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Monday September 25th, 2023

Sri Lanka bank forced to give loans, privileges for loss-making airline because it was SOE

ECONOMYNEXT- State-run Bank of Ceylon had been forced to give loans to loss-making SriLankan Airlines and extend special privileges when it failed to repay, because it was a state owned enterprise (SOE), a witness told a commission of inquiry.

"If we thought as a commercial bank, if we had given these loans to another company, these would have been lost opportunities to use the funds more effectively,” Bank of Ceylon (BOC) Offshore Banking Division Chief Manager Upul Wijegunawardena said.

"However, since BOC is a state-owned entity and SriLankan is the national carrier, we have to make a consideration.”

He was testifying at a Presidential Commission of Inquiry into irregularities at SriLankan Airlines and Mihin Lanka, a defunct budget carrier.

BOC now has 190 million US dollars of outstanding SriLankan loans, he said.

Wijegunawardena said the Bank Supervision Department of the Central Bank had written to BOC in 2014, requesting it to carefully examine SriLankan’s finances, efficiency and state of operations before issuing loans above limits, even if the airline is a state-owned entity.

BOC has given 12.9 billion rupees in loans to SriLankan since 2014 which have yet to be repaid, he said.

Letters of Comfort the Treasury issued as collateral for the loans had expired in June 2018, with discussions still ongoing to issue new Letters of Comfort, Wijegunawardena said.

"It would take 3 months for loans to fall under NPL (non-performing loans)," he said, when commissioner Wasantha Geeganage, the Director General of the Sri Lanka Accounting and Auditing Standards Monitoring Board, asked if the SriLankan loans had gone bad.

Another 100 million US dollars in loans had also been provided with Letters of Comfort which are still valid, he said.

Most of the loans had been taken for working capital, to cancel leases of Airbus A350 aircraft and to repay fuel bills of the state-run Petroleum Corporation.

Wijegunawardena said that SriLankan has kept repaying interest on the loans, while renewing the principal amount owed.

He said the Treasury requested BOC to fund SriLankan, since it is the national carrier which cannot be closed, and BOC has to oblige, since the state is the sole shareholder.

SriLankan was privatized in the late 1990s but Emirates was driven out during the Rajapaksa regime, and it became a fuly owned loss-making SOE.

"Is this acceptable to the bank, that only interest is being paid without loans being settled? Is this the policy of the bank? Do individuals or other companies get such privileges?” Retired Supreme Court Justice Anil Gunaratne asked.

"No, they don’t," Wijegunawardena said.

In response to another question Gunaratne posed, Wijegunawardena said that he was aware the money being loaned to SriLankan was public money deposited in the bank.

He said the Treasury has requested BOC and People’s Bank to fund SriLankan. But now there were plans to operate under a public-private partnership.

However, the National Agency for Public Private Partnerships headed by Thilan Wijesinghe has not responded to the bank’s requests to submit a report on the progress, he said.

"We have continuously requested for the final report, but we haven’t received it," Wijegunawardena said.

Wijegunawardena said since he took over the position at the offshore unit of Bank of Ceylon, it has sent numerous memos and board papers to the BOC board to recover the SriLankan loans.

"SriLankan Airlines also sends many requests. They want to make the interest payments as a bullet payment with the loan principal,” he said.

"We ignore such requests. We always ask them to pay the interest. We always follow up with the Treasury and lodge claims if the letters of comfort expire and we have always requested for Treasury Guarantees instead of Letters of Comfort.”

He said that the first 5 billion rupees of the unsettled local currency denominated loans had been given in December 2014 based on an understanding that the government would capitalise SriLankan with 125 million US dollars with a priority towards settling BOC loans by March 31, 2015.

However, the government changed in January 2015.

The government only later issued letters of comfort, Wijegunawardena said.

Between 2007 and 2015, a number of loans had been extended to SriLankan without collateral, many of which were later collateralized using shares of the profitable SriLankan Catering Limited, he said.

Most of the debts prior to 2014 had been repaid, either through funds available in the SriLankan current account or through Treasury Bonds issued to SriLankan, he said. (COLOMBO, 24 August, 2018)

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Sri Lanka sells 2028 bonds at 14.52-pct

ECONOMYNEXT – Sri Lanka sold all offered bonds in 2026 and 2028 maturities raising 220 billion rupees from an auction Monday, data from the state debt office showed.

The debt office sold 135 billion rupees of 1 June 2026 bonds to yield 15.64 percent.

Another 85 billion rupees in 01 July 2028 bonds were sold to yield 14.52 percent.

The 2028 bond is offered on tap at the weighted average yield. (Colombo/Sept25/2023)

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Sri Lanka’s stocks end down on Monday after slow day of trading

ECONOMYNEXT – Sri Lanka shares were down at close of trading on Monday.

Turnover was 550 million rupees.

The main All Share Price Index was down 0.36 percent or 40.02 points to 11,216.50, while the S&P SL20 was down 0.44 percent or 14.07 points to 3,164.52.

Trading in the Capital Goods Industry (174,037,134) drove turnover.

Commercial Bank, Expolanka Holdings, and Aitken Spence plc saw losses, while National Development Bank, John Keells Holdings and Melstacorp saw gains in the day’s trading.

The market saw a net foreign inflow of 13 million rupees, while the yearly net foreign inflow was 429 million rupees. (Colombo/Sep25/2023)

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Sri Lanka rupee closes at 324.75/324.90 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 324.75/90 to the US dollar on Monday, from Friday’s close at 324.70/325.00 dealers said.

Bond yields were up.

A bond maturing on 01.07.2025 closed up at 15.55/15.70 percent on Monday, after closing at 14.95/15.30 percent on Friday.

A bond maturing on 01.08.2026 closed up at 15.50/15.65 percent up from 14.95/15.10 percent.

A bond maturing on 15.09.2027 closed up at 14.75/15.50 percent from 14.55/15.00 percent.

A bond maturing on 01.05.2028 closed up at 14.25/14.60 from 14.00/14.30 percent.

A bond maturing on 15.05.2030 closed stable at 13.00/13.50.

A bond maturing on 01.07.2032 closed at 12.95/13.45 percent from 13.00/13.45 percent. (Colombo/Sept25/2023)

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