Regulators watching LOLC Development Finance PLC’s meteoric rise to fame in no time

By Hiran H. Senewiratne and Sanath Nanayakkare

The small-scale LOLC Development Finance PLC (NIFL) gaining a rapid and phenomenal increase in its share-price within just under a month is reverberating in Sri Lanka’s capital market sector today.

This is more so as there has been no price-sensitive information disclosed to the CSE by NIFL.

Shares of LOLC Development Finance closed at 618.75 rupees a share on June 29, i.e. 123.75 rupees or 25.00 percent up from the previous day.

In comparison to its end-May price of Rs. 73, closing at 618.75 rupees a share on Tuesday June 29 reflected a dramatic and controversial total gain of 747% in a little under a month.

On June 28, LOLC Development Finance shares rose to 495 rupees, up 23 percent, valuing the small finance company at 117 billion rupees making it the fourth-largest company by market capitalization.

It now has a market cap bigger than Commercial Bank, the country’s largest private commercial bank.

It is also valued more than Sampath Bank and Hatton National Bank.

NIFL is now only behind parent company LOLC, JKH and CTC.

When The Island contacted Ajith Nivard Cabraal, the State Minister of Finance, Capital Markets and State Enterprise Reforms about this development, he asked The Island to enquire it from the SEC.

In response, Tushara Jayaratne, Director SEC- External Relations and Capital Market Education said the SEC has also observed this undue pattern of the share price movement in question and has called for information from CSE. |

“The SEC too is evaluating the manner in which the transactions have taken place and we are analysing the pattern and behaviour of the investors. If we find any malpractices, we will take stern action against those whore involved in it,” Jayaratne said.

CSE Chairman Dumith Fernando said that CSE has closely monitored the situation and would take all appropriate action within the current regulatory framework.

Pressed for more information, the CSE chairman said,”As a practice, we do not comment on ongoing market surveillance related matters, but all appropriate action would be taken,”

Former Minister Eran Wickramaratne said that their should be some rationale for investors to buy shares in a small company like that.

He said that if such a thing is happening it should be investigated by the relevant authorities. Maybe outside investors are getting inside information about the parent company and are buying shares of NIFL. There must be some reason for investors at the stock market to purchase shares in this manner,” he said.

Head of Sales in Softlogic stockbrokers Eardly Kern said that NIFL’s basic earnings for the share year ended 31 March 2021 reflected 65 percent, which was also a very big amount in the stock market and its net assets value per share is Rs. 11.83. The company’s free float witnessed above shares of top 20 companies, he said.

The company has only 34,100 shares in public which is 0.01 percent out of the total issued shares and the balance 99.89 percent are with the owners and due to this inequality in the distribution of its shares, it maybe trading at an extraordinary price, Kern said.

Meanwhile Chairman of Sri Lanka Insurance Chairman Jagath Wellawatta said

Sri Lanka Insurance Corporation (SLIC) bought 2.5 million LOLC shares (LOLC parent company) for Rs. 1 billion on Tuesday.

“It was a business decision taken by our investment committee which reviews and makes such decisions on a periodical basis. When we see the opportunity, we will sell them at a higher price and make a profit in the interest of Sri Lanka Insurance Corporation,” he said.