-CEO says he can predict Government’s future fund requirement
By Shehan Chamika Silva
Perpetual Treasuries Ltd CEO Kasun Palisena giving evidence before the PCoI today said that Perpetual Treasuries Ltd gained Rs. 816 million profits in its first six months of secondary market operations. When Commissioner Justice Prasanna Jayawardena questioned 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.
It was explained that Mr. Palisena joined the PTL in 2013 as the chief dealer and later on January 16, 2015, before the controversial bond issuance, he was promoted to the post of CEO.
According to his testimony, PTL initially in October, 2012 had applied to become a primary dealer at Central Bank of Sri Lanka and later in October 2013, they received their license to perform as a primary dealer. Subsequently, they had started their operations in the market from February 2014 onwards.
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.
Commissioner Justice Prasanna Jayawardena questioned the witness whether these techniques were learnt 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 was an allegation on the techniques used by certain companies in the share market in 2012.
Targeting the Longer tenure bond deals, mostly Seven years or more, the PTL had started its operations in February 2014 with a capital of Rs. 310.3 million.
For the six month period starting from April 1 , 2014 to September 30, 2014, the PTL had gained Rs. 816 million profit in the bond transactions they had in the secondary market.
“When we started other Primary Dealers had a higher capital than us, but they were not trading aggressively as us, they were passive investors, we wanted to become experts in the longer tenure bond transactions”, Mr. Palisena said.
During a half year, the PTL had gained 400 % rise in their capital and Rs. 576 profit had come from trading.
Justice Prasanna Jayawardena asked, “Was the then Governor Ajith Nivad Cabral’s sister Shiromi Wickremesinghe a director of your company in 2014?” the witness said yes.
The witness also said that they were only dealing in the secondary market transactions during the time period that they gained Rs. 816 million profits.
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 also said that 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 he added that the interest rate was supposed to be increasing and did not happen. Due to such suppression, foreign investors started exiting the market, since an outflow of Rs. 2 billion foreign reserves reported by the latter part of 2014.
He 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,” the witness said.
The witness also said that they, however, expected an upward movement in the interest rate by the latter part of 2014 and thereby in October PTL had sold their long tenure bonds even at a loss. He said that in the light of the election at that point selling of bonds have been intensified, because of a possible 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, which prompted them.
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 that 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 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 has the individual potential and sources with such capability while other primary dealers don’t have.
However, when Justice Jayawardena questioned on 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 a part of information and factors they used to predict the Government fund requirement.
During the testimony of the witness it was also explained that the PTL had engaged in Rs. 276 billion worth of secondary market transactions and Rs. 2.5 billion direct placement transactions during the time period of April, 2014 to February 2015.
Explaining to the Commission about the difference between Price takers and makers, the witness said that Traders, Captive sources, Pensions 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 that 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 are necessary to strike a deal.
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