Chairman of the PCoI Justice K. T. Chitrasiri today asked the CEO of PTL Kasun Palisena as to why he did not think that Central Bank Officials advertised only for Rs 1 billion worth of bonds while knowing the fund requirement of the Government, since they had other means of collecting the required funds.
Justice Chitrasiri made the observation on considering the earlier submission by Palisena that they bid 15 times more than the advertised amount, after ‘predicting’ the urgent fund requirement of the Government which was much more than the advertised amount.
Summarizing the line of questioning done on the other day (August 9) over bidding a 15 times bigger volume at February 27 auction, Justice Prasanna Jayawardena yesterday told the witness that the Commission has an open mind and hence to provide any other reasons as to why he identified that auction to be extraordinary.
The witness said that the Rs. 300 billion worth of payments made by the Government using reserves without raising borrowings for the maturity repayments of the Bonds, interest rate payments of IMF loans and for the Mini budget proposals and also the canvassing conducted by the CBSL officials on February 27 auction hinted them that the Government was in need of money.
During witness’ explanation which was quite the same as what he had said the on Wednesday, Justice KT Chithrasiri questioned the witness “Having known about what was offered at the auction (1 billion), CBSL officials were also well aware about the fund requirement of the Government and other urgent requirements as you said, so don’t you think that they had other means of collecting money”
“Because of the canvassing done by the CBSL, we predicted that the government urgent money requirement and with the mini budget during the hundred day program we felt the government was in need of money”, witness Palisena said.
“Requirements of funds were also known to the Government officers, therefore, don’t you think when CBSL advertised for only 1 billion they might have had some other means of raising the required money?” , Justice Chithrasiri asked.
The witness said he made those predictions on his capacity as a primary dealer and did his job only.
In the mean time, Chief Executive Officer of Perpetual Treasuries Ltd, Kasun Palisena yesterday also said that he had convinced foreign investors to invest in Government securities, equity and FDIs at the ‘Singapore Finance Asia Summit’ sponsored by PTL in March 2016 referring to the possible International Monetary Fund assistance, which Sri Lanka was to receive as an ‘Emergency Fund Facility’ at the time..
Referring to three bond auctions that took place on October 26, 2015, March 29, 2016 and March 31, 2016, Perpetual Treasuries Ltd Chief Executive Officer, Kasun Palisena explained to the Commission on what basis it had placed much larger volume of bids, at a higher rate than what had been offered.
It was explained that Perpetual Treasuries Ltd had placed a higher volume of bids than the offered value of bids at those auctions.
Referring to the auction held on October 2015, Mr. Palisena explained that they were expecting Sovereign Bonds to be raised at the latter part of the year and thereby the yield rates would pick up. And also he said that there was a rumor about a Forex swap with India, which was positive news for the market. He said when they were bidding a larger quantity PTL wanted a rate which they were comfortable with.
Referring to the two auctions held on March 29 and 31, 2016, Mr. Palisena explained as to why they were bidding much higher quantity at a higher rate.
He said that there was pressure on the interest rate again starting from the latter part of 2015 to March 2016 because there was a down turn in the foreign investments in Sri Lanka.
The witness said that the down turning would generally effect in picking the yield up because there were heavy foreign exits by the beginning of 2016.
“Heavy foreign exits in the market by March 2016 effected an upward trend in the rate”, the witness said.
While elaborating the situation that the Government was facing by March 2016, the witness said that Sri Lanka was looking for international assistance because of the Balance of Payment crisis that happened with the exit of foreign investments.
He said there was IMF assistance as EFF (Emergency Fund Facility) offing for above reason.
“Sri Lanka was facing a balance of payment crisis due to sudden foreign exist”, he said.
The witness was of the view that it was another reason for them to predict Government’s urgent fund requirement by March 2016 before the two T-bond auctions (March 29 and 31, 2016).
He also explained on what basis they went on to bid at a higher rate at those auctions.
“Even at the Summit that we had in Singapore in March, we went out to promote Sri Lanka and I mentioned that any yield above 12 % is a buy currently in Sri Lanka”, he said.
During the evidence led by President’s Counsel Nihal Fernando and Counsel Romali Tudawe, it was explained that PTL had sponsored a summit “Finance Asia” held in March 2016, in Singapore to promote Sri Lankan Government Securities, equity and FDIs.
The witness also said that PTL sponsored the summit partnered with a Singaporean company and there was a presentation done by one Thiruchelvam from that company.
Subsequent to the presentation there was a panel discussion at the summit.
What did you tell foreign investors?”, Counsel Romali Tudawe asked.
Witness said, “ I managed to convince them to come and buy Sri Lankan products. We showed if IMF funds come how it will be positive news for the market”.
He said there was a specific need over IMF’s assistance to come at that time because the Government was almost facing a balance of payment crisis.
“Government had to find methods for repayments”, he said.
Mr. Palisena also confirmed that the IMF assistance (EFF) however came after April, 2016.
He also said that the CBSL’s officials also did participate at the Summit held in Singapore. Then Governor Mahendran, Mr. Sarathchandra, Mr. Jayalath and some Public Debt Department officers had participated.
The witness was of the view that all the times when Government was in such situations the yield rates picked up and they were part of the factors them to predict Government’s fund requirement than what CBSL had offered on the advertisements before the auctions held on March 29 and 31, 2016.
Mr. Palisena’s evidence will continue tomorrow. (By Shehan Chamika Silva)