The government-owned budget airline Mihin Lanka is in debt over its head to the tune of billions of rupees, prompting its controversial CEO Sajin Vaas Gunawardene to resign from his post with immediate effect last Friday.

The Nation is in possession of documents disclosing grave financial chicanery by Mihin Lanka, which has gobbled up vast amounts of public funds.

Mihin`s accumulated losses by August 2007, as per Bank of Ceylon`s Memorandum of October 26, 2007 to its Credit Committee, have been Rs. 796.8 million, with the ongoing monthly loss reckoned to be around Rs. 175 million.

In terms of Treasury Guarantee of April 16, 2007, Bank of Ceylon has given an overdraft to Mihin amounting to Rs. 250 million. Thereafter, by two letters, dated July 24, 2007, Bank of Ceylon has given two further clean temporary overdrafts of Rs. 160 million each, without any security. One of them was to be re-paid by August 16, 2007 and the other by December 31, 2007.

Notwithstanding these temporary overdrafts, and default of one, CEO Sajin Vaas Gunawardene and Director Lalith Weeratunga, addressed a letter dated September 11, 2007 to Bank of Ceylon Chairman Gamini Wickremasinghe requesting a further clean temporary overdraft of Rs. 125 million, promising to re-pay by September 20, 2007. Bank of Ceylon, instantaneously on September 11, 2007 itself issued a letter approving this additional temporary overdraft, without any security.

Regardless of the default of the above temporary overdrafts, again on October 5, 2007 Bank of Ceylon gave another temporary overdraft of Rs. 132 million, again without any security, to be re-paid by December 31, 2007. These temporary overdraft letters have been signed by Bank of Ceylon Relationship Manager (Corporate) Sarath Stembo.

As per its Memorandum of October 26, 2007 to the Credit Committee, the temporary overdrafts remained defaulted, totalling a staggering sum of Rs. 1069 million, over a very short period of six months. Even the temporary overdraft of Rs. 125 million, obtained with the intervention of Presidential Secretary Lalith Weeratunga promising re-payment by September 26, 2007, remained defaulted.

By its Memorandum of October 26, 2007, Bank of Ceylon`s solution was to convert the defaulted overdrafts to Rs. 1 billion term-loan to be re-paid in five years, on the security of a Treasury Guarantee. Analysts question how a term-loan of Rs. 1 billion by Mihin, running at a monthly loss of Rs. 175 million as per Bank of Ceylon`s own Memorandum, could be repaid.

Financial experts charge that the term-loan of Rs. 1 billion was aimed at financing the losses incurred, which is strictly prohibited by banking regulations.

One of the conditions imposed in the Memorandum of October 26, 2007 by the Bank of Ceylon, was that Mihin Lanka was not to undertake ground handling work and catering until they achieved profitability. However, the airline has also defaulted on this, incurring further losses, as exclusively reported in The Nation of March 30, 2008. According to regulations, such a breach would prompt a lending bank to immediately foreclose, particularly given the precarious defaults of a series of temporary overdrafts.

How Central Bank Governor Ajith Nivard Cabraal, a good governance guru, with codes of conduct for Boards of Banks, is preventing the Central Bank from imposing normal regulatory controls over Bank of Ceylon, is another issue, which is bound to lead to controversy, with a backlash by other Banks and customers, who are treated differently, violating their fundamental rights, analysts pointed out.

Jayaseelan to replace Sajin?

Amidst reports that SriLankan Airlines Country Manager in Beijing G.T. Jayaseelan is tipped to take over as the new Chief Executive Officer of the crisis ridden Mihin Lanka, Jayaseelan has been summoned to Colombo.

Jayaseelan, speaking from Beijing admitted to The Nation that his employer has requested him to travel to Colombo, but added that he was not sure for what reasons.

My company has asked me to return to Colombo and I have been told that I have been summoned to discuss whether I could replace Sajin Vaas Gunawardene as the CEO at Mihin Lanka. But this is not confirmed, he added. (RK)

Sajin`s bro to head UL?

Brother of former Mihin CEO and currently SriLankan Airlines Head of Worldwide Passenger Sales, Manoj Gunewardane is tipped to be appointed Chief Executive Officer of the national carrier, The Nation learns.
Gunewardane`s appointment is likely in the coming days, after several potential candidates turned down the offer after being approached by the government.