New details emerge on bond issue

New details are emerging about the involvement of a state bank in the money markets in which Perpetual Treasuries Ltd (PTL) allegedly played a primary role, according to market sources.

“Market players are afraid to talk about this. But one of the dealers from a division from the Employees Provident Fund (EPF) was apparently transferred to this bank as the head of its treasury division and had been engaged in heavy trading along with PTL during first half 2016 when the second bond scam hit the market,” one source, who spoke on condition of anonymity, told the Business Times.

When this dealer took high positions ( similar to PTL patterns in the February 2015 controversial bond deal), senior management at this bank had raised alarm bells. But no action was taken. The source said that this dealer is believed to have taken leave and gone abroad for higher studies in a possible bid to escape action if there is a fuller investigation on the bond scam.

The source said reputed traders in the market were hoping that a Presidential Commission instead of an Attorney General- led investigation would be appointed since the issues in the deals are not straight-forward and finding evidence and proof would be a difficult task. “Much of the deals were through a web of deals making it complex, and trying to pin the blame on ‘guilty parties’ won’t be easy. Maybe a forensic audit might be the way forward in the first instance,” the source added.

Last week after many ‘tense’ days, the Committee on Public Enterprise ( COPE) issued a report on the bond scam and held former Central Bank Governor Arjuna Mahendran responsible for the controversial deal and urged legal action. Thereafter Prime Minister Ranil Wickremesinghe said he has sent the report to the Attorney General for necessary action. While footnotes in the COPE report said there was evi- dence that the Central Bank had called up primary dealers including PTL on the previous day and checked with them about purchase of (TBs) around Rs. 10 billion, some dealers told the Business Times that they had not received a call whatsoever. “We are surprised to hear that calls had been made,” one dealer said.

Meanwhile stockbrokers said PTL and Perpetual Equities (PE) were eying non listed firms in manufacturing, leisure, etc for investment.

This week the two companies are believed to have bought small quantities of NDB which however could not be independently verified. The duo earlier bought around 10 million NDB shares amounting to at least Rs. 1.6 billion. More than six million of these shares were bought last month.

Last week after many ‘tense’ days, the Committee on Public Enterprise (COPE) issued a report on the bond scam and held former Central Bank Governor Arjuna Mahendran responsible for the controversial deal and urged legal action.

One of the related parties of Perpetual is Thurston Investments.

The company has also invested heavily in Central Finance, entering the top 10 shareholders, and in DFCC, brokers said. “NDB is the big one,” said a stockbroker. “They already held a big position in Central Finance to whatever they bought recently added to their existing positions. The numbers involved are nowhere near the NDB numbers, where they did not have a presence earlier.” It was not immediately known whether Perpetual has requested a board seat at the bank on the strength of its recent purchases.

“The talk on the market is that he (Arjun Aloysius) is also sniff- ing around to buy a brokering company,” a market source said. “He has billions of rupees burning a hole in his pocket and needs to do something with it.”

Earlier a leaked report by the CB’s non-bank supervision department referred to unusual trading patterns and a nexus involving PTL, Pan Asia Bank and DFCC Bank (as primary dealers) with EPF buying these securities in the secondary market. That report bared details of the extraordinary profits by PTL, its trading practices and recommended that a further probe is merited. “PTL recorded a profit after tax (PAT) of Rs. 10 billion from April 2015 to May 2016 exceeding its peers cumulative PAT of Rs. 544 million for the same period,” it said.