The Finance and Guarantee Company Ltd (F&G) managed by Merchant Bank of Sri Lanka (MBSL) appointed by the Central Bank is to implement an action plan to convert a minimum of 60% of the deposit liability into equity to prevent the collapse of the company. In a letter to F&G customers, Chairman of MBSL M.R. Shah has urged the depositors to convert 70% of their deposits to shares promising them with an unspecified ‘attractive’ rate of interest for their balance 30%.
After being re-launched in June this year, F&G is on the verge of collapse again due to erosion of performing assets and depletion of funds inflows. Mr Shah stated that the company continued to pay monthly interest on the deposits, from the funds derived from the routine collections and recoveries from debtors.
This has seen the erosion of the company’s revenue deriving assets, depositors say. The company is now faced with a negative net worth with the mismatch between assets and liabilities being over Rs. 1 billion. Mr. Shah pointed out in the letter that if certain steps are not taken, the F&G won’t be able to pay the present monthly interest for depositors beyond early next year and the company may have to be liquidated.
Depositors have been given 10 days to give their consent to implement this plan of action aimed at converting deposits and promissory notes in to shares. A large number of depositors including senior citizens are vehemently protesting this plan. Several depositors told the Business Times that they were given an assurance by former Chairman MBSL Janaka Ratnayake in a letter dated 18-02 -2009 that depositors will be paid 9% interest rate and action will be taken to restructure the company.
Meanwhile the District Court action against F&G comes up for hearing tomorrow. In this case, MBSL solicited investment and a deposit of over Rs 2 million had been placed by the plaintiffs, and Certificates of Deposits issued with the added security of promissory notes. F&G had then defaulted maturity payment and reneged on the promissory notes. |
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