CB sets record straight on ETI Finance

The Central Bank (CB) yesterday issued a clarification seeking to correct any misleading statements on the sale of subsidiaries and investment properties under ETI Finance, which was released earlier this week. 

The CB noted that there was much incorrect and misleading information in the contents of the article and wished to state the CB’s observations.

The approval granted by CB was to transfer investment properties and subsidiaries of ETI Finance Ltd. (ETIF), considering the best interest of the depositors, based on a proposal submitted by ETIF, which did not include sale of shares of ETIF.

The only proposal submitted by ETIF was from Blue Summit Capital Management Ltd. (BSCM), which is a foreign entity. As such, possibility of ‘permitting a local investor’ at the time of approving the said transaction does not arise. Investors who expressed their interest in this regard to CB were instructed to deal directly with ETIF, as ETIF was the owner of the assets.

As stated in CB’s press release, dated 11 February, on the sale of subsidiaries, sub-subsidiaries and investment properties of ETIF, the involvement of CB in any transaction to dispose assets of a regulated entity is limited to granting necessary regulatory approvals, subject to compliance with applicable laws and regulations. As such, CB only granted the approval for this particular transaction upon being satisfied that all possible steps to assess the sources of funds were taken. CB, at no point in time, extended its assistance to an investor to buy the assets of ETIF.

All the transactions related to the sale of assets of ETIF were processed by the recipient banks upon being satisfied that the funds were remitted through legitimate channels, in terms of applicable laws and regulations. No credible information was available to the CB as to an ‘internationally blacklisted’ entity being involved in the transaction at the time of granting approval or at the times of receiving funds in tranches.

Further, CB does not become involved in assessing the ownership of entities which are not regulated by CB. 

In the case of Swarnamahal Financial Services PLC (SFSP), separate regulatory approvals are required to change the ownership of the company. Accordingly, conditional approval was granted by the Monetary Board of CB for a separate proposal submitted by SFSP. As per the said proposal, the proposed owner will be a locally incorporated entity.

In the event the current buyer is not able to infuse the balance $ 5 million, ETIF would retain SFSP. In this regard, ETIF is already considering alternatives for reviving SFSP. Further, the transaction to dispose the assets of ETIF was arranged by the Board of Directors of ETIF in response to regulatory actions initiated by CB against the company and its directors. 

The relevant agreement to transfer assets was made between the company and the buyer. In the event there is a breach of the conditions in the said agreement, the company may take appropriate steps as provided for in the agreement.

As clearly mentioned in CB’s press release dated 11 February, proceeds of the already concluded $ 54 million part of the transaction was utilised to repay 20% of the depositors, amounting to Rs. 6.4 billion. Further, all funds were directly received by ETIF. CB had at no time received any funds involved in this transaction, as mentioned in the above article.

The fact that ETIF was considering investors was public information. CB itself mentioned this in its press release dated 2 January 2018 on regulatory actions taken by CB on ETIF and SFSP. CB has made available the information in this regard to the public from time to time, in compliance with the provisions of Section 45 of the Monetary Law Act, No. 58 of 1949 (as amended). The article in question claims that the Government would lose $ 17 million. However, CB emphasises that the Government would not incur any cost, irrespective of whether the transaction to transfer assets of ETIF goes through or not, since ETIF is a privately owned limited liability company.

CB would like to reiterate that CB does not get directly involved in negotiations between regulated companies and potential investors. CB’s involvement is for protecting the interests of the depositors. This is a transaction between ETIF and BSCM, and CB was involved to ensure that there was a reasonable valuation from the perspective of the depositors.