Treasury bonds to raise funds for Srilankan disputed

A heated argument took place between Assistant Governor of the Central Bank, Dhammika Nanayakkara and Deputy Solicitor General (DSG) Neil Unamboowe over the legality behind issuing treasury bonds under the direct placement method yesterday at the Srilankan Airlines Commission.

General Treasury had issued treasury bonds to Srilankan between 2012-2014 under the direct placement method. However DSG Unamboowe criticizing the method said that according to the Registered Stock and Securities Ordinance (RSSO) this direct placement method is not allowed.

However Nanayakkara informed Unamboowe that the RSSO has only stated that Central Bank must borrow funds for the government at the least cost method and told the Deputy Solicitor General that the RSSO has neither authorized the sale of treasury bonds through auctions.

Unamboowe told Nanayakkara that the RSSO has instructed to go for the auction method and that there is a phrase ‘calling for bids,’ which hints at auctions, in the Ordinance. Nanayakkara requested the Attorney General’s Department officials to help him find that phrase in the Ordinance. However the Attorney General’s Department officials couldn’t find the phrase.

The Central Bank officials had earlier told the PCOI that while public auctions were good in a perfect market, in a thin market like Sri Lanka, a market with a low number of buyers and sellers, public auctions could easily be manipulated. The direct placement method was a widely accepted. Thirty one out of 32 Organisation for Economic Co-operation and Development (OECD) countries used that method, too, he said.

“We know that at auctions the government has to pay higher interests. We saw that in 2015,” Nanayakkara said, pointing at the year in which direct placement was banned by former Governor, Arjuna Mahendran, and the bonds were issued at an auction. Direct placement or private placement is when treasury bonds are issued not by offering them for sale publicly, but by placing them with institutional investors.