Bond blame bared!

• Three-member committee rules CB Governor Arjuna Mahendran had no direct role
•  Exposes lack of proper supervisory and monitoring mechanism by Public Debt Department
• Raps Bank of Ceylon for serious lapses and risking funds, urges forensic audit
•  Says bidding pattern of Perpetual Treasuries was unusual and warrants further investigation

Aided by a three-member all-lawyer investigative committee, the Government yesterday bared who should get the blame for February’s 30-year Treasury Bond fiasco whilst recommending further investigations.
In a media release, the Ministry of Policy Planning and Economic Affairs, after nearly a holiday-filled week since the receipt of the report, said that the committee of eminent lawyers which inquired into the 30-year Treasury Bond issuance had made far-reaching recommendations to ensure transparency and better governance at the Central Bank.
The three-member committee had interviewed a large number of individuals, including the governor, officials from the Central Bank, primary dealers and Perpetual Treasuries.Several deficiencies in the bank’s Public Debt Department (PDD), which handles all matters relating to servicing the domestic and foreign debt of the Sri Lankan Government, were observed by the committee.

 

 
“Since the PDD is dealing with the most sensitive information of the Government, the committee is of the opinion that a proper supervisory and monitoring mechanism has to be immediately implemented with regard to its activities,” the committee said in its 19-page report.
However, the committee found that Governor Mahendran had no direct role in deciding to accept bids over and above the Rs. 1 billion stipulated in the 30-year bond tender and accept up to Rs. 10 billion. The PDD had projected the Government’s funding requirement as at 2 March 2015 at Rs. 13.55 billion.
“Even though the minutes of the Monetary Board number 4/2015 specify the issue a 30-year Treasury Bond, the amount of the bond has not been decided by the Monetary Board (of which the Governor is the Chairman).
“This exercise is vested with the PDD as per the Operational Manual of the PDD. The decision to accept the excess amount has been taken by the Tender Board Committee that comprises eight members.
“The Governor of the Central Bank of Sri Lanka is not a member of the Tender Board Committee.”

 

 
The committee concluded that there was no evidence to the effect that the Governor had direct involvement with regard to the activities of the PDD and the Tender Board Committee.
However, the committee noted serious lapses on the part of the Bank of Ceylon (BOC) through whom Perpetual Treasuries had routed an unusually large amount of bids for the 30-year bond.
The committee observed that the bidding pattern of Perpetual Treasuries was unusual and warranted a further investigation.
It noted that the Bank of Ceylon should also carry out a forensic audit and seek explanations from its Chief Dealer and others on ad-hoc decisions risking a large amount of BOC funds involved in the 30-year bond transaction.
The three-member committee that looked into the 30-year bond issue consisted of Gamini Pitipana (Chairman), Mahesh Kalugampitiya and Chandimal Mendis.
The committee was appointed in early March by Prime Minister Ranil Wickremesinghe following the 27 February Rs. 1 billion 30-year Bond offering drew allegations of insider dealing after the issue was upsized to Rs. 10 billion at a higher cost. The indicative price was 9.5% but the Bond issue was concluded at 11.73%.

 

 
Soon after the auction, primary dealers raised concerns over possible insider dealing alleging Perpetual Treasuries had been favoured and the yield spiked more than 2% from the indicative price of 9.5%. Perpetual promoters include the son-in-law of CB Chief Mahendran.
To allow an independent investigation, Mahendran took voluntary leave of absence. A Sri Lankan-born Singapore national, Mahendran was questioned by the Bribery Commission last week and has been barred from travelling overseas. A Fundamental Rights application over the fiasco is before the Supreme Court which will take it up later next week.
Besides the investigation on the 30-year Bond issue, Premier Wickremesinghe has also launched an inquiry into allegations of corruption in Government bond sales by the Central Bank since 2012.

PM to make special statement today in PARLIAMENT Amidst the crisis over constitutional and electoral reforms, Prime Minister Ranil Wickremesinghe is tipped to make a special statement in Parliament today on the recent 30-year Treasury Bond fiasco and the probe report submitted by the three-member committee.