1. Background of TFC
1.1. The Finance Company Plc (TFC) established in 1940 with a history of 80 years and still customers have placed their trust and faith. It has 46 branches and 12 service centers. Employment strength is 600.
1.2. TFC was seriously affected due to crisis took place in some companies in the Ceylinco Group in 2008.
1.3. Since then, several restructuring measures were taken by CBSL such as :
a. Limiting the emoluments to the directors and their authorities on the business affairs of the company.
b. Converting Rs. 2.0 bn deposits in to shares
c. Issue Rs. 1.6 bn of new shares
d. Reconstitution of Boards for 04 times
e. Directing KPMG Auditors to conduct a forensic audit
f. Loan amounted to Rs.6.0 bn was granted from Sri Lanka Deposit Insurance and Liquidity Support Scheme (SLDILSS)
g. Facilitate discussion with investors to revive the company
2. Why do we need to restructure TFC in spite of regular inflow of fixed and savings deposits?
2.1. As a result of the trust and faith people had on TFC, new deposits continued to inflow. These funds were used to meet the deposit withdrawal demands and other operating expenses.
2.2. However, these cashflows are not adequate to continue the company and therefore Central bank of Sri Lanka had to intervene and take regulatory actions to support the liquidity needs of the company.
3. If there is a severe cash outflow, how did it succeed so far?
Despite the negative capital company had, TFC met liquidity by accepting deposits to maintain the cashflow needs. However, it is evident that TFC has not been following the proper finance business model to generate adequate income. This is not sustainable in the long run.
4. What are the major restructuring steps that have been taken by CBSL with effect from 15.02.2019?
4.1. Restrict acceptance of new deposits and to continue the payment of interest due for deposits on monthly basis at CBSL specified interest rate.
4.2. Restrict the withdrawal of deposits and renew such deposits for a period of three months.
4.3. Restrict granting or making any further disbursement of loans, credit facilities or other types of financial accommodations.
4.4. Appointing a Management Panel to manage the affairs of TFC.
5. What are the benefits of above restructuring steps?
5.1. Since cash outflows are restricted, it is expected to generate positive cashflows which can be used to continue to make interest payments at a reduced interest cost and support operating expenditures. This will help TFC to maintain its liquidity for a shorter period and pave way to examine new investment opportuinities.
5.2. Management panel brings specific skills in managing finance business and they will closely work with the existing staff and the Board of Directors. Further, they will focus on recovering the assets and loans granted to various parties.
6. How long do we need to continue this restriction?
Depending on identifying and finalizing the capital infusion by a strategic investor, the restriction may be continued with the support given by depositors agreeing to keep the principle with TFC. At the same time, if an investor considers this as a viable investment proposal, improvements of the cash flow and stability of TFC will return. Then, CBSL can consider relaxing the restrictions imposed.
7. What will be the position of employees?
This again will depend on the success of identifying a strategic investor.
8. What happens to the interest income of depositors?
Interest will be paid on monthly basis, at a revised rate.
9. What is the role of depositors?
Depositors are requested to support and assist CBSL and the management of TFC for the resolution measures taken.