State bank’s role highlighted in bond controversy report

The role played by the state-banking giant Bank of Ceylon (BoC) has been highlighted in the report of the threemember committee appointed by Prime Minister Ranil Wickremesinghe to probe into the recent 30-year bond scandal.

“The committee observes that Bank of Ceylon, being a primary dealer, had placed bids amounting to Rs.13 billion for and on behalf of Perpetual Treasuries,” the report stated.

The move was found to be unusual, since it represents the first instance in which a primary dealer in government securities acted on behalf of another, which was acknowledged by both the Chief Dealer of BoC and the CEO of Perpetual Treasuries during inquiries.

The Chief Dealer admitted that approval had not been sought from the board of directors of BoC when forwarding a bid of such high value and that the board had not been informed thereafter.

BoC Chief Dealer also admitted that the bid had not been undertaken as a credit facility.

“He further stated that Perpetual Treasuries made a call with regard to placing the said bids and mentioned that the source funding for such bid is by an insurance company.”

The Chief Dealer had asked the CEO of Perpetual Treasuries for the reason of high amount of yield net of taxes.

“The reply he had received from the CEO of Perpetual Treasuries was “awoth atha thami” (the rough meaning is a colossal profit, if successful).”

The CEO of Perpetual Treasuries however disputed the claims and in turn said that it was the Chief Dealer who had said “Awoth atha thamai”.

In response to the reason behind forwarding such a high valued bid, he said that the company had been well aware—from publicly available information—that the government had been seeking funds of such value for its projects and that Perpetual Treasuries has always been aggressive. “The reason to request BoC to forward bids on behalf of Perpetual Treasuries, he said, that due to the cash influx needed for settlement and the capacity of BoC that he thought fit to seek the support of BoC. He further said that he sought the assistance of Acuity Holdings, but failed to do so due to the unavailability of the Director.”

He added that the Central Bank had at times rejected bids from Perpetual Treasuries.

The committee observed that the Chief Dealer of BoC had failed to exercise due diligence in checking the source of funding and the lack of transparency and disparity in the statements of the Chief Dealer of BoC and CEO of Perpetual Treasuries. The report said that while the bidding pattern and the success of the bid by Perpetual Treasuries in the specific instance had been unusual, the directions given to the committee did not empower it to make assumptions in that regard.

“However, in the interest of the public since the said transaction involves public funds and fiscal regulations of the government, the committee observes that a full-scale investigation by a proper government authority is warranted.”

The report further recommended that the board of directors of BoC launch an investigation into the activities of the Dealer room of BoC, since it is a state bank. It further recommended that the Chief Dealer and his superiors be called to explain the ad-hoc decisions made considering the large amount of public funds that are being deployed.