EPF dwindles away in bad investments

22 April 2014 06:30 pm - 0 - {{hitsCtrl.values.hits}}

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The Auditor General, H. A. S. Samaraweera in his review of the 2011 annual report of the Employees’ Provident Fund (EPF) has observed that Rs. 11.7 billion has been lost through investments in private institutions and the stock market. Stated below are his observations in full:

The following observations were made in connection with the overall investment of Rs. 73,948,947,927 made by the Employees’ Provident Fund as at 31 December, 2011 on long-term and short term bases in 74 companies listed in the share market.

(a) Out of the long term and short term investments amounting to Rs. 63,169,398,923 made by the Employees’ Provident Fund in 76 companies in the share market by 15 January 2013, the value of investments made in 58 companies amounting to Rs. 54,006,955,606 had diminished by Rs. 11,737,841,979.

(b) A sum of Rs. 500, 000,000 invested in 1,863,676 units of an airline company in July 2010 had riot yielded any income to the Fund since the date of investment. In

reply to this matter the Central Bank of Sri Lanka informed that it is confident of future prospects of profits from the company with gradually decreasing losses.
(c) A sum of Rs. 2, 975,000,000 invested in 29,750,000 units of an electricity generating company from the April 2007 to November 2008 had not yielded any income to the Fund in the years 2008, 2009 and 2010 while a sum of Rs. 540, 909,091 had been received twice in the year 2011 as dividend income. The income received as considered for the period of investment represented 4 per cent annually. In this connection the Central Bank of Sri Lanka informed that together with the income of Rs. 216,363,636 received in the year 2012, the annual income percentage received from this company has improved up to 4.9 per cent and as this company is earning considerable income, there is the possibility of the Fund receiving an adequate dividend in the year 2013.

"According to the financial statements for the year ending 31 December, 2011 of the 74 companies in which the Employees’ Provident Fund had invested a sum of Rs. 73,948,947,927 as at 31 December 2011, losses had been reported by 07 companies and the investment made in those companies amounted to Rs. 1,711,538,303"

(d) A sum of Rs, 205,489,613 had been invested in 5,091,200 shares of a Finance Company from 23 February 2011 to 01 November 2011 and at the time of the decisions for investment was taken, the loss of Rs. 4,285,937,284 revealed by that company according to the last published accounts of the Company had not been taken into consideration. The loss of that company even in the year under review amounted to Rs. 3, 830,135,175. The shares of the company had been purchased at an average price of Rs. 40.36 per share and the market price per share of the company amounted to Rs. 24 as at 31 July 2012. The Fund had not received any income from the investment since the date of investment.

(e) The Fund had invested a sum of Rs. 680, 232,419 in 20,942,989 shares of a communications company and the share of that company had not been offered for sale in the stock market since the year 2009. As such the Fund could not earn capital profits. Even though dividends amounting to 3.39 per cent in the years 2008 and 2009, and 0.81 per cent in the year 2010 and 1.67 per cent in the year 2011 had been received during the period of investment such income was not commensurate with the investment. In this connection, the Central Bank of Sri Lanka informed that as the communication field would further develop in the economy of Sri Lanka and as such there is a belief that the dividends and the capital profits receivable by the Fund from the company would increase.

(f) The Employees’ Provident Fund had invested sum of Rs. 3,890,902,522, Rs. 6,877,822,908, Rs. 39,133,587,926 and Rs. 73,948,947,927 in the share market in the years 2008, 2009, 2010 and 2011 respectively. The income received for those investments in the years 2008, 2009, 2010 and 2011 had been 8.94 per cent, 24.18 per cent, 6.84 per cent and 4.08 per cent respectively.

(g) The Employees’ Provident Fund had not received any income whatsoever for the investment of Rs. 3, 555,864,821 in the year ending 31 December, 2011 in the shares of 11 companies.

"The EPF had invested a sum of Rs.3,890,902,522, Rs.6,877,822,908, Rs.39,133,587,926 and Rs.73,948,947,927 in the share market in the years 2008, 2009, 2010 and 2011 respectively. The income received for those investments in the years 2008, 2009, 2010 and 2011 had been 8.94 per cent, 24.18 per cent, 6.84 per cent and 4.08 per cent respectively"

(h) In accordance with the instructions given by the Monetary Board of the Central Bank of Sri Lanka to increase the investments in the Hotels and Transport Sectors, investment of Rs. 3,882, 77l, 148 in 18 Hotels as at 31 December 2010 and Rs. 7,219,711,548 in 16 Hotels as at 31 December 2011 had been made. Income of Rs. 50,807,109 or 131 per cent had been received in the year 2011 for the investment made as at 31 December 2010 while a sum of Rs. 173,616,783 or 2.4 per cent had been received in the year 2012 for the investment made as at 31 December 2011. The following observations are made in this connection.

(i)In accordance with the decision of the Monetary Board of the Central Bank of Sri Lanka on 05 May 2010, a sum of Rs. 810, 321,610 had been invested by 31, May 2010 in a Company which had incurred losses amounting to Rs. million, Rs. 405.38 million, Rs. 298.85 million and Rs. 147 million in the years 2007, 2008, 2009 and 2010 respectively and had unfavourable earning ratios of (3.15), (3.45), (1.09) and (0.13) during the respective years. The loans payable by this Company by that date amounted to Rs. 6.28 billion (approximately). The Fund had not received any income whatsoever since the date of investment up to 30 June 2013. In this connection the Central Bank of Sri Lanka informed that this Hotel Company situated in a central location in the city of Colombo could be expected to obtain better results from the improvements taking place in the tourism sector.

(ii) The Fund had not received any income whatsoever in the years 2011 and 2012 from two Hotel Companies in which the Fund had invested Rs.1, 129,755,045. In this connection the Central Bank of Sri Lanka informed that these investments were made in the long term investment portfolio with the expectation of achieving the benefits from the development of the tourism industry and that these investments would provide belier benefits to the Fund.

(iii) An inadequate income had been received from the investments made in 04 Hotel Companies as at 31 December 2011 and the percentage of that income as compared with the preceding year are given below.

(iv) Out of the 16 Hotel Companies referred to above, in which the Fund had invested a sum of Rs. 7,560,267,157 as at 30 June 2012, the market value of the shares of 13 companies had diminished by Rs. 1,605,197,185 and the Fund faced the risk in earning capital gains by the sale of the shares of those companies. In this connection, the Central Bank of Sri Lanka informed that looking at the progress of the tourism industry, an increase of the prices of shares of all Hotel Companies can be expected along with the share market reaching normalcy
(v) No income whatsoever had been received in the year 2011 from a Hotel Company in which a sum of Rs. 127, 412,780 had been invested as at 31 December 2011.
(i) The overall long term investment made by the Employees’ Provident Fund as at 31 December 2011 in 65 officially listed companies amounted to Rs. 73,122,216,934. Out of that investment, a sum of Rs. 58, 349,901,901 had been invested in 21 Companies and income ranging from 0.37 per cent to 8.79 per cent had been received in the year 2012 for the investment in those companies.

(j) A sum of Rs. 3, 657,803,132 had been invested in 111,742,387, shares in 43 companies during the period 31 December 2011 to 30 June 2012, during which time the share prices of the Stock Market had been subject to rapid deterioration. Out of those companies, the price of shares of 30 companies had diminished by 30 June 2012, the resultant unrealised loss amounting to Rs.340,768,531. Out of these companies, the share prices of 24 companies had diminished even by 31 December, 2011. In this connection the Central Bank of Sri Lanka informed that, the Bank is of the view that it is not appropriate to consider the realised or unrealised profits or losses for long term investments.

(k) According to the financial statements for the year ending 31 December, 2011 of the 74 companies in which the Employees’ Provident Fund had invested a sum of Rs. 73,948,947,927 as at 31 December 2011, losses had been reported by 07 companies and the investment made in those companies amounted to Rs. 1,711,538,303. Even though the balance 71 companies had reported profits for the year 2011/12 only 66 of those companies had declared dividends, Out of the dividends declared, the Employees’ Provident Fund had received dividends amounting to Rs. 1,638,242,546, and represented 2,21 per cent of the invested amount.
(1) In view of the powers relating to the custody of the funds under Section 5(c) of the Employees’ Provident Fund Act, No, 15 of 1958, the powers vested in the Monetary Board of the Central Bank of Sri Lanka over the surplus money of the Fund in terms of Section 5 of the Act, the powers vested in the Commissioner General of Labour in terms of Section 4(1) of the Act and the powers vested in the Minister under Section 5(1) of the Act, the significance of obtaining their views on the investments amounting to Rs. 9S7,966,359,597 is emphasised.

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EPF dwindles away in bad investments

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