SEC clamps down on Swarnamahal Financial

In what appears to be the biggest clamping down on a listed entity in recent times, the Securities and Exchange Commission (SEC) yesterday imposed several restrictions on Swarnamahal Financial Services PLC (SFS) as the entity is said to have violated several mandatory corporate governance requirements. 
Due to continuous failure to comply with the governance rules required to be adhered to by a listed firm on the Colombo Stock Exchange as well as some extensive related party transaction sans checks and balances, the SEC issued a directive prohibiting the company from entering into any related party transactions until the corporate governance requirements are complied with.
“In light of the above significant issues and in the interest of investors, the Commission decided to issue a directive to SFS prohibiting it from entering into any related party transaction including any write-off of outstanding or making of adjustments, which will reduce the outstanding balances (except by way of recovering outstanding debt from related party transactions), until such time the corporate governance requirements of the listing rules of the Colombo Stock Exchange are complied with,” noted a directive signed by SEC Director General Vajira Wijegunawardane. 

Swarnamahal Financial Services PLC is a 90 percent subsidiary of the licensed finance company, ETI Finance Limited, an Edirisinghe family-run finance company, which is not listed on the Colombo bourse. 
As of September 30, 2016, Swarnamahal Financial Services had a deposit base of Rs.3.88 billion, down from Rs.4.0 billion six months ago. 
For the six months ended September 30, the company lost five cents a share as the total loss rose by as much as 123 percent year-on-year to Rs.26.5 million. 
The continued losses have turned the company’s net asset value to a negative Rs.1.1 billion, indicating “dire 
financial status”. 
The minimum equity capital required to run a licensed finance company is Rs.400 million, which is set to soon go up to Rs.2.0 billion. 
This will certainly put pressure on SFS unless equity is injected into the company to keep it afloat.
Edirisinghe family via its holding company, EAP Holdings Limited, also has interests in property development, jewellery sales, entertainment and leisure. 
The assets, liability and earnings of the immediate parent company of SFS, ETI Finance Limited, are not known as it is privately held.