At the time Nivard Cabraal was CB Governor and his sister Shiromi Wickremasinghe a director of PTL
Perpetual Treasuries Ltd., CEO Kasun Palisena giving evidence before the PCoI said today the PTL had made a profit of Rs.816 million in the first six months of secondary market operations.
When questioned by Justice Prasanna Jayawardena it was revealed that during this period Ajith Nivard Cabraal was the CBSL Governor and his sister Shiromi Wickramesinghe was a director of Perpetual Treasuries Ltd.
Mr. Palisena said he joined PTL in 2013 as the chief dealer and promoted as CEO on January 16, 2015, before the controversial bond issue.
He said PTL had in October 2012 applied to function as a primary dealer at the Central Bank and in October 2013, they received their license to function as such and had entered the market from February 2014.
In line with the license, every primary dealer adheres to submit a Business Plan to the CBSL, and the PTL’s Business Plan contained its views as seeking longer tenure bonds, create liquidity in the secondary market and while promoting techniques used in the equity market (share market) to increase secondary market bond transactions.
Justice Prasanna Jayawardena asked the witness whether these techniques were obtained from the equity market. He said yes.
Justice Jayawardena asked, “Do you know what happened in the share market in 2012”. Witness said yes. Justice Jayawardena was of the view that there were allegations with regard to the techniques adopted by certain companies in the share market in 2012.
Targeting the Longer tenure bond deals, mostly those of seven years or more, the PTL had started its operations in February 2014 with a capital of Rs.310.3 million.
For the six months, from April 1, 2014 to September 30, 2014, the PTL had earned a profit of Rs.816 million through bond transactions in the secondary market.
“At the time we entered the market other primary dealers had a higher capital than us, but they were not trading as aggressively as we did, they were passive investors, we wanted to become experts in the longer tenure bond transactions,” Mr. Palisena said.
In six months PTL had gained a 400 % rise in their capital and Rs.576 profit earned from trading.
Justice Prasanna Jayawardena asked, “Was the then Governor Ajith Nivard Cabraal’s sister Shiromi Wickremesinghe a director of your company in 2014?” the witness said yes.
The witness said they were only dealing in secondary market transactions at the time that they earned a profit of Rs.816 million.
The witness was of the view that the yield rate in the market was increasing after July 2014 due to market factors but the rate had been suppressed by not having auctions in the market.
He said there was no hike in the foreign exchange rate either. The witness was of the view that the market rate was suppressed by such means and added that the interest rate was supposed to be increasing but it did not happen. Due to such suppression foreign investors started exiting the market, with an outflow of Rs.2 billion in foreign reserves reported during the latter part of 2014.
Mr. Palisena said even though in September 2014, there was an increase in the market yield rate by 60 basis points it was not enough to compensate the outflow of foreign reserves.
“Foreigners exit, because the yield rate was very low in 2014 and the exchange also gave cheaper dollars” he said.
The witness said they however expected an upward movement in the interest rate by the latter part of 2014 and thereby in October the PTL sold their long tenure bonds even at a loss. He said in the light of the election at that point the selling of bonds had intensified, because of uncertainty.
When Justice Jayawardena asked why the PTL wanted to sell if they were interested earlier in the longer tenure bonds, the witness said it was because of the big gap between the market rate and the actual rate.
However, by November, 2014, the PTL had sold all their bonds and was fully liquidated while only dealing in short term bond deals in the market.
Meanwhile, the witness said he could predict the Government’s fund requirement for the next thirty to forty years using the analytical information available to him as a primary dealer.
He said that using the CBSL details on maturity repayment for the bonds in coming years he could prepare the possible requirement of the government’s future fund requirement.
When the Commission questioned him, he said if some significant event occurred changing such requirement then they could adjust their predictions.
President’s Counsel Nihal Fernando who led the evidence on behalf of the PTL was of the view that the PTL had the individual potential and sources with such capability which the other primary dealers did not have.
However, when Justice Jayawardena asked about the availability of the information on the Government’s prospective cash figures on its revenue (income and expenditure) to the witness, Mr. Palisena said they were not available to anyone. He added that it was through a part of information and factors they used to predict the Government's fund requirement.
He explained that the PTL had engaged in Rs.276 billion worth of secondary market transactions and Rs.2.5 billion direct placement transactions from April, 2014 to February 2015.
Explaining to the Commission about the difference between price takers and makers, the witness said Traders, Captive sources, Pension fund, EPF, ETF, Insurance Corporation, etc., are interested in the longer tenure bonds.
Comparing the nature of the Bond Market and the stock market, the witness said the share market is a system-driven market unlike the bond market which is not system driven but the Over The Counter method where negotiations and bargains were necessary to strike a deal. (By Shehan Chamika Silva)
(Pics By Damith Wickramasinghe)