A brazen risk appetite made it possible for Dilith Jayaweera to exploit the stock market anarchy in the last couple of years to build an empire on a foundation of short term debt. He now says some of those loans have been paid back and firms controlled by him and his business partner Varuni Fernando generate enough cash to service others. However Jayaweera’s reputation appears to have suffered, a recent public offering of shares of Hikkaduwa Beach Resort drew little interest from investors.
Jayaweera also weathered a fierce media assault after a second Chairperson of the SEC quit under political pressure, but he accuses dark forces – mainly some media – of conspiring to tarnish his image. During a marathon press conference in August he set out to explain his motivations and distanced himself from allegations of political patronage. Excerpts of an interview…

 

How have the events of the last few months impacted your businesses?
It hasn’t impacted, I am very confident. You have these core stakeholders in a business environment within which you have to be basically protected, you have to be seen and you have to be believed, that you are doing the right thing. First your team members have to believe in what you do, as the right thing, then as you make it little bigger you get the rest of the stakeholders, like your suppliers, your bankers, probably your peers. So, unless you have bigger ambitions to go into politics and things like that, I believe that the adverse perceptions created is less because it is a small closely knit society we deal with, maybe 3,000 to 4,000 people within our group. Also we’ll fight against the myths which have been created by media.

So you believe there is a myth created by the media?
I think so, created by a section of media, created for various personal reasons. Media personnel started sort of a negative campaign.

You mentioned during the press conference that some business meetings you set up in India were cancelled?
That is actually a very unfortunate situation, because what happens is they Google it. I was completely unaware, in the sense I never expected this. So now I’m ready when we approach a client, a supplier or an investor, we go prepared to a point they don’t have to go through all that and find out.

I would not be honest if I say it has not impacted at all but I would put it this way. It has not impacted our day to day business. We have not changed any of our strategies or re-thought of it because of this, so we continue to do what we have been doing.

The economic slide has been deep, Sri Lanka is no longer growing at 8% it’s probably more like 6% and interest rates are up. You are leveraged or Divasa Equities is a highly leveraged company, how’s this impacted you?
Whether we are highly leveraged or not is a subjective thing. We are leveraged but our core businesses generate enough funds to fund our facilities.

At one point you said you had loans of about two billion? A billion.

Divasa Equity has a billion – are there any other margin facilities within the group?
No Divasa is the only one. Most of that is now long term. Divasa has all of Citrus, and George Stuarts. Through Citrus, Colombo Land, and also Kalpitiya and Waskaduwa. Then through that George Stuart Finance.

Some time ago you said Rs2 billion, to the Daily Mirror?
Probably at that time, I can’t remember, maybe yes. There would have been because our portfolio was huge at that time.

You have sold HVA and ..?
We reduced HVA, Pan Asian Power…

These were good deals right, you made money?
Not really, HVA wasn’t a good deal. We lost a lot of money.

You bought HVA at Rs18 or so?
No, we bought at Rs45, the chunk, and sold it down up to Rs15.

But you also sold some at the peak around Rs80?
No, the highest price we got was Rs45.

So you lost money on this stock?
More than 150 million.

Pan Asian power wouldn’t have been so bad?
On Pan Asian Power we made money. That would have brought us about Rs60-70 million profit.

When you bought HVA you said it was a long term investment?
We had two options because at almost the same time we acquired George Stuarts. So one was to seek a synergy with George Stuarts. But more than that there was a deal. Because there is no liquidity and we controlled 10%, we paid an exorbitantly high price compared to the net asset value. Considering the opportunity the Heladiv brand had, we could always market this as an exceptional opportunity. That was my thinking, in fact I almost closed a deal and some of the brokers are aware of it, but it didn’t work out.

So your billion in debts must be costing you at least Rs200 to 250 million a year to service?
Roughly 200 million rupees.

So you have Rs200 million in free cash that goes from the rest of your businesses to pay debt?
Yes. It’s like this; these are investments. It’s not that I have taken a billion rupees and bought a jet or helicopter for my consumption. These assets are generating money and they are appreciating on their own. For example I don’t think anybody questions us on whether George Stuart was the right investment or even Citrus as a company and what we are doing with it. If we had 200 million rupees being saved there is nothing else we could have done with it.

You chose instead to sell HVA why?
Actually we got force sold.

Because of a margin call?
Yes, it was at Seylan Bank, so there was pressure from Seylan because the prices were falling. We got into a situation where we had to sell.

How is George Stuarts shaping up? I notice that Duleep Daluwatte has left.
It has huge brand equity and I am a brand guy not a marketing guy. I can only possibly see intangible things than the tangible things in any acquisition, future possibilities with that brand, and it’s a 178 year old company, Sri Lanka’s oldest mercantile establishment. These are stories you can’t ever create and if you were to create such a brand it will cost billions, so the possibility is you use that name to get into different verticals to different businesses and get the maximum out of it. I gave Duleep a good retrenchment package, it was a good understanding and we agreed to buy his shares and it was his own decision.

Aren’t the people important, why are you losing senior staff?
The only person who left was Duleep Daluwatte. That actually started with his request in order to move out because we are considered to be the hard working type compared to what they have done before. You have to understand that at George Stuart this is the first time ownership changed from the original trust to an investor. All directors had control through a trust and never through a financial transaction. Except they had mortgaged a 30% stake to Merchant Bank and the bank decided to sell this shareholding. This is the controversy being debated in the Supreme Court, whether it is owned by the present, so called, shareholder Dubsy Kanagaratnam or the trust in London. The trust is in bankruptcy.
The new investors want better returns, so if you want better returns you have to have a more efficient company and to do that you have to infuse new human capital to the company and that is what we have done. We have brought in new people and some of the old people have been recognized for their real strengths.

Sarva Amarasekera resigned from all directorships?
To answer your question, honestly, when SEC first initiated an inquiry against Divasa’s, Citrus investment, they were actually questioning our bona fides of whether we had prior knowledge of this rights issue and, so the three of us went and gave a voluntary statement.

You, Sarva and Varuni?
In that process Sarva’s father had personally felt that his son should have gone to him for advice, a very personal thing, when you are going to SEC which is a judicial body. His explanation was that he never considered it to be important to ask his father. There was a misunderstanding between a father and son and that put Sarva in an uncomfortable situation within the family, this is the truth. So as a result he thought he should be out.

He was also an equity holder in Divasa Equity?
No Divasa equity never issued shares, it only has the promoters shares. Varuni and I are the promoters.

These people are distancing themselves from the legal tangles that you may have or the controversies about this mafia image that surrounds some of your dealings and you seem to be aligning yourself with people who have that tag, why don’t you make a clean cut?
I’m a people’s man. So, in society when you work with people you try to recognize the good things about people and try to move forward with them. I feel very myself, and I’m not at all worried about being compared to some people that I see.

But you were clearly upset that you were identified as one of the godfathers of the mafia?
See, I don’t even believe in God, I don’t believe in horoscopes and I don’t believe in good times. I believe in myself. That’s what the Buddha has said, and I think I can create positive vibrations and with that we have created a very strong team. I don’t have a problem with me being associated with any mafia, in the right context. When it is giving wrong information, in the wrong context then I think it is unfair by the receivers of this message. Dilith is into money laundering, Dilith is being sponsored by some of the government big wigs, that’s wrong information which in fact led people to think that they must go behind the investments Dilith is doing.
But it worked for you with Pan Asian Power and People’s Merchant Bank, it almost worked with HVA. HVA went to 80 rupees a share when its assets per share were 10 rupees.
Yes it worked. But a wrong perception was created by the media.
I have gone to the courts. I hope that you will differentiate my media conference and what happened prior to that. What happened prior to that created a major impact, in such a negative way, about me, about my family, about my relatives and all. A private news radio channel went on air calling me a drug peddler, money launderer and all that. So that of course impacted to a point that share prices started falling.

Share prices may not have gone up because you were being accused of being a drug peddler, but because you were seen as close to powerful people. Investors thought they could ride your tail coats. It could have helped you because share prices went up?
Perhaps, but I don’t think it’s the right thing though, If you read my Daily Mirror interview I clearly said don’t believe that, that’s not true. Please don’t come behind me anymore because I am not that.

People must be misunderstanding your intentions because they may think you drive a share up and bail out. It seems you did this with the companies you invested in?
No no, that’s why I always make my intentions clear. Other than for the small trades, what we call the day to day trades, for big investments, at the time of buying I have always made my intentions clear. The best examples were PAP and Peoples Merchant Bank. What was the intention? The medium term.

You are just saying that, but you sold some of them at good profits?
So now I’ll give you the best example of PAP. The PAP share, the same day I purchase it, goes up by like whatever percentage. You have to be insane to think that you will ever get that return in the medium term or long term for that matter.

The price moves on a liquid market but you have a bulk, you can’t dump it in the market, without sending the price back down?
Yes in this case, but I was advised by brokers and this was an opportunity for me to quit the market and I was not confident initially that it was possible by a substantial percentage or otherwise. But you see I joined the board (of PAP), I was willing to take a long term approach. People’s Merchant Bank is the same. I was trying to see whether there was any synergy between PMB and Divasa Finance. But there of course we got cornered by the rest of the punters, I mean the people who were in the market, and then we didn’t have a choice but to sell.

So you ran exceedingly high risks?
Look, I believe in the future, I will do that.

But you were leveraged, a margin call might come if the share price falls?
I have my theory, not my theory, our theory at Triad, and the worst case scenario is, we will go back to where we started, right? The bigger the risk you take the chances are the gains are much higher. We are not scared, the entrepreneurship we had I hope will be appreciated. We took big risks but of course always looking at the worst case scenarios.

But this is inconsistent with the whole medium term argument?
What is that?

The fact that you bought shares at a very high valuation saying you wanted that to be long term but in all probability you wanted to take it up and drop it. Which you did?
No, no. If you look at Pan Asian Power you can either say it’s inconsistent or it’s opportunistic. I would say the second one. We saw opportunity to make profits and so we quit. In HVA also, we saw opportunity. The liquidity was one angle and shares we thought would have always stayed at those price levels, we never thought the market would crash. At the time we took the decision it was a good price. Nobody was going to sell a 10% stake of a company at a cheaper price.

But you don’t look at fundamentals?
I’m not looking at fundamentals but from the seller’s point of view. It all makes sense for a seller because he may never get a valuation like this.
Now in hind sight perhaps, but when it went to 80 rupees, I know for a fact the seller was very disappointed.

You trade with an aggressive trading strategy, and then you still seem to be sort of unhappy about being looked upon as a pump and dump investor?
I have no problem about the perception created about me. That has not stopped me doing anything that I do and has no impact on me as a person or as a company. But that perception is untrue.

But your actions speak otherwise?
Like what? At Citrus we didn’t sell a single share, Colombo Land we didn’t sell a single stake, correct? Then if you look at the warrants and the rights, we subscribed to everything. On Peoples Merchant very clearly we got cornered, it’s very clear. If you look at the transaction pattern it was very clear that when we were trying to take control of the company, suddenly when we were almost 30% or 20% others were willing to sell at that price, 20 rupees and then the share price goes to 40 rupees. Who was then going to sell? They didn’t sell then. They backed off, otherwise they would have had to take control of that company.

Yes but it worked out for you, it looked like you took it up and bailed out, in the open market that’s what it’s looked like.
Yes, but technically you know what really happened? We sold let’s say one fifth at that price and the balance we had to sell down because then the markets started coming down. Had we taken over the company, it would have been a completely different thing and so we lost that opportunity, nobody talks about that, nobody talks about the courage that we had to hold on to Citrus which was sold in the market by a business magnate; we had the courage to increase the room count to 97 rooms in six months and convert it to a profitable venture. They don’t talk about that. They talk about a few transactions, three or four of them, where the prices went and we exited.

In the market many investors were not in these long term holdings, they just play on with whatever the flavour of the day and they may get their cues from you?
No I really don’t think it has been discussed without an agenda, if it was discussed in that context in the media, they would have got the right information. That right information would have helped them to take the right decision along with us in the stock market. This way they never got the right information at the right time. It was reported out of context.

You had a title issue with the Pasikudah land?
Yes it’s in the courts.

Do you foresee doing more big acquisitions?
At the moment we are in a stage where we would like to consolidate things, because things have happened faster than we expected. Sometime in the future I would like to use a stock market as a tool for capital formation, I think it’s a brilliant tool, it is a beautiful tool.

Were you surprised of the ability you found in yourself to take risks, your ability to see potential?
In a way yes, when I sit back and think. In a way we would have got swayed into a situation but we were never scared of it and we never ran away from it. We are supposed to be the creative guys, so in any situation you will see an opportunity.

Did you make mistakes? What were the biggest mistakes?
Of course, among the mistakes I would say that we as a company, lived in a very protected world. Our whole organization was very close; it was like a family and there was not a single incident in our business lives where we could say someone tried to fool us. But within this situation we got ourselves exposed and we didn’t have the same security, I must be honest about this.

So this whole thing went beyond your control at one point?
Not the whole thing. I hope you will not misunderstand.

Your involvement in the market worried you at one point?
Again, in certain cases I would say, had we possessed the same information at the time of us taking certain decisions, we would not have taken those decisions.

What do you estimate is the net asset value of your holdings?
We have to revalue most of our assets.

Give me a ballpark figure ignoring revaluations?
Probably 8 to 10 billion rupees.

Anything you want to add?
People have faith in us; people think that we will do something right. That is why I have gone to courts (alleging defamation by a radio station), I went to courts because I know that I can get into the dock and face any lawyer asking me as to how I met x or y, the money -the transactions I can explain, anything could be explained in figures, I’ll explain.