|
|
|
  |
| Sunday, 1 May 2005 |
 |
|
 |
Business |  |
| News Business Features Editorial
|
MBSL shares turnaround by Elmo Leonard Shares of Merchant Bank of Sri Lanka (MBSL) is on the ascent and traded last week at Rs 35, while end-December 2004 shares traded at around Rs 9 each. MBSL, an investment bank, which undertakes the restructuring of other companies, rights issues, debentures, leasing and the like, made losses around 1997. As at end-December 2003, MBSL had to cut off a loss of Rs 1,453,000,000. In December 2004, MBSL underwent a financial exercise called capital reduction, and in a month, shares began picking up. We took the case to Ms Penny Ferdinand, Barrister-at-Law, Julius Creasy, which company is the official lawyers to MBSL. Ferdinand said that it became necessary to turn the company around so that the price of the company shares would increase for the benefit of shareholders, and the company would be able to engage in commercial transactions with a clean balance sheet. The idea of capital reduction was the proposition of a MBSL shareholder, at its 1999 AGM. Capital reduction is an alternation of capital, but it is an alteration of such importance with the possibility of a potential danger to creditors, that it is strictly controlled by the Companies Act. Capital reduction is a financial exercise, seldom used in Sri Lanka. The actual capital reduction model which was adopted for the purpose of restricting MBSL, was decided upon in 2004. The model that was followed involved the cancellation of paid up capital which is lost or unrepresented by available assets as provided for in the Companies Act. After the company had decided on it, an EGM of shareholders was called for, and it was found that explaining such an exercise to lay people was a very difficult task, Ferdinand said. Finally, the two-third majority of shareholders was obtained, while many did not understand the move and others bore some element of suspicion of what would happen to their shares. In this exercise, MBSL wanted to achieve a new capital structure of Rs 600 million as opposed to the then issued capital structure of Rs 1,300,000,000. |
|
| News | Business | Features
| Editorial | Security
| Produced by Lake House |
