Monday 28 August 2017

Govt. didn`t have a Rs. 300 bn requirement as PTL predicted: State Counsel


«« SSC Shaheeda Barrie contests factors put forward by PTL CEO Palisena to go for a 15 times higher bid than the amount advertised by CBSL

«« It was revealed that there was an unexpected five basis point interest rate cut in April 2015 by the Govt. and that had benefited PTL because the yield rates were low afterwards

«« SSC Barrie questions Palisena repeatedly about what he would have done if the offered Rs.15 billion bids had been accepted at the auction because PTL had no liquid cash to that amount in hand at that time

SSC Barrie - Did you bid such a higher value because you had inside information that other Primary Dealers never had?

Witness Palisena – I only used public information to predict such government requirement

By Shehan Chamika Silva

Cross examining PTL CEO, Kasun Palisena on his prediction of the Government’s fund requirement of Rs. 300 billion before the controversial bond auction on February 27, 2015, Senior State Counsel Shaheeda Barrie today argued that there was no such fund requirement by the Government at that time.

SSC Barrie contested several factors put forward by witness Palisena on an earlier occasion as to how he predicted the government’s 'desperate fund requirement’ although CBSL initially advertised only for bonds worth Rs.1 billion at the auction to take place on February 27, 2015.

At this auction, the CBSL ultimately issued bonds 10 times more (Rs. 10 billion) than the value that was initially offered (Rs. 1 billion), and PTL had bid Rs.15 billion worth of bonds directly and through Bank of Ceylon.

Subsequently, out of those bids, Rs. 5 billion worth of bonds were accepted -- Rs. 2 billion from direct bids and another Rs. 3 billion from what was bid through BoC on behalf of them.

Arguing the reasons earlier given by the witness, SSC Barrie questioned him on the Sovereign bond repayment requirement of the government and clarified that there was no such need because the repayments relating to January had been already made in the latter part of 2014, therefore there was no pressing need in settling sovereign bonds in February 2015.

She also questioned the witness over the IMF liability and drew the Commission’s attention that such IMF liability cannot be taken into consideration as there was no precedent that the Public Debt Department of CBSL had dealt in such a settlement.

SSC Barrie also brought the Parliament Hansard relating to certain details of the supplementary budget that came during the 100 days programme presented by the then Minister of Finance. She said that there was no drastic increase in government expenditure as much as the witness contemplated.

The witness had earlier said that due to the Rs. 10,000 salary hike proposed for the Government servants, the Government expenditure had increased by the early part of 2015.

However, Ms. Barrie was of the view that there was no such considerable increase in expenditure, in fact, as depicted in the documents, despite the salary hike proposal the government had reduced other expenditure considerably and therefore the expenditure of that mini budget decreased by Rs. 22 billion.

She also put forward a government document which explains the estimated and actual government domestic borrowing payments relating to January-May, 2014 and January-May, 2015.

Ms. Barrie and Justice Prasanna Jayawardena both questioned the witness about the details depicted in the document and were of the view that compared to the year 2014, the government’s domestic borrowing repayments were Rs. 90 billion less during January-May, 2015.

SSC Barrie also showed cash flow statements of the Treasury Department to the witness and argued that there was no fund requirement for the Government as the witness suggested earlier.

The witness had earlier said that they also considered the time gap from the last auction that had taken place when making a higher bid at the auction on February 27, 2015 by predicting that Government was in need of desperate funds.

SSC Shaheeda Barrie: You earlier said that the CBSL had only conducted an auction in the beginning of December, 2014 prior to the controversial auction in February and that was an unusual factor for you to bid a higher volume?

Witness: Yes

SSC: You were wrong. The last auction happened on December 30, 2014 and the gap between that date to the February auction is not an unusual aspect because there have been instances where such time gaps between bond auctions have been depicted in PDD history.

The witness was of the view that due to the two months time gap, they predicted that the CBSL would accept more than the offered value of Rs. 1 billion at the bond auction on February 27.

Questioning the witness, Chairman of the Commission Justice Chitrasiri observed that it was the system that CBSL had been practicing over the past, and said that the direct placement method was also in use at that time to acquire government fund requirements.

During the cross examination, it was also explained that PTL had to settle the accepted Rs. 5 billion at the auction on March 2, 2015.

The accepted Rs. 2 billion worth of bonds which was bid directly by PTL and Rs. 3 billion bid by BoC on behalf of PTL were completely settled through getting into REPO transactions and sell and buy back transactions with counter parties including BoC and EPF.

The Commission and SSC Barrie also questioned the witness repeatedly about what he would have done if the offered 15 billion bids had been accepted at the auction because the PTL had no liquid cash to that amount in hand at that time.

The witness was of the view that he would have gone for the CBSL window which provides a lending facility.

Justice Jayawardena also questioned the witness about what means he would have taken if the bid value of Rs. 15 billion were accepted. The witness said he would have dealt in REPOs largely to meet the settling requirement.

Then Justice Jayawardena was of the view whether PTL could have sold those accepted bonds keeping a considerable margin, as it were accepted at higher rates. The witness’ answer was affirmative.

The Justice questioned the witness whether PTL intended to hold on to those securities in order to get more benefits in the future.

It was also revealed that there was an unexpected five basis point interest rate cut in April 2015 by the Government and that had affected PTL positively because the yield rates were low afterwards.

SSC Shaheeda Barrie moved that there was no such overwhelming government requirement during that period to bid a higher volume at the February 27 auction without knowing the possible termination of direct placement method later.

“Did you bid such a higher value because you had inside information that other Primary Dealers never had”, she asked.

The witness said he only used the public information to predict such government requirement.

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