Bringing out a series of private placements issued in 2014 to the attention of the Presidential Commission inquiring into the Treasury bond issue,Legal Counsel Chanaka de Silva yesterday pointed out that all the referred bonds have been issued above the 11.00 bid rate.
The last 30-year Treasury bond issuance held prior to the questioned auction on February 27,2015, has been the direct placement issuance which has taken place in September 2014.
The accepted bid at the said rate belonged to the Employee’s Provident Fund.
The last approved direct placement rate for a 30 year bond has been 9.35 which is of the same bond to the EPF.
The rate 9.35 has been looked in comparison with the 12.5 rate at which bonds have been accepted at the February 27,2015 auction.
Former Governor Mahendran’s lawyer drawing attention to 30 and 20 year tenure Treasury bonds issued in 2014 to EPF, First Capital, Wealth Trust, NSB and Perpetual Treasuries Limited, pointed out the rates at which they were issued have been 11.29, 11.32, 11.41, 11.68, 11.70 and 11.75.
De Silva then pointed out that both the EPF and the NSB have purchased long tenure Treasury bonds at lower rates such as 10.00, 9.38, 8.85 and 9.45 by the end of 2014.
He suggested that the Public Debt Department has manipulated the market by using the EPF and the NSB, which are captive sources, making them bid at lower rates for long tenure Treasury bonds.
He also pointed out that there has been a 142 basis point drop within 15 days in late 2014 due to the said manipulation.
De Silva was leading evidence through the Senior Assistant Director Steffie Fernando, attached to the Public Debt Department, Front Office who was testifying before the Presidential Commission yesterday.
Mahendran’s lawyer also questioned Fernando regarding the Public Debt Department’s inability to raise the government requirement in the months of January and February in 2015.
De Silva asked if Fernando is aware that the Public Debt Department was short of Rs.19 billion and Rs.9 billion each month respectively, from the total requirement of funding set out by the government to the Central Bank.
Acting Auditor General Dappula de Livera rose to object the line of questioning done by De Silva, which led to an argument between the two. De Livera said de Silva is trying to manipulate the witness into establishing that the Public Debt Department was facing a difficulty in raising the required funding on the February 27,2015, to which de Silva said, de Livera is feeding information to the witness.
The argument went on as de Livera told de Silva ‘to get into the dock’ to which the latter said ‘he will’ and asked ‘when should he do so’. Justice Jayawardena told both lawyers to ‘stop this drama’ and proceed with questioning, since the argument was ‘ridiculous’.
Meanwhile, Fernando answered in the affirmative when asked whether there was an absence of a proper standard adopted by the Public Debt Department (PDD) to decide on the changes that could be imposed upon the market rates with regards to issuing direct placements. Justice P.S. Jayawardena pointed out that the understanding was that the PDD is only allowed to make changes to the market rate either 5 basis points higher or lower. According to evidence given by Fernando, the PDD could change the market rates by 50 basis points higher or lower. It was also pointed out the direct placements have been issued prior to 2015, where the change of basis points has gone up to a 500 basis points.
Asked on the questioned Treasury bond auction held on February 27, 2015, Fernando said she did not expect the bid rates would go very high. She also said that she found it ‘strange’ when former Governor Mahendran walked into the Public Debt Department and instructed to take the 20 billion bids that have been received for the questioned auction. Asked as to why she found the directive strange, Fernando said she found it strange because among those bids, there were dummy bids as well. A witness from the Primary Dealer Capital Alliance is to testify before the Commission today (04).
Add new comment