Original Date of the Article - Ceylontoday, 2013-05-22 14:39:00
At the peak of the ‘Ceylinco crisis’ although many of its real estate subsidiaries were affected there is one company that has fully recovered from the crisis and stands strong among all giants in real estate .
‘Trillium Residencies’ the iconic real estate project of City Housing and Real Estate Company PLC (former Ceylinco Housing & Real Estate Company PLC) is one of Sri Lanka’s up-market projects that offers a luxury lifestyle to meet market demand.
The present Chairman of City Housing and Real Estate Company PLC (CH&RE) Janaka Rathnayake who re-engineered ‘The Trillium’ venture to where it stands today, shared his experiences with Ceylon FT.
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| Janaka Rathnayake |
Ratnayake turned around many entities of the collapsed Ceylinco Group when he headed the country’s one of the larger state-owned merchant and investment banks — Merchant Bank of Sri Lanka (MBSL) and converted MBSL into a group of companies with full-fledged savings and insurance arms, extending the bank’s expertise.
Q: Could you tell us about the history of ‘Trillium’?
A: Initially Trillium Residencies was a Rs 3 billion flagship project of Ceylinco Condominiums Ltd, a subsidiary of Ceylinco Housing and Real Estate Company, which is now City Housing and Real Estate Company PLC (CH & RE : Stock Code - CHOU) and approved by the Board of Investment (BoI) of Sri Lanka.
Ceylinco bought the land 10 years ago from Dilmah Tea founder Chairman Merril Fernando, and then Ceylinco Chairman Lalith Kotelawala officially launched the project on 29 October 2004 on the occasion of his 62nd Birthday.
Q: How bad was the company at the time of the ‘Ceylinco crisis’ in 2008?
A: I must first say that the City Housing and Real Estate Company PLC (CH & RE) and Trillium Residencies are the only entities that stand strong to date after the ‘Golden Key tsunami’ washed off the entire Ceylinco business empire.
At the time of Ceylinco Group’s collapse CH & RE had liabilities over Rs 4.5 billion and as usual and in typical Ceylinco Style similar to other financial entities and real estate companies of Ceylinco, CH & RE was also used to accept public deposits engaging in financial activities although it is a real estate company. Under the Lalith Kotelawala led leadership the company then was having a public deposit base amounting to over one billion and was paying more than 20% to 30% unrealistic interest per annum to depositors.
When I took over the company as Chairman I realized by going through the accounts, that almost another one billion rupees was due to be paid to the contractor. Though the company was unprofitable at that stage still there were enormous intercompany and related party transactions that pulled out cash and borrowings.
Q: What else did you see as ‘key indicators’ that lead company to the rugs?
A: The situation was chaotic. Similar to other Ceylinco businesses operating model and culture — the company had highly paid directors. Like rats leaving a sinking ship, in this case too many of those directors quit their board seats but profited by their unofficially and forcefully acquired apartments of the Trillium.
Those director types also did not forget to credit millions of rupees to their accounts as gratuity from a loss making company when they took off to their homes. Former deputy chairperson even had reserved the best apartments of the ‘Trillium’ with a four-room Penthouse without paying the total value for the apartments. But she had been making millions of rupees by renting them to different tenants.
Other directors too reportedly had two to three apartments per director while some directors still claim profits earned from selling the apartment units.
Most of the directors had been paid enormous amounts as emoluments and other perks while at the height of controversy CH & RE and Trillium both incurred Rs 230 million losses with Rs 4.5 billion liabilities.
Q: How were you involved in the rescue operations of this iconic ‘Trillium’ project?
A: I was the time as the chairman of Merchant Bank of Sri Lanka spearheading the management of many distressed companies of Ceylinco including two of the oldest finance companies of Sri Lanka — The Finance Company Ltd (TFC) and The Finance & Guarantee Company Ltd (F&G).
The few remaining directors of CH & RE approached me pleading for my expertise and involvement which I first declined to do.
Q: Why did they specifically want you on the board?
A: May be they thought I was a ‘Brand’ to market their business again to rebuild, since I was already handling the management of many other subsidiaries of Ceylinco such as Asian Finance Ltd., Ceylinco Building Society (CBSL), Ceylinco Realty and Investments (CIR), Ceylinco Savings Bank (CSB), Fingara Country Club and the largest private school network of the country Ceylinco Sussex International school and its branches that faced crisis.
Finally after serious consideration, looking at the opportunity to extend my support and my risk appetite, passion for turning around sick companies I agreed to be the executive chairman of CH & RE.
Q: How far were you involved in the operations of the company?
A: I looked at the entire financials of the company and came up with a business model of my own to recover the business. It was not a ‘formal business plan that was pen-downed on a set of A4 sheets like other CEOs and Chairpersons do, but a practical successful business model ‘that was in my head’ with a realistic time frame to achieve.
In fact in certain situations I infused my personal savings to run day-to-day operations of the company. Subsequently this was also the time as the Chairman of MBSL that I extended my expertise on managing the largest and the oldest financial company in Sri Lanka — The Finance Company PLC (TFC) was incurring over almost Rs 800 million loss per month. The Central Bank of Sri Lanka as the regulator, palmed over the responsibilities to me when Lankaputhra Development Bank failed to manage the situation.
We brought down the TFC loss to Rs 100 million a month at the time of my departure from MBSL. Many of the Ceylinco subsidiaries that were managed with my leadership at MBSL are now under new investors except for a few which are still under litigation in cases related to Golden Key.
Q: Were there any other difficulties that you faced upon recommencing the construction of ‘Trillium’?
A: Unlike in the case of other entities although tasks were very tricky and tenuous at CH &RE at ‘Trillium’ we convinced the contractor to continue to continue with the construction. It is noteworthy to mention that Sanken Lanka extended its fullest corporation to recommence the complete construction of the project.
The last two towers comprising 120 apartments including the sunset wing were to be completed and we wanted another one billion rupees to complete the project.
Not a single bank or a prominent financial institution was willing to extend even a single rupee as this was part of Ceylinco group of companies ‘a group company brand well known for financial mismanagement during the worst financial crisis we faced in our time’. So we had to find the much needed funds through other ways from various financing sources.
The task that was in our hands was very challenging and we recommenced the project and started the business activities with great difficulty.
Q: How did you settle the financial issues of the company?
A: We followed extraordinary ways for turning around the distressed companies as compared with other risk aversion methods in difficult financial situations.
When we were looking to finance the project the options available at many financial institutions were, squeezing the limited cash flows of the company.
To manage the crisis in the company we first reduced the interest paid to depositors and creditors from 30% to 12%. And we promised that deposits to the value of a billion rupees will be repaid in 36 equal payments. We also negotiated with lenders to amortize the loans. It helped out the company to pay back its loans and interest over a longer period in negotiated installments.
Trillium had borrowed huge chunks of money under the earlier Ceylinco management, some from private lenders mortgaging apartments for half the value. We had a possible chance of losing those apartments unless we settle them at the financier’s own terms.
Q: What did you do after that?
A: Then we started marketing and advertising, since with the post war era the finance sector of our economy was cooling down after the ‘hot fire’ that burned many fingers of stakeholders. The economy was becoming stable and we realized it was time for the demand for high living standards to rise. So we started to re-launch the sale of the project.
It was the right time for sales. The demand for high luxury apartments were rising and unlike other apartment projects Trillium was unique and offering the state-of-the-art living in Colombo metro with convenience and a luxurious lifestyle. Trillium offers spaces, layouts, and design and all the amenities in the best neighbourhood.
Q: Did your work hard for the Trillium payoff?
A: Of course yes; we were able to sell all the apartments and after selling a majority of apartments in the beginning we revised the prices several times with an upward trend and it was profitable to the company.
I must gladly say that company reported a profit after tax of Rs 63.42 million for the nine months ended in 31 December 2012, the highest in its history and 5,501% increase compared to Rs 1.13 million in December 2011.
In addition to the landmark ‘Trillium’ project we launched two other real estate projects one in Wattala and another in Nugegoda.
Q: Don’t you think the progress you made at ‘Trillium’ is an unorthodox business model to revamp similar real estate companies that have been affected by financial crisis?
A: You have got the right understanding. If you actually compare with all the other real estate projects of Ceylinco group to date we have been successful because of the financial management model we followed to rescue the company and its assets.
Five years ago all other Ceylinco companies virtually ran a monopoly in controlling Sri Lanka’s real estate market with over 20 real estate companies and 60 financial companies (regulated and unregulated) and had many projects costing billions that failed to complete and launch the final phase.
Some of these had even fallen into the hands of other investors as a result of which Ceylinco Celestial Towers and Hyatt Hotel, Frances Residencies, Fingara Apartments of F&G, Ceylico Homes International, F&G Continental Residencies, 6th Avenue Apartments, Prominent Residencies, Country Homes Housing Scheme of F&G Property Developers, Eden Garden Housing Scheme, ‘The Sanctuary’ Housing Scheme failed.
Ceylinco group financed all these projects by way of ponzi schemes via Ceylinco subsidiaries accepting public deposits and promising returns from the real estate projects. You can only do that if you are Real Estate Investment Trust (REIT) but in Sri Lanka we do not have any Real Estate Investment Trusts and the law allowing the launching of REITS.
Our business model had only a few steps, the aim of which was the project completion and we had to find low cost project financing and we reduced the cost of funding and borrowing.
We proceeded with the recoveries and revised the prices of apartments to keep up with the market rates, and operations of the company were carried out with the few remaining loyal employees.
As a result we were able to finally complete the project.
And today we should thank the depositors of CH & RE who patiently waited and accepted our repayment schemes without acting similar to other frustrated depositors who opted to act in all sorts of ways to get their investments from other Ceylinco financial companies but ended up getting nothing.
I believe the revival of these two companies could be considered as a benchmark which other companies and entrepreneurs should follow in their business as well.
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