Minority shareholder activist charges certain controlling shareholders on move to devalue stocks

Urges SEC and Central Bank to intervene to protect minority shareholders Reveals plans to create shareholder fatigue and engage in force selling of shares

A leading good governance advocate and minority shareholder activist in the country recently called on the Central Bank and the Securities and Exchange Commission (SEC) to intervene to protect the interests of public and minority shareholders, as certain controlling shareholders and related parties are allegedly on the move to devalue stocks by creating “shareholder fatigue.”

Writing to the SEC Chairman Ranel T. Wijesingha and Central Bank Governor Dr. Indrajit Coomaraswamy, former Chairman of Ceylon National Chamber of Industries (CNCI), K.C. Vignarajah warned that these parties want to unjustly enrich controlling interest (CI) and impoverish independent minority shareholders (IMS).

“It is common knowledge that the market has been manipulated and pushed down. It is now the focus of local and foreign experts, as well as policy makers, and the aid groups. They have commented on the lack of sufficient protection for IMS,” he stated.

In order to create shareholder fatigue, Vignarajah said certain controlling shareholders have resorted to reduce public holding, to reduce profits by siphoning off profits to related parties, associates or subsidiaries, to lower the valuation of assets (sometimes on claim of IFRS standards) and to announce unfairly low dividend pay-out ratio/ percentage.

Further, he alleged that some firms are conspiring with brokers and financial institutions to ‘force sell’ after driving down share prices due to liquidity, marketability of difficulties which were created by them.

Vignarajah noted that these illegal activities are subjected to related offenses such as insider dealing, market manipulation, criminal breach of trust and unjust enrichment of the controlling interest & related parties (CI&RP) whilst impoverishing the investing public. “The insidious economic and stock market terrorism is far more damaging and devastating than the horrific terrorism that surfaced on Easter Sunday”

Vignarajah stressed that Sri Lanka has capable and honest public servants on the top to tackle “economic terrorism and stock market mafia” by enforcing tough deterrent measures, which would also boost the revenue streams to the government.

However, he emphasised that the mindset of some of the senior SEC staff and officials requires a vigorous correction to serve the interests of the investing public and the economy of the country which pay their salaries, perks and scholarships, to ensure local and foreign investor confidence.

Vignarajah also recommended the Colombo Stock Exchange (CSE) and SEC to focus on hiring services of independent professionals to take action against wrongdoers and to compensate victimised investors rather than conducting a survey of 750,000 registered investors, as only 25,000 are active in the equities market.

“What is needed most at this critical juncture is to find independent lawyers, accountants, valuers, experts to go through the complaints of fraud, manipulation, malpractices and ensure funds are provided by the wrongdoers to compensate shareholders who were victims of corporate fraud,” he said.

He had proposed to make the voting shares of CI&RP to ‘Non Voting’ if they are in breach of the limit of Public Holding (PH) while imposing automatic cancellation of transactions which breach the minimum PH.

In addition, Vignarajah by himself plans to pursue legal actions against several powerful wrongdoers who were behind the “pump and dump” activities, while betting on the support of the honest officials, regulators, policy makers, bankers, lawyers, accountants, auditors, etc., and the respected judiciary.

Further, he requested the Central Bank to provide support with low interest rates, sufficient loan capital, and access to timely information for minority shareholders.

On a positive note, he acknowledged that many firms are now changing their course drastically to improve their reputations, and shareholder value.

“They have agreed to pay good dividends, create a healthy public shareholding/public float, thus increasing liquidity and marketability of their shares,” he stated.

He illustrated that recently Hunas Falls Hotels PLC & AIA Insurance PLC offered Rs.187 and Rs.2,500 per share respectively which were about 6 to 10 times their earlier purported valuation, which has led to build some confident on the CSE among investors.