CB suspends operations of Perpetual Treasuries

„CB assures suspension won’t disrupt market „Says interests of Perpetual customers will be taken care of „Perpetual connected to family of former Governor Mahendran „SL’S bond market rocked by allegation of rigging in 2015 and 2016

The Monetary Board of the Central Bank yesterday said the operations of the controversial primary dealer Perpetual Treasuries Limited (PTL) was suspended for a period of six months with effect from 4.30 p.m. on July 06, 2017.

The Monetary Board said the action was taken under the Registered Stocks and Securities Ordinance and the Local Treasury Bill Ordinance.

The Central Bank assured that it would take necessary measures to ensure that the regulatory action does not have a disruptive impact on the market.

“Action will also be taken to facilitate the handling of the interests of the customers and counterparties of PTL in an orderly manner,” the Central Bank said.

A Presidential Commission of Inquiry is currently carrying out a hearing over the infamous bond scams allegedly linked to the PTL that took place in 2015 and 2016.

However, this exercise is said to be only a “fact finding” one.

PTL is connected to the family of the former Central Bank Governor Arjuna Mahendran, whose tenure was not extended by the President Maithripala Sirisena in 2016 amid the pressure from the civil society organizations and good governance activists.

The country’s bond market was hit by a series of controversial bond auctions involving allegations of rigging and insider dealing in 2015 and 2016 during the tenure of former Governor Mahendran. Under the governorship of Mahendran the Central Bank was in the habit of accepting multiple times higher than what it offered to the primary dealers at bond auctions.

On February 27, 2015, when the Central Bank called bids to raise Rs.1 billion for 30 years but ended up accepting Rs.10 billion, of which a larger share had allegedly been purchased by Perpetual Treasuries at higher rates.

A year later on March 29, 2016 when the Central Bank called for bids to raise Rs.10 billion (2030 bond), it accepted bids up to Rs.29 billion – thrice the amount offered— at an extremely higher rate of 14.23 percent.

However, the bond yield significantly came down two days later in the secondary market, opening up an avenue for those who bought the bonds to make thumping profits by selling them. PTL made an after-tax profit of Rs.5.1 billion for the year ended in March 31, 2016, increasing from mere Rs.959.5 million recorded a year ago.

The performance was purely due to the Rs.5.2 billion net capital gains made by way of trading financial assets—mainly the government bonds— the financial accounts published by the company showed.