Harsha rebuffs CB’s rosy EPF story

  Published : 12:22 am  May 23, 2012  |  1,888 views  |  8 comments  |  Print This Post   |  E-mail to friend
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  • Parliament told EPF has lost Rs. 4.2 b in value over investments in five listed companies alone
  • Last audited accounts of EPF presented in Parliament was for year 2009 only

The main Opposition UNP yesterday in Parliament stepped up its charge on alleged mismanagement of funds of the EPF by the Central Bank, raising fresh queries as well as revealing latest losses.
The attack by the UNP comes a day after the Central Bank denied allegations of fraud over EPF investments by the Opposition.
Yesterday, opening the debate in Parliament on Regulations under the Imports and Exports (Control) Act, UNP firebrand and consultant economist Dr. Harsha De Silva revealed that despite claims by the Central Bank that it hadn’t lost money or that its investments were sound, in effect Rs. 4.2 billion in value had already been lost on five EPF share market transactions alone.

He listed them as Rs. 1.2 billion on investment in Laugfs voting shares and Rs. 387 million in non-voting shares, Rs. 1.02 billion in investment in Ceylon Grain Elevators, Rs. 854 million in investments in Brown and Company, Rs. 581 million via investment in Galadari Hotel and Rs. 102 million via The Finance stake.
In fact UNP MP John Amaratunga separately raised fresh queries on EPF’s 13% investment in Galadari Hotels made in 2010 as well as Grain Elevators and Laugfs. EPF bought Galadari shares at Rs. 34 each whilst this week it had slumped to Rs. 13 level. The listing of losses over five transactions was to counter Central Bank claims that its investments are sound. In fact Monday’s statement from the CB said the EPF has so far earned Rs. 1.5 billion via dividends and capital gains from its equity investments and the figure in 2011 was Rs. 2.5 billion.
Dr. De Silva reiterated that Investment Guidelines for EPF clearly states that it must stick to blue chips and queried whether Galadari and Grain Elevators were blue chips. The Galadari is saddled with Rs. 9 billion retained losses in addition to facing serious loss of capital.
“The Central Bank must be honest in its answers and must conduct itself in a professional manner. Both were absent judging by its statement released on Monday,” the UNP MP charged.
He also told Parliament that as confirmed by the Secretary General, the last audited accounts of EPF presented to the House were that of 2009, whereas reports of 2010 and 2011 hadn’t been tabled in Parliament.
The Central Bank via its statement on Monday (see yesterday’s Daily FT front page or via online http://www.ft.lk/2012/05/22/epf-rejects-unp-mps-allegations-of-fraud/) said the EPF denies accusations of fraudulent transactions in the stock market.
It said: “It is quite normal in all stock exchanges in the world, the large-scale institutional investors have the capacity and the ability to hold onto their portfolios without having to dispose of their investments during a downward trend in the market, and in Sri Lanka where the EPF is clearly one of the largest institutional investors, the EPF will act in a similar manner. Hence, there is clearly no risk of the EPF incurring any real loss during this bearish phase of the stock market. In these circumstances, the EPF wishes to reiterate that its portfolio of stocks has intrinsic value, and therefore would hold onto certain stocks where the market values may have temporarily reduced below cost, because such stocks have potential to yield satisfactory dividends, and also make substantial gains when the ASPI move up in due course.”
The Central Bank also said the EPF, whose fund is now over Rs. 1 trillion, invests around 93% of its funds in government securities and around 6% in the stock market. The balance 1% is invested in corporate debentures and short-term government securities. The investments in the stock market are made with a long-term focus to generate profit and enhance the fund’s capital base over the longer term.
It described the UNP MP’s attack as “vituperative and misleading” and said statements read in conjunction with several past statements of a similar nature made seems to be designed to systematically discredit the EPF, discourage its investment activities, and precipitate a collapse of the stock market.
Though noting the political bias in the UNP’s comments, the Central Bank said that since there appeared to be a clear and mischievous motive to tarnish the reputation of the country’s largest retirement fund and to destabilise the economy through such a strategy, the EPF had decided to issue the statement on Monday.
In response, Dr. De Silva told Parliament that if a single person could destabilise the economy, then it was a compliment to him, but lamented the lack of honesty and harsh tone of the CB/EPF statement.

 

Comments

8 Responses to “Harsha rebuffs CB’s rosy EPF story”

  1. mw on May 23rd, 2012 1:34 am

    At least someone is trying to safeguard private people.
    Now I wonder, what sort of perks EPF analysts enjoy – for example, air tickets, expensive hampers (in the form of vouchers) from say brokers… I am just saying….may not be true…but, might be a “general” practice?

  2. Colombo Stock Watch | Harsha rebuffs CB’s rosy EPF story on May 23rd, 2012 3:51 am

    [...] View article at source Harsha rebuffs CB’s rosy EPF story [...]

  3. Citizen on May 23rd, 2012 5:48 am

    The pundit at the CB is always painting a very rosy picture of the economy and whatever else the govt does. Obviously he is out of touch with the realities of what the poor folks in this country are going through. Playing pandu with poor workers savings to the tune of 4 billion is not peanuts.

  4. chris on May 23rd, 2012 6:11 am

    Thank god I have retired and taken my money out of the EPF….

  5. R.P Perera on May 23rd, 2012 8:46 am

    The issue is whether the EPF was a party to the creation of a false market at the time of the purchases since the prices paid were not justified on fundamentals. In fact their prices were taken up by brokers with a vested interest to levels which seem to have been pre-arranged when the market prices were far below. Was there collusive behavior by the EPF officials with the brokers to take up the market in these shares before they entered the market? False market creation is an offence under the SEC law and the SEC should examine the prices prior to the trades and question the brokers and the EPF to ascertain if there was collusion to create a false market at the expense of the EPF subscribers which would amount to a fraud on them

  6. ceycon on May 23rd, 2012 11:36 am

    R P Perera, very valied point. Most can remeber how prices were driven upward prior to these huge transactions. It was obvious priviledged big guns and brokers knew beforehand.

  7. Roshan on May 23rd, 2012 12:50 pm

    EPF – Laugh dealing looks similar to that of NSB – TFC.

  8. Jeewan on May 23rd, 2012 12:52 pm

    Harsha is a “Yankee” Economist. Most of us don’t understand his arguements.
    He suffers from “China Syndrome” when the developed world is trying their best to engage more with China.

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