The Board of Directors of NSB yesterday issued a statement giving a long overdue explanation behind its decision to invest in TFC (see page 1 of today’s The Island).
"Since the Board was of the view that benefits of this investment is not as strong enough to proceed with, a decision was taken not to make the payment, due on this transaction. The above decision was conveyed to the Secretary to the Treasury, Dr. P. B. Jayasundera at the meeting held on 8th May 2012 with the entire Board of Directors of NSB. Other relevant parties too have been informed of this development, accordingly. The Secretary advised the Board that the Bank should not move out from its core activity and advised to promote NSB as a premier savings bank without exposing its risk profile to maintain public confidence," the statement said.
However, the short statement issued by bank failed to answer the most burning issue; why it was willing to pay an inflated price for the shares. The Island Financial Review also learns that the deal would have gone through if not for a senior official of the bank flagging the Ministry of Finance and Planning, which resulted in the President himself nullifying the deal after the transaction was done.
The bank also contradicts itself.
"… the Board Sub Committee on Corporate Lending and Equity Investment decided to re-look at the investment from a strategic initiative point of view with further analysis. Having done a further analysis, a favourable consideration was given to purchase voting shares of TFC, amounting to 10% - 15%. However, since the Board was of the view that benefits of this investment is not as strong enough to proceed with, a decision was taken not to make the payment, due on this transaction."
This statement also exposed the claims made by TFC in the media.
TFC Chairman Preethi Jayawardena is on record stating that, "the share price for a TFC share was highly undervalued owing to market conditions within the country and external factors such as economic factors on a global scale. Therefore, it can be safely said that the share price did not reflect the true worth of the company," added Jayawardena "This is a partnership for both entities. This was not a share bought over the counter and I am sure NSB would have done its homework before consideration. The benefits that would be reaped by the deal would augur well to all stakeholders of both companies and would provide horizontal integration to both companies in their future endeavours."
Analysts point out that NSB had not obviously done its homework well.
The President has stopped the payment being made but the deal is being investigated by the Securities and Exchange Commission (SEC).
IS