Bond Gate: EPF actions resulted in Government losing Rs. 550 million (Video)

Bond Gate: EPF actions resulted in Government losing Rs. 550 million (Video)

Written by Lahiru Fernando

16 Oct, 2017 | 10:28 pm

The decision to suspend direct placements must be “carefully considered”, said a Monetary Board member and a senior banker while testifying before the Presidential Commission of Inquiry into Bond Issuance.

Today at the Presidential Commission…

Perpetual Treasuries

Perpetual Treasuries Limited transfers money to the bank account of a related company – mainly Perpetual Capital Holdings and W. M. Mendis and Company, pointed out Deputy Solicitor General Milinda Gunathilaka.

Thereafter, a cheque is drawn by that related company and the cash is withdrawn by an employee of Perpetual Treasuries Limited. A dealer at PTL testified to this process on Friday (October 13), and said he places the cash on the chair of PTL CEO Kasun Palisena.

Anthony Nihal Fonseka, a Member of the Monetary Board said “this is not how a corporate entity would withdraw cash”.

He said the person originating these transactions does so, in order to conceal the ultimate destination of the cash.

Employees Provident Fund

March 29, 2016 – the EPF purchased Rs. 1 Billion worth of bonds in the Primary Market at Rs. 10 Billion of the same bond in the secondary market.

April 1, 2016 – The EPF had Rs. 9.9 Billion in excess funds.

According to Nihal Fonseka, if the EPF bid the entire 10 Billion at the primary auction, the government would have generated Rs. 1.95 per every 100 rupee of debt.

Therefore, as the EPF only purchased Rs. 1 Billion worth of bonds, the government had lost Rs. 550 Million.

This was the very auction that PTL bid a large volume on its own and via Pan Asia Bank.

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

The Auditor General who testified before says the estimated loss in accepting Rs. 77.732 Billion in bids as opposed to the Rs. 40 Billion on offer was calculated as Rs. 784.898 Million.

Nihal Fonseka says Sri Lanka needs a mix of both auctions and direct placements to raise funds.

According to him, a similar system is followed by;

  • Singapore
  • Philippines
  • Indonesia
  • Thailand
  • Malaysia

Witnesses have testified that former Govenor of the Central Bank Arjuna Mahendran made the decision to suspend direct placements when he visited the PDD on the day of the controversial bond auction.

According to Fonseka, the CBSL Governor and the Market Operations Committee are not authorized to change market rates.

A New Primary Issuance System

Nihal Fonseka is someone who was also instrumental in introducing a New Primary Issuance System for Treasury Bonds.

This system has three phases;

Phase I: Explore issuance of the entire announced volume in a competitive multiple price auction system through reasonable market bids.

Phase II: This phase pens for voluntary, volume based bidding, in the event of any under allocation at Phase I.

Phase III: Any under allocation at Phase I and Phase II, if any, is issued on a mandatory basis only among PDs.

Nihal Fonseka said this new system is more transparent than the previous system.

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