Sri Lanka’s Perpetual Treasuries makes billions selling bonds to state funds: bondscam inquiry

ECONOMYNEXT – Sri Lanka’s Perpetual Treasuries, a primary dealer, has made billions of rupees in profits selling bonds it bought from a controversial auction back to state managed funds, a commission of inquiry was told.

Among the buyers who ended up with the bonds included the Employees Provident Fund the Sri Lanka Insurance Corporation.

A central bank official examined by a state attorney at a president commission of inquiry into so-called ‘bondscams’ said one set of transactions showed gains of 2.25 billion rupees for Perpetual Treasuries.

Following a controversial auction in February 2015, which came into prominence after 10 billion rupees of 30 year bonds were sold pushing interest rates up (lowering the price), after offering only one billion with most of it going to Perpetual Treasuries, the firm had also bought the same bonds in the secondary market, the commission was told.

Large volumes were then sold to state funds (at higher prices), bringing billions of rupees in profits to Perpetual Treasuries.

The commission had earlier been told that then Central Bank Governor Arjuna Mahendran pressured officials to sell the bonds, amid objections. Perpetual Treasuries is connected to a relative of Mahendran.

Some February 2015 bonds were eventually sold to the EPF.  But EPF had the right to buy directly from the auction, the commission was told by Wasantha Alwis, an additional director at Central Bank.

In one instance 1.3 billion rupees of bonds was sold to PanAsia Bank which sold them to the Sri Lanka Insurance Corporation, another state managed entity.

The Provident fund of the UGC was also a buyer of the bonds, the commission was told.

The commission was told that among the final holders of the February 2015 bond was a central bank pension fund, a central bank provident fund, a central bank widows and orphans fund, after Perpetual Treasuries sold all the bonds.





De Alwis was examined Monday on several transactions by Perpetual Treasuries with other participants in the bond trading system, where the price of the deal was indicated (DVP transactions).

However Perpetual had also sold bonds to their own clients through so-called DVF transactions, where prices have to be found through other means, the commission told.

De Alwis said the buyer and the seller knew the prices, but the cash settlement system would also have the data.

Earlier Deputy Minister Harsha de Silva had testified that the Parliament’s Committee on Public Enterprises was told by the central bank during its inquiry that the data on secondary market deals were not available. (Colombo/June06/2017)

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