Sri Lanka Entrust Securities loss, capital erosion deepens

ECONOMYNEXT – Losses at Entrust Securities, a primary dealership embroiled in fraud and barred by regulators from carrying out operations since 2017, deepened 43 percent from a year earlier to 1 billion rupees in the year to end March 2019, as regulators mull liquidating the firm.

The company reported a loss of 30.92 rupees a share in the year, interim results filed with the Colombo Stock Exchange showed.

Total assets of the firm fell 80 percent from a year earlier to 407 million rupees at end March 2019 with financial assets declining 63 percent to 167 million rupees and the loan book disintegrating by 90 percent to 145 million rupees.

Financial liabilities fell 13 percent to 8.8 billion rupees and Entrust’s accrued losses deepened further into the red by 9 percent to a negative 12 billion rupees.

The firm’s March 2015 accounts audited by PricewaterhouseCoopers showed assets of 17.3 billion rupees, which declined to 16.4 billion rupees by June 2016 with a profit of 95 million rupees reported then.

State-owned National Savings Bank was entrusted by the regulator to manage the company since January 2016.

The Central Bank had barred Entrust from engaging in primary dealer activities since July 2017.

In the year to end March 2019, net interest expenses were steady at 678.3 million rupees as interest income from government securities fell 85 percent to 64.7 million rupees and interest expenses rose a slower 31 percent to 743 million rupees.

Capital gains from the sale of government securities amounted to 19 million rupees compared to a loss of 68 million rupees a year earlier.

Gains from revaluating government securities fell 75 percent to 23.4 million rupees.

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Administration costs fell 23 percent to 63 million rupees and net finance costs declined 18 percent to 8.4 million rupees.

Entrust reported 270 million rupees in defaulted taxes for the year.

"The Central Bank of Sri Lanka is contemplating on liquidating of the company in the near future, though the timing of the commencement of the process has not been decided as at the reporting date," Entrust said in the notes to the financial statements.

The independent auditors said it had not received evidence for collateral in respect of repurchase agreements worth 8.4 billion rupees.

The auditors had called for confirmations from counter parties to repurchase agreements worth 8.8 billion rupees, but only deals for 5.7 billion rupees had been confirmed.

Entrust Securities had taken billions of rupees from large investors and several  state pension funds using government bonds as collateral, but these bonds were sold to third parties.

Among the top victims is the provident fund of state Ceylon Electricity Board, and the Central Bank’s own pension and rural development department funds.

According to its annual report Rs1.4 billion of rural development funds were found to be "uncollateralised".

The Central Bank worker’s Widows’ and Orphans fund was hit for 283 million rupees and its Gratuity and Medical Benefits scheme for 129 million rupees.

Top officials had been arrested in connection with the fraud. They were Dharmapriya Bandara Dassanayake (Chairman), Chanuka Ratwatte (managing director),  Romesha Dushanthi Senarath (Executive Director), Sanjeewa Dayaratne and Niloshan Romelo Mendis (Director).

In 2017, a government minister told parliament that Entrust had funded the Carlton Rugby Tournament connected to ex-President Rajapaksa’s son Namal with millions of rupees.

The firm owned the Western Warriors club, whose Captain was Yoshitha another of Rajapaksa’s sons, who was brought from an auction for 11 million rupees, Minister Kabir Hashim told parliament in 2017.

He said the central bank had not taken any action during the Rajapaksa regime despite on-site investigations by examiners showing money was missing. (COLOMBO, 13 May 2019)

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