Sri Lanka bond probe: Perpetual bought bonds with EPF billions

ECONOMYNEXT – Perpetual Treasuries, a controversial gilt dealership linked to ex-Central Bank Governor Arjuna Mahendran’s son-in-law had borrowed billions of rupees from the Employees Provident to pay for its bond purchases, a commission of inquiry heard.

To pay for bets made at auctions of March 29 and March 31, Perpetual Treasuries had borrowed 6.0 billion rupees through two repurchase deals from the EPF, K Alwis, additional director of the central bank’s information technology department said.

Alwis was giving evidence on cash and securities transactions made by Perpetual Treasuries through the central bank’s clearing and settlement systems, to a commission of inquiry appointed by President Maithripala Sirisena to go into alleged frauds committed on bond deals in 2015 and 2016.

The March 2016 bond auctions were among the most controversial, where Perpetual Treasuries bid for large volumes of bonds and paid for them with money taken from the Central Bank on April 01.

The EPF is also managed by the central bank.

Deputy Solicitor General Milinda Gunatilleke leading evidence asked whether the cash could have been used by the EPF to invest directly in the bond auctions.

In a controversial 2015 auction, Perpetual had borrowed money from state-run Bank of Ceylon to pay for bonds.

Replying Justice Prasanna Jayewardene de Alwis said clearing system data showed that 2.3 million rupees had been paid to the EPF by Perpetual Treasuries for the first repo deal of 3.5 billion rupees.

Perpetual Treasuries had also borrowed 10.5 billion rupees from the daily reverse repo auction of the central bank, the inquiry was told.

A total of 19.9 billion rupees had been borrowed from the intra-day liquidity facility (ILF) of the central bank, for which no interest is paid.

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"This is free money not a borrowing," Gunatilleke said.

Totalling up data in the clearing system showed that Perpetual Treasuries had borrowed 19.9 billion rupees from the ILF and 10.5 billion rupees from overnight facilities, Gunatilleke said. Private parties had provided only 13 billion rupees, he said.

Perpetual Treasuries eventually defaulted on 11.06 billion rupees of borrowings from the ILF, de Alwis said.

Perpetual had also defaulted on a reverse repo auction.

Gunatilleke said the default deprived other market participants of money and the government. De Alwis said the central bank could not inject money to the market as intended through the auction.

Answering Justice Jayewardene de Alwis said some of the securities which Perpetual agreed to provide for the reverse repo transaction had been pledged to the intra-day facility. (Colombo/Apr05/2017)
 

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