BOC bid for primary dealer PTL for 1st time

It was revealed yesterday at the inquiry at the Bond Commission that the Bank of Ceylon (BoC) had bid on behalf of a primary dealer Perpetual Treasuries Ltd (PTL), for the first time at the thirty-year bond auction conducted by the Central Bank of Sri Lanka (CBSL) which took place on February 27, 2015.

The CBSL had originally intended to sell 1 billion rupees (USD 7 million) worth of 30-year bonds at the primary auction held that day. Thereby, primary dealers, like BoC, could bid in the auction directly or on behalf of their clients.

The BOC had not bid directly at the auction for thirty years fearing possible economic fluctuations that might take place if it did, but did so on behalf of three companies, Kalutara Bodhi Trust, Ceylinco Insurance and Perpetual Treasuries Ltd., the latter being significant in this process since it was also a primary dealer that could directly place bids at the thirty year auction if needed.

However, it was the BoC that was chosen by the PTL as it had provided the best economic benefit to the company.

Giving evidence to the Bond Commission, former Chief Dealer of the Bank of Ceylon Treasury Division, J.K. Dharmapala, it was explained that when the auction was being held on February 27, 2015, its Chief Executive Officer (CEO) Mr. Kasun Palisena had contacted him and requested the BoC to bid on behalf of them at the bond auction and subsequently the bidding rates of PTL were sent to the BoC.

Senior State Counsel Dr. Awanthi Perera, who led the evidence, played several few recordings of phone conversations that took place between Mr. Dharmapala and Palisena for the benefit of the Commission upon which the witness was questioned.

Mr. Dharmapala revealed that the bids were placed at an interest rate of 12.50% and the bid amount bid was Rs.13 billion. He said this interest would not have been seen as acceptable by the CBSL since the acceptable interest rate for bids should be below 10% and as a result he had thought they were dummy bids.

However, he said he had to place bids on behalf of PTL without obtaining the approval from the higher authorities of the BoC and it was also revealed that due to the irregularities that had occurred during the course of the bidding process the bank's disciplinary committee had conducted an internal inquiry against Mr. Dharmapala and cautioned him.

However, after the auction results, Mr. Dharmapala said that he was shocked because he was informed that the former governor had taken the unusual step of visiting the Public Debt Department on two occasions while the auction was taking place and had instructed the authorities to accept all bids even at the rate of 12.50%.

Out of the 13 billion bids which the BoC had placed on behalf of PTL at the rate of 12.50, three billion were accepted by the CBSL.

“After the acceptance of the bids at a rate of 12.50% I was wondering if PTL had inside information that indicated that the CBSL would accept these bids as generally the CBSL would not accept bids at such a high rate nor accept so many bids of this nature,” he said.

Dharmapala also informed the commission that there was an officer attached to the Information Technology Department of CBSL, Mr. Sulochana, who had come to the BoC on February 26, a day prior to the thirty-year bond auction, in expectation of bidding in the auction at a rate of 12.50 %.

“It was quite a coincidence, since that officer had told the back office official of the bank when forwarding his application that bids would be accepted at 12.50% the next day”, he said

The witness said that Perpetual Treasuries had paid the amount due to the BoC on March 2 and the BoC had gained a bidding transaction commission of Rs. 234,000 as a profit for bidding on behalf of them.

It was also revealed at the commission that the BoC board had later issued a memorandum setting limits when bidding on behalf of customers, specifically making it compulsory to get permission from the top management of the bank when bidding on behalf of primary dealers.

The Commission, comprising Supreme Court Judges Kankanithanthri T. Chitrasiri, Prasanna Sujeewa Jayawardena and former Deputy Auditor General Kandasamy Velupillai, will resume the inquiry today. (By Shehan Chamika Silva)