Bond scandal: PT settled dues with borrowings from CBSL, EPF

Deputy Solicitor General Milinda Gunathilake yesterday revealed to the Commission that Perpetual Treasuries Ltd (PT) had borrowed from Central Bank of Sri Lanka (CBSL) and the Employees Provident Fund (EPF) on April 4, 2016 when it was settling payments to the CBSL and EPF due three days earlier (1) pertaining to the bids accepted in the bond auctions held on March 29, 30 and 31 in 2016.

Concluding evidence from Director of the IT Department of the CBSL Wasantha Kumara Alwis, the Deputy Solicitor General (DSG) explained to the Commission that the PT had borrowed Rs.19.7 billion again from CBSL and EPF using it to settle the Rs.27.5 billion that was required on April 4.

In line with the bids accepted on the bond auctions held between March 29-31, 2016, PT needed to settle the payments to the Central Bank on April 1, 2016. The payment process was set in the systematic medium called Lanka Security System (LSS).

Perpetual Treasuries had then obtained loans on several occasions on the date of settlement (1) using the ‘Intra-day Liquidity Facility (ILF)’ of the Central Bank, which is given by the Central Bank to enable financial institutions to make payments in real time with the funds accessed during the particular business day, keeping the securities provided by the institution to the CBSL as security.

However, the borrowings from the ILF needed to be settled on the day it was due as it is regarded as a temporary loan given by the CBSL with no interest payable to the CBSL.

This meant that even though the monies owed on the accepted bids at the bond auctions had been settled at the end of the day on April 1, the monies obtained from the ILF by PT in order to settle the bonds were not paid on the same date causing a shortfall of Rs.11.05 billion in the ILF account.

It was revealed yesterday that despite the fact that the PT was not able to settle the ILF outstanding on April 1, they were again unable to settle the due amount before the LSS official closing time.The due amount was however settled by 5 pm on April 4, 2016.

As a result of the Rs.11.06 billion outstanding in ILF borrowings on April 1, the system had calculated the increase of the market value of securities and had charged an additional Rs. 88 million from PT on the basis that there was an increase in the market rate from April 1 to 4.

However, the witness told the Commission that the additional Rs. 88 million charged from PT was later repaid to the Perpetual Treasuries manually on the instructions of high ranking officials at CBSL. “Such manual intervention to repay Rs. 88 million was an unusual and unprecedented occurrence as the sum to be paid by the company was calculated electronically by the system, said Mr. Alwis.

It was also revealed that PT was fined Rs.13.6 million by the CBSL over the non-settlement of ILF borrowings on April 1 and another fine of Rs.7.8 million had been slapped on them over a REPO agreement where PT could not furnish securities to the CBSL on time.

The witness was also cross examined by Nihal Fernando PC along with Counsel Romali Tudawe.

Subsequently, the Commission to inquire into the Treasury Bond issue, which comprised Supreme Court Judges Kankanithanthri T. Chitrasiri, Prasanna Sujeewa Jayawardena and former Deputy Auditor General Kandasamy Velupillai, decided to resume the inquiry today (7). (Shehan Chamika Silva)