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by Ravi Ladduwahetty

The controversy over the management of Asia Capital Ltd and the Richard Pieris Group continues to rage and is affecting the health of the Colombo bourse, a spokesman for the contending party, SC Capital and Sezeka Fund told the Daily News yesterday.

The point of contention is the refusal of Asia Capital Ltd to allocate two positions in its Board of Directors of SC Capital of Singapore, despite having a 19 percent stake in the Asia Capital. SC Capital is a joint venture between Sampath Bank and the Chinkara Group of Singapore.

Legal action taken by Richard Peiris and Co. Ltd (RPC) and Asia Capital (ACAP) against the major shareholders of the company for allegedly acting-in-concert to take over the management of these companies is causing a negative impact on the market, the spokesman alleged.

Of the major shareholders, the Rockport Fund has 3 percent of Richard Peiris, the Moghul Fund has 3 percent of Asia Capital and 0.5 percent of Richard Peiris, the Sezeka Fund has 20 percent of Asia Capital and 9 percent of Richard Peiris and SC Capital having 19 percent of Asia Capital and 1 percent of Richard Peiris.

The recent battle for the controlling interests in these two companies-RPC and ACAP have brought to light disclosures not necessarily obvious to a minority shareholder. The spokesman said that the allegations by RPC and ACAP that outside parties are trying to take over a well managed company may not be correct. The Peiris family selling their stakes have diluted the family control of these two companies which by itself, has paved the way for outsiders of the company to increase their stakes. Subsequent to David Peiris selling his stakes in the company after a long dispute, in which his brother Ian and cousin Henry were managing the company, the family holding in the company has reduced to 10 percent.

This may not be correct for the Peiris family to hold all the key executive positions in the company which includes those of Chairman, Managing Director and Chief Operating Officer, while grooming Ranil Peiris, son of Ian, to take over as the Chief Executive Officer, the spokesman alleged.

Another fact is that when SC Capital purchased 20 percent of ACAP, son-in-law of Dirk Flamer Caldera, sold his entire personal stake at ACAP at 19 percent which realised Rs. 38 million. Ironically, after the Peiris family having realised the capital gain, has now levelled allegations that the SC Capital has acted in concert with Dr. Sena Yaddehige, the Sri Lanka inventor who controls 27.5 percent of RPC, the spokesman alleged. David Peiris broke away from the Group in 1998 with the very profitable Motor Division of the Group and formed David Peiris Motor Company Ltd.

Consequently, he decided to sell his shares, Flamer Caldera submitted a proposal to the Board of Directors of Asia Capital to purchase the shares of David Peiris and other slabs of the RPC shares at around Rs. 110. Objections were raised by the Finance Director of RPC Lalit De S. Wijeyeratne and Rusi Captain, the largest shareholder of ACAP. However, having made a persuasive case, Flamer Caldera convinced the Board to purchase around 24 percent of RPC spending around Rs. 550 million. Soon after this, Ian Peiris thought it fit used a substantial portion of RPCs cash reserves to spend roughly Rs. 250 million to purchase 25 percent of ACAP.

The spokesman asks whether these investments have resulted in operational synergies between the companies. It is obvious that it has not been so from the published information which is available, he said.

In the case of RPC, the net profit has reduced to 10.1 percent in 1999 to 4.9 percent in 2002. Post tax profits have declined in the last four years in key businesses such as the tyre treading, market share has eroded from 55 percent five year ago to around 35 percent at present. Although profits at ACAP have rebounded in the last financial year, due to the cash crunch two years ago, the company was forced to sell its strategic share in Asian Hotels Corporation at a considerable loss of Rs. 175 million. Had these shares been held instead of RPC, ACAP would have made a capital gain of Rs. 200 million.

The recent selling of LOLC by ACAP at Rs. 14 per share below the market price is another example of losses to shareholders which warrant serious questions, the spokesman alleged.

The RPC annual report said that the turnover has grown by 50 percent from 1998 to 2002 but the profits have grown by only 20 percent. This has caused the RPC operating profits to fall to 8.4 percent from 10.8 percent. The fact that the turnover has grown and the operating profit has grown at less than half the rate speaks of bad management, the spokesman said. Or else, it means that the company has made the wrong investments or operational management to the point of negligence, the spokesman alleged.

Total borrowings of the company have increased from Rs. 935 million in 1998 to Rs. 1307 million in 2002. The monies have not been utilised for the benefit of the shareholders of RPC, otherwise the accounts would have been more positive. Of the borrowings of Rs. 1.3 billion, over two-thirds, is the short term debt. The annual report also said that the interest cover has also fallen from the 2.52 percent to 4.48 percent in 1998.

This has shown that the risk has grown and the financial health of the company has declined as the funds available to shareholders have also fallen.

Meanwhile, the Earnings Per Share has also declined from Rs. 13.33 in 1998 to Rs. 7.54 per share. The dividend per share also fell from Rs. 2.82 per share to Rs. 2.50 per share between 1998 and 2002. With the share price at Rs. 120, this marks an annual return of 2 percent. Returns to shareholders have been either static or falling as the company continues to grow.

Analysts attribute the only reason for the share prices to rise consequent to the very shareholders the RPC managers have taken to court, shareholders who have shown interest in RPC and add some value to the company.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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