Wednesday, January 23, 2013

Two companies managing one brokering company?

H.D.H Senewiratne

A legal issue is on the cards with regard to two stock brokering companies, Taprobane Holdings Plc (THL) and Capital Trust, purchasing shares of Environment Resources Investment (ERI) known as Walker & Greg.

THL bought a 28% stake in ERI from Lionhart Investments for Rs. 1.68 billion sometime ago, while Capital Trust acquired 10% shares of ERI.

According to stock brokers, these transactions could result in an issue as to whether two companies could legally be possible to manage one brokering firm.

Many stock brokers are questioning the legality of managing two stock brokering companies and managing or holding major shares. The Colombo Stock Exchange (CSE), also endorses this and they also question its legality. CSE sources said that they need some time to study the matter.

During an Extra Ordinary General Meeting held recently, THL obtained shareholder approval.

ERI also owns a stock brokering company although they obtained 95% of the shareholding consent for the deal.

The sale of the 20% stake (372 million shares) in BIL is at Rs. 5.50 each and includes 353 million shares held by THL and a further 19 million held by related party Lexinton Holdings Plc.

The purchase of a 28.9% stake (101 million shares) in ERI by THL from
Lionhart is at Rs. 16.70 per share.

Lionhart is the single largest shareholder in ERI, though it had reduced its stake considerably.

Analysts estimate Lionhart's current stake in ERI to be around 45% from an original 95%.

Caledonian Securities Ltd, had picked up the bulk of the ERI stake and is estimated to own around 25%. Brokers to Caledonian Capital Trust Securities in October last year, disclosed that its client was holding a 13% stake.

ERI said the purchase of a 20% stake in BIL is being made as a "strategic investment" though THL didn't specify any particular reason about this deal.
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