CB to liquidate 2 finance firms; grants additional time to The Finance

By Nishel Fernando 
The Central Bank plans to move ahead with the liquidation of the two troubled non-banking financial institutions, ETI Finance Limited (ETIFL) and Swarnamahal Financial Services, formerly owned by the Edirisinghe family, while allowing one last opportunity to The Finance Company PLC (TFC) to find a prospective investor to restructure the firm.  

The Central Bank issued a notice of cancellation of licence granted under the Finance Business Act No. 42 of 2011 (FBA), on October 23, 2019, as the firm is facing severe liquidity issues.
A Central Bank official familiar with the matter told Mirror Business that considering TFC’s objections during the 60-day notice period, the Central Bank has decided to allow the firm to float an Expression of Interest (EOI) again, inviting investors to invest in the troubled firm. 

“TFC has requested to float an EOI again. They reasoned that due to the political situation at the time, they didn’t have any opportunity to get an investor onboard earlier. Considering their request, we asked them to float an EOI again for a limited period—around two to three weeks,” the Central Bank official said. 

The TFC is searching for a strategic investor who could invest over Rs.20 billion as a special private share placement, to turn around the firm within two years.

TFC had Rs.28.1 billion worth of financial liabilities due to the customers and its asset base had plummeted to Rs.10.8 billion as of June 30, this year. 

According to the Central Bank, 93 percent of TFC depositors are holding deposits below Rs.600,000 and hence, they can be paid their full deposit through the Deposit Insurance and Liquidity Support Scheme, if the firm goes into liquidation.

“Our worry is that they (TFC) are losing Rs.200 million per month. We are receiving over 200 calls from depositors requesting their funds back. Many of them are in need of their monies to finance the medical requirements and other needs,” the Central Bank official said. 

As of June 30 this year, TFC recorded Rs.27.8 billion in accumulated losses.

TFC will float the EOI to find an investor this week. However, if TFC fails to find an investor during the next two to three weeks, the Central Bank would resume its regulatory action against the finance firm.

Earlier, the Central Bank revealed that it had received fraudulent financial documents from an investor, who sought to restructure TFC. 

Meanwhile, the Central Bank plans to move ahead with the regulatory measures to cancel the licences of ETIFL and Swarnamahal Financial Services, shortly. 

“There’s a pending case on ETIFL in the Supreme Court with depositors requesting to cancel its licence. So far, the prospective investors have not submitted any constructive proposal. Therefore, what we decided was to go ahead with the regulatory action. We will inform our decision to the court as well as to the depositors,” the Central Bank official said.

The Central Bank has settled around 30 percent of deposits and accrued interest liabilities of ETIFL by selling the 
firm’s assets. 

Interestingly, the forthcoming investor has also sought to cancel the licence of ETIFL.

ETIFL has about 24,000 depositors with Rs.33 billion in deposits. However, there’s a hole in assets and liabilities of about US $ 100 million.

Although, several parties had shown interest in investing in Swarnamahal Financial Services, so far the Central Bank hasn’t received any constructive proposal from any parties. 

Therefore, the Central Bank has decided to move ahead with cancelling the licence of the firm. Swarnamahal Financial Services had Rs.2.5 billion worth deposits taken from 2,300 depositors, as of last year.