Wednesday October 17, 2018

Sri Lanka's state bank bond bids dictated by ex-finance minister: bondscam inquiry

Oct 05, 2017 08:00 AM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - Sri Lanka's large state banks have been asked to bid at low rates at volumes given by then Finance Minister Ravi Karunanayake, at two controversial bond auctions alleged to have been rigged, a commission of inquiry had been told.

A Presidential commission is inquiring into a series of rigged bond auction where bond were sold at high rates (low prices) to Perpetual Treasuries, a firm connected to Arjuna Aloysius, the son-in-law of then Central Bank Governor Arjuna Mahendran.

The bond were then dumped at low yields (high prices) on the Employees Provident Fund managed by the central bank and other state entities, in what is described by state attorneys as the biggest securities scam in the history of Sri Lanka's financial markets.

A meeting of state bank officials of National Savings Bank, People's Bank and Bank of Ceylon had been called on March 28, by Minister Karunanayake, Sri Lanka's Daily Mirror newspaper reported quoting witnesses at the commission of inquiry.

People's Bank General Manager Vasantha Kumara was quoted as saying that the state banks were given the range of rates to bid at four different maturities offered at the auction the following day by Minister Karunanayake.

The Minister had assured the banks that bids are higher rates (lower prices) would not be accepted.

Kumara had instructed his Treasury to confirm with the Public Debt Department of the central bank, that such would be the case. The bank had been told that the message would be conveyed to the bond tender board.

Kumara had said there were earlier occasions when the Treasury had had discussion with the state banks to lower rates but this was the first time a Finance Minister had directed then to bid at lower rates.

But bids at much higher rates than the banks had been instructed to bid had been accepted at the auction on March 29, 2016.

The commission of inquiry was also played a tape where Arjun Aloysius, son-in-law of then Central Bank Governor Arjuna Mahendran giving instructions to Kasun Palisena, CEO of his primary dealership Perpetual Treasuries conveying insider information on the bids to be made by state banks.

On March 30, a second meeting had been called at the Treasury again chaired by Minister Karunanayake where state banks were again asked to bid at lower rate at an auction the following day, on March 31.

They were given the rates and volumes to bid at the auction by Minister Karunanayake, the witness was quoted as saying in the newsreport.

Kumara had raised concerns at the meeting saying though assurances were given bids at high rates had been accepted at high rates.

State banks had already lost money on the earlier auction and they agreed to do bid low (when rates falls bond prices rise), Kumara had said.

However again bids at higher rates had been accepted by the central bank's public debt department.

Only 25 billion rupees of bonds had been advertised but higher volumes had been accepted.

Kumara had also informed R Paskaralingam, advisor to the government reminding about not accepting bids at higher rates after some People's Bank customers had bid at higher rates than was asked to do by Minister Karunanayake. There was no reply from Paskaralingam.

There was a gap of around 100 basis points from the rates state banks were asked to bid and the rates accepted, the inquiry had been told.

People's Bank Chairman Hemasiri Fernando had also testified that Minister Karunanayake had asked state banks to bid at low rates, the Daily Mirror reported.

Bank of Ceylon Assistant General Manager Shantha Kumara had testified that following the first meeting Chairman Ronald Perera had conveyed the instructions of Finance Minister Karunanayake on March 29 morning.

BoC then withdrew bids already made at higher rates and replaced them at lower rates.

National Savings Bank chairman Ashwin de Silva who had attended the first of two meetings had told the commission that Minister Karunanayake wanted state banks to bid low. (Colombo/Oct05/2017)


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