EAP clarifies position on deferment of proposed debenture opening by SEC

The EAP Broad-casting Company Ltd. yesterday clarified its position regarding the deferment of the opening of its Rs. 3 billion listed and rated debenture issue.

In a statement, the company said it had received a fax yesterday from the CSE at 11 30 a.m. requesting all of its directors to be present at a SEC Board meeting at 3.15 p.m. Given the short notice, only two of the directors were able to meet with the SEC, whilst three other directors sent communiqués indicating their inability to attend due to them being out of Colombo, ill-health and ongoing commitments.

Late last evening, the CSE forwarded a SEC directive indicating that the SEC was not satisfied that Lanka Rating Agency (LRA) had provided a credible rating of the proposed debenture. EAP has been a client of RAM Rating (now named LRA), which had given EBC a ‘BBB’ rating in 2013, which was reaffirmed (no change) by LRA on 30 September 2014.



The directive states that a director of LRA and two Rating Committee members have become directors of EBC. These happened in December 2014 and October 2014, respectively. Notifications of their appointments were published in the newspapers. Since their appointments, (duly notified to the LRA,) EBC has been assured by LRA that these directors had not participated in any rating activities pertaining to EBC.

Nevertheless, the SEC has pointed out that there was a prima facie case of conflict of interest due to a common director on the Boards of LRA and EBC, and two directors of EBC, being Rating Committee members. 

“In our view, any form of conflict of interest only occurs where individuals, subject to such circumstances, participate in deliberations relevant to such conflict of interest situations and not otherwise,” EBC said.

“Both of the situations in our view do not fall into any such category of conflicts of interest.

It also must be noted that the rating given by LRA on 30 September 2014, reaffirming the ‘BBB’ rating was before all the directors assumed duties on the Board of EBC,” the statement from the company added.

The review of this rating, which happened after this said director assumed duties on the Board of EBC, did not change the original rating. Therefore, one can deduce that no benefit accrued to EBC as a result of the appointment.

In addition, the disclosure of directors’ positions within LRA was made clearly in the Prospectus of the Debenture by EBC.

Therefore, EBC feels that a further, more prominent disclosure would have been sufficient if the existing disclosure in the Prospectus was deemed inadequate.

“However, we defer to the directive of the SEC and have already taken steps to obtain another credit rating, in order to reintroduce the debenture at the next earliest opportunity,” the company said.

“We thank all investors who, up to the point of the deferment of this debenture, have shown tremendous interest and commitment in investing with us. We also wish to place on record our deep appreciation of the support we have received from the public, for the EAP Group of Companies and EBC in particular, even after the deferment notice was issued. We hope to offer this opportunity to you in the very near future so that you can make the same commitments at that point in time,” the EBC statement added.