Bond issue: 26 MPs want to give evidence

The Commission of Inquiry (COI) looking into the issue of treasury bonds from February 1 2015 to March 31, 2016 has received eight written representations, the Commission announced.

The written submissions have been sent in response to a public notice by the COI. It has also received a letter signed by 26 MPs requesting an opportunity to give evidence before the COI.

Meanwhile, the COI continued its sittings and several senior Central Bank officials gave evidence.

On Tuesday, the Central Bank's Public Debt Department ( PDD) Superintendent Raja Dhammika Nanayakkara explained the controversial bond issue of February 2015. He said that if he was aware that Perpetual Treasuries Director Arjuna Aloysius was a relative of the former Governor Arjuna Mahendran, he would have alerted the senior officers.

Mr. Nanayakkara said he believed that a Governor's close relative should not act as a primary dealer. He, however, did not respond to a question whether former Governor Ajith Nivard Cabraal’s sister was a director of Perpetual Capital Holdings.

Mr. Nanayakkara, whose evidence was led by Deputy Solicitor General Milinda Gunatillake, said that during his period of service in the Public Debt Department, primary dealer licences were issued to the Hong Kong and Shanghai Banking Corporation, the Pan Asia Bank, the Union Bank and Perpetual Treasuries.

He said Perpetual Treasuries' application was signed by Arjun Aloysius and the Union Bank had given a letter certifying the financial stability of the dealer.

He said the letter described Mr Aloysius as the Chief Executive Officer of Perpetual Treasuries and a director of the DFCC.

Mr. Nanayakkara said the company had anticipated a profit of Rs 116 million last year.

Explaining the structure of the company he said Perpetual Treasuries was made up of Perpetual Capital Holdings and Perpetual Asset Management Ltd.

He said there were regulations that govern the primary dealers and in the event of a violation the licence could be suspended for six months.

Referring to a earlier report of the Parliamentary Committee on Public Enterprises (COPE), Mr Nanayakkara said COPE member Rosy Senanayake had asked former Governor Cabral whether his sister served as a director in Perpetual Capital Holdings, but had not received a proper response. He said her name was Shirani Wickremesinghe.

Senior State Counsel Avanthi Perera asked Mr Nanayakkara about a May 8, 2012 auction.

He said the government was expecting Rs one billion and at that auction they raised Rs five billion which was five times higher than the initial amount to be raised. He added that it would have been a loss if that amount was not raised.

In response to a question regarding an auction on May 11, 2012, he said the government wanted to raise Rs two billion, but raised Rs 7.4 billion eventually.

Mr. Nanayakkara led by Additional Solicitor General Dappula de Livera, PC, said that the gazette notifications of 2012, 2013, 2014 and 2015 were against regulations.

He said that after the issue over the bonds the PDD officers had acted cautiously.

It also became clear that the incident which occurred on February 27, 2015 had created a bad situation in the financial market. Liquidity had surged. Investors became reluctant to commit to long-term investments and more fake bids were being submitted at bond auctions, he explained.

Mr. Nanayakkara said Perpetual Treasuries, a subsidiary of Perpetual Asset Management, had been issued a licence to operate as a primary dealer after examining the company’s financial stability. The company had shown a financial stability of Rs. 300 million, which was deposited in a current account.

He, however, admitted, upon questioning, that as the account was a current account, someone could have deposited money taken as a loan in the account and withdrawn it later.

The commission was also told that Perpetual Asset Management had invested Rs. 310.7 million in Renuka Hotels Group. Mr. Nanayakkara said he was aware that the Renuka Hotels Group had links to former Central Bank Governor Ajith Nivard Cabraal.

On Wednesday, during cross- examination by President’s Counsel Nihal Fernando, appearing on behalf of Perpetual Treasuries, Mr. Nanayakkara said a bond auction usually began at 11 a.m. while information regarding the auction was conveyed to the Tender Board by 12.30 p.m. The Tender Board meeting usually lasted about one hour. As such, all recommendations in relation to the auction would have been conveyed by 1.30 p.m.

He claimed Perpetual Treasuries had no assets in its possession.

In evidence led by Additional Solicitor General Milinda Gunathilake, Mr. Nanayakkara said he only got to know later that. Shirani Wickramasinghe was the sister of former Governor Cabraal.

He produced a letter written by Mr. Cabraal, in which he said that Mrs. Wickramasinghe had been on the Director Board of Perpetual Treasuries in 2013 and 2014.

It was further revealed that only one bid submitted by Perpetual Treasuries for the bond auction was accepted, while all other bids by the company were rejected.

On Thursday, testifying before the Commission, Central Bank Monetary Board Secretary H. A. Karunaratne said that during the year that Arjuna Mahendran functioned as Central Bank Governor, he had transferred more than 500 Central Bank officials, including Heads of Departments. He said that there had not been so many transfers in the Central Bank’s history.

Among those transferred by Mr. Mahendran were Heads of specialised departments, including the Information Technology Department, the Domestic Operations Department and the Public Debt Department, he added.

Mr. Mahendran had assumed duties as Central Bank Governor on January 23, 2015. On February 09. 2015, he had transferred 14 heads of departments. Neither his predecessor Governor nor the current Governor Dr. Indrajit Coomaraswamy had effected such drastic changes, Mr. Karunaratne said.

The Central Bank had a total staff of 5,000. Former Central Bank Governors who came before Mr. Mahendran had transferred about three or four officers at a single time. Mr. Mahendran however, had transferred 20 heads of departments after February 2015. Furthermore, he had transferred 34 heads of departments in a single year.

In reply to a question raised by Justice Prasanna Jayawardena if these transfers were unusual, Mr. Karunaratne said they were. The Domestic Operations Department head had been transferred to the Communications Department while the Bank Supervision Department head, who is considered a specialist in the field, was transferred to another department.

The Public Dept Department chief Nanayakkara, was also transferred.

Mr. Karunaratne said many Central Bank employees had expressed displeasure regarding these transfers. Employees had inquired from the Bank’s Deputy Governors about the transfers. They had informed employees that Mr. Mahendran had not consulted them regarding the transfers.

He said that after briefing the two Deputy Governors, employees also informed Mr. Mahendran of their concerns over the transfers. However, the unusual transfers were not taken up for discussion by the Monetary Board, he added.