Anti Corruption Front on alleged financial scandal pertaining to Treasury bond auction

The Anti-Corruption Front (AFC) takes this opportunity to register its dismay and frustration over an incident reported by the media on alleged insider dealing that has apparently taken place during the financial bonds issue conducted by the Central Bank of Sri Lanka (CBSL) under the new Government.
The ACF registers its strongest possible protest over the alleged financial scandal and demand from the authorities that they conduct a fully-fledged inquiry over the issue.
ACF also demands from the Governor of the Central Bank of Sri Lanka that he clarify the following two questions as soon as possible, in order to ensure the maintenance of good governance principles espoused by the new Government.
The two moot questions are:
Did the public debt department managed by the Central Bank contrive with certain Primary Dealers to increase the announced bid size after submission of bids at prices significantly higher than market prices? Who in the CBSL has the authority to approve the increase in the size of bids accepted?
If not, was there a case of insider dealing where some Primary Dealers had access to material non-public information with regard to a potential revision of the size of the accepted bids from Rs. 1 billion to Rs. 10 billion?
The ACF finds that if the alleged scam becomes true, it could be one of the critical financial crimes that has happened under the new Government.
As per our findings, we are also greatly alarmed by the following facts and questions that arise from them:
n The Public Debt Department indicated to the market that they would raise Rs. 1 billion of 30-year bonds with a guidance yield of 9.5%. At this yield the price would have been around Rs. 110.
n 36 bids have been received totalling over Rs. 20 billion. The obvious question is, why are Primary Dealers bidding 20 times more than what is being offered? Do one or two bidders directly or indirectly account for the bulk of the bids?
n The bids to fill the first Rs. 1 billion could have been done at a weighted average yield of 10.46%, a price equivalent of Rs. 107.
n The balance Rs. 9 billion was done at a weighted average price of Rs. 96.
If the Treasury was in need of extra funds to meet existing commitments, would it not have been more transparent to either announce to the market the intention to raise a larger amount before the auction or would they have been better off issuing shorter duration bonds at yield 4% lower saving the Treasury over Rs. 1 billion?
n The Primary Dealer implicated in this scandal is Perpetual Treasuries, a firm under the Perpetual Group. This group had been previously implicated in a pump-and-dump scheme relating to Grain Elevator shares that were sold to the EPF at prices in excess of Rs. 200 that is now worth only Rs. 40. How did they pass the ‘fit and proper test’ to qualify for a Primary Dealer license in early 2014?
n Did this auction trigger an increase in interest rates driving up the cost of borrowing for businesses and individuals?
In this backdrop, the ACF believes that the much-acclaimed good governance principles have taken a serious setback by this scandal. It is sad that a layman as well as the general public does not understand what has happened through this financial transaction but the ACF states that this is a large scam equivalent to the Rajapaksa era where we constantly blame.
Therefore, we appeal to the President of this country to conduct a proper inquiry based on the following information:
n Details of all 36 bids received for the 30-year bond on 27 February including the beneficial interest of the bidders
n The details from the CBSL’s Central Depository as to the identity of the beneficial owners, the quantities and any subsequent transfers
n Did the Bank of Ceylon fund any of the bidders? If so the quantum of the funding.
It is also imperative that in order to ensure that this financial crime is not successful that all State institutions are debarred from funding the 2045 year bonds either through REPOs or otherwise and not permitted to buy it in the market at a net yield lower than 12.5% until the investigation is completed. The alleged parties have thus far succeeded in buying below market prices, they must be prevented from easily selling them.
The ACF thereby emphasises a transparent and efficient inquiry over this deplorable white collar financial sin. We also appeal to the public as well as the concerned citizens to monitor and be vigilant over this alleged scandal in order to expose the culprits and save our country from these unscrupulous elements.