Posted on March 27th, 2019


The Bond scam saga is not over. It is still going on and looks as though it will go on forever. Those responsible, such as former Central Bank   Governor Arjuna Mahendran and his son in law Arjun Aloysius have not been arrested and the matter is still pending.  There is no sign of any action being taken against anyone regarding the 2015 bond scam.

Investment banker Arjuna Mahendran is the son of Charlie Mahendran, a retired Foreign Service diplomat who had joined the United National Party after returning from his last posting as Ambassador to China, said the media. When Ranil Wickremesinghe became Premier in 2001,  Charlie Mahendran went to New York as Sri Lanka’s Permanent Representative to the United Nations. Arjuna Mahendran was simultaneously made Chairman of the Board of Investment (BOI). In January 2015,  eleven days after the Sirisena-Wickremesinghe Cabinet was installed. Arjuna was appointed Governor of the Central Bank .

The media said that Arjuna Mahendran was a UNP insider who was privy to all the secret deals that were hatched with regard to the Yahapalana conspiracy. It was probably at his house in Singapore that members of the Rajapaksa government had finalized their deals to join the other side. Therefore the UNP would never go against him.  

Governor Mahendra’s period as Governor, Central Bank has been a turbulent period. He  was not interested in running the Central Bank in the traditional manner. He had ,  for instance,  engaged  in a verbal spat over transfers with officials. CB officers of Grade 4 and above,  the highest ranking officers after the Deputy Governors, were having a noon day meeting in a committee room to discuss concerns about new transfers and plans to hire retired bank staff as consultants.    Governor Mahendran had walked  in and confronted the officers.

Discussions of this sort should not be held, he observed. The officials had said that they had held meetings like this earlier too. Next day the authority to book committee rooms including the one used was transferred to the Governor’s Secretariat.

The validity of currency notes signed by  Governor Arjun Mahendran  was questioned in Parliament. Arjun Mahendran is a Singaporean citizen. A Singaporean citizen could not obtain a dual citizenship. Despite that, Mahendran was appointed the CB Governor and currency notes were issued under his signature. Mahendran had not even taken oaths as per the Constitution when he assumed duties,   MP Bandula Gunawardene said.Mahendran  had said that  he did not take the oath mandatory to heads of department as stated in the schedule to the Constitution. He said he did not know.

Mahendran was not frightened of the Commission of inquiry  on the Bond issue. He attended the  Commission’s sittings with a  panel of legal representatives.  His attorney, Romesh de Silva PC made an application on behalf of Mahendra to allow access to the evidence and records of proceedings in possession of the Commission, especially the documents, including the Monetary Board minutes. According to de Silva the CBSL had let Mahendran know,  that if the Commission permits, he can have access to the minutes of the Monetary Board.

Additional solicitor general De Livera pointed out the difficulty of providing l the documents as some of these are strictly confidential. He further said CBSL should  be told before handing over confidential documents, to a possible witness to the Commission. These are official documents. The CBSL has certain objections in giving these documents, so I am only saying the CBSL should hear about this, if the Commission is giving an order,” de Livera said. The Commission directed de Livera to consult with the Attorney-General and the CBSL and let the Commission know their response.

 On another occasion, Mahendran’s attorney submitted to the Commission a confidential document belonging to the Central Bank .   It was  a draft pertaining to future plans on the issuance of Central Bank treasury bonds with technical advice from the World Bank and the IMF. The Commission permitted Mahendran to use it to question the Central Bank. Commission  decided to hold the questioning behind closed doors. Media personnel and others who were present there were asked to leave the place temporarily.

the Presidential Commission of Inquiry  came to the conclusion that Former Central Bank Governor Arjuna Mahendran acted in mala fide and fraudulently, in gross breach of his duties as Governor of the CBSL at that bond auction.  Sri Lanka is now  trying to get Mahendran back to answer charges on the Bond scam.

INTERPOL has issued a red notice on April 19, 2018 (Sunday Times 23.3.19 p 1). Sri Lanka made an official request on May 28 2018, through the Defence Ministry Secretary to extradite Mr. Mahendran to Sri Lanka. Singapore’s Foreign Ministry called for further information over the extradition request. The Attorney General’s Department is now compiling a further detailed statement supporting the request for  extradition, on the instructions of the President, said the  President’s secretariat in March 2019.

Arjun Aloysius, the head of Perpetual Treasuries,  is   married to Arjuna Mahendran’s daughter.  Arjun is the grandson of Kattar Aloysius, who started out as a dry fish exporter and ended up as one of Sri Lanka ‘s most successful businessmen. Kattar founded the Free Lanka Group and was a significant shareholder in several companies at the time of his death in 2013. Kattar was close to Premadasa, said an informant. Kattar must not be confused with ‘Aloysius mudalali’ who was also very close to Premadasa.  Kattar had first got to know Premadasa when Preme was PM. Kattar had good PR skills was a great networker and would often assist Premadasa for free such as providing food for functions, said the informant. The Kattar family  hailed from South India .  They are Catholic.

Namini Wijedasa said that every one she interviewed  said that Aloysius was well-connected, both with the previous administration and the present government. One source related how Arjun  had hired a limousine for an influential Government minister in London  in2015, during an investment road show.The minister wanted to eat Chinese food but the restaurant at the hotel wasn’t that great,” he narrated. So, Arjun Aloysius took the minister out to dinner in his limousine to China Town. That’s just the tip of the iceberg.

 Arjun nurtures his relationships and was frequently seen with this Minister during last year’s campaign for the parliamentary election.”He has covered his bases, whatever the party,” said a senior political source. He is confident enough.” Aloysius’s connections, through his father-in-law and of his own making, are too strong, for him to be toppled   Arjun and Arjuna have too strong an influence with the Yahapalana to be shaken easily, they said.

Arjun is a deal maker, said one investment analyst. He gets things done by using contacts, forging alliances, or by other means. Perpetual made a lot of its money by establishing connections, and flogging certain shares at high prices. If you have connections, you can sell to anyone,” the investor said. You don’t need half a brain to do that. These are deals. If you know someone who knows someone, you can make it happen.” However, Arjun’s firm was not openly identified as part of the well connected   stock market mafia.  He remained in low    profile.

Perpetual Treasuries” began business  in 2013 with an investment of just  three hundred million rupees.  Perpetual Asset Management (Pvt) Limited, the holding company,  recorded a net loss of 2.8 billion as to March 31, 2012. But in  2017 Perpetual Treasuries    showed a profit of four billion rupees, while their three years profit was 12.5 billion. How could PTL manage to  show such high profits in such a short time. The phenomenal growth of Perpetual Treasuries  was  because  it wielded political influence at the highest level, said DEW Gunasekera.  

Perpetual has substantial stakes in HDFC, Central Finance, Lanka Ashok Leyland, Bairaha, Dimo and CIC and took control of WM Mendis.  In 2016, Perpetual was  planning to expand further. There is speculation that it wants to buy a stock brokerage. Religare Capital Markets has been mentioned, reported the media. It is eyeing a television station. Journalists are already being recruited for a national newspaper project. It is  well known that Aloysius has been helping to keep afloat a newspaper house which has been in financial difficulties for months on end.

His manager had told the editorial staff that his task was to protect his investor’s interests. The money, around Rs 1 million a month, comes in via Perpetual Group advertisements. Employees recently went unpaid for two months after the money failed to come in, said Namini Wijedasa in 2016.   Perpetual has a ‘deal’ portfolio that they flip to the EPF at multiples of the market price, they have a separate strategic portfolio and  said a senior stock broking source.  Only when the stock market bubble burst did they shift their attention to the bond market, said informants.”

 Perpetual Treasuries”  is not highly regarded in  investment circles.  Some laughed when asked about Perpetual’s business practices,”  reported Namini Wijedasa  . An investor who studies trends said I’m not entirely convinced that they are smart investors who do their research well.” Perpetual  holds on to certain portfolios and sells them when the market is down. Perpetual Capital made losses on Bairaha which it sold in stages. Perpetual could have earned substantially more on the stock exchange had he sold Perpetual’s stakes in some companies when the respective share prices were peaking.

In 2011, Perpetual Capital acquired a large stake in Lanka Ashok Leyland held by an investor, Perera. This longstanding shareholder had bought 27.8 percent of the company over a period of time. But he was in debt to a private bank. Perpetual arranged with the bank to repossess a section of  Perera’s bloc. The bank force-sold around 12 percent of  the stake to Perpetual at a massive discount.” The share was trading at Rs. 3000 when Perpetual lapped it up at Rs. 1000, causing shockwaves in the industry. The sale was carried out ostensibly to settle  Perera’s dues. But Perera  found that the bank had disposed of far more than necessary.  He was sad about losing something he had collected for so many years,  said the informant.” Days later,  Perera,  bubbly, self-made man”, died of a heart attack. He was in his early 50s.

Perpetual Capital and Perpetual Asset Management joined a tiny posse of companies, including Ceylon Grain Elevators and Lanka Orix leasing, that were helping to pump up the value of certain shares and unload them on to the EPF.  Some shares were taken up to     500% to sell to EPF.  Then the price crashed back to the original level.

Perpetual acquired shares of Grain Elevators for around 50-80 rupees each at the end of 2010. On March 3-4 the following year, EPF bought five million of these shares from Perpetual at Rs 205. The price then fell dramatically to original levels, slaying everyone else that had put money into  Grain Elevators,  after having observed it rise (artificially) in value. Among those affected in a similar manner were some friends of  Aloysius. After helping to inflate or pump up” the prices, they lost millions when the share prices plummeted following his sales.

Perpetual Asset Management employed a similar strategy to sell shares of LOLC to EPF and Bank of Ceylon. A study of historic stock market data, including daily price sheets and trading information, shows this. One stockbroker estimated that Perpetual made Rs 700-800 million profit from each or about Rs 1.5 billion from both, Grain Elevators  and LOLC.

Analysts had  noted that EPF was investing in non blue chip companies in a questionable manner. There was an  ‘inside ring’ consisting of certain officials within the EPF and Central Bank, they said.

Perpetual Treasuries Limited Chief Dealer told the Commission that Perpetual Treasuries Limited was bribing informants to get confidential information from the Employees’ Provident Fund and the Employees’ Trust Fund and other institutes. PTL has been paying for its informants continuously from its commencement as a Primary Dealer in 2014. These informants were paid bribes in millions when former Governor of the Central Bank Ajith Nivard Cabraal was in office as well. In the period July 17, 2014 to December 31, 2014, the informants were paid by the PTL more than Rs. 94 million.

Public Debt Department has not been concerned about the track record of the full shareholder of the Perpetual Treasuries (Pvt) Limited when issuing Primary Dealers’s license to it. When a director of a Primary Dealer company is a close relative of a CBSL top ranking official, it creates a conflict of interest.  The Code of Conduct to the Primary Dealers, states that  in the wake of such a conflict of interest, the Public Debt Department can withhold or cancel the license of a Primary Dealer.

Journalist Namini Wijedasa observed that just three days after the       2015 presidential election, someone predicted on an online website for stock market investors,  that the Bond scam would happen. The man wrote on Sri Lanka Equity Forum: Perpetual Treasuries owned by Free Lanka Capital Holdings owners will mostly get a large amount of business volumes of Treasury Bills and Treasury Bonds business in new ‘Yahapalana Government’ of Maithripala-Ranil Regime since the  new Governor of Central Bank is tipped to be Free Lanka Capital’s driving force Arjun Aloysius’s father-in-law Arjuna Mahendran who is also the top Economic Advisor of Ranil Wickremasinghe [sic] since old times.” 

He was proved right at the Central Bank bond auction of late February 2015.. The Government was not two months old when Bond scam occurred.  For those of us who knew how Perpetual did business, it didn’t come as a total shock,” said one investment management source. Perpetual Treasuries  were connected with pumping up stocks and dumping them at high prices on the Employees’ Provident Fund, which appeared to be a willing participant in this scheme. What shook us was that the new Government had  allowed what  happened at the bond auction. ( Continued)

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