Irregularities in the 30 Year Treasury Bonds issue on 27th February 2015
Posted on March 18th, 2015

Sri Lanka News

  1. On 27th Feb Central Bank announced an auction for issuing 30 year Treasury Bonds for Rs. 1,000 million ( 1 Billion ). Public Debt Department of the Central Bank contacted Commercial Banks and Primary Dealers over the phone canvassing bids for the above auction around the market rate of around 9.35% and 9.75% range – which is a customary practice.
  1. Secondary market Treasury bond rates at that time were trading in the market at low yields due to excess liquidity in the  market .  30 year bonds also traded around 9.35% and 9.75% range and the Central Bank private placements were also done at these prevailing rates.
  1. At the abovementioned  auction,  Central Bank accepted bids for Rs. 10,000 million ( 10 Billion ) – ten times more than the amount offered at a weighted average rate of 11.72%. (CB accepted bids for Rs. 10 billion at rates as high as  3 % above the market – probably the First time in its history !!.
  1. Perpetual Investments owned by Governor’s Son-in-Law, have apparently been given Rs. 5  billion ( ie. half of the auction ), at rates going up to 12.5 %.  Most other Banks and Primary Dealers ( except a few who may have also had an indication from other market/CB sources )   bid at low rates below 11.00% due to above directions/indications given earlier by the Public Debt Department, and the market sentiments that prevailed due to excess liquidity.
  1. In order to accommodate this, Perpetual resorted to short selling before the auction by putting dummy deals in their book, ( The whole market knows this ) for value 6th March. Short selling is against the regulations and if proven can lead to the cancelation of  a dealer license in any other market !.
  1. Accepting bids for 10 times the amount offered is highly unethical and unproductive for the government and only meant to drive the rates up to favor his son-in-law. Even those who work in CB knows about this and when banks called to protest, they said they are helpless.
  1. Just after the conclusion of the above auction on 27th February 2015 Central Bank announced a policy change removing restrictions to place excess funds of Commercial Banks at the Standing Deposit Facility of the Central Bank  affectively increasing the overnight money market rates by around 1.00%.
  1. At the next treasury bills auction yields of all maturities of treasury bills went up by almost 1.00%. – It is the Public & the Govt of SL that will have to pay for this increase !!
  1. Central Bank could have collected 30 year funds at a much lower rate if the auction was conducted properly and also avoided the increase in the treasury bill rates at the next auction to such an magnitude. Therefore this has resulted in Government paying more for long term as well as short term funds.
  1. Everyone in the market knows that Perpetual Investments  had prior knowledge about the  impending behavior at the auction which is why that they bought so much at the auction and also before the auction bought from the market at low rates. If one inspects their books, it will be easy to establish this.
  1. This is a 30 year bond and it is scandalous to pay 2 to 3 % higher than the market for the next 30 years making poor  people pay for this just to enable his son-in-law to make money.  Even if he sold them back in the secondary market, he would have made a around  Rs. 300 to 500 million, in profits within a couple of hours !!

One Response to “Irregularities in the 30 Year Treasury Bonds issue on 27th February 2015”

  1. Christie Says:

    Namaste: Has the government taken in to custody Mahaendran, his son in law and other who are involved in this fraud? Cores 30 to 50 million in an hour is the biggest fraud in the island. Has the law enforcement authorities sealed the books computers and communications of Perpetual as it will happen in any Capitalist economy? This is part of 100 day good governance. I saw some parliamentarians protesting in front of the Central Bank. Is that the standard of our members of the parliament? They should be questioning the Treasurer and the Attorney General at the Parliament and introducing new legislation to prosecute these international crooks if the current law is not sufficient. Jai Hind.

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