Bond issuance and “unusual occurrences” – diving deeper into the scams (VIDEO)

Bond issuance and “unusual occurrences” – diving deeper into the scams (VIDEO)

Written by Lahiru Fernando

13 Jun, 2017 | 11:40 pm

The Auditor General has been given a directive to calculate losses incurred through the secondary market in relation to treasury bonds.

The directive has been issued to the AG by the Presidential Commission of Inquiry. Thereby, Auditor General Gamini Wijesinghe testified that accepting bids greater than what was offered is ‘an unusual occurrence’.

Auction on March 29, 2016 – Bonds to the value of 40 Billion Rupees was on offer at the auction.

The AG said if the 40 Billion Rupees on offer was accepted – the remainder of the cash requirement could have been settled by an overdraft or by another auction – which would have given a lesser rate.

A total of Rs. 142.422 Billion were received in bids, of which Rs. 77.732 Billion was accepted.

The Auditor General said the excess of Rs. 37.732 Billion comprised of 60% of bids made by Perpetual Treasuries Limited and 40% divided among the other primary dealers.

The estimated loss in accepting 77.732 Billion rupees in bids as opposed to the 40 Billion rupees on offer has been calculated as 784.898 Million Rupees.

The four separate bonds on offer – March 29, 2016

  • Bond  |       Offer     |     Received     |     Accepted
  •   01.    |  Rs. 10 Bn |  Rs. 27.2 Bn    |   Rs. 10.27 Bn
  •   02.    |  Rs. 10 Bn |  Rs. 36.9 Bn    |   Rs. 31.47 Bn
  •   03.    |  Rs. 10 Bn |  Rs. 32.1 Bn    |   Rs. 17.01 Bn
  •   04.    |  Rs. 10 Bn |  Rs.45.92 Bn   |   Rs. 28.97 Bn
  • Total Offered: Rs.142.422 Bn
  • Total Accepted: Rs. 77.732 Bn

The 1st Bond – The auditor general has found no issue

The 2nd, 3rd and 4th Bonds – Having calculated losses, the amount accepted was greater than the amount offered.

The losses

  • Second Bond – Rs. 258.828 Million
  • Third Bond – Rs. 104.636 Million
  • Fourth Bond – Rs. 421.434 Million

Total estimated losses from both auctions (February 27, 2015 & March 29, 2016) – Rs. 1.674 Billion.

The Auditor General holds the concerned authorities responsible for the avoidable estimated loss.

The AG revealed that if the bid acceptance was limited to the amount of offer, the state would not have incurred any loss.

He noted that the Employees Provident Fund purchases a large amount of bonds in the secondary market at a lower rate rather than making bids at high rates in the auctions. The EPF has available funds in its portfolio for investment purposes, revealed the AG.

The AG Gamini Wijesinghe added that the bonds purchased by Perpetual Treasuries Limited has changed hands in the secondary market and were eventually purchased by the Employees Provident Fund at a lower rate.

The assets and profits of Perpetual Treasuries Limited had come under the audit of the Auditor General.

2014 / 2015 – Ajith Nivard Cabraal as Central Bank Governor

Assets                     Profit

Rs. 7,080 Million | Rs. 959.55 Million

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2015 / 2016 – Arjuna Mahendran as Central Bank Governor

Assets                     Profit

Rs. 11,846 Million | Rs. 5,124 Million

_________________________________

April 10, 2016 to August 31, 2016

Assets                     Profit

Rs. 21,568 Million | Rs. 5,867 Million

Meanwhile, President’s Counsel Nihal Fernando suggested to the witness that the method in which the audit was done was wrong. The Auditor General however, denied this claim.

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