names I assume that in February 2011 also situation would have been more or less the same as these are long-term holdings.

That means 4.69% of shares or 10,493,038 of the total 223,732,169 would have been the maximum number of shares available for any day today trading in the market. When this share transaction took place, the average share price of Lanka Hospitals would have moved between 30-60 rupees. Let us consider an average price of Rupees 40. In that case, total value of shares available for any imaginary manipulation would have been around Rs.420 million. Within a couple of days how much of these shares would have get traded (of course SEC can find the exact volume of trading and disclose to the public if they are genuine).

Even 10% looks quite high. Lets assume Rs.40 million worth of shares traded within a few days whilst Forties, DCSL negotiation was happening. Remember that’s only the value of shares and not the profit one can make by trading. So anyone, who has a basic idea of capital market, would know that no trader could have made more than a couple of millions by trading Lanka Hospitals shares during a short period of time.

Dr Neomal must explain from where does this Rs.600 million figure falls? SEC bosses without continuing media shows must tell the public the reality.

What happened to the so called big investigations of SEC?
If my memory serves right, Mr Tilak Karunaratne was the Chairman of SEC when Forties bought shares from DCSL. If not, it should have been Mrs Indrani Sugathadasa. Both these chairpersons were heavily involved in the market surveillance activities during their respective tenures. They were vigilantly looking for suspicious transactions and used to go after many investors and stockbrokers which eventually led to the total erosion of market confidence and subsequent crash of the market. If there was anything suspicious about the Lanka Hospitals share transactions they would have definitely identified it then.

But funnily Lanka Hospitals share trading has never ever been highlighted as suspicious by the surveillance unit of SEC. Then after 4 years how come it suddenly emerges a suspicious transaction?

Mr Tilak Karunaratne got the Chairmanship of SEC in January 2015 promising the Hon Prime Minister the sun and the moon. He promised to expose so many malpractices at SEC. Hon Prime Minister was so convinced by these claims of Mr Karunaratne and he went to the extent of naming several investors by name at the parliament saying that SEC will reopen the closed files. An impression was created in public that SEC had not done a genuine job in relation to some investigations.

I remember Mr. Karunaratne kept talking about some 17 investigations and the so-called Mafia during the time he was out of office. Now that he has been holding the chairmanship of SEC for 5 months he is duty bound to tell the public what he has found. Before opening new files such as Lanka Hospitals Investigation (which, of course, he is free to do), why not tell the public what he found in the files, which Hon Prime Minister mentioned in Parliament.

If he hasn’t found out anything wrong with those investigations, which were properly completed by SEC, under my chairmanship Mr Karunaratne should brief the poor Prime Minister the truth and honorably admit his guilt.

Reflecting back on my tenure with government
I was the chairman of SEC from July 2012 to January 2014. I was brought in to clear the mess created by my predecessors.
Market was crashing for 18 continuous months when I took over.
During my 2 ½ years at office I never spoke a word against my predecessors. Anybody could refer to my public speeches or media interviews on the web and verify this. There was no need to waste my time talking about the past. I didn’t need a media show to survive. I knew my job. I knew that we were doing the right thing and we were going to deliver results.

The statistics available in the public domain tell the story. Not only the 18 month long market decline was reversed but we also had more than 300% market growth over the next 2 ½ years.
Despite the 18 month setback during 2011-2012 period, the capital market of Sri Lanka made significant progress thereafter. Just consider the following figures related to December 2014 and compare them with 2009:
• The main Price Index ASPI had gone up by 255%
• Market Capitalization had grown by 535%
• Rs 97 billion net foreign inflow in 3 years
• The average daily turnover had gone up by 205%
• Corporate Debt market has appreciated by 6,390%.
• Capital raised during the last 3 years, Rs.178 billion
• The market capitalization to GDP had increased from 11% to 36%
A month before I left SEC, the all share price index touched 7500 mark and average daily turnover had increased to Rs.1.8 billion.
We had a vision to take the capital market of Sri Lanka to USD 100 billion by 2020. We had put in place a clear plan to achieve that target. I unveiled this vision 2020 on 5th January 2015 and the entire presentation is available on the web.

Had SEC continued what we were doing without shifting focus, by now the all share price index should have reached 7800 marks. Today, ASPI is nearly 500 points behind our mid-year estimate. In 2014, the market gave a return of almost 25% to the investors.

But what is the plight of the market today? So far this year market has given only negative returns. The shortsighted government is giving further negative publicity to the CSE. No new foreign investor is entering the market under these circumstances. Not a single IPO has taken place for 5 months despite the fact that we had nearly 20 IPOs in the pipeline for 2015. Who is responsible for this missed opportunity? Isn’t it the investor who has eventually lost?

I am a multi-qualified professional. I have an Engineering degree from University of Moratuwa and I am a UK qualified Chartered Management Accountant as well as a UK qualified Chartered Marketer. I have an MBA from University of Sri Jayawardanepura and a PhD from University of South Australia. I was never short of employment opportunities. I didn’t need the government to offer me a job. For the last 7 years before accepting an invitation in 2009 to join the public service I was functioning as CEO of some of the most reputed companies working in Sri Lanka as well as abroad. Yet I agreed to work for the government for 1/10 the salary I earned at my last private sector employment.

It was because I enjoyed public service. I realized that the contribution I was making had a national impact. During my first 2 years finances were not a problem as I was earning some income by trading in the stock market. I was also serving on several private sector boards. But then government wanted me to takeover as chairman SEC. Since August 2012, I didn’t do a single trade except one transaction of which I informed the SEC Commission one month in advance. I also resigned from all the boards I was serving to ensure my independence as SEC Chairman. During my 2 ½ year tenure at SEC my family had to survive on our bank savings.

Still it didn’t matter as we live a simple life with no extravagance. But now when I look at the politically motivated witch-hunt that is going on, I wonder whether I did a huge mistake by giving 5 years of my life to public service. With every senior government officer being questioned by Bribery Commission or FCID as criminals, I wonder how many competent, qualified and genuine people will take the risk of leaving the private sector in future to serve the public.

(The above article written by the former Chairman of the Securities and Exchange Commission of Sri Lanka was first posted as a status update on his personal Facebook profile and has been published here on the consent of the writer)