Debentures: Bubble waiting to burst
View(s):I am no economist or banker, but I have seen what Lalith Kotelawala did and the consequences where hundreds have committed suicide and others are living a life of suffering and misery.
Kotelawala’s business card at that time was about one yard long. There were hundreds of companies, some selling hoppers, bicycle tyres and such items. His modus operandi was to publish in the newspapers, the profits he had made from companies like Seylan Merchant Bank, Finance and Guarantee companies, etc. Having shown vast profits he went for debentures. With the funds collected he had paid outstanding interests, etc. A time soon came when he was unable to pay the interests of Golden Key (GK) investors.
The bubble then burst. When it became public that GK was having financial problems, the depositors commenced taking out their investments leading to the failure of the company and the subsequent catastrophe. Millions of rupees invested by people rich and not so rich went down the drain.
As several court cases are pending I do not wish to discuss this state or affairs in detail.. At the time that Kotelawala was advertising for debentures and high rates of interest, I was a bit perturbed and advised people known to me not to invest.
However, now I am surprised with the number of debentures issued almost daily. The financial pages of almost all newspapers publish the results of debentures not in millions but billions. The interest rate is high compared to the fixed deposits by banks. While the bank interest is only 5- 6.5 per cent debentures pay almost double. So long as the economy is thriving everything will be hunky-dory. However, if by chance the economy fails for whatever reason, the bubble will burst with the GK syndrome repeated over again.
It is high time that investors consider the danger before putting their hard earned money into debentures and avoid the fate of GK investors.
Dr. Neville Fernando,
Former Parliamentarian