Will CDIC, the Capital Development and Investment Company Ltd., of which the National Development Bank now holds over 75%, be allowed to wither away and be reduced to a corporate shell?

The company's managing director and chief executive, Mr. Tennyson Rodrigo, thinks this is likely although no formal decision on its future has yet been communicated to the company by its majority stakeholder.

Reporting to shareholders, Rodrigo said that the NDB had two options. One was to strengthen CDIC's resources and develop a high degree of synergy between NDB and CDIC using NDB's extensive client base as a deal-flow platform. In such a relationship, CDIC's proven track record in equity/venture capital investing will add substantial value to NDB's balance sheet and the real rationale for acquiring CDIC's controlling interest would become self-evident.

The other option is for NDB to disband CDIC's organisation on the rationale that various components of CDIC's portfolio could be distributed for more efficient and productive management by associated companies within the NDB group who are seen to have superior track record and expertise.

"In such an event, CDIC's identity and organisation will be allowed to wither away and the staff made redundant. The company then will reduce to a corporate shell,'' Rodrigo said.

He said that CDIC had always been on the shopping list of corporate raiders for clear reasons: a portfolio of good value without long-term liabilities and a compact, value-driven organisation.

"We have made a few strategic investments not with a view to acquire a controlling interest but to create sound, long-term value. All these attributes have contributed to make CDIC a value opportunity,'' Rodrigo said.

He also said that their essential focus had been long-term equity investing. Such a company had to remain specialised, compact and nimble. "It has never been our policy to target sky-high profit levels in a given year which we cannot sustain in the next. We have consciously maintained a moderate but consistent growth in a regime of high-risk equity investing.

"Our staff members have been kept to a minimum and they have remained committed and righteous. We have no baggage, unproductive real estate or malcontent unions. Companies such as this do not have to grow organically by acquiring others,'' he said.

CDIC's quoted share portfolio had a cost of Rs. 73 million and a market value of Rs. 249 million as at March 31, 1998. This portfolio includes 3 million CTC Eagles, 1.3 million Mercantile Leasings, 0.3 million Sampath and 0.25 million Printcare. The cost of its unquoted portfolio was Rs. 134 million.

The company's issued capital is Rs. 245 million, general reserve Rs. 282.2 million and retained profits Rs. 10.4 million.

CDIC posted a profit of Rs. 51.9 million during the year ended March 31, 1998, up from Rs. 32.8 million the previous year and an improvement of the Rs. 46.7 million registered in 1995/96.

Reporting to shareholders, CDIC Chairman Nimal Sanderatne said that earnings per share had increased to Rs. 2.12 and return on shareholders funds rose to 9.7%. The directors have recommended a 15% dividend.

Sanderatne said that the main source of this profit was the sale of shares which yielded Rs. 26.2 million and money market investments which yielded Rs. 22.6 million. The company had also received a dividend income of Rs. 21.5 million while the income from project loans "declined somewhat to only Rs. 2.4 million.''

The year under review saw a major change in CDIC ownership. Two of the original shareholders, the Sri Lanka Export Development Board and the People's Bank sold their shares to the NDB which was already a substantial stakeholder. Consequently the NDB became the majority shareholder.

Subsequently, the Merchant Bank of Sri Lanka also sold its 19.84% stake to the NDB thereby increasing the NDB holding to 75.6%. During the course of the year, NDB made mandatory offer to all shareholders to buy their shares and the public shareholding in CDIC has now shrunk to just 0.47%. Along with the NDB, the Bank of Ceylon which continues to own 23.93% of CDIC is this company's major shareholder.

"The change of ownership of the company, which has made it a subsidiary of the NDB, implies strategic changes. These are being worked out and one could expect major changes in the nature of business and management of the company,'' Sanderatne said.

With three representatives of the major shareholders who had exited from the company resigning following the sale of their shares, the NDB placed two more of its senior managers, CEO Ranjit Fernando and M.O.F. Salieh on the CDIC board. Together with the chairman, Dr. Sanderatne, the NDB now has three seats on the 5-member board.

With Sanderatne relinquishing office as chairman of the NDB at the end of this month, he is expected to also resign from the CDIC board.

CDIC's Managing Director Tennyson Rodrigo said that during the six months that have passed since CDIC became an NDB subsidiary, the bank has completed a due diligence focussing on what ought to be done with CDIC to serve the best interests of NDB.

He said that the major earning of CDIC for the year under review came from the sale of their holding in Call Link, a private-equity investment.

Rodrigo concluded his CEO's review with the assertion: "As players in the capital market our faith in and surrender to the doctrine of shareholder capitalism are unquestioned, subject to only the laws of the land and the belief in the ultimate virtue of humane corporate governance.''

The directors of the company are: Dr. Nimal Sanderatne (chairman), Mr. Tennyson Rodrigo (managing director), Mrs. M.S. Jayasinghe, Mr. R.M.S. Fernando and Mr. M.O.F. Salieh.