Alas a little too much a little too late

The Prince of Kandy

The following article was also published on the Daily FT on Wednesday 21 April 2021 and at

The recent media focus and political activity on the Port City though incredible in terms of magnitude are far too late and sensational to have any impact on policy. What will come into law will be up to the Supreme Court. In other words, the law will unlikely be amended to help soothe public concern.

This is the second time something like this has happened. The 20th amendment to the constitution passed with initially no media speculation on what it entailed followed by media outcry again at a point too late to impact change.

This raises questions on a perverse media setup but more importantly on the state of political choice in the current system. This article hopes to contend that the SJB-SLPP set up would be the worst possible backdrop on which to pass a new constitution.

Both events

Given digitisation, interested readers could go back in time and read/watch the media content that preceded both the 20th amendment to the constitution and also to the Port City.

The 20th amendment in the final weeks to its passing was poorly discussed and overshadowed by the Brandix COVID-19 cluster. Allegations were made that management was both aware of the situation and acted in a manner that further endangered lives. Such allegations though incredibly serious have not been explored at any period afterwards by the very media institutions that were focused on the issue initially.

The Port City Agreement though released on the 28th of March was overshadowed by the Mrs World scandal and is currently going to be phased out by the Cardinals allegations on the Easter Sunday attacks. In between the 28th of March and the Wijedasa Rajapakse catalyst event, there was even a Press Release by the China Harbour Engineering Company on the proposed agreement.

We can go further back and look at the allegations on the Cricket World Cup in 2011 being fixed and how that resulted in the current Minister of Agriculture being elected on large margins. Again, this issue seems to have died once it served the purpose of distracting the people.

Not a question of reaction time

We all knew the Port City Agreement was coming. The government had suggested several months ago that it would be a major catalyst to investment and that it was due shortly.

Public opinion pieces should have been on hand on the issue. More astute readers would notice that the pieces currently published are rushed and are written by people who cannot afford to be rushed. Interested parties could have further looked to write publicly on what their concerns were beforehand and pivot policy outcomes on that basis.

Though the New Year would have resulted in a slight mellowing of the news cycle the extent to which the media ignored the issue shows collusion. The government was quite obviously trying to pull a fast one. It wasn’t that the media failed to catch it in time but rather that it didn’t inform the public of what any reasonable person would deem newsworthy.

The issue of Port City deserved at least the same amount of media resources given to the Hitler statement by Dilum Amunugama.

In comparison to the bond scam

Let’s take the Bond scam as the yardstick by which we measure media coverage. NewsFirst in its coverage of Ali Sabry’s press conference on the Port City broadcast a question linking potential foreign members of the Port City Commission with the foreign citizenship of Arjuna Mahendran.

In the same news program, they then showed Sajith Premadasa speaking in the backdrop of a wildlife setting in Hambantota (This was the electorate that he abandoned in the 2020 General Election). The backdrop was a major distraction. Why the hell was he trying to make this about environmentalism?

With the Bond scam coverage, we know what Arjuna Mahendran’s daughter looks like and even where they live. That was a blatant violation of privacy and unimportant to the coverage of the issue.

Who negotiated the Port City Agreement? Why is the Chinese Defence Minister coming to Sri Lanka? Who even are the senior members of the China Harbour Engineering Company in Sri Lanka? All things that are important but that you would not know if you take the media coverage.

Replaced by a non-current issue

The Port City Agreement is going to be replaced by the cardinal’s statements on the Easter Sunday attacks. This is already happening.

The Cardinal is a political player. If he was really just trying to be tactful on the issue, he would have rallied catholic public opinion in a manner forcing both major parties (SJB-SLPP) to promise timely action on the Easter Sunday attacks in a meaningful way before the 2019 Presidential election.

Is there some media regulation preventing a hard line of questioning on the Cardinal? Is he not available for comment? Those with access to the Messenger newspaper (Catholic weekly newspaper) can see what he is trying to do.

Pressuring Sirisena on the Provincial Councils

Sirisena though the leader of the Sri Lanka Freedom Party is the only major obstacle to the abolishment of the Provincial Councils. This is something that is not broadcast alongside the allegation that Political forces played a hand in the Easter Sunday attacks.

Sirisena does not care for the Provincial Councils but rather is playing a clever game of getting in the way. Much like he did from 2015 onwards he has continued as the major saboteur of government policy.

Why is neither of these issues brought up? Why is a Sri Lanka Freedom Party leader defending the Provincial Councils? Why is he getting in the way of government policy? What is he asking for in return?

The abolishment of the Provincial Councils would help the SLPP rebuild support from its base following this Port City agreement debacle. However, die-hard supporters must question if the government is using the issue to cover up their misdeeds and actively risking the delivery of ‘one country, one law’ by delaying implementation.

Doing it all at once

This is the real issue. If the abolishment of the Provincial Councils is bundled altogether with many other changes under a new constitution people will have to make quite a difficult decision at the time of the referendum. In other words, something SLPPers may want in the form of the abolishment of the Provincial Councils may come alongside something they don’t want like land reform.

The constitution will be the most important policy that this government aims to deliver. Why then is there more coverage favourable to the government on Pepper and Dairy than there is speculating on the constitution?

What does the SJB think the government is aiming to do with the constitution? What does civil society think? Hell, what does Viyathmaga think?


The SJB and SLPP are new parties with no real political ideology. Due to the Presidential system and major financial backing, they are able to continue as leadership cults.

The SJB has in no way implemented the party reform that they called for when they split from the UNP. Sajith Premadasa was not elected by the members of the SJB and it is unclear if he will continue to be the leader of the movement when he loses the next election.

The SLPP though cut from the cloth that created the Sri Lanka Freedom Party is well to the right of the United National Party. After all, in the face of considerable economic uncertainty, they have gone out of their way to promise the corporate sector guaranteed low-interest rates and taxation throughout their term in office.

All of this is of no concern to the media coverage. In a system where public opinion is not reflected in the media, it is expected that policy will be designed to benefit a select few. We collectively on both sides of the political aisle should come together and demand public discourse on the issue of the constitution or we as Sri Lankans would have fallen for the same trick three times.


Is Port City not important?

The Prince of Kandy

The following was also published on the Daily FT on Monday 12 April and at

To reform the proposed legislation instead of expressing an opinion on the proposed Port City framework it would be more effective to comment on the lack of media coverage on the issue. Even media content targeted at the 10% of the population to have finished high school consider it unworthy of prominent coverage.

Though many would be unable to forecast the large economic and social ramifications of the proposed legislation they are also in a position that they do not know what it is that is being proposed. This is unique for a country wherein policy very much against the public interest is masterfully interwoven with policies that focus group well (never really implemented) in manifestos obviously designed by Marketing Departments.

From NGO industry stalwarts like the Government Medical Officers Association to opinionated members of parliament like Champika Ranawaka, there seems to be no real discussion on the issue.

On the nature of political parties

Both major parties, the SJB and the SLPP, are actually highly organised and collusive institutions representing big money interests. The policy outcomes the country faces represent the views and interests of a small group of people willing to fund those parties.

This is clear from the fact that the majority of the population support the abolishment of the Executive Presidency to the fact that most do not benefit from the direction of the taxation regime. Most people though silent on the issue are averse to politicians and the major political parties.

Our working hero

Take the SLPP Gotabaya theme song. One must commend it for being an incredibly catchy tune with an amazing music video to match. It through a highly calculated representation of affinity (a relation between biological groups involving resemblance in structural plan and indicating a common origin) helped bring about a Presidential victory for the backers of the party.

The music video builds on imagery of huge infrastructure investments to, in the words of Noam Chomsky, ‘manufacture consent’ for the large construction friendly policies of the government.

No one considers or questions as to how the Central Expressway is going. To my understanding, the government is now heavily reliant on a Chinese firm for the completion of a key infrastructure project that could prove to be politically decisive.

No one even considers the fact that the Lotus Tower is mainly broadcast infrastructure. Its existence would help reduce the cost of broadcast media. It was also funded by the Chinese.

You decide on the SJB

Given that American Aid funded think tanks are working overdrive to bring into power the son of a mass murderer it would be more difficult to convince you of what an idiot Sajith Premadasa is. He seems not to have had a misstep over the last six months.

Do you honestly think there is no dirt on the person for whom there is a highly circulated video of him allocating jobs on the basis of height? Please remind yourself that this is a man who spent a considerable amount of sums earmarked for housing and cultural development on self-promotion.

The SJB let the 20th amendment pass. There are no serious questions on Sajith Premadasa’s role or lack of leadership on the issue. Members of his alliance and even his own party voted for the bill. He was warned that this would happen and was definitely in a position to reign it in.

His attacks on the government seem to be centred around environmentalism and the majoritarianism of the government. On the economic front with the help of Harsha De Silva, his party is actively fear-mongering on the state of the economy.

Not that fear isn’t warranted

The environment is important. Land allocation is a sensitive issue. People should have water, land, and the right to economic upliftment. Premadasa even as cabinet minister for housing has done little to alleviate any of these issues.

The economy is in the doldrums. Incomes especially at the lower end of the spectrum have crashed. The most obvious solution would be to increase taxation and have targeted government spending. Why is neither main party advocating such a solution?

Narrow minority interests

Mangala Samaraweera has expertly positioned himself as the champion of minority rights. The media eats this up. No one questions whether he actually is supportive of minority rights.

They take this Mandela-esque image as being true and attack him thus appealing to the Sinhala Maha Sabha base and helping position Mahinda (not Chandrika) as the leader of that movement.

Colombo based rights institutions rarely take a holistic view of government violence. Groundviews and Vikalpa for instance have nothing on the violence perpetrated against the JVP.

Anyone capable of reading the budgets that Mangala presented to parliament would see that he undid a lot of the improving trends in terms of revenue collection. The budgets did not benefit the people of the North.

Take the appointment of Prince Sarojini Manmatharajah Charles to head Sri Lanka Customs. Something hailed by the Colombo elite as being both multicultural and feminist. Her incompetence seeked to maintain the corrupt import mafia and the low effective taxation on the super-rich.

Increasing taxation

With regards to the debt sustainability instead of pushing the country into the arms of the IMF, there is ample scope to raise revenues. The favourite punching bag of the corporate media Ravi Karunanayaka did this.

In 2015 the country was put into elections because of the coming debt payments. Let us remember that Presidential elections were called early.

Having won the election, the UNP government of the time implemented; retrospective taxes, cleaned up customs and excise departments, renegotiated Chinese debt, and at the same time managed to increase salaries of the government sector.

GDP figures

GDP did not do well right after the Presidential election of 2015. Remember if a Chinese contractor builds an apartment that he sells to a Chinese investor on Sri Lankan soil then it is still counted as Sri Lankan GDP.

Over half the construction workers in the country are from abroad. As Chinese contractors are not involved in small scale projects like residential housing it is safe to assume that the government and big corporations have a higher weightage of Chinese business relations than the rest of the economy.

Therefore, one can raise the question of whether the construction bailout organised after the Presidential election of 2019 helped out the Chinese more so than the Sri Lankans. Given the structure of the bailout and the complaints of the Ceylon Institute of Builders, it should be considered.

If you are inclined to such questioning you would also then wonder to what extent the rise in GDP growth would accrue to foreign parties.

The Port City

This leads us to the question of whether Port City would benefit us? Yes, economic activity would rise. Yes, it would look really nice and bring about national pride. Yes, it would be nice to see actual urban planning.

However as with the young girl looking up at the Lotus Tower in wonderment are, we really as Sri Lankans going to benefit all that much with its construction. What would happen to wage growth? What would happen to public debt under such a low tax regime? After all Casinos outside Port City will lose customers to those within Port City. Is Colombo really that much of a tourist draw?


To be honest I do not know. The BOI Framework though highly feared has delivered good employment outcomes and helped keep our apparel sector competitive.

What I do know is that the son of the mass murderer is unlikely to win an election and the sooner we all just get behind Ranil the better our chances of having someone competent redraft the Port City legislation.


Why can’t we be like this forever CSE?

The Prince of Kandy

Thanks to COVID-19 a lot of things that should have happened in Sri Lanka a long time ago have happened. The Amended Electronic Transactions Act was recognised[i], and a lot of things went into the digital space. The stock exchange has also revamped their website and through guidance has made it easy for firms to migrate, hopefully eternally, to hybrid AGMs. The yesteryear AGMs full of retirees with one share scrounging on complimentary bites and wasting everyone’s time with planted questions is most likely now completely over.

The CSE has also fast-tracked demutualisation, put in place the framework for a delivery vs payment mechanism system, and started pro-active communication at levels that matter. The Securities and Exchange Commission has grown a pair[ii] and looked to pose the question on the central bank’s constructed primary dealer monopoly on the debt markets.

To quote the article;

The SEC Chairman explained to the Governor that there had been an initiative under the Financial Sector Modernisation Project (FSMP) funded by the World Bank to set up an integrated Central Counter Party system (CCP) with regard to settlement of securities. However, later the Central Bank had decided to limit the CCP to only Government Securities and domestic foreign currency transactions in the initial phase.

On Corporate Debt

Debt issuances remain in the confines of a select elite, but the cracks are beginning to show. People are being duped by the current negative real returns at banks and the potential negative real return at the Employees Provident Fund. They will lobby for open markets in the foreseeable future.

Trading of corporate debt on the exchange remains closed. Atrad the system used by most brokerages has not been allowed by regulation to interface with the debt boards. Even Capital Alliance the self-proclaimed leader in debt and a primary dealer does not allow the regular Joe to interface with the system. Only Jafferjee Brothers Stockbrokers allow their clientele to trade on the corporate debt market without interfacing with an advisor.

The Qualified Investor rule, where issuances remain closed to those under Rs 5 million in corporate debt holding, remains a huge deterrent and an unnecessary protective measure to the success of the market. Small-time investors provide liquidity, price discovery, and a higher margin business to the brokerages.

So long as the investor is willing to accept the risks, they should be allowed entry. After all young people working in the industry have been deemed by the regulator to be qualified to do so but would not be able to do so with such a high entry barrier.

Concentration of Issuance

The debt and share issuances through public offerings remain monopolistic. Those acquainted with dynamic models (considering time) would realise how the starting concentrations of holdings would impact the subsequent trading of an instrument. Current practices allow companies considerable power in the instance of over-subscription on how to allocate the shares.

Put simply if a company has an IPO which is oversubscribed 5 times over and then decides to issue shares to the largest bidders then there would be subsequently less day to day trading of the share. If the company decides to allocate shares to the smaller bidders, then there would be more trading of the share. With equity, this form of allocation is understandable as there is an element of control but with debt, it is hard to see the regulators rationale.

We live in a nation of obscene concentrations of wealth. It is the tendency that companies roll over debt. They always have a liabilities side to their balance sheet. In the case of trouble with high concentrations of issuances, powerful people can influence the banking system to pump credit into a company to allow their debt to be paid off and socialise the eventual losses through the banking system.

The paternalism of the exchange

Most people would quite rightly dismiss the endorsement of the exchange. The imbalance in net worth between the regulator/exchange and those being regulated is too vast to be bridged. The SEC with its enforcement track record has dissuaded many from entering the market.

This, however, is beyond the capital markets. We live in a country wherein even the notion of vehicular homicide is not discussed over prolonged periods.

In this vein, the regulator takes on the same thinking as Lankan parents to a daughter and her social life. The same daughter would be allowed every freedom in the West but not so at home because it is not safe. This all results in us not having the same products that they do in the West.

The difference with capital markets

Capital, however, is different from a human being. In the grander scheme of things (life/death) it will not matter. The beauty of the American system is its ability to foster incredible wealth. This success cannot come without concurrent freedom to house spectacular failure.

The US housing market is one of the most volatile. It has crashed multiple times and most recently even took out the pension savings of its allies in Europe. Capitalism on such a scale may not be agreeable to Leftist Lanka but one cannot disagree with the immense wealth stored in the property in New York and California. The powerful in Sri Lanka is currently attempting this in the property developments in Colombo.

American optimism is undeniably one of the greatest forces in the global economy. A recent paper[iii] from the Bank of England finds that the global faith in American credit underpins a major chunk of global trade.

US households do not finance current account deficits with foreigners’ physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. –

How does international capital flow? Michael Kumhof, Phurichai Rungcharoenkitkul and Andrej Sokol

Forcing the Issue

Take the proposed REIT framework and Empower board. The uptake has been slow. Small companies are not going to have the same level of box-ticking capacity as their larger rivals. If they want to list and someone wants to invest in them why not let them?

Large companies are riddled with fraud it is just that we are unable to see it. The 634,557 that can trade on the CSE like money and want more of it. We are capable of making a risk to reward judgement and don’t want some communist telling us otherwise.

Take the rule that REITs have to pay out 95% of their earnings. In the current market most would want a REIT instrument to reinvest those earnings in more property. If managers don’t act in the interest of shareholders, we get rid of them. Don’t confine companies to what you think is right.


Shareholders can only get rid of management when there are systems of democracy. The capacity to vote and the obligations of the company to every shareholder here are important.

The proposed ombudsman[iv] should be set up to interface digitally by default. The online stock forums were ranting on how Nations Trust Bank decided to pay their recent dividends by cheque and due to COVID-19 a dividend due on March 19 only got credited in July.

Setting up an easy interface where people can select which company they are complaining on and the common issue they are facing makes everything easy. and Uber Eats have such systems that require minimal initial interfacing with the complainant. This saves time and resources to deal with the actual meat of the issue. 

Actual digitisation

Making information free

The CSE currently charges a fee of Rs 1000 for access to some information on its site. This information is readily available through other sources (notably any online trading system) and is sometimes even in the Annual Reports uploaded on the site.

Jafferjee Brothers provide a lot of information through their trading portal that is concise, easy to read, and helps in making decisions to trade. This means that people are more likely to make a decision to trade on the stockbroker’s website. Access to the trading portal is free and the broker makes money when people trade.

The CSE could go one step further and upload all available annual reports from even before the early 2000s to the website. This should not cost much and also is useful to long term investors like Warren Buffett. Making sure that accurate financial information is available on Bloomberg and is also important.


Enable Really Simple Syndication (RSS) on the CSE site. The information that is already published for free on the exchange requires a market participant to visit the platform to access it. Enabling RSS would mean that without investing in expensive systems the more tech-savvy could enable systems that provide alerts whenever a company a person is interested in makes a disclosure.

The Sri Lankan parliament and Foreign Central Banks have enabled RSS on all updates to their site. This allows the information on their site to be accessed more widely and without people needing to check regularly on a particular page.

People at the CSE and their mindset would think this would reduce the value of your site in terms of advertising and analytics. For instance, would never allow an RSS feed to be implemented as that would stop people having to visit their site. Through RSS would also be giving it’s rivals access to information in a manner that they can easily republish as their own.

Here it should be clearly reiterated that the CSE IS NOT IN THE BUSINESS OF RUNNING A WEBSITE. Widespread propagation of information from your site is good for the functioning of an exchange. This would increase the potential market participants.

European Single Electronic Format[v]

The European Single Electronic Format is a standard that sets out how financial information should be published. Foreign assistance and domestic implementation are possible for this initiative.

The EU aims to be the superpower of standards. The EU has lots of pension money that could greatly increase the value of our undervalued exchange.

Sri Lankan Accountants should look to convince their listed companies to adopt this standard and at the very least become familiar with something that can get them a job in a foreign company.

Email and voting systems

Everything from the CSE comes through the post. My postman is not happy especially when some incompetent company decides to send a printed annual report. With the amended Electronics Transaction Act this does not seem necessary.

The CSE should set up their own mail servers capable of reaching the 11,741 of us that hold shares in John Keells Holdings. These servers should be trustworthy and not end up sending mail to the spam folder. This would save considerably in postage and improve the quality of communication.

Voting on AGMs can be done digitally. Develop forms and systems at the CDS allowing people to interface easily with their companies.

Make space on the site to upload video

AGMS are now recorded and that makes it possible for them to be uploaded to the site. This allows people not able to access the livestream to see the proceedings of the event. It also helps future investors see the history of the company.

We have a large and proficient English-speaking population which is most apparent in our capital markets. We should look to communicate this internationally and get valuations more in line with a country that has had Test status for decades.


The President is a hands-on leader who likes to see things improving. People will have to show results in a timely fashion. The proposed reforms in this article are easy and in the public interest.

If you are doing things on pen and paper, at physical meetings, and/or slowly you are doing it wrong. The CSE must not be allowed to go back to its old ways and we the market participants should not allow it.

The trading system can now go back to a 9:30 am to 2:30 pm schedule. Not doing so would be an insult to the effectiveness of the COVID-19 taskforce.







Integrity in Credit Rating

At the end of the book titled ‘The Interpretation of Financial Statements’[1] by Benjamin Graham, in a chapter titled ‘Conclusion’ he writes the following;

“There are other factors outside of the company that are perhaps equally important in their influence of the value of its securities. The outlook for the industry, general business and security market conditions, periods of inflation or depression, artificial market influences, the popular favour of the type of security- these factors cannot be measured in terms of exact ratios and margins of safety. They can only be judged by a general knowledge gained by constant contact with financial and business news.”

This paragraph follows many chapters of text deconstructing financial statements in a methodical manner, which in the words of the paragraph preceding the one quoted above, suggesting that “By an examination of the statements it is possible to form an opinion as to the present position and potentialities of the company”

The book concludes on the note that;

The investor who buys securities when the market price looks cheap on the basis of the company’s statements, and sells them when they look high on this same basis, probably will not make spectacular profits. But on the other hand, he will probably avoid equally spectacular and more frequent losses. He should have a better than average chance of obtaining satisfactory results. And this is the chief objective of intelligent investing.

Efficient Market Hypothesis

To quote Wikipedia[2];

“The efficient-market hypothesis (EMH) is a theory in financial economics that states that asset prices fully reflect all available information. A direct implication is that it is impossible to “beat the market” consistently on a risk-adjusted basis since market prices should only react to new information.”

Benjamin Graham’s work and Eugene Fama’s theory represent a broad consensus amongst financial professionals. Benjamin Graham’s work is considered the Bible to value investors. Eugene Fama’s work is widely taught at universities.

Taking both to be true it is fair in my opinion to suggest that the share price and its movements suggest a trend in underlying credit worthiness of an institution. The logic is that the aim of an investor is to price a share according to its current asset holding and future earnings. Future earnings make possible the repayment of credit. This when combined with EMH suggests that the market price reflects all available information. This thinking is present in the academic literature[3].

To quote from the latter referenced paper’s abstract;

“an approach of estimating failure probabilities based solely on stock market prices…

We find a close correspondence between changes in the estimated probabilities of failure and the actual credit events occurring. Credit ratings from major credit rating agencies, on the other hand, are shown to react much less and much slower to credit quality changes”

A declining share price relative to the market (a decline greater than the market) would suggest a decline in credit worthiness. This is why most people in fair markets see a decline in share price highly correlated with a decline in credit rating. 

Put more simply the decline in the price of Melstacorp is due to its recent acquiring of shares in JKH. The acquisition is not perceived as beneficial to future earnings. The company obtained significant credit over the last year and should have been downgraded.

Laughable Ratings

To quote from the Fitch Ratings press report[4] on Melstacorp

“The group had a comfortable liquidity position at end-March 2018, with LKR19 billion of unutilised but committed credit lines and LKR15 billion of unrestricted cash available to meet LKR19 billion of debt maturing in the next 12 months. We expect Melstacorp to generate around LKR5 billion of negative FCF in FY19 amid higher capex at ASP. The group has strong access to local banks due to its position as one of Sri Lanka’s largest corporates and its solid credit profile.”

Melstacorp has the highest possible rating for an LKA institution of AAA. This rating is in spite of forecasted net cash outflows and a currently negative cash position. The company has been in a negative cash position for many years.

Taking the Interim Statements

The recent interim statements uploaded to the CSE were noticeably missing the cash flow statement. This is an issue that I raised with the company. Though a forgivable oversight I do not see why it was not picked up earlier by analysts. This is further made worse by the fact that the CSE uploaded a corrected version as if though no error had been committed.

From the year 2017 to 2018 total assets of the company increased from 121 billion to 232 billion. Though this may be due to the way in which they now consolidate their accounts it is unlikely to suggest that the underlying assets are at the disposal of the holding company.


Why is the share price movement at such odds with the credit rating? Who is giving finance to Melstacorp and why?

[1] The Interpretation of Financial Statements, Book by Benjamin Graham and Charles McGolrick


[3] Measuring the risk of financial institutions’ portfolios: some suggestions for alternative techniques using stock prices, S. G. HALL AND D. K. MILES; Estimating Default Probabilities Using Stock Prices: The Swedish Banking Sector During the 1990s Banking Crisis by Hans NE Byström