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Sri Lanka activists in court seeking independent probe for bond deal

COLOMBO (EconomyNext) – Sri Lankan governance activists have petitioned Supreme Court for independent probe for alleged insider dealing in a bond sale and sought better processes to improve gilt auctions in the future.

G Usvatte-aratchi, A C Visvalingam and Chandra Jayaratne have gone to court saying their fundamental rights have been violated.

The Monetary Board of the Central Bank, Governor Arjuna Mahendan, his son-in-law Arjuna Aloysius, Perpetual Treasuries owned by the Aloysius’s family group and officials of the Central Bank and Policy Planning Ministry secretary, have been named as respondents.

The petitioners said on March 27, after offering one billion rupees in 30-year bonds, the public debt department of the Central Bank accepted 10 times the volume, which was unprecedented for long tenors, sending yield up and raising the interest costs for the people.

About half the volume was allocated to Perpetual Treasuries including three billion rupees in bonds through Bank of Ceylon at 12.5 percent, far higher than the 9.25 to 9.75 percent price guidance given to dealers.

The Petitioners believed that the deal was "steeped in serious irregularities, lack of transparency and adherence to accepted best practices of good governance and possibly tainted by conflicts of interests and related party transactions."

The Petitioners said a statement by the Ministry of Policy Planning saying that 15 billion rupees in funding was needed did not satisfactorily explain many apparent irregularities relating to the transaction."

Rather than increasing the 30-year bond volume to 10 billion, it would have been better to sell bonds of different tenors.

"This option would have been more economical, and would have been in line with the current Government’s debt management objectives of lower cost and would have resulted in a more acceptable yield curve," the petitioners said.

Based on the bids submitted, the weighted average yield for the 30-year bond would have been 10.53 percent, if only billion rupees had been accepted, they said.

The Petitioners said they did not condone private placements of bonds outside the auction process, but in many instances such placements were made to state banks, pension funds and foreign investors.

They asked court for a declaration that their fundamental rights have been violated, that officials and state agencies have not discharged their "duties in a manner that is necessary for the preservation of public trust,"

They asked for an independent probe "by a competent panel of professionals well versed in the rules, systems, procedures and processes applicable to the public debt management" under court supervision.

They also asked court to direct the officials and state agencies in consultation with stakeholders to devise new systems and rules "which assure transparency and best good governance practices are in place in respect of future public debt issuance."