Dr Sarath Obeysekera

1. The group had accumulated an unsustainable debt burden

The proposal recorded total group exposure of approximately:

• LKR 31.026 billion, including
• LKR 6.941 billion in bank guarantees
• LKR 1.950 billion in debentures
• LKR 22.135 billion in direct bank and financial-institution borrowings

The debt was concentrated mainly in:

• CML-MTD Construction: approximately 69%
• Walkers Piling
• MTD Walkers PLC

Together, these three companies represented about 90% of group debt.

Walkers Colombo Shipyard represented only about 2% of total group exposure according to the proposal’s company-wise chart. Therefore, the shipyard did not bring down the MTD Walkers Group.

2. The construction business was fundamentally loss-making

The 2018/19 audited accounts show the deterioration:

Indicator	2016/17	2017/18	2018/19
Group revenue	LKR 13.47 bn	LKR 16.31 bn	LKR 10.46 bn
EBIT	LKR 1.94 bn profit	LKR 0.96 bn loss	LKR 2.90 bn loss
Loss before tax	—	LKR 3.43 bn	LKR 6.90 bn
Finance costs	—	LKR 2.76 bn

Revenue fell approximately 36%, but finance costs increased to more than LKR 4.2 billion. By then, normal project profits could no longer service the debt. The auditors reported that liabilities exceeded assets by LKR 1.656 billion and current liabilities exceeded current assets by LKR 7.711 billion. They expressly identified a material uncertainty over the group’s ability to continue as a going concern. MTD Walkers 2018/19 Annual Report⁠

3. Money was trapped in receivables and incomplete projects

At 31 March 2019, the group showed approximately:

• LKR 15.31 billion in trade and other receivables
• LKR 5.11 billion in inventories
• LKR 31.12 billion in current liabilities
• LKR 5.20 billion in overdrafts

A construction company may appear to have substantial assets, but receivables, claims, retentions and unfinished projects cannot necessarily be converted into cash promptly. Meanwhile, salaries, suppliers, interest and loan instalments must be paid immediately.

The proposal assumed value could be unlocked” by completing projects. However, unfinished projects required still more working capital—the very resource the group no longer possessed.

4. The proposed restructuring was not a self-sustaining rescue

The November 2020 proposal required all the following:

• Banks to waive accumulated interest
• Banks to write off 15% of principal—approximately LKR 3.32 billion
• A new investor to inject approximately LKR 3.3 billion
• Banks to grant additional working capital
• The debenture to be rescheduled over five years
• CBSL to reverse the direction classifying group facilities as non-performing
• Project receivables and asset sales to generate further cash

This was not a turnaround based on internally generated cash. It depended on extraordinary concessions from lenders, a new investor and further lending to an already non-performing borrower.

If any one of those elements failed, the entire plan became unworkable.

5. The proposal itself was incomplete

This is one of its most damaging disclosures:

• The Overview of Projects” page says: Details not yet provided.”
• Project cash-flow estimates had not been fully supplied.
• Management presentations had not taken place.
• Financial information supplied by management had not been independently verified.
• Detailed restructuring analysis was mainly confined to CML-MTD.
• Plans for several other subsidiaries—including Walkers Colombo Shipyard—were still to be prepared.

It is extraordinary to request banks to write off billions, waive interest and provide fresh facilities without a verified project-by-project cash-flow and recovery plan.

6. The distress predated COVID-19

COVID undoubtedly worsened construction delays, cash collection and shipyard operations. But it did not create the underlying failure.

By 2018:

• The debenture already required emergency rescheduling.
• MTD Walkers was publicly known to be under financial stress.
• Its revenue, margins and liquidity were deteriorating.
• Bank facilities were becoming non-performing.

Therefore, COVID should be described as the final blow—not the root cause.

Jehan Amaratunga’s responsibility

The official annual report identifies Jehan Prasanna Amaratunga as:

• Group Executive Deputy Chairman
• A non-independent executive director of MTD Walkers
• A director of People’s Bank
• A director of People’s Leasing & Finance
• Chairman of People’s Insurance

The records also show that he served simultaneously in senior positions at MTD Walkers and People’s Bank during a period when People’s Bank extended substantial facilities to MTD Walkers group companies. He reportedly resigned from the People’s Bank board in 2018. Lanka Business Online⁠

The restructuring proposal recorded People’s Bank exposure as:

• LKR 4.287 billion in direct exposure
• Approximately LKR 7.319 billion when guarantees and other exposure were included

A contemporary analysis reported that he had also served on several People’s Bank board committees, including its Audit and Integrated Risk Management Committees. This created an obvious conflict-of-interest concern requiring independent investigation. Daily FT analysis⁠

However, the available documents do not prove that Jehan Amaratunga alone caused the collapse or committed fraud. A legally responsible article should say:

As Group Executive Deputy Chairman and the senior Sri Lankan executive, Jehan Amaratunga must bear substantial managerial and governance accountability for the borrowing, expansion and financial-control decisions made during his tenure. His simultaneous position on the People’s Bank board created a serious apparent conflict of interest. Nevertheless, individual illegality or personal enrichment cannot be asserted without bank credit files, board minutes, related-party declarations and findings from a competent investigation.

Who got the company into this mess?

The evidence supports collective responsibility at several levels:

1. Executive leadership

    Jehan Amaratunga and the executive management were responsible for local operations, financial management, project selection, borrowing and execution.

1. The MTD Walkers board

    The entire board was responsible for approving strategy, borrowings, guarantees, acquisitions, diversification and risk controls.

1. Malaysian controlling shareholder

    MTD Capital Berhad controlled MTD Walkers. It benefited from and approved the expansion strategy but apparently did not provide sufficient rescue capital when the group became insolvent.

1. Lending banks

    Banks continued extending facilities against project receivables, guarantees and limited collateral. People’s Bank’s exposure deserves particular scrutiny because of the overlapping directorship.

1. Weak project and working-capital control

    The group expanded across construction, piling, power, real estate, equipment and marine engineering without maintaining the liquidity and equity required to support that expansion.

Therefore, the fairest conclusion is:

Jehan Amaratunga was a central executive figure and should not be excluded from accountability. But the collapse was a collective failure of executive management, the board, the Malaysian controlling shareholder and bank credit governance—not the act of one individual alone.

Walkers Colombo Shipyard

Your earlier article remains substantially consistent with this evidence.

The shipyard was a potentially productive industrial asset. It had:

• A hydraulic ship-lifting system
• Workshops, cranes and fabrication facilities
• Experience building Fat Lady, Seagull 2 and Seagull 3
• Potential for vessel repair, fishing craft, tug construction and exports

But the shipyard was vulnerable because:

• It depended on borrowed capital
• It operated within the MTD Walkers group’s common banking structure
• The parent’s NPL classification damaged access to working capital
• The shipyard could not obtain independent financial support
• Commercial Bank enforced its security after repayment default
• The CFHC lease dispute further weakened the possibility of revival
• COVID disrupted new orders and cash generation

The important correction for your future article is this:

Walkers Colombo Shipyard did not cause the LKR 31 billion MTD Walkers crisis. It was brought down after the financially distressed parent group could no longer service borrowings or support the yard.

The source proposal is available here: MTD Walkers Group – Proposed Debt Restructuring – Proposal.pdf⁠.