Interest rate furore over Central Bank bond issue

  A major furore has broken out in Colombo’s money markets after a ‘favoured’ primary dealer with high connections was seen singularly benefitting from a Central Bank (CB) bond issue at what dealers said was an ‘unbelievably’ high interest rate. The issue came to a head on Friday when bids closed for the CB’s 30-year bond of Rs.1 billion which was oversubscribed by 20 times, prompting the market to suspect whether there was insider trading or ‘inside knowledge’ that this dealer had on the rate the CB would accept the bids. “Rather than accept the lowest bids, the CB accepted a range from 9 + per cent to the highest bid of around 12.5 per cent,” a dealer said, adding that this particular primary dealer was said to be the only one to submit a bid at 12 +per cent and that too for a quantity of Rs. 3 billion. The CB had accepted Rs. 10 billion in bids after seeking only Rs.1 billion. Normally bids made by the 16 registered primary dealers are each around 10 per cent of the total amount required, which in this case would have been Rs. 100 million per dealer. Market traders said they believed the dealer-company in question was Perpetual Capital controlled by Arjun Aloysius, son-in-law of CB Governor Arjuna Mahendran. CB officials were not immediately available for clarification on the issue. Dealers said a few weeks ago, before the 30 year bond was floated, the CB had announced a private placement bond issue where the prescribed rate was 9+ per cent. Going by this rate, dealers bidding for the 30 year bond which was auctioned on Friday had used this earlier rate as a benchmark but to their dismay found that the CB had accepted a higher rate. “Also what is surprising is that the said dealer had routed the deal through a state bank instead of making the offer themselves which is also unusual and raises questions,” one dealer said. – ENDS -