There was no need for a 30 year bond: Auditor General

-     Value of the bids accepted at the auction unprecedented

-         Initial loss was 688 million on the auction day


By Shehan Chamika Silva

Testifying before the Commission on the Controversial bond issuance that took place on February 27, 2015, Auditor General Gamini Wijeysinghe said that the decision to go for a thirty- year bond at a high interest rate cannot be rationalized because according to the Ministry of Finance, the Government wanted borrowings largely to settle the interest payments of the previously issued Bonds.

Initially, the Government needed borrowings amounting to 13. 5 billion by March 2, 2015 and subsequently, Central Bank of Sri Lanka had originally intended to sell 1 billion rupees of 30-year bonds at the primary auction held on February 27 in expectation of obtaining funds for Government via bond auctions.

The Auditor General revealed that 10 billion out of the requirement was generated due to the amount payable as interest payments for previously issued Bonds.

He said there was no need to raise money solely from the Bond auction, because the funds could have been raised using Direct Placement Method from the Employee’s Provident Fund and by means of short term Treasury bills.

However, it was revealed at the Commission that Former Governor Arjun Mahendran had unusually visited twice the Public Debt Department while the auction was taking place and had instructed to accept bonds amount to 10.058 billion even at the rate of 12.50%.

During the evidence led by Additional Solicitor General Yasantha Kodagoda PC, it was explained that Rs. 2000 million bids received directly form the Perpetual Treasuries Ltd (PTL) at the auction was accepted while another Rs. 3000 million was accepted from the Bank of Ceylon bids, which were largely on behalf of the PTL.

After conducting a comparison between the practices that had previously at the CBSL on issuing bonds, the Auditor General said that the value of the bids accepted by the CBSL (10.058) was 905% far above comparing to the value of the bids offered by the CBSL (one billion).

Examining on the 248 bonds issuances which had been taken place previously during the period of 2008 to 2014, Auditor General said it was an unprecedented decision of the CBSL.

He also confirmed that the CBSL failed to provide information properly as requested because the details on the Secondary Market transactions were not received to the Auditor General’s Department when preparing the report.

When questioned over the temporally suspension of Direct Placement Method on March 2, 2015 the Auditor General said there was no such decision was derived from the Monetary Board according to his findings.

He also ascertained that despite the PDD’s recommendation to accept only Rs. 2.6 billion from the auction, the Former Governor had intervened to the Tender Board and instructed to raise taking up to 10 billion.

When asked Auditor General’s opinion to the Commission was the fund requirement of the Government (13.5 billion) should not have solely obtained from the Bond auction, but in a way of both Direct Placements and the auction.

Due to the sole use of auction to raise funds, Rs. 400 million was recognized as a due funds gap created to the Government because in the auction method there were discounts on the face value for the Primary Dealers.

According to the Auditor General’s computation, initial loss occurred to the Government on the day of the auction was Rs. 688,538,600 (688 million) due to not complying to the PDD’s recommendations to accept only 2.6 billion from the auction.

The Auditor General also revealed that Public Debt Department failed to provide reasons over the decision taken by them to accept bonds with rates up to 12.5%.

It was revealed that there was no research or calculation had been made by the PDD before deciding on a high rate of Coupon rate, thereby the decision was exclusively made by the heads of the PDD.