A senior official of the Finance Ministry has expressed shock over Finance Minister Ravi Karunanayake’s ignorance over the alleged scam, which has resulted in the country, and the Finance Ministry suffering direct losses amounting to millions of rupees.
In an interview on ‘Face the Nation’ aired on the Sirasa TV on Monday, Karunanayake appeared to be unaware of the loss caused by the Bond issuance, when he asked ““what was the loss to the government as a result of the Bond deal of February 2015?” while also defending the Central Bank Governor Arjuna Mahendran.
The senior official of the Finance Ministry speaking on condition of anonymity as he is not permitted to speak to the media said “I believe that the Minister is misinformed or does not know the actual facts. The Minister of Finance, is the biggest loser in the first instance, which in turn imposed an equivalent loss on the people of the country minus the company owners in question. If he was aware of the facts, I am sure that he would have been so bold in his conviction”.
The 30 year bond carrying a fixed interest rate of 12.5% was advertised by Central Bank for Rs 1 billion. Along with every such advertisement, CB’s Public Debt Department indicates an indicative rate to Primary Dealers to submit their bids. This rate is based on the prevailing market rates for similar bonds and is intended to dissuade primary dealers from bidding at rates pretty much above or below the prevailing rates. In that way, Public Debt tries to keep the auction rates as close as possible to prevailing market rates.
“The indicative rate communicated to Primary Dealers in this instance was 9.5% meaning that the primary dealers have to submit their bids at a bond price of around Rs 131 per 100 rupee bond. At this price, the Minister of Finance would have got a premium income of Rs 31 for every 100 rupee bond he would have issued. However, the Public Debt’s indicative price was on the high side because it had been based on a 30 year bond carrying an interest rate of 13.5%. When the price is adjusted for the 12.5% rate which the bond in question had carried, it comes down to about Rs 121 per every 100 rupee bond. At this price, the Minister would still have got a premium income of Rs 21 since the market was willing to buy these bonds at around that price,” he noted.
The official noted that according to the bid details pertaining to the auction as reproduced by the Lawyers’ Committee appointed by the Prime Minister, almost all the primary dealers had bid around that price. “Even the Bank of Ceylon which had bid on behalf of one of its customers had bid at 9.5% or Rs 121. However, the very same BOC had submitted bids within the last 30 minutes before the closure of the tender at prices ranging from Rs 87 to 97 on behalf of the Primary Dealer Perpetual Treasuries. When the BOC Chief Dealer was questioned by the Lawyers’ Committee, his answer, according to the report, was that the CEO of Perpetual Treasuries had told him if they win it, there would be a big profit. It meant that this primary dealer was aware that the government would get more than Rs 1 billion which information was not available to other primary dealers,” he said.
It is learnt that the Public Debt decided to take up to Rs 10 billion on the insistence of Central Bank Governor Arjuna Mahendran, and Perpetual Treasuries was successful in getting 50% of that amount. Even the lawyers’ committee had remarked that this was unusual and need be fully investigated.
“Thus, a bond which would been sold in the market for Rs 121 was sold at around Rs 91 to this primary dealer causing losses amounting to Rs 1.5 billion immediately to Minister Karunanayake. The decline in market interest rates caused other primary dealers and investors to capture the loss by marking their portfolios to the now lower market price. The biggest loser was another state bank, namely, National Savings Bank,” he said.
“It is time for Ravi Karunanayake to come out of his narrow political affiliations and present himself as the Minister of Finance who has been entrusted with the country’s public finance of the country,” the Finance Ministry Official added.