News
Bond Commission warns MP, expresses concern over false reports
Former Central Bank Governor Arjuna Mahendran arriving on Friday at the offices of the Commission of Inquiry. Pic by Indika Handuwala
The Central Bank Monetary Board Secretary, H A Karunaratna, has been notified to appear on Tuesday before the Commission of Inquiry (COI) probing the issue of Treasury Bonds.
He will be asked to explain the decision making process of the Monetary Board.
Former CBSL Governor Arjuna Mahendran, from whom a statement was recorded by the Commission on Friday, is also likely to be called to give evidence before the Commission later in the week.
Among those who have appeared before the Commission thus far are the CBSL’s Public Debt Department (PDD)’s former superintendent Deepa Kanthi Seneviratne and the current Superintendent, Buddhika Sarathchandra. UPFA MP Bandula Gunawardena was summoned by the Commission this week.
The Commission is headed by Supreme Court Justice K.T. Chitrasiri, and includes Supreme Court Justice Prasanna Jayawardana and the retired Deputy Auditor General Kandasamy Velupillai.
The Commission has been given a mandate to investigate, inquire into and report on the issuance of Treasury Bonds from February 1, 2015 to March 31, 2016.
Last Monday Ms. Seneviratne told the Commison that the bid for the Rs 10 billion bond was accepted since the then Governor Arjun Mahendran directed them to do so.
Ms. Seneviratne, led by Senior Deputy Solicitor General Priyantha Nawana, in her evidence said she was serving as the Assistant Superintendent of the EPF Department and was transferred to the Public Debt Department on February 9, 2015 as the Superintendent.
She said she was surprised by the appointment as she had never served in that Department though she had been in the Central bank for 28 years. She said she requested Deputy Governor Nandalal Weerasinghe to stop the transfer and was told that it was beyond his control.
She said she met Mr. Mahendran too and asked for a change of the transfer as she was inexperienced in that field, but was told to accept the post as a challenge and take up the position.
Ms Seneviratne said she finally accepted the post and gradually was studying the functions of the particular department.
She said she was aware of the Bill and Bond issues taking place on February 2, 11, 18 and 25 in 2015 and the Bond issue on the 25th.
She said she as the head of the Public Debt Department presided over the meetings to decide on the department’s functions and one of the duties of the Board was on deciding on the quantum of debt to be taken and the interest rates with least risks.
She said she was informed by Dr. M.Z.M. Aazim, Additional Director of the Statistics Department, that the government’s requirement for debt in March 2015 was Rs 13.5 billon and Bonds should be issued with a maturity period of 30 years. After discussions it was decided to hold the auction on February 25, 2015 and that a newspaper advertisement should be placed.
She said she was in her room on the day of the auction and Mr. Mahendran arrived at her office room. She said the Public Debt Dept. is not accessible to other staff without permission and that Mr. Mahendran arrived there with two security persons who had access to the place by swiping a security card. She said nobody from the Department had opened the door for him and it was the security which brought him in.
She said her department was fitted with CCTV cameras.
Ms. Seneviratne said that one of the officers informed her that the auction time should be extended by five minutes and on inquiries made she was told that if primary dealers made a reasonable request such time could be provided. She said the officer told her that the request to extend time was made by the HSBC due to a technical issue.
In response to a question whether she saw Mr. Mahendran telephoning any person, she said he did not call any person.
She said Mr. Mahendran had returned to the Department at noon and had asked about the amounts raised by the auction. Mr. Mahendran had wanted to issue bonds amounting to Rs 10 billion but Dr Aazim said the figure was too high.
“Since Mr. Mahendran directed to issue bonds up to Rs 10 billion, I went ahead with the directive. I directed my officers to note down the directive on the documents. I too placed a minute informing the tender board to issue bonds for Rs 10 billion. The officers were surprised. They also made inquiries about the visit of the Governor to my office. The tender board officers took up the view that it should not approved,” Ms. Seneviratne said.
In response to a question as to why she had given approval, Ms. Seneviratne said that since Mr. Mahendran had directed to issue bonds for Rs 10 billion she carried out the orders.
On Tuesday, the CBSL’s Public Debt Dept. Superintendent, Buddhika Sarathchandra, told the Commission that the Bank last conducted a 30-year Treasury bond auction on February 27, 2015. He said the CBSL Head Office collected information of bond dealers on a daily basis and determined market rates based on that information.
Mr. Sarathchandra, led by Senior State Counsel Shaheeda Barrie in his evidence, said the CBSL always took steps to issue Treasury Bonds at a lower value than the monetary requirement of the Government and that lower bids were invited to keep interest rates low.
If interest rates became too high, there was a danger of investors in the country’s stock market moving overseas. As such, it was important to maintain interest rates that would attract investors who would invest in Treasury Bonds, Mr. Sarathchandra explained.
In addition to keeping interest rates steady, the CBSL often changed its method of issuing Treasury Bonds to attract investors, he added.
In continuing his evidence on Wednesday, Mr. Sarathchandra said neither the CBSL Governor nor any Deputy Governors had attended any of the Treasury Bond auctions held since he assumed duties as Superintendent of the CBSL’s Public Debt Department.
Mr. Sarathchandra showed documents relating to four separate Bond auctions and said the Tender Board had not accepted any of the bids submitted for the first auction.
He said that the CBSL had hoped to raise Rs.105 billion through these Treasury Bond auctions.
Mr. Sarathchandra explained that companies and persons preferred to invest in long-term Treasury Bonds such as 30-year ones as they received a higher interest rate in view of additional risks associated with longer maturity. Banks engaged as primary investors preferred to invest in short term Bonds that matured in 5-10 years as the risks were comparatively lower.
He said the CBSL had accepted all bids submitted by Perpetual Treasuries for the third Bond auction as the yield ratio at the time stood at 13.93. The company had also submitted bids for two other Bond auctions, he added. The bids for these two auctions were at 39 percent and 45 percent. However, the highest yield ratio among the bids submitted by Perpetual Treasuries was 13.93 and this was when all bids submitted by the company were accepted, he explained.
The Superintendent said 32 percent of total bids submitted by Perpetual Treasuries for all four auctions were accepted.
In answering questions during cross examination by President’s Counsel Nihal Fernando, who appeared on behalf of Perpetual Treasuries, Mr. Sarathchandra stated since the day he had assumed duties as Head of the Public Debt Department, neither the Central Bank Governor nor any Deputy Governor had come to the location while a Bond auction was taking place.
On Thursday, Joint Opposition (JO) Parliamentarian Bandula Gunawardena, who appeared before the Commission, was severely reprimanded and warned by the Commission over a false statement he made to the media, causing embarrassment to the Commission.
Additional Solicitor General Dappula de Livera submitted to the Commission what MP Gunawardena had told a private news channel which broadcast his statement on its 7.00pm news bulletin on February 7. Mr. Gunawardena had told the channel that he had some reports pertaining to the Bond issue. He said these reports were not available with others and he had forwarded them to the Commission.
The Parliamentarian admitted upon questioning that he had not submitted any report to the Commission at the time he made the statement. He acknowledged that he had made a false statement to the media.
The MP also stated that a letter, signed by 26 MPs representing the JO, had been forwarded to the Commission. However, Justice Chitrasiri said the letter had only reached the Commission at 9.40 a.m. that day. Mr. Gunawardena also stated on questioning that he did not know who had drafted the letter.
Justice Prasanna Jayawardena said various reports pertaining to the Commission were being circulated in the media but that 50 percent of the contents were false. Such false information was a severe impediment on the duties of the Commission, he said.
Mr. Gunawardena said he believed it was important for the Commission to summon JO MPs Mahindananda Aluthgamage and Weerakumara Dissanayake who had been members of the two Committees on Public Enterprises (COPE) appointed to probe the Bond issue.
Justice Chitrasiri said the Commission members had read both reports and hoped to summon the two chairpersons of those committees.
He said that the Commission had to even publish newspaper advertisements due to the statements made by the MP and that it had disrupted the functions of the Commission.
After severely reprimanding Mr Gunawardena and warning him not to engage in such conduct in future, the Commission proceeded to record his statement, as he said he was ready to make one that day.