UDA’s cash crunch pushes Rs.10 bln debenture investors in a quandary
View(s):Several local and foreign investors who subscribed to the Urban Development Authority’s (UDA) debenture issue five years ago are in a quandary as to whether they would be able to redeem their bonds on maturity although there was a Treasury guarantee due to current cash flow problems of the authority.
These bonds issued to fund the housing project five years ago are maturing next month and the UDA has to repay the money to investors after the maturity date, an investor who wished to remain anonymous told the Business Times.An attempt to issue another Rs.10 billion-debenture by the UDA was halted by the Securities and Exchange Commission in March this year as the authority had failed to submit its audited accounts of 2012 and 2013.
According to interim financial statements, although UDA’s group revenue recorded an increase to Rs.709.83 million in 1Q15 compared to Rs.620.60 million during the same period last year, cash flows showed only Rs.126.09 million in rent and Rs.171.03 million in lease premiums received for 1Q15.
Administrative expenses increased to Rs.574.12 million from Rs.479.11 million (y-o-y), while other income which included interest from fixed deposits fell from Rs.276 million to Rs.99.93 million (y-o-y). The interim financial statements indicated a cash flow problem as it was not sufficient to meet even the administrative expenses of the UDA.
Under the present set up the UDA has to raise money through another debenture issue or a Treasury grant to meet its financial obligations, official sources said. The Ports Authority, Bank of Ceylon, Sri Lanka Insurance Corporation, the National Insurance Trust Fund, Seylan Bank, Commercial Bank, Sampath Bank and HNB Assurance were among the local parties who invested in UDA’s Rs.10 billion debenture issued in October 2010.
The UDA debenture was listed on the main board of the Colombo Stock Exchange (CSE) and it enables investors to liquidize their debenture before five years, a UDA official said adding that no investor has resorted to it. CITICORP Investment Bank Singapore Ltd had purchased the entire amount of Rs. 3 billion allocated for foreign investors, informed sources said adding that the money was channelled through the local branch of CITI Bank.
The Ports Authority received Rs. 1.7 billion worth of debentures; the National Insurance Trust Fund Rs. 1.045 billion, Bank of Ceylon and Sri Lanka Insurance got Rs.871 million HNB Assurance Rs.115.4 million (each) .
Three other banks, Seylan, Sampath and the Commercial Bank each received Rs. 435 million worth of debentures.
Gotabhaya Rajapaksa, the then secretary to Sri Lanka’s Defence Ministry, under which the agency operated has issued this Rs.10 billion debenture with a maturity period of five years and at an interest of 11.0 percent per annum, 10 percent monthly or a floating rate of Treasury bill plus 75 basis points every six months.
The UDA has announced at that time that the money will be used to build 65,000 housing units for unauthorised dwellers in 800 acres of high value state land in Colombo city. The plan was to use this land for commercial purposes.