No government front!

Former stockbroker turned hotel developer and now newspaper publisher Asanga Seneviratne says he is disgusted with the state of capital markets in Sri Lanka

By Shamindra Kulamannage.

Published on November 07, 2012 with No Comments

Asanga Seneviratne

Asanga Seneviratne is impatient to build as many hotels and as quickly as possible along the islands East coast where he has secured some of the most spectacular real-estate during and immediately after the war. Two of those hotels are ready to be unveiled. However funding the project hit a snag when regulators fussed about the company’s real-estate valuations delaying a possible public issue of shares. Seneviratne expects all those troubles are behind him and expects to raise Rs600 million equity through an IPO next year.

He also disputes the notion of perceived closeness to the government, explaining that his investment in firebrand but financially ailing Sunday Leader newspaper is a smart business move. Excerpts of an interview…

You have been acquiring land in East to build hotels for some time now, have you added any acquisitions recently?

Yes. There have been some and now we have about ten properties. We have properties in Nilaveli – Blue Lagoon property, Kathiriweli, Kalkudah, Panichchankerni and some of the latest acquisitions have also been in the same locations. The projects in Pasikuda and Nilaveli have been completed with sixty and seventy rooms. There was a three month delay, because we had to build quarters to house about one hundred and fifty staff. That took a time off the launch date, if not we could have started operations three months ago. Our earlier plan was to rent housing for the staff but it didn’t work, because we realized the numbers we needed were far greater. Instead, we decided to build two facilities with housing and recreational areas for the staff.  We plan to launch Pasikudah in mid November, and Nilaveli around 15thJanuary 2013.

Site of the Pasikuda Hotel

You were talking about listing through an introduction or IPO. We’ve heard since there was some problem with this?

There was no problem. The issue was that SEC brought a rule saying private placements can’t trade for one year.  So we were trying to meet that deadline, because we had already done our private placement. It was very unfair because they gave us only three weeks to adhere to it and we couldn’t make it. Then we decided to forget the listing until the year was complete. Now, since we’ve completed a year, we are looking at listing again.

The SEC had some concerns on the property valuation and questioned your basis of valuation.  Why?

Well, it’s very strange that only we were flagged. I think there were thirty odd companies listed and some were similar to us. But, none of them were questioned on their valuations. They were accepted on whatever business valuations they gave.  Ours was queried and we were requested to get a valuation from the Government valuer, which is ridiculous! The Government Valuer will never give you the right price, we all know that. For one whole year the SEC tried to get the valuation, and they couldn’t. Now, they have finally got a valuation which is in just three sentences, when our valuer, who is the former chief valuer, has given a detailed valuation report outlining the basis of valuation.

A business valuation is totally different to a government valuation, and that is a common understanding. We have made our representations to the SEC and they understand our position, so I hope they will allow us to go on the business valuation since the government valuation is lesser than the price we paid, and that was during the height of the war. Today, sentiments and situations have changed and some of these properties are basically priceless.

You have mentioned your properties are valued at around Rs 2.4 billion. Is it the value of the entire company?

Yes. That is the value of the entire company.

How much did you pay for the property that was valued at 2.4 billion?

The value of 2.4 billion was for the company. The property values were set at around 1.2 billion, inclusive of the buildings and all other facilities.

Anilana owns 23 acres at Vakarai, 40 acres at Dambulla and 7.5 acres at Trincomalee where the Tsunami destroyed Blue Lagoon Hotel (above) stood

I’m just asking about the property. How much was paid for that?

We had issued shares to ourselves for the value of around Rs 1.2 billion and we paid about 700 million rupees for the land. So, in the valuation we have increased the land value by only Rs500 million, which is nothing much in comparison to the issues we had in clearing and securing the lands. You must understand that this was during the war. I’ve done a comparison on this investment. If I invested in a John Keells share at the time, we would have made five times our investment. I’m in the stock market, so buying a John Keells share is no big deal. For that matter, buying any other share would have also made a lot more than what I would have made by investing in land. You have to take the value of money and figure out what could have been done with it. We believed in the story and we believe in the long term, that these properties and projects will be fairly valuable in time to come, and that’s the reason we invested. It’s not for the short term or capital gain.

You said you paid 700 million. Then you bought in to a company and valued that company at 1.2 billion. Was that with the revaluation?

It happened over a period of time starting from around 2005. That has to be taken in to account or else people will think I bought this land and immediately re-valued it. Normally, when a company buys an asset, after a period of time it will be revalued. That’s called a business valuation. So, that judgment must be made by the investor. The SEC or the Accounting Standard Monitoring Committee cannot tell us if our lands are valuable or not. They’re not investing.  Why are they getting involved? This is the problem with the SEC. They’re interfering in everything that is not their business. Their responsibility is to look at the accounts and make sure everything is in order. If they feel the valuation is excessive, they can flag it. Then I have the option to sue them. If they’re right or wrong, either I can take action or the investor can deal with it. If not, it is solely up to the investor to make that judgment.

When you do that you’re stopping the free market movement and flow, and my question is why only mine? Have they questioned those other companies that are similar to mine? Some have only one or two properties, whereas I have over nine or ten properties, plus we’re building. We have completed two hotels already.  They know the private placements have been done, prospectuses completed and sixty to seventy percent of my investors are foreign. The locals are being given a chance to invest because they wanted to be a part of it. But, why stop this foreign investment in to this company, and in to the country? My question is who will look at investing in the East coast in a big way? These are war torn areas. So, we should be looking at actually promoting investment and supporting investors.

Anilana owns 23 acres at Vakarai shown above

Realistically, was this a setback?

Not really, because luckily for me I had already done my private placement and we were ready to go. But, now it’s becoming an issue because we can’t continue our project. The investors are ready to invest and the listing has to take place now. So, it’s right now in their hands.  

So you’re basically planning an IPO.

Yes. 

Can you speculate on the amount you’re looking at raising through the IPO?

Yes, around six hundred million rupees.

What percentage of a stake in the company are you planning to offer to raise the six hundred million rupees?

A 10% stake.

And you’re optimistic that this will go through this time?

Of course I’m optimistic. But with the SEC we can’t really predict, because it’s fairly strange how they operate. Now they have a new head and hopefully he will be sensible enough to understand that capital markets, while being regulated, cannot enforce rules on certain listings only. It has to be a level playing field for everybody, and certainly that’s not happening now.

Six hundred million for a 10% stake is a Rs 6 billion valuation? When you did the private placement your total company was valued at 2.4 billion. That’s a Rs 3.5 billion shift. How do you justify this huge shift?

We have already completed two hotels which has cost us around Rs 2.4 billion each.  The bottom line is we have two operating hotels. The earnings of the company are far greater, because earlier there were no earnings. At the time of the original investment there were no earnings. Yet, they took the risk and saw it through. We have managed to secure borrowings which the company didn’t have at that time. So, there is a value to that plus the fact that there will be over one hundred rooms generating revenue. Now it’s on a revenue based model and when an investor comes in it won’t be only on net asset value.

If things go as well as you’d like, when do you anticipate going for an IPO?

It would be in January, because the market per se is not conducive for new investment at the moment.

The government was offering properties for long term lease or sale in Kalpitiya and Chilaw- were you interested?

No. I don’t really see any potential in Kalpitiya. Some of these areas like Kalpitiya for instance, are completely undeveloped and lacks infrastructure. So, until the government provides the infrastructure, for instance electricity and water, and are serious about developing the area, as in the case of Pasikudah, it’s not going to be cost effective to invest. If an investor has to look after these issues, the cost will completely go out of control, plus the weather patterns in Kalpitiya are very diverse and you have only four months of good weather to attract tourists. It’s very windy, the seas are rough. Going into an untouched, undeveloped area like that is a big effort with a huge risk. The other issue is the pricing. It’s very expensive, almost five times higher than what’s available on the East coast. To buy property at that price and then invest is a very difficult model to sustain. My commitment has been completely to the other side of the country, so it’s very difficult to shift and start things here.

Besides your full time focus on Anilana, how involved are you with TKS?

I am not involved in TKS, in fact I sold out of my holdings of TKS and I’m concentrating fully on Nation Lanka Finance, in which I have a 35% stake.

You have now got in to publishing, what’s the attraction there?

As you know, I’ve been involved in many mergers, acquisitions and takeovers. So, many potential sellers and investors come to me. Almost on a daily basis, we see people trying to restructure or sell their businesses. Sunday Leader was no different. They came to us over a year ago to restructure and to try and get an investor. We looked at it but very few people were really interested in getting involved, so we made an offer. We initially felt it was too expensive; their expectations were beyond what we could consider. We had discussions over a period of time and subsequently arrived at a valuation that we were all comfortable with, and we invested. As to why we got into it is, basically, the brand name (Leader) has a lot of value and I think it is a viable business. It needs a lot of capital and restructuring and we are in the process of doing what is necessary.

You’ll see in the next couple of weeks the new format, layouts and new writers that we have recruited. I want to take the company forward in a way that can be seen as fair. If you’re criticising you should criticise with a basis behind it, you can’t just find parts of information, sensationalise it and start attacking people. I don’t think that is the way forward. In journalism you really need to have your facts and you need to stand by what you’re reporting. I think the Leader in the past has done that as well but they’ve also sensationalised certain things.

The Leader had a unique character as a newspaper; people bought the Leader because of its firebrand editorial approach. You are changing that completely.

I don’t think so. Even now, if you take the Leader and look at the editorial content of the last two weeks, you will see the same people writing and the same kind of stories. There are plenty of issues wherein we highlight the government’s weaknesses. So, nothing has really changed, it’s just that we haven’t sensationalised petty issues; I think that’s the difference. Let’s look at the four or five weeks I’ve been involved, and the period prior to my involvement, and if you tell me there are fewer news stories critical of the government; I am willing to take you on story for story. Except for the editor, all others remain. The staff is extremely happy – you can talk to them and check for yourself if we interfered in anyway.

Frederica is on record saying that you asked to see the full newspaper before it was published?

Yes. I did it for a reason, and that was because she carried an article after telling her that we should be careful. I don’t know if you are aware, but we have many lawsuits against us and the company basically is bankrupt. Therefore, this is not the forum for Frederica or whoever to personally run it, and run it to the ground in order to achieve her goals and personal ambitions. I think there was definitely a reason for what she did. I think she just used the Leader to further what she wanted to achieve, like getting asylum to leave the country. It has basically dragged the paper to the ground, and although you say that the Leader was bought for certain reasons, I wish you knew the numbers. You’d be shocked to know to what level it has been dragged down. So it’s a myth that people believe the Leader has this major influence on society and people. I don’t think so.

Are you denying that it was an influential newspaper? Why did you then buy it in the first place?

It was an influential newspaper when Lasantha was alive, not after that. Since then, it really hasn’t been much, and the numbers show it because it has completely crashed from that time.

There is speculation that perhaps more powerful people are behind you taking over the Leader because it doesn’t make commercial sense today to take over a newspaper like that.

Not really. In time to come, I will show the commercial sense of it and prove that it is commercially viable. I believe there is definitely a place for a good Sunday paper and people do actually subscribe and read Sunday papers, but it is the content that is crucial.

It’s said that you have a 70% stake- do you personally own that stake?

It’s a 72% stake owned by one of my companies, Investor Access Equities, which is personally mine, and holds most of my holdings.

Are you taking control of the Leader because it was very anti-government and to tone it down, and somebody’s influencing you to do that?

Not at all, no one is influencing me. At the end of the day I don’t think the power will care what these people write about because in reality, how many people actually read it – that’s the question you must ask.

They seem to care because they’ve taken the trouble to sue the paper on numerous occasions and very powerful people in government have personally threatened its editor?

Of course, if you’ve said something that is not correct obviously people will go to courts. They have done that in the past, and that is up to them. Obviously they would’ve wanted to clear their names. But honestly, I don’t think that the powers really care about what was being said. If you see the numbers you will realise that it has completely deteriorated. That shows that even the public were, to a certain extent, sick of this week in week out fault finding.

Powerful people have found fault with its editor.

Found fault. Yeah obviously when people are antagonized and say things, calls are made and you’re annoyed in the middle of something, you may react, that’s human nature and of course these people in office should be a lot more careful but they are also human and you react. I’m sure after that, you know, it’s forgotten and they go on their business – that’s my feeling.

When you took over the leader did you see that its editorial policy is somehow misaligned and had intentions of changing the editorial policy?

I clearly told Frederica even before taking over the paper, that she must be careful about what she writes, because you can’t open yourself every week to lawsuits and run a business. The business part is separate – journalism without barriers is separate. At the end of the day, if you’re going to do that you can’t run a business; when you’re reporting on something, as long as it’s true, honest and fair and you can stand by it, and have your sources there is no issue in whatever you write. I particularly said this because I felt she was completely trying to rile the powers, that’s for sure, she wanted to get under their skin, and I think she had tried this over a period of time.

And she was very successful with that, if that was her intention?    

Well, you can measure success in different ways. If you’re measuring it with lawsuits, that is also one way of looking at it. But, it had come to a stage, in my opinion, was kind of stale. I don’t think anybody cared anymore – that’s my personal opinion. Now we have to look at the business, so I asked her to work with me, to which she readily agreed.  There was no issue of anybody reporting to me or showing me the papers or any such thing. On the Sunday in question, she ran a caption about the president indicating that people are lining up to shoot the president. Since the line was too short, he went to the next line which was longer, insinuating that there are people waiting to shoot the president. Now this was her mentality of a joke. She had also left the country on a holiday, without telling me or informing anyone. I didn’t know where she was. I don’t care what anybody says, but to me, the president is our president, and whether you like it or not, he gave our country back to us. Whatever anyone says, I will respect him for the rest of my life because of that.

But wasn’t it a political cartoon?

No, it’s not a cartoon and I don’t think it’s a cartoon either. It was written. It was a caption.  That is not a joke and I do not think of it as a joke in any forum. So, what I told her was “Frederica, I have given you carte blanche this thing. I can’t trust you in what you are doing and I have to see what is going in the paper”. Now as there are shareholders we have to build a business. I can’t have any more lawsuits; I’m not in that business. It’s purely a business issue and has nothing to do with her. She was quick to jump. “I’m leaving”, and she didn’t just leave, she wanted a payout. If she is accusing me of being a government front, why is she taking money from the government? It’s not a small amount of money it’s a large sum of money.

How much did you pay?

It’s a very large sum, which I do not want to disclose. If I am government front and operating with government funds, what is she doing? She is taking money from the government.  Is that ethical or is that what she stands for? I didn’t ask her to leave. She wanted to be released and paid off. If your boss asks you to show what you are writing about me, are you going to resign? I never stopped her from doing an article? What was the hurry? The hurry was she wanted the money and basically she wanted to get out. What is the big deal? I think anywhere in the world, there are certain controls that people enforce.

Editors don’t show publishers what they write.

Yes. From my point of view, she was an editor, and I could have put someone above her. We are a new ownership, and I wanted to ensure that the future of paper is not compromised.

You also seem to have aligned yourself with the government. Business people are sometimes reluctant to align themselves with the government or an opposition because that gets them the wrong kind of attention, because you may become unpopular if the government changes. Are you concerned about that?

I don’t know how people can say that I have aligned myself with the government. My businesses, stock broking and leisure don’t depend on the government at all and if you really know the issues I have had with approvals, especially with Anilana, it’s ridiculous! If I’m aligned with the government then I wouldn’t face those issues. The presidency that was given to me in rugby didn’t come my way for four years. So, I don’t know how I can be aligned to the government. Frankly, I’m not a deal maker, and I don’t do any of these government deals. So, what is the alignment? Is it the fact that I know them? We do have a laugh or joke together if the President turns up at a rugger match and sometimes he invites us to discuss the stock market. Is that aligning with the government? If anyone can say, you have got this deal or this favour or anything done? What is it? We work as hard as anybody and we have achieved this.

You were a capital market guy and you’ve been in stock brokering all your life. Now you’re out of the industry, why?

The industry to me is a complete sham. The capital markets in this country have gone nowhere; we have had extremely poor and completely out-of-their-depth people heading the stock exchange and the SEC in the recent past. The reason I got out of it is because I am sick of it. It is the leadership in these key institutions that are sickening, and there is absolutely no future. My prediction is that out of the 28 stock brokers, not even 10 will survive. They have completely ruined the industry with the regulations they have brought in plus things like negotiated brokerage. People in the SEC and the stock exchange use the hard earned money of brokers and all they do is go on their foreign jaunts, and then come back and try to implement things that are completely out of its depth in Sri Lanka.

We are a small niche market. Nobody understands that. We have brought in regulations and concepts from developed markets and enforced it here. For example, negotiable brokerage has destroyed the industry. That is why the brokers are trying to manipulate the market, and trading with individuals to make money, because there is no way of making money legitimately any more. We have voiced our opinions, but it’s been of no use because of the leadership of the stock exchange. I can’t even explain how bad it is. The bottom line is that the members are responsible for this, but then the government is also responsible in a way. They also nominate and have a share. It is disgusting and I think the capital market in Sri Lanka is actually a joke. It’s nonexistent.

I understand your point about negotiated brokerage, but what else is the big problem that you see?

Well, negotiable brokerages and credit.

There should be more credit or less?

What does the SEC or the stock exchange care if a broker finds his money and gives it on credit, what is it to them? I can’t understand the rationale behind this.

The funds that are brought in by brokers, you’ve got to figure out how these moneys are coming in and why. There is reason, for instance a stock broker sometimes has about 10% of a company and the owners probably have 80 or 90 percent. Now, if you are to capitalize all the moneys that come in, even that 10% will get wiped out. So, what a lot of people do is, they bring the money in a separate vehicle and lend it. Now, when you stop that, the brokers don’t have a way of funding their trades.  And you have to educate your people and ensure that these people. You must also know that all these people are greedy. What they do is, bring in their one or two million,  trade like mad, make about 5 or 10 million and increase their net worth by ten times. Then when they lose about four or five times their money, they go around screaming that everybody is a rogue. The SEC has to be very careful how they manage this. The stock market is not a place for people to just come, gamble their money and play the fool. If there is a crowd that is doing that, so be it. Those people will invariably fall. What the SEC and stock exchange can do is educate the public. But, they can’t control or interfere and try and to stop it. I don’t think that’s the way to do it. You can bring in certain cut-offs like what they did, slow it down and help the process, but you can’t just call a person a rogue because he bought two million shares and sold it at half the price. That is rubbish.

They didn’t say that, did they?

But what happened was the smaller guys were getting caught in this, so when things go south the issues start. The reason for this is because our market has never grown. What has the SEC and stock market done with this stock market of ours? We are still a market in which you can only buy and sell a share. That is why people can manipulate it. Where is the short selling, the delivery vs payment, derivatives?  Where is the cross border trading? India looked at Sri Lanka stock market in 2002, when I was the president of the stock brokers association, and they wanted to link. Why has there been no link?  Did anyone follow it up? Where is the development? Those responsible are enjoying their fancy packages, flying around the world and being nasty to all and sundry. They are supposed to be listing, its complete rubbish, what are the companies they’re listing? Do those companies deserve to be listed in the exchange? In addition, they issued eight stock broking licenses. Why give eight? Out of the eight four have already sold out. Where is the stock exchange heading? What is the CEO of the stock exchange doing? What is her capacity, and what has she done in the last five years other than collecting the brokerage. There is a lot more to be looked into, for example pump and dump. You pump a share, but if you can short sell, would it happen?

What I am saying is bring the tools so that people can counter. Let it be an active market, let people make money, don’t stop it. Instead, what they do is stop everything. The bottom line is the market is not the trading ground for your pension, or your mother’s hard earned money.  It is a very serious place. Now, what’s happening with the negotiable brokerage is that none of the broking companies seem to be investing in research or road shows. So, who is doing this? Nobody does, because everybody is running at a loss at the moment, therefore, you have to look at this very carefully. It’s like going to a boutique hotel and paying $1000 a night to sleep. Instead, if you go to a normal five star you will pay $150. Why is that? It’s because of the size. The boutique hotel charges that rate because they have only ten rooms, but the five stars can charge you less because they have hundreds. Ours is small market and all the big institutions are quite happy paying a high brokerage so there is no need for this. They introduced this just because some official in the SEC and stock exchange toured America and saw this “negotiable” concept happening. Its rubbish!

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