Mahendran intervened to ‘Fix’ bond auction: ASG De Livera

• ASG De Livera put to the witness that no requirement of funds to the amount of Rs.75bn were reflected in the cash flow statement of March, 2015 or April, 2015 in the Treasury, hence the witness was lying about the February 26 meeting with Ministers Ravi Karunanayake, Kabir Hashim and other officials

• When ASG De Livera questioned the witness as to why the letter sent by Minister Ravi Karunanayake was crisp and fresh when it was submitted to the Commission, the witness said that he kept this letter carefully and that was the reason it appeared to be a new one

• ASG Dappula De Livera suggested that the Govt.’s urgent fund requirement mentioned by Prime Minister Ranil Wickremesinghe in Parliament and the total bid amount of Rs. 15 bn of PTL at the Feb 27 auction were ironically similar

By Shehan Chamika Silva

During the cross-examination of former Governor Arjuna Mahendran, Additional Solicitor General Dappula De Livera suggested that he fixed the February 27, 2015 treasury bond auction with an ulterior motive.  

At the onset of today’s Presidential Commission of Inquiry (PCoI) proceedings, Additional Solicitor General Dappula de Livera PC, who initiated the cross-examination, intensely questioned former Governor Arjuna Mahendran.

It was explained that Mr. Mahendran was born abroad and then obtained citizenship of Sri Lanka at the age of 18 and later in 2004 he obtained Singaporean citizenship. He has no dual citizenship.

When he was questioned as to whether he had been residing in Sri Lanka when he was regularly attending the Commission since March 2017 to hear the proceedings, Mr. Mahendran was of the view that he had been regularly visiting Singapore during this time period.

Justice Prasanna Jayawardena at this point questioned, “When you were serving as the Governor, were you traveling regularly to Singapore?” Witness replied, “No I had an official residence in Sri Lanka.”

During the initial stage of the cross-examination, the former Governor agreed that integrity and ‘corporate good governance’ were an essential part in carrying out the duties of CBSL Governor.

When questioned by ASG De Livera, the witness also agreed that transparency and accountability were key factors too in the functions of CBSL.

Mr. Mahendran said matters such as the conflict of interest could compromise integrity.

ASG De Livera: Did you receive an offer to take up the post of CBSL Governor in 2015 January?

Mahendran: Yes

ASG: Where were you at that time?

M: In Dubai.

ASG: Who called you?

M: That I cannot recall exactly.

ASG: Did thePrime Minster call you on January 9, 2015 personally?

M: I can’t recollect him calling me on that day, because I was attending the Swear in Ceremony of the PM on January 9, 2015. I did not meet him on that day.

ASG: But in your statement given to the Bribery Commission earlier says that on a near date to January 9, 2015, the PM had called you and offered the position?

At this point the witness said that his Sinhalese language efficiency is not good, even though he had passed in a language efficiency test way back in 1980s.

He was of the view that when this statement was recording he was not given a translator by the Bribery Commission. He had asked thereafter from the Bribery Director General to rephrase the statement with a translation which did not happen.

However, when ASG Livera readout the statement in English, and asked whether he was called by the PM, the witness’ answer was in the affirmative.

Thereafter, ASG Livera questioned the witness on the meeting said to have been held on February 26, 2015 at the Central Bank of Sri Lankan, prior to the controversial bond auction which took place on February 27, 2015.

According to the witness, Mr. Kabir Hasheem, Mr. Malik Samarawickrema, Mr. Ravi Karunanayake (then Finance Minister), Mr. Samaratunge (Secretary to the Treasury), Deputy Governor Dr. Nandalal Weerasinghe, Deputy Governor P. Samarasiri and five to six officers from the Road Development Authority were present at this meeting with Mr. Mahendran.

The witness said that at this meeting an urgent money requirement for road development projects was discussed and the requirement was amounting to Rs. 75 billion.

ASG Livera: What was the purpose of requesting a letter about this meeting from then Finance Minister Ravi Karunanayake only in June, 2016?

Mahendran: To show it to the second COPE (Sunil Hadunetti COPE)

ASG: Did you give it to COPE?

M: No

ASG: How many days did you go to that COPE committee?

M: One day

ASG: Did this COPE Committee exhaustively question you?

M: No

ASG: Were you questioned by them at all?

M: No formal questions

ASG: Haven’t you given comprehensive answers to the COPE?

M: No

ASG: Are you saying now that you were not properly questioned by the COPE and you were not given the freedom to express yourself?

M: I was not questioned. There were comments put forward to me which I answered.

ASG: Were you curtailed or suppressed?

M: I was not

ASG: Then, I am suggesting to you that you are lying. You are an inveterate liar. And now you are making allegations against the COPE as well.

M: I was not given time to give answers at the second COPE Committee. I am not making allegations at COPE.

ASG: And this letter about the February 26 meeting. I am suggesting that you got it from the Finance Minister not in June 2016, but long after that time. It was only after this Commission’s proceeding’s started that you got this letter. Your testimony is utterly false.

M: That is incorrect.

Then ASG De Livera questioned the witness as to why the letter was crisp and fresh when it was submitted to the Commission. The witness said that he kept this letter carefully and that was the reason it appeared to be a new one.

Then the ASG questioned him on the date of the letter and the reference, which was not mentioned anywhere in that letter.

The witness said he realized about that but did not try to contact the Minster and correct them because the Minister was a very busy person.

Then ASG Livera repeatedly questioned the witness on the letter with reference to the Rs. 75 billion fund requirement that was said to have been discussed at this February 26 meeting.

ASG De Livera was of the view that the letter had no file number or a relevant reference number with regard to the Rs. 75 billion, that is ought to be found in the Treasury’s files.

He said this letter was a vague one, since it was not specific about the Central Bank of Sri Lanka, so that it could be used even for Singapore.

ASG: Is it correct to say that that it was only you and Ravi Karunanayake (RK) who knew about this Rs. 75 billion?

M: I’m not aware about that

ASG: You spoke to Ravi Karunanayake and got it from him, right?

M: I got it from his private secretary while visiting the Ministry.

ASG: Oh I see.

The witness said that he was later verbally told by Ravi Karunanayake that he had sent the letter.

ASG De Livera was of the view that based on the evidence placed before the Commission so far it was evident that such a Rs. 75 billion requirement had not been discussed at the February 26 meeting.

ASG De Livera highlighting the testimonies of Mr. Samaratunge (Treasury Secretary), Dr. Weerasinghe (Deputy Governor) and Mr. Samarasiri (Deputy Governor), who were also said to be participants at that meeting, said that there was no such requirement transpiring from their evidence.

The ASG also pointing out the evidence of Mr. Ananda Silva (Deputy Governor), and Mr. Artigalle (Treasury Official) said that there was no such requirement for the RDA projects at that meeting.

It was said that on March 3, 2015 the Finance Minister had interviewed the contractors involved in road development projects and thereafter no payments were initiated. ASG De Livera was of the view that this letter in question was a fabricated letter.

However, witness Mahendran disagreeing with ASG De Livera maintained that there was a requirement of a Rs. 75 billion and it was discussed with him at the February 26, 2015 meeting held at the CBSL.

At this point ASG De Livera said that the witness is a “Smiling Liar”. President’s Counsel Romesh De Silva who was appearing on behalf of Mahendran objected to the comment of the ASG.

And this led to some heated argument between two Counsel.

ASG De Livera:  Now, what is funny about this cross examination? He should not smile. He should conduct himself in a way that is suitable to a witness. He needs to know that he is under oath.

Romesh de Silva PC criticized the comment of the ASG and asked the Commission not to insult his client.

Justice Prasanna Jayawrdena at this point intervening into the argument advised the ASG to focus on the line of questioning.

ASG De Livera continuing the cross-examination put to the witness that no such requirement of funds or expense of funds are reflected in the cash flow statement of March, 2015 or April, 2015 in the Treasury, hence the witness was lying on the February 26 meeting.

However, Mr. Mahendran was of the view that such cash flow statements would not have exhaustive details about that.

Referring to a statement made by Prime Minister Ranil Wickremasinghe on March 17, 2015, in Parliament eighteen days after the controversial bond auction, ASG De Livera questioned the witness.

ASG: Quoting some sources, the Prime Minister says in this statement about an urgent funding requirement of Rs. 15 billion, right?

Witness Mahendran: Yes

ASG: The Prime Minister categorically said about a Rs. 15 billion requirement, right?

M: Yes

ASG: So, That statement absolutely contradicts with the letter which reflected the alleged meeting held on February 26, 2015.

M: Not at all. At the meeting on February 26, 2015, it was a discussion about the need of about Rs. 75 billion in one month’s time. But here, the Prime Minister says about an urgent requirement of Rs. 15 billion. So we can reconcile that statement with what transpired at the meeting.

ASG De Livera then questioned the witness whether there was an actual urgent requirement of money for road development projects.

The witness said that by February 26, 2015 the work of road development projects were frozen and for that purpose the Rs. 15 billion was urgent need to keep the projects running.

When the witness said that there were bulldozers which had stopped working in the road development at that time, the ASG questioned him in a sarcastic manner.

ASG: Were they stuck in mud?

Witness was silent

ASG: Have you seen such bulldozers which had been stopped working in construction sites?

M: Yes

ASG: How many did you see?

M: 15 to 20.

ASG: Then at that time such a scene must be an absolute disgrace to this country’s land scale.

Witness was silent

ASG: You are continuing to lie even about these construction projects.

Witness rejected the statement.

After being repeatedly questioned on the requirement of the Rs. 75 billion, the witness said that the requirement was communicated to him verbally and it was in the back of his mind on February 27, 2015.

Referring to the evidence of Mr. Ranasiri (Official of treasury operations), ASG De Livera also again emphasized that according to the cash flow statement there was no such requirement for March , 2015 as it did not reflect such a requirement. The witness replied “I find it very hard to believe.”

ASG Livera: If the requirement was Rs. 75 billion, Perpetual Treasuries Ltd CEO Kasun Palisena would have bid Rs. 75 billion instead of Rs. 15 billion, the amount PTL had actually bid at the February 27, 2015 auction, isn’t it?

Witness seemed unaware about it and did not answer.

Then the ASG referred to the marked documents of bid sheets and clarified from the witness the amount (Rs. 15 billion) bid by PTL directly and through BoC.

ASG: Would you know how PTL came up with this magical Rs. 15 billion figure?

At this point a counsel appearing for PTL objected to the question and said that the witness is not in a position to answer matters relating to the PTL.

ASG: Would you know about it?

Witness Mahendran: No

ASG: Would you find this bid as unusual for a primary dealer because the advertised amount was only Rs. 1 billion at the auction?

M: Yes. They would have bankrupted themselves if that bid had been accepted. That is my understanding

Justice Jayawardena at this point questioned: Why are you saying that they would have bankrupted themselves?

M: I followed the Commission’s proceedings before so I heard from certain evidence that PTL would have gone bankrupt if the entire Rs. 15 billion had been accepted.

Justice Jayawardena: You are certain on your evidence right?

Witness Mahendran: Yes

ASG De Livera at this point said “PTL’s Rs. 15 billion bid ironically matches with the urgent requirement mentioned in the Prime Minister’s statement, right?”

Mahendran: The Prime Minister also mentioned about another Rs. 100 billion in that statement.

ASG: But the urgent Rs. 15 billion he was referring was Rs. 15 billion, right?

M: I don’t see it as ironic.

ASG: Have you ever seen a Primary Dealer bidding such a large amount than what was advertised in an auction, before or after you assumed duties as the Governor?

M: No

ASG: PTL had bid Rs. 15 billion and out of it Rs. 5 billion was accepted and the accepted amount was 50% of what was finally accepted from the February 27 auction by the CBSL (Rs. 10.05 billion had been accepted by the CBSL at this auction), right?

After going through several documents, Mr. Mahendran admitted “Yes”

ASG: So, would you agree that PTL to bid such Rs. 15 billion at the auction at such a rate would have certainly had price sensitive information?

M: Not necessarily

ASG: What is your explanation on their success?

M: They were very aggressive I think. And it transpired earlier that they were relying on borrowings largely, unlike other Primary dealers. So that could be their success.

ASG: What about the rate then? Don’t you think that they had received price sensitive information?

M: I can’t confirm or deny in that regard

ASG: Let’s see then

ASG De Livera thereafter questioned Mr. Mahendran on his alleged visits to the Public Debt Department (PDD) while the February 27, 2015 Treasury bond auction was still going on.

ASG: You assumed duties as the Governor on January 26, 2015, right?

M: Yes

ASG: Did you inspect the departments in the CBSL including the PDD?

M: Yes I did

Justice Jayawardena: Prior to February 27 auction ,right?

M: Yes

ASG: At what time did you report to the CBSL on February 27, 2015?

M: I normally come around 7 a.m. in the morning.

ASG: Would it be correct to say that your first visit to the PDD, where the auction was to take place, was around 10.45 a.m. before the auction closed?

M: Yes I went there to see the result of the auction. I wanted to know how much of bids had been placed in the backdrop of the urgent money requirement at that time.

However, Mr. Mahendran had left the PDD after talking to the Superintendent of the PDD, Mrs Seneviratne, because the auction was still going on.

ASG: You again came back to the PDD by 12.15 p.m. right?

M: Yes

ASG: Do you know that this was the first time that a Governor of CBSL had ever walked into the PDD in that manner?

M: I don’t believe so. I have seen in 1980s when I was in the CBSL Governors walking around.

ASG: But no instance where a Governor had walked into the PDD while an auction was happening?

M: If that is so I take that word

ASG: So you had created history.

Witness was silent

ASG: Now, let’s see your history.

It was explained that Mr. Mahendran had visited the PDD at the first instance by 10 a.m. with his private security only and had talked with the Superintendent of the PDD Mrs. Seneviratne.

Later he had participated in a MOC meeting of the CBSL and had come back to the PDD with two Deputy Governors.

ASG: Mrs Seneviratne (SPDD) never told you that you could access the details of the auction. She only said that the auction is still going on during your first visit?

M: I never asked such. I was keen to know what could be raised for the Government through this auction.

Commenting on the second arrival at the PDD, ASG De Livera said that “after the MOC meeting you dragged two other Deputy Governors (Dr. Weerasinghe and Mr. Ananda Silva) also to the PDD”

Mahendran: No dragging involved. They came voluntarily.

ASG: Do they have issues with you?

M: No

ASG: So would they have any reason to lie then?

M: I don’t think so

ASG: Mr. Ananda Silva said earlier that you called him to go to the PDD directly after the MOC meeting, not knowing the reason?

M: That is factually incorrect

ASG: I am suggesting again that you are lying. You are trying to give a harmless flavor to this incident by giving false evidence.

Witness rejected the suggestion.

The witness was of the view that there was a Rs. 172 billion government fund requirement at that time amid the urgent Rs. 75 billion requirement for road development at that time.

He said the treasury requirements were also not fulfilled by the CBSL in January 2015 so that he was concerned about the capability of the PDD in raising such a massive requirement for the government.

At this point Justice Prasanna Jayawardena questioned the witness whether he carried the habit of looking at cash flow statements of the Treasury. The witness’ answer was in the negative.

ASG De Livera said according to the evidence led through an official of the Treasury, there was no unusual urgent requirement by February- March because there was an excess in terms of revenue at the end of February.

ASG: Your evidence is utterly false

Mahendran: I don’t know about such excess

It was explained earlier that there was a Rs. 13.5 billion fund requirement to be met by March 2, 2015. According to the witness the PDD was confident about raising it largely on Direct Placements by only advertising for Rs. 1 billion at the auction.

It was also revealed earlier that there was a PDD recommendation to the Tender Board to accept Rs. 2.6 billion only from the auction, which was a common practice that happened in the auction process.

According to Mahendran, the PDD had not managed to raise the rest of the money through Direct Placements until that time. When questioned by Justice Jayawardena he said he only knew about it when he visited the PDD for the second time.

ASG De Livera questioned the witness on his second visit to the PDD after the auction floor closed.

It was said that Mr. Mahendran (former governor), two Deputy Governors who came with him (Dr. Weerasinghe and Mr. Ananda Silva), Mrs. Seneviratne (SPDD), Deputy Governor Dr Asim and Mr. Muthugala was there at that time.

ASG: What was the result of that auction?

M: Rs. 20 billion

ASG: Then what did you tell them?

M: I said can we take Rs. 20 billion

ASG: You told them to ‘take Rs. 20 billion’ wasn’t it?

M: I disagree

ASG De Livera was of the view that at this point Mrs. Seneviratne and Dr Asim had argued with Mahendran not take all the bids because it comprised some dummy bids with a higher rate as well and that could affect the market negatively.

However, the witness rejected that and said it was only a cordial discussion and there was no argument.

According to the ASG, the former Governor had then recommended to accept Rs. 10 billion from the auction.

ASG: Dr. Asim was defending the PDD’s Rs. 2.6 billion recommendation arguing with you not to go for Rs. 20 billion or 10 billion solely through the auction. But you barged in to accept that amount, right?

M: I disagree

The witness explained the situation saying that the government was in need of urgent money. “I said if I were you I would have taken Rs. 10 billion,” Mahendran said.

At this moment Justice K.T. Chitrasiri questioned Mahendran.

Justice Chitrasiri: The offered amount at the auction was only Rs. 1 billion, so in that condition can you tell to accept ten times more?

Mahendran: There were instances the PDD had accepted more than what it had advertised. Even in this instance their recommendation was Rs. 2.6 billion.

Justice Chitrasiri: But Rs. 10.05 billion is much higher than that recommendation. And people had bid considering the advertised amount of Rs. 1 billion.

M: The government needed money. I didn’t see other way to raise it at that time.

ASG De Livera thereafter again questioned Mahendran on Dr. Asim’s comment at the PDD.

ASG: Dr Asim was strenuously telling you not to accept Rs. 10 billion because it could affect the market.

M: No

ASG: And you ordered Mrs. Seneviratne(SPDD) to accept Rs. 10 billion

M: I disagree

ASG: You are a diabolical liar.

M: Disagree

ASG: Did you draw the cut of rate of the auction after seeing the bid sheet?

Witness Mahendran pointing out some market factors explained as to why he came to that conclusion considering the need to increase the rate.

ASG De Livera said this cutoff mark and the acceptance of such a big amount had affected the market adversely and it had a shocking impact on the primary dealers. “Obviously it did not affect Perpetual Treasuries Ltd though”, the ASG commented.

ASG: You fixed the yield rate at 11.73%

M: Totally disagree

ASG: You fixed the auction through your intervention.

M: Disagree

ASG: You directed to accept Rs. 10 billion and you decided on the yield rate (11.73%) and decided on the cutoff point. So you have basically fixed this February 27,2015 auction.

M: Totally disagree.

At this point ASG De Livera also asked the witness whether he was aware about the manual and the ethics that prevailed in the CBSL.

The ASG was of the view that it could be regarded as a prevailing law as how to act specifically during an auction. However, the witness said that the manual cannot be regarded as the law.

ASG: Do you think there should be transparency and accountability

M: Yes

ASG: Was it the due process?

M: I don’t know about the legal terms

ASG: At February 27, 2015 auction you interfered with the due process with an ulterior motive.

Witness rejected it.

Sittings of the PCoI comprising Justice K.T. Chitrasiri (Chairman), Justice Prasanna Jayawardena and Retire Deputy Auditor General Kandasamy Velupillai was adjourned till 10 am on October 2.