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Ceylinco in aftermath of 'Golden Key Tsunami'

Original Date of the Article - Sunday, July 25, 2010
Link : http://www.nation.lk/2010/07/25/BottomLine/page12.html 


Lalith Kotelawala used public monies taken from his companies to build his philanthropic image. He directed his seniors over the telephone and millions of rupees changed hands with no paper records


By Jithendra Antonio
Lalith Kotelawala
“Life is either a daring adventure or nothing at all!” A quote by Helen Keller carried on an advertisement by Ceylinco Educational and Financial Services Group in a published national newspaper on October 29, 2008 on 70th birthday of one of Sri Lanka’s then leading philanthropic business tycoon’s, Dr. Deshamanya Lalith Kotelawala. He was the beloved Chairman of one of Sri Lanka’s largest ever conglomerate ‘Ceylinco’ which had about 500 subsidiaries locally and internationally headed by 21 subsidiary groups.

However, on the next two days something that thousands of share holders and creditors of Ceylinco didn’t note was the resignation of Director, Dr. Sicille Kotelawala from hundreds of subsidiaries of Ceylinco including the Golden Key Credit Card Co. Ltd. and the listed entities such as Seylan Bank PLC, Seylan Merchant Bank PLC, Ceylinco Housing & Real Estate Co. PLC, The Finance Co. PLC and Ceylinco Finance PLC. As for the Group’s employees and board of Directors it was a restructuring plan to position for the next phase of Ceylinco’s business strategy while appointing their Chairman as the Founding Chairman of Ceylinco Consolidated that was operating on a ‘Cell Theory of Business’ without any share holding of other subsidiary group companies.

And soon Dr. Kotelawala was gaining popularity once again by late 2008 as a destabiliser of Sri Lanka’s financial industry when he was preaching on mass media that he would take care of depositors of Sakvithi. Although as a shock of a financial tsunami to the whole group, suddenly an unlisted entity of Ceylinco started to collapse day by day with increased depositor withdrawals in the next 48 days. Finally on the December 18, 2008 it was news to all that Sri Lanka’s first credit card company which started in 1980’s was in a run of deposits by customers.

Golden Cash Cow 

Golden Key Credit Card Company Limited was in fact a better positioned entity that continued business for more than two decades offering credit card services while offering a higher interest rate for security deposits compared to the standard interest rates of Sri Lankan financial industry. In fact, the philanthropic image of Dr. Kotelawala alone had been a primary driver to invest in Golden Key and Ceylinco Financial Subsidiaries for country’s other prominent leading businessmen, politicians, cricketers, movie stars, Industrialists, professionals, clergy and even the common laymen. But none of those depositors ever understood that Dr. Kotelawala, along with his Board of Directors, was managing a highly risky financial portfolio behind their collars offering interest rates ranging from 25% to 50% per annum for public deposits. Nobody ever questioned how they could offer such high interest rates when you will hardly find a business that could generate extra 50% as returns to pay back the creditors when the administrative cost and operation cost is deducted from the balance sheet. On January 30, Deputy Solicitor General, Sarath Jayamanne said in Mount Lavinia Court that total deposit base at Golden Key is about Rs. 26 billion. Out of that, Rs.6 billion had been transferred to other companies within the Ceylinco Group and Rs.14 billion misused by the management. He further said 1 billion rupees had been spent illegally and balance Rs.5 billion had been not accounted for.

Sri Lankan economy was resilient for a certain extent from global financial crisis as per economic experts. It was due to the fact that Sri Lanka had a relatively small economy compared to other financial giants. But as soon as the global financial turmoil came into effect; the world started to witness master frauds by people such as Bernard Madoff who mastered US $ 65 billion fraud and Allen Stanford who was involved in US $ 8 billion Stanford Financial Group fraud. Similarly, amidst financial scams in United States, Sri Lankans also witnessed another financial scam on September 2008. It was Sakvithi who came with a higher interest on deposit scheme who disappeared with Rs.5 billion. It is a mystery whether Sakvithi felt that the world economy was going to fall since he disappeared just before the global financial crisis came about becoming an early bird who saved himself from being caught for a Rs.5 billion financial scam.

In the midst of all recent arising liquidity issues in Ceylinco financial subsidiaries, mismanagement issues and depositors’ dilemma, it seems that the liabilities and risks of the balance sheets of crisis hit Ceylinco Consolidated and its Chairman, Lalith Kotelawala’s subsidiaries had been transferred to individually appointed representatives and state owned financial companies or Central Bank to take immediate steps to stabilise the rising matters of Ceylinco.

Lack of Corporate Governance


“Lalith Kotelawala was two images in corporate world, according to a top official from former Ceylinco Consolidated. “one side, he was the great philanthropist who provided employment to thousands of people looking after them like a caring stepfather, did massive charity work and helped the poor. On the other hand, he did not use his personal funds. He used public monies taken from his companies to build his philanthropic image. He directed his seniors over the telephone and millions of rupees changed hands with no paper records,” added our source who wanted to remain anonymous.

According to Business Community and Central Bank in Sri Lanka, Lalith Kotelawala stepped into areas that he knew nothing about. Central Bank of Sri Lanka found the Ceylinco Group to be lacking in corporate governance. Their transactions were not transparent. In the previous financial reports of companies such as The Finance Company PLC you will hardly ever find the related party transactions in a detailed form rather than by a small one sentence that is published in font size 8 at the bottom of page in the notes to the financial statements. “Kotelawala used his legal businesses to do illegal business,” our source said adding that perhaps under one registered company some Ceylinco Group companies operated several unregistered companies.

The Ceylinco Group’s many investments were not giving adequate returns but there was no proper mechanism to monitor this. “Kotelawala was not a fully qualified accountant and had no capacity to understand an in-depth analysis of the accounts. When you are a chairman of such a large number of companies, where can you find the time to read or analyse board papers? He might have delegated it to others, but people who got the powers used them incorrectly”, “ reasoned this Ceylinco Consolidated official.

Some companies did not make a single cent as returns but promised fancy interest to depositors. When one company failed to generate revenue, they borrowed capital from another. It was similar to a ponzi scheme. Robbing Peter to pay Paul. And Asking from Pat to then pay Peter back and Mortgaging assets back to Paul to pay back Pat” he added. In that system Lalith Kotelawala has been helping himself to a stocky slice of his Ceylinco conglomerate’s income.

Super Luxury Life and Political Financing 

“Kotelawala fooled everyone big and small -- including the relatives of a former Minister of Finance. And now he is trying to fool the investigating officers”, the Deputy Solicitor General Jayamanne once told court. It was in fact, true as many Ceylinco subsidiaries accompanied many politicians and island’s top cricketers with higher interest rates for deposits ranging from 30% to 50%. According to an earlier statement at the announcement of restructuring plan of F&G Group of Ceylinco, former F&G Deputy Chairman Mervyn Jayasinghe said that they offered 42% to a former Finance Minister of UNP Government. According to a top official from Ceylinco, Lalith Kotelawala always used to keep the politicians entertained while he was building his high risk financial business empire with billions of public deposits. “He financed millions during the 1994 Presidential Election campaign, and more than Rs.40 million during 2005 Presidential Election, ” said another Ceylinco source who wished not to be identified.

In Lalith Kotelawala’s life story as narrated in biography of Kotelawala by Nayomi Ratnayake Weerasooriya, Kotelawala says how former President Chandrika Bandaranaike Kumaranatunga offered him a VSAT satellite license in Sri Lanka and gave permission to invest Rs.10 million (in Nepal) to setup an insurance company relaxing exchange control policy in Sri Lanka. “She told me in her usually blunt way not to ask again ‘We are short of foreign exchange, she said,’ says Lalith in his life story.

In the same book, he also says how he had to wait for years until the United National Front government in 2002 come into power to obtain approval for Ceylinco Savings Bank. Whilst Dr. Kotelawala also highlights how he obtained a Rs.400 million from then government in 1996 to reconstruct Ceylinco House with a loan by entertaining a Finance Ministry official to a house from Ceylinco housing projects on low interest terms. (reference page 315)

In a 2006 interview with a business weekend paper, Lalith Kotelawala says: “Today, I have many homes, bungalows and holiday homes. Some, I haven’t even seen. I have almost 20 cars, but I can only drive one at a time. I can afford to eat the best food at the best hotels, but I am a diabetic. So I cannot. Money is a tool that can be used to improve lives and I believe that those with money must use it to help others help themselves. It can really help alleviate poverty.” A doctor, formerly attached to Golden Key ENT Hospital, who dressed Kotelawala to look weak at court sessions in the aftermath of Golden Key scam, said that Kotelawala used to comb his hair even with a pure silver made comb until 2009 court sessions which is now in possession of the same doctor.

Whether all this luxury living enjoyed was financed through public deposits is a question that bubbles among Ceylinco Depositors.

Rs.50 billion Mismanaged 

On the other hand, there has been only one company in world history which held its Annual General Meetings in larger public stadiums and playgrounds to address its massive number of shareholders. It was none other than the Reliance Industries of India and soon the Ceylinco Consolidated made history in the world hosting meetings on ‘Repayment Plans’ for thousands of depositors, creditors and investors of its failed 60 odd financial subsidiaries at public stadiums and public playgrounds and road sides. There are approximately 50,000 depositors who are now left away including nearly 9000 Golden Key depositors, 7000 F&G depositors, 7000 depositors of Ceylinco Shriram, 10,000 depositors of Ceylinco Profit Sharing and tens of thousands of depositors who are unable to withdraw their funds from other Ceylinco financial subsidiaries.

As a whole, when taken in to consideration, the total mismanaged portfolio of Ceylinco counts up to more than Rs.50 billion including the Rs.26 billion in Golden Key Credit Card Company, Rs.13 billion in F & G Company, Rs.7 billion in Ceylinco Shriram, Rs.5 billion in Ceylinco Fast Cash, Rs.800 million in Ceylinco Profit Sharing and many other subsidiaries.
However, apart from the mismanaged portfolio Ceylinco Group was the primary controller of local financial industry and the real estate market via its 60 odd financial subsidiaries and about 20 subsidiaries which was into real estate business. Ceylinco Group controlled approximately Rs.300 billion (about US $ 3 billion) worth of public deposits through its commercial bank Seylan Bank PLC, Ceylinco Savings Bank, Ceylinco Development Bank, The Finance Company PLC, Ceylinco Investment and Realty Limited, Ceylinco Building Society, Ceylinco Finance PLC,Seylan Merchant Bank PLC,Seylan Merchant Leasing PLC, Asian Finance Limited and other failed financial subsidiaries. So, the failure of Ceylinco in turn created a domino effect in local financial industry creating a suspicious and confidence lost public community.

Almost after 18 months since Golden Key collapse the bursting question among financial industry experts is, “How long the Ceylinco or other Managing Agents of Ceylinco Financial companies will be able to pay the liabilities of all left away big and small depositors and creditors since it has adversely and indirectly affected the day to day movement financial flows in the local economy. Besides, it has also affected the Real Estate industry and Construction industry in the country.

Meanwhile, certain failed subsidiaries of Ceylinco, Including Finance & Guarantee Company Ltd, The Finance Company Ltd., Ceylinco Investments and Reality Ltd, Ceylinco Building Society, and Ceylinco Sussex College Network, is now under the management of Merchant Bank of Sri Lanka while the depositors of these institutions continue to lobby about unable to get withdrawals of their deposits at maturity since the companies are only allowing them to renew the deposits at maturity and allowed only the interest paid on the deposits.

About 6820 depositors of Golden Key have only received Rs.100,000 per person on May 18, 2010 as per the repayment plan of Central Bank appointed Chartered Committee of Accountants and the creditors of Ceylinco Shriram are yet to receive repayments on 42 month plan, according to Dushanthi Hapugoda of Golden Key Credit Card Limited Aggrieved Depositors Union.

“A person can mismanage his or her own finances, but he has a bounden duty and responsibility not to play around with other people’s money! There is a saying, “You can fool some of the people all the time, all the people some of the time, but not all the people all the time,!” said a depositor of Golden Key whose father died of heart attack. Both her son and father had deposited all their income from inherited property sales of Golden Key.
Lalith Kotelawala built an empire on good public relations, but unregulated internal money transfers among his businesses may give him returns that he did not bargain for.

Kotelawala is now enlarged on bail limiting his travel only to the boundaries in Western Province of Sri Lanka while a warrant has been issued for the arrest of his wife, Sicille Kotelawala, who is said to be in Singapore.

From banking to insurance, credit cards to finance and real estate, travel, healthcare and tourism to IT services, Lalith Kotelawala had a finger in every pie of business. And faster it diversified, according to top financial industry experts
Ceylinco just got a little too big to handle with money flowing freely in all directions. Some feel the group was a disaster waiting to happen like a pack of cards to fall when the ‘Ace’ of the cards, ‘Golden Key’ fell with a fast blowing wind .

It is a mystery on how a great tycoon who reestablished the finance industry in Sri Lanka during the 80’s downturn in financial sector of the country through acquisitions of failed finance companies such as Asian Finance Ltd., Finance & Guarantee Ltd. and Panadura Finance Ltd., has now run into a major crisis in his business empire which was brought down by a Rs.26 billion fraud in a unregulated credit card entity which accepted public deposits. Other firms in the group, which have about 500 subsidiaries and associates, are also being restructured by the regulator or have been offered for sale. The Ceylinco Group also started construction work on Ceylinco Celestial Residencies, a 45-storey luxury apartment tower billed as the island’s next tallest building, work on which is now stalled.

Ceylinco Consolidated, once a flagship which targeted the hearts and minds of people with its ‘bank with a heart’ by assuring the protection of ‘all, big and small’ is now closed. And recently the most valued entity of Ceylinco, Ceylinco insurance company PLC recently appointed a new Chairman, Godwin Perera from a marketing background closing down the Kotelawala reign in Sri Lanka’s oldest insurance company which was started by Cyril E. S. Perera QC (UNP Member Colombo North) and Hugh Weerasekere which was later transferred to Senator Justin Kotelawala and his brother Sir John Kotelawala during Prime Minister Sirimavo Bandaranaike’s time. Senat)Por Justin Kotelawala then gained control of Ceylon Insurance Co. from Mrs. Alice Farmacia Perera, widow of the late Cyril E. S. Perera and positioned and retiled as Ceylinco Insurance with his son Lalith Kotelawala and started a group with 500 subsidiaries being a significant player in Sri Lanka’s economy before finally collapsing affecting the finance industry strangling thousands of depositors, and leaving its impact more for generations in Sri Lanka.



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