Monday, 1st September 2014

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ETI Finance faces severe crisis

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Fitch downgrades rating outlook and warns group investments need to be sold off if external funding doesn’t materialize

The core company of Sri Lanka’s well known family controlled entity, EAP Edirisinghe Group is presently facing a severe strain in its capital adequacy ratio (CAR) and hence undergoing a major restructuring exercise, The Nation Gain learns. The banking and finance company regulator, Central Bank of Sri Lanka has requested ETI Finance Limited, the finance unit of the group to inject capital and also set an ultimatum to comply with all regulatory directions by mid-2014.
According to informed sources, ETI expects to bring in external shareholder funds in the near term in order to improve its financial position.

Meanwhile, Fitch Ratings Lanka which last week, downgraded ETI Finance Limited’s (ETI) National Long-Term rating to ‘CC(lka)’ from ‘BB-(lka)’ cautioned that if new capital injection did not transpire and in the absence of further shareholder injections, ETI will have to rely on the expedient disposal of its investments in group companies and other non-earning assets to improve the company’s credit profile.
“ETI’s inability to improve its financial position in the near-term may result in a further downgrading” Fitch stated in the report.

The rating agency said the downgrade follows the restructuring of ETI’s operations and the subsequent restatement of its financial accounts for the year ended March 2012 which showed capital adequacy ratios (CAR) and liquid assets below their respective minimum regulatory thresholds.

‘The regulator is currently overseeing the restructuring of ETI’s operations, which includes the possible sale of group investments and other non-earning assets to improve regulatory liquidity, CAR, and profitability. Pursuant to the regulatory direction and as part of the restructuring process, ETI’s majority shareholders have transferred the ownership of Swarnamahal Financial Services PLC, to ETI’, Fitch said in it’s rating rationale.

On February 6, the Colombo Stock Exchange was informed that five major shareholders of Swarmahal Financial Services Plc (total shareholding of the EAP family) had transferred their shareholding to ETI Finance Ltd. Accordingly, Jeevaka Hemal Edirisinghe, Anjali Deepa Edirisinghe, Nalaka Premal Edirisinghe, Asanka Srimal Edirisinghe and Dr. Soma Edirisinghe had transferred 82,000,020 shares each to the ailing finance firm.
Meanwhile, attempts by The Nation to obtain a comment from ETI Chairman or other senior officials in the group proved futile.

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