SEC issues directive to hold debt issue of EAP Broadcasting

June 10, 2015 (LBO) – Sri Lanka’s securities watch dog issued a directive to EAP Broadcasting to hold its debt issue citing a conflict of interest arising in the credit rating of the company’s debenture.

The decision was taken at a meeting of the Securities and Exchange Commission of Sri Lanka held Monday (09),2015 which deliberated on the finding of a prima facie conflict of interest in the rating of the proposed debenture issue of EAP Broadcasting Company Limited by Lanka Rating Agency Limited (LRA). The said conflict of interest arises from having a common director on the respective Boards of Directors of both the issuer company and the Credit Rating Agency and two of the Directors of the issuing company being members on the Rating Committee of LRA, SEC said in a statement.

“The Commission was of the view that the integrity of the process adopted by LRA does not appear to support the credibility of the rating,” SEC said. “The Commission took serious note of the fact that LRA is in breach of Part V D (vi) of the Schedule to the Securities and Exchange Commission of Sri Lanka Act No: 36 of 1987 (as amended) which stipulates the terms and conditions a Credit Rating Agency has to comply with in order to be registered with the SEC,” “The Commission having afforded a hearing to the Boards of Directors of EAP Broadcasting Company Limited and Lanka Rating Agency Limited decided to direct the Colombo Stock Exchange and the Colombo Stock Exchange is hereby directed; To defer the opening date of subscription of the proposed debenture issue of EAP Broadcasting Company Limited scheduled for 11th June 2015 until a rating on the issue is obtained from an independent Credit Rating Agency registered with the SEC and disclosed to the Public." This directive shall be effective from the date hereof, the SEC said. Lanka Rating Agency has been ordered not to issue any rating from March 25 by the SEC.