Agalawatte Plantations back in spotlight for all wrong reasons

Re-audit unearthed major misuse of funds by previous management Liabilities run into staggering Rs.3.3bn Accumulated losses estimated at Rs.1.2bn

A case of major corporate skullduggery has been unearthed at Agalawatte Plantations PLC (AGAL), where the ex-owners and the management were alleged to have squandered billions of rupees on extravagant projects, duping employees, bankers and shareholders.

According to a shareholder circular issued by the AGAL’S new board of directors, the re-audited financial statements up to December 31, 2014, have discovered that the company run by the then board of directors had spent Rs.18 million on a helipad at Labookellie Estate to accommodate the visit of a VVIP, who however had never turned up.

Also, the company had spent Rs.106 million for a tea museum at the same estate just to exhibit the private assets of the then Chairman.

Among these extravaganza is also a villa complex constructed at Culloden Estate for no justifiable commercial reason, which had gulped another Rs.105 million. According to the shareholder circular, all these moneys were squandered at a time when the total outstanding statutory liabilities of AGAL stood at a staggering Rs.3.3 billion by the end of December, 2016, due to be paid to banks, other lenders and trade creditors.

The auditors are of the view that these assets must be fully written off from the books of accounts as they do not add any economic value to the company. Thus the accumulated losses of the company are expected to be well over Rs.1.2 billion as at December 31, 2016. In September, last year Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) had deemed that AGAL’S financial statement for 2014 had to be re-audited.

The re-audited financial statements for the year ended December 31, 2014, showed a negative net assets value of Rs.215.87 million for the company and Rs.130.53 million for the group.

“The catastrophic situation faced by the company has arisen as a direct result of misappropriation of company’s assets by the previous management of and pure negligence in maintaining the state owned assets leased to the company,” the shareholder circular said.

The new management of AGAL has called for an extraordinary general meeting on May 5, 2017 to apprise the shareholders on the financial position of the company.

In July, 2016, 60.8 percent stake of Agalawatte Plantations was sold by its major shareholder, Mackwoods Plantations Limited to Browns Power Holdings Private Limited, an LOLC group company for Rs.304 million.

But in March this year, D.R. Investments, the owners of Damro bought a 61 percent stake in AGAL from Browns for Rs.275 million.

Agalawatta Plantations manages 15 estates, which include tea, rubber and oil palm covering a total extent of 10,919 hectares and employs around 5,000 workers. The group had an asset base of Rs.4.3 billion by the end of 2014.

Now the new management proposes a debt-toequity restructuring plan to turn the fortunes of the ill-fated company.

The new majority shareholder of AGAL is also prepared to infuse a billion rupees in fresh equity through a rights issue but seeks a 46-year extension to the lease agreement from the government at the expiration of the current 53-year lease.

The new management has also asked for five years to settle the outstanding government lease rentals and 50 percent moratorium on the current lease rentals for a period of 5 years until all bank liabilities are settled.

All other liabilities will also be settled but the board requested to waive-off all surcharges on unpaid EPF/ETF, overdue and penal interest on outstanding borrowings and concessionary rate on balance capital outstanding until full settlements are made.

This re-payment will only be successful if the company generates approximately Rs.400 million a per annum additional cash flow during the next five years.

In the meantime, the new board of directors will also institute legal action against the previous management to recover the funds squandered during their term in office and upon recovery, such funds would be utilized to settle the dues.