Stay order on sale of shares to ADB: Court grants time until Dec. 1 for HNB to file objections

The court yesterday granted Hatton National Bank PLC (HNB) time until December 1, 2016 to file objections to the interim order obtained recently by Stassen Exports (Pvt.) Ltd to stop HNB from proceeding with a sale of shares to the Asian Development Bank (ADB) through a private placement.

The interim order issued by the court stays the HNB director board “from holding and/or proceeding with the Extraordinary General Meeting (EGM) of the first respondent scheduled for Wednesday, October 26, 2016 or any time thereafter for the purpose of obtaining the approval of shareholders to issue shares to the ADB.” Stassen, in the petition, alleged that HNB had made no announcement to the existing shareholders of a need for capital infusion. In the event of the share issue to the ADB going through, the ADB would have gained 9.9 percent of voting and dividend rights, an eventuality that would have proceeded without the rights issue not being announced or offered to the existing shareholders. While conceding that the Companies Act provides for a company to issue shares to such persons as it considers appropriate, the petitioner points out that Section 53 of the said act provides for pre-emptive rights of the existing shareholders with respect to new issuance of shares. Among the shareholders are several state-owned entities including Sri Lanka Insurance Corporation (Life), Sri Lank Insurance Corporation (General), the Employees’ Provident Fund (EPF) and National Savings Bank, holding 9.67 percent, 4.96 percent, 9.76 percent and 2.89 percent of shares, respectively. According to business tycoon Harry Jayawardena, who heads Stassen, had pre-emptive action through petitioning the court not materialized, the government would have suffered a value loss of approximately Rs.1 billion. The transaction, Jayawardena further alleges, would have effectively resulted in a depreciation of share value and would therefore directly hurt the existing shareholders. Nihal Fernando PC with Harshula Seneviratne appeared for the petitioner instructed by K. Upendra Gunasekera, while Romesh De Silva PC represented HNB, the first respondent, along with Shanaka Cooray. Palitha Kumarasinghe PC appeared with Harith De Mel for the second respondent, Rienzie Arseculeratne. S.A. Parathalingam PC with N. Parathalingam represented Distilleries Company of Sri Lanka, while Rajindra Jayasinghe with Romali Tudawe appeared for Milford Exports (Ceylon) (Pvt.) Ltd.