SriLankan Airlines failed to conduct share valuation prior to buying Rs. 4 billion in shares

• Board of Directors decides to increase SriLankan Catering shares to 100 million and buy back 40 million shares at Rs. 100 a share on the same day without share valuation
• SriLankan Catering procured $ 3 million loan for construction at MRIA

By Skandha Gunasekara

The Board of Directors of SriLankan Airlines decided to buy back 40 million shares of SriLankan Catering, at Rs. 100 a share with a total cost of Rs. 4 billion, without conducting a prior share valuation, the Presidential Commission of Inquiry into irregularities at SriLankan Airlines, SriLankan Catering and Mihin Lanka was told yesterday.

SriLankan Catering Finance Manager Nalaka Sanjeewa, giving evidence before the Commission yesterday, said that in 2009 SriLankan Catering had increased its one million shares to 100 million and that thereafter the Board of Directors had decided to buy back 40 million out of the 100 million at Rs. 100 a share.

The Presidential Commission then pointed out that the increase of shares to 100 million and the decision to buy back 40 million shares had taken place on the same day.

When the Commission asked Sanjeewa whether a valuation of shares was carried out by the management prior to the decision to buy back 40 million shares at Rs. 100 a share, Sanjeewa replied that no such valuation process had taken place according to his knowledge.

“It was decided by the Board to utilise the earnings of SriLankan Catering from its Retain Account as well as finances from the SriLankan Airlines Current Account to buy back the 40 million shares,” Sanjeewa testified.

Sanjeewa went on to say that while the management increased shares of SriLankan Catering to 940 million in the following few years, a majority of the profits had been transferred to SriLankan Airlines.

Thereafter, senior state counsel Fazly Razik, who led the questioning, queried as to how much SriLankan Airlines awards SriLankan Catering a month to carry out its operations.

“SriLankan Catering receives around $ 750,000 a month from SriLankan Airlines,” Sanjeewa responded, adding that SriLankan Catering earns approximately $ 2 million a month from its operations.

Counsel Razik then questioned as to why SriLankan Airlines granted only $ 750,000 to SriLankan Catering when the latter made such a large monetary contribution to its parent company.

Sanjeewa responded that SriLankan Catering tried to seek as little financial assistance from SriLankan Airlines in order to be less of a burden to its parent company which was facing severe financial issues. “The airline has many issues so we try not to ask money from it unnecessarily,” he said, noting that SriLankan Catering attempts to cover its costs using revenue made from working with other companies.

In addition, it was also disclosed at the Commission that SriLankan Catering had procured a loan of $ 3 million for construction work at the Mattala Rajapaksa International Airport.

Sanjeewa said that the loan had been procured from Commercial Bank.

In response to the State Counsel’s questions as to how much of the loan was used, Sanjeewa said that only $ 847,000 was utilised.

“Construction of the kitchen unit at the MRIA was started but was abandoned soon after due to the inactivity of the airport,” Sanjeewa said, adding that a majority of the money was recovered while some additional finances to the tune of Rs. 50 million had been used to buy equipment.