Sri Lanka’s top regulator quit on Thursday over issues in the Colombo stock market, controlled by a few powerful interests while a credit bubble is waiting to burst, analysts said.“The credit squeeze, which a few powerful brokers are complaining about, came at a time (over six months back) when the Securities & Exchange Commission (SEC) discovered that over Rs 1 billion had been given on credit to investors, and feared a Bangladesh-type collapse,” said an analyst associated with the SEC, adding, “it is dangerous to fuel an equity market with credit”. The markets have collapsed in Bangladesh, partly due to excessive credit.
Indrani Sugathadasa, SEC chairperson sent her resignation to Treasury Secretary P.B. Jayasundera on Thursday. “I quit on a matter of principle and conscience,” she told the Sunday Times yesterday but declined to comment further.
Finance Ministry sources said the Treasury Secretary is yet to accept her resignation and no letter of response had yet been sent to her.
Analysts said the market – which reached dizzy heights and frenzied trading in low-priced stocks – has, in recent months been dominated by five powerful brokers backed by even-more influential investors whose association with the political hierarchy led to a meeting with President Mahinda Rajapaksa on Monday and he promised to look into their concerns. The main grouse of these groups is the credit limit and demands that it be increased by two or three fold.
The SEC at a meeting of commission members chaired by Ms. Sugathadasa on Wednesday discussed these issues but raised a pertinent question: there is now an estimated Rs 2.2 billion of unutilized credit lying in the market. If so, why do the brokers need more credit, Ms Sugathadasa is reported to have queried.
But she had suggested that they would meet the brokers and raise these issues while offering some concessions and also said that if the brokers were not prepared to accept the offer she was going to quit. On Thursday, she sent in her resignation.
This is the second time, she has quit on a matter of principle; the earlier instance being when as a board member of the Export Development Board (during the tenure of the President) she resigned, not wanting to be a party to irregular happenings, the analyst said. He said though Ms Sugathadasa was a novice in stock market matters, she was a quick learner and within two to three months knew what was going on.
Arjuna Mahendran, a former Sri Lankan investment broker and now managing director and head of investment strategy for Asia at Singapore-based HSBC Private Bank, said running a market on credit was unsustainable.
“Emerging markets are all having problems (like this),” he said by telephone from Singapore.Aritha Wikramanayake, a corporate lawyer and one-time DG of the SEC, said developments like this (pressure on officials at the SEC) give the government a bad name.
“The issues in the market have nothing to do about the indices going up or down. It is a combination of factors and we should not get excited about them (and make irrational decisions),” he said.
Mr Wikramanayake said developments like the head of the SEC quitting owing to different sorts of pressures were not good for confidence. So were negative decisions like the recent decision to re-take state lands leased to the private sector, he added.
He recalled a situation some weeks ago where he spent hours persuading a foreign investor to continue his plans for Sri Lanka as the latter was worried about the new acquisition laws which send out negative signals.
“There is no reason for big foreign investors and funds to invest in this market as it is illiquid and too small. However, investors are comfortable in putting a little money (big in terms of Sri Lanka) because they have confidence in the regulatory system.
Now we have put that also in jeopardy. |
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