Grand Hyatt case EPF funds misused in hotel project

Forensic audit report had highlighted the alleged fraudulent methodology followed when acquiring three properties; Ranmuthu Hotels Ltd, No: 112, Galle Road, J.C. Ramanayake of 108, Galle Road and Ceylinco Insurance PLC of 134, Galle Road for the expansion of Grand Hyatt Regency in 2013.

Ranmuthu Hotels

• According to the report, 62.77 perches has been acquired from Ranmuthu Hotels and although the Government Chief Valuer in his report dated June 13, 2013 had valued the land at Rs. 303.2 million and the building therein for Rs. 196.8 million where the total reaches Rs. 500 million, once again the property had been valued on July 30, 2013. In the second valuation report, the land value had risen to Rs. 483.2 million and the building therein remained at the same value with the total valuation being Rs. 680 million. However, the property had been purchased for Rs. 689.071 million without giving any reasons

Ceylon Insuarance PLC

• Sino Lanka had acquired 20.1 perches from Ceylon Insurance PLC and the first valuation had been carried out on January 9, 2013 with the valuation for the land being Rs. 100 million and the valuation for the building being Rs. 91.5 million. The total valuation was Rs. 191.5 million. Again on October 22, 2013, the second valuation had been carried out and the value for the land and building value was stated as Rs.252 million. During the third valuation, the land valuation had increased up to Rs.168.5 million and the value of the building therein was the same as the first valuation coming into a total of Rs.260 million. However the final payment had been made to the tune of Rs.270 million

J.C. Ramanayake property 

• The J.C. Ramanayake property was 15 perches in extent and only one valuation had been carried out on August 23, 2013. The valuation for the land was Rs.105 million while the land therein had been valued for Rs.15 million with the total being Rs.120 million. However, Sino Lanka Hotels and Spa had paid Rs. 130 million for the property
• The report states how the procurement of steel for the Grand Hyatt project had been carried out violating Government procurement guidelines. The tender had been awarded to the second lowest bidder which was a loss of Rs.16.426 million to the state

It has now surfaced how Former President Mahinda Rajapaksa’s Chief of Staff together with two others were allegedly involved in a misappropriation connected with tax payers’ hard earned money, regarding which the Financial Crimes Investigation Division (FCID) has filed a case (‘B’ 788/ 15) in the Colombo Magistrate Court under the Public Property Act No: 
12 of 1982.  

According to the two ‘B’ reports filed before the Colombo Magistrate Court, Gamini Sedera Senerath, Piyadasa Kudabalage and H.K.D.W.M. Neil Bandara Hapuhinna are suspected for transferring a staggering Rs.4 billion to Helanco Hotels and Spa (Pvt) Ltd fraudulently in 2014 from Canwill Holdings (Pvt) Ltd, a fully state-owned enterprise, without Board approval.  

Canwill Holdings was registered with the Registrar of Companies on December 22, 2011 while Sino Lanka Hotels and Spa (Pvt) Ltd made its registration with the Registrar of Companies the same day as a subsidiary of Canwill Holdings (Pvt) Ltd. Sino Lanka Hotels and Spa (Pvt) Ltd was incorporated to revive the defunct Grand Hyatt project in Colombo 3.  

Helanco Hotels and Spa is a private company registered under PV 83263 with the Registrar of Companies on December 21, 2011. This company had been incorporated to construct a five star luxury hotel project in Hambantota.  

Grand Hyatt Project  

In order to review the stalled Grand Hyatt project of the Ceylinco Leisure Properties Limited, a Cabinet Memorandum (No: MOFE/ST/CM/2012) dated March 12, 2012, was submitted by the Ministry of Finance and Planning to obtain cabinet approval to take over the property, under the Revival of Underperforming Enterprises and Underutilized Asset Act No: 43 of 2011.  

Approval was granted on March 14, 2012 and as per the cabinet approval, the Ceylinco property was vested with the Urban Development Authority (UDA) to facilitate expeditious revival of this underperforming and underutilized property as a fully fledged multifaceted hotel complex with a group of private and state investors.  

In 2003, Ceylinco Insurance PLC had obtained this land from the UDA on a 99-year lease and the Grand Hyatt project was to be completed by them in 2008. Since the project was defunct at the time the present Government assumed power, after the acquisition the property was given back on a 99-year lease to the new developer – Sino Lanka Hotels and Spa (Pvt) Ltd by the UDA.  

Gamini Sedera Senerath, Piyadasa Kudabalage and Neil Hapuhinna were the Chairman, Managing Director/ Chief Executive Officer and Director respectively at Sino Lanka Hotels and Spa from December 21, 2011 up to January 8, 2015. They were also in the Board of Canwill Holdings and Helanco Hotels and Spa from December 22, 2011 till January 8, 2015. Mohan de Alwis too was in the said boards from the beginning, but had resigned from his post after serving for a few years.   
R. Semasinghe and Deepa Nayanakanthi Seneviratne respectively represented the Treasury and EPF Department in the Sino Lanka Hotels and Spa Board.  

Shareholders of Canwill Holdings were, Sri Lanka Insurance Corporation having 45.94% shares to the value of Rs.8.5 billion, Employees Provident Fund (EPF) obtaining 27.03% shares to the value of Rs.5 billion and Litro Gas Lanka (Pvt) Ltd with 27.03% shares to the value of Rs.5 billion.  

Although the Board of Directors of Sri Lanka Insurance Corporation and its subsidiary Litro Gas Lanka had given approval to invest on Canwill Holdings, the EPF which was established under the EPF Act No: 15 of 1958 and is under the custody of the Monetary Board of the Central Bank of Sri Lanka, sought the Attorney General’s opinion to invest with Canwill Holdings.  

Severe Pressure  

In order to obtain the Attorney General’s opinion, the Monetary Board by letter dated July 13, 2012 sought an opinion from the Attorney General as to whether the ownership of the Ceylinco property that was acquired by the state had been legally transferred to Sino Lanka, the subsidiary of Canwill Holdings. Approvals were also sought to invest with Canwill Holdings to which the approval was granted on conditions that Canwill Holdings will not invest money to start any new hotel projects including the Helanco Hotels and Spa until the Grand Hyatt Regency project is completed   
Hence,the EPF Board of Directors at the Board Meeting No: 1/2013 on January 3, 2013 decided to invest Rs.5 billion and delegated the authority to the Superintendent of EPF to sign the shareholders agreement subject to the conditions before the investment was made.  

Violating Conditions  

Some of the conditions laid down were- Shareholders of Canwill Holdings should agree not to exit from their investments until the Grand Hyatt Regency project is completed and commissioned and until the shares are listed in the Colombo Stock Exchange and the Monetary Board of the Central Bank so that the appoint of a Director can be made to both companies to look after the direct and indirect interests of EPF.  

“We were puzzled as to why the EPF was forced to invest Rs.5 billion on a project that didn’t guarantee a return even after the commencement of its operation, but guarantees a return only after it is listed in the Colombo Stock Exchange. The date of listing this entity with the Colombo Stock Exchange was unknown. Instead of investing the excess funds in proper securities enabling the EPF contributors to receive more benefits, by investing with a project where returns were not expected for years, was a loss for the EPF as a whole,” sources from the EPF said.  

Meanwhile a forensic audit report carried out by a reputed Charted Accountancy Firm in Colombo, in its report had highlighted the alleged fraudulent methodology Sino Lanka Hotels and Spa (Pvt) Ltd has followed when acquiring the adjoining three properties for the expansion of Grand Hyatt Regency in 2013.  

Three adjoining lands – Ranmuthu Hotels Ltd, No: 112, Galle Road Colombo 3, J.C. Ramanayake of 108, Galle Road, Colombo 3 and Ceylinco Insurance PLC of 134, Galle Road Colombo 3 had been acquired between July and November 2013.  

By the time this Rs.500 million had been transferred to the Helanco bank account, approval had not been granted for the transaction. Meanwhile the report further states how another Rs.3.5 billion had been transferred to the same account on December 26, 2014, three days before the second board approval was obtained

According to the report, 62.77 perches has been acquired from Ranmuthu Hotels and although the Government Chief Valuer in his report dated June 13, 2013 had valued the land at Rs. 303.2 million and the building therein for Rs. 196.8 million where the total reaches Rs. 500 million, once again the property had been valued on July 30, 2013. In the second valuation report, the land value had risen to Rs. 483.2 million and the building therein remained at the same value with the total valuation being Rs. 680 million. However, the property had been purchased for Rs. 689.071 million without giving any reasons.  

As per the forensic audit report, Sino Lanka had acquired 20.1 perches from Ceylon Insurance PLC and the first valuation had been carried out on January 9, 2013 with the valuation for the land being Rs. 100 million and the valuation for the building being Rs. 91.5 million. The total valuation was Rs. 191.5 million. Again on October 22, 2013, the second valuation had been carried out and the value for the land and building value was stated as Rs.252 million. During the third valuation which was done on November 22, 2013, the land valuation had increased up to Rs.168.5 million and the value of the building therein was the same as the first valuation coming into a total of Rs.260 million. However the final payment had been made to the tune of Rs.270 million.  

Suspicions of Fraud  

The J.C. Ramanayake property was 15 perches in extent and only one valuation had been carried out on August 23, 2013. The valuation for the land was Rs.105 million while the land therein had been valued for Rs.15 million with the total being Rs.120 million. However, Sino Lanka Hotels and Spa had paid Rs. 130 million for the property.  

“When the payment vouchers were checked, these payments have been made to the respective vendors, but still we believe there was a fraud regarding this. If the Government Chief Valuer had made the Government valuation what made Sino Lanka receive a higher valuation report and get paid more than what the valuer recommended?   

Despite of the conditions laid down by the Attorney General in 2012 that Canwill Holdings can’t invest in other hotel projects including Helanco Hotels,on February 24, 2014, the Board of Directors of Canwill Holdings had taken a board approval to transfer Rs.500 million to Helanco Hotels and Spa (Pvt) Ltd. and once again another board approval had been made to transfer Rs.3.5 billion to the same account on December 29, 2014, few days before the Presidential elections.  

Although the two approvals had been granted by Canwill Board of Directors on February 24, 2014 and December 29, 2014 respectively, the FCID ‘B’ report states how Rs.50 million had been transferred to the Helanco account at Bank of Ceylon Corporate Branch (Account No: 72783012) on February 11, 2014 and another Rs.450 million on February 19, 2014. By the time this Rs.500 million had been transferred to the Helanco bank account, approval had not been granted for the transaction.

Meanwhile the report further states how another Rs.3.5 billion had been transferred to the same account on December 26, 2014, three days before the second board approval was obtained.  
Meanwhile the report further states how the procurement of steel for the Grand Hyatt project had been carried out violating Government procurement guidelines. The tender had been awarded to the second lowest bidder which was a loss of Rs.16.426 million to the state.  

Melwire Rolling (Pvt) Ltd had quoted the lowest price which was Rs.110, 160 per ton while another company alleged to have links with a powerful politician of the then regime had quoted the second lowest which was Rs.114, 897 per ton. The report states that the bidders had not been invited at the opening and later Kudabalage had sent an acceptance letter to the second lowest bidder on March 21, 2013.  

Meanwhile it is also reported how over Rs.9 million had been paid to the constructor to construct a perimeter fence in the Hambantota project, but during the audit, this company had denied carrying out any work at the Hambantota project site nor had it obtained the said money.  

Labour Commissioner General A. Wimalaweera was overseas and when contacted Additional Commissioner General of Labour, C.N. Withanachchi declined to comment.   Chairman Canwill Holdings/ Sri Lanka Insurance Corporation Hemaka Amarasuriya when contacted wanted this paper to call him in an hour, but all attempts taken thereafter to obtain a comment failed as he was not reachable via phone.