Trading suspension on The Finance looms as firm seeks more time

The Finance Company PLC (TFC) has sought further time from the securities regulator to resolve the serious matters outstanding in its books of accounts marred by omissions and errors, which led the company auditor to issue qualified opinion on its financial statement, last year. 

Last July SJMS Associates, TFC’s auditors, issued a qualified opinion on the firm’s financials for the year ended March 31, 2018 highlighting a range of problematic and grey areas in the books of accounts. 

The concerns ranged from failure to consolidate TFC’s subsidiaries and associate companies in the books of accounts and the company’s ability to remain in business as a going concern due to a large hole in the balance sheet, which is getting further widened with the continuous losses. 

For the year ended March 31, 2018, TFC lost Rs.1.8 billion and had a negative net assets value of Rs.14.5 billion, making going concern a serious issue.
The company neither complies with the directions issued by the Central Bank on minimum core capital requirement nor capital adequacy ratios. 
The Central Bank Governor Dr. Indrajit Coomaraswamy last week delivered a broadside on the country’s financial sector—both bank and non-bank lenders—saying that the regulator would become “brutal” on non-compliers of capital requirements.

He said moratorium on deposits and lending would be imposed until the non-compliers comply or get their licenses rescinded. 
Meanwhile, for the six months ended September 30, 2018, TFC lost Rs.1.6 billion and its balance sheet hole further expanded to Rs.16.1 billion. 
TFC, the former Ceylinco group entity in November last year, sought further nine months from the Securities and Exchange Commission (SEC) to resolve the issues identified by the auditor, but it is yet to respond. 

The company’s listed securities were transferred to the ‘Watch List’ by the Colombo Stock Exchange (CSE) on August 17, 2018 after the audit report was published. 
TFC risks suspension of trading of its securities by the CSE if it fails to resolve the matters outstanding within six months since the Watch List transfer, and the firm further risks its securities being delisted in the event such suspension continued for a period of 12 months. Among the matters highlighted by the auditors were the company’s failure to present consolidated financial statements including those of its subsidiary and associate companies due to the non-availability of financial statements in those companies. 

The auditors have also failed to establish the ownership of the properties occupied by Ceylinco Sussex College, part of TFC, which has mortgaged those properties. The auditors had been unable to ascertain the adequacy of the amount of obligations. 

The banks have gone to courts over recovering of those mortgage loans.   

TFC, which is currently on a five-year revival plan, continues to bleed money even after several attempts to rescue the firm even with the involvement of the Central Bank. 

In 2010, the Central Bank converted 10 percent of the company’s deposits worth Rs.2.0 billion in to non-voting shares and raised another Rs.1.6 billion through a public offer.  The Employees’ Provident Fund managed by the Central Bank was also forced to invest in 5.1 million shares. 

TFC share which was trading at Rs.37 in March 2011 is now worth only Rs.2.0.