Fallout
26 October 2016Committee on Public Enterprises (COPE) is a legally constituted body comprising Members of Parliament elected by the Legislature itself.
Other than confirming an opinion on matters of public interest vis-à-vis public enterprises including the workings of the Central Bank of Sri Lanka (CBSL), it, however, has no legal powers to prosecute alleged offenders.
COPE, however, has the prerogative to call-up any person, including public officials for an inquiry and also to ask for reports on any so called controversial doings involving public assets/finance.
The current, so called controversy surrounding the COPE are probably in relation to at least two happenings in the Treasury (T) Bond market during the tenure of CBSL's immediately preceding Governor Arjuna Mahendran and Perpetual Treasuries, a primary dealer, which is allegedly operated by Mahendran's son-in-law Arjun Aloysius and family.
Mahendran was appointed CBSL Governor no sooner President Maithripala Sirisena was elected to power on 8 January 2015. He succeeded Ajith Nivard Cabraal, the appointee of President Mahinda Rajapaksa to this high post. Cabraal however, resigned from this post no sooner his 'mentor' lost the 8 January 2015 presidential poll.
The breach was filled by Mahendran, an allegedly trusted confidante of UNP Premier Ranil Wickremesinghe, on whose shoulders Sirisena rode to power, defeating his former boss at the 8 January poll.
Mahendran served as Governor from January 2015 to 30 June 2016, which incidentally was the period remaining for Cabraal to complete his second term as Governor.
Nonetheless, when Mahendran's 'contract' came up for renewal on 30 June 2016, it was not extended by Sirisena, who, instead, opted to appoint another distinguished economist to that post, namely Dr. Indrajit Coomaraswamy.
Mahendran was, however, not left in the cold, with Wickremesinghe appointing him as one of his economic advisers once he was 'kicked out' from the CBSL.
The so called controversial COPE report in question, probably involves investigations on so called T-Bond scams during the tenure of Mahendran. It probably doesn't include T-Bond transactions that took place after Mahendran's appointment.
The probable centre of controversy is of a T-Bond auction floated on 27 February 2015, i.e. a month after Mahendran's appointment, and the other, a T-Bond auction held a year and a month later, i.e. on 29 March 2016 or thereabouts and transactions involving secondary market trading of that particular tenure within a week thereafter, or thereabouts.
The so called COPE report pertaining to these two matters, if there is one, is however, not yet on the public domain.
Therefore, one may but conjecture what this controversy is all about. With respect to the 27 February 2015 T-Bond auction, the probable controversy surrounds the fact that its original offer of Rs one billion or thereabouts was jacked up by tenfold to Rs 10 billion in the ultimate sale.
Was Aloysius, being Mahendran's son-in-law, privy to this inflated amount prior to the auction, and thereby being prepared to make bids for this inordinately higher amount is the question? It's CBSL, which, on behalf of the Government of Sri Lanka, administers such public debt.
Market sources told this newspaper that allegedly during Cabraal's tenure, it was not Rs 10 billion, but double that amount, i.e. Rs 20 billion had been offered to the T-Bond market, as it were, out of the blues, though not that two alleged wrongs make a right.
It was also during Cabraal's tenure that Perpetual got its primary dealer licence.
The other was the 29 March 2016 T-Bond auction, where T-Bonds were sold allegedly high, i.e. comprising steep yields at the primary auction, while, within a couple of days, in secondary market trading, T-Bonds of this particular tenure had allegedly been bought by the EPF, an account administered to by the CBSL at low yields, thereby helping the seller(s) to make a 'killing' as it were from the interest rate differential.
EPF is public money held in public trust by CBSL. Therefore, at least in this instance CBSL has to play a fiduciary role. The question which certain players from the market asks is, if, in the first instance EPF bought these T-Bond tenure (s) low, i.e. a couple of days after those were sold in the primary market, why couldn't such a deal have had been executed in the primary auction itself?
The net effect is that EPF has been taken out of the market currently, probably till these so called investigations are over and on the flip side, foreigners who are currently exiting from the T-Bond market are exiting at higher yields in the absence of EPF as the buyer, thereby causing upward pressure on interest rates, while at the same time enjoying the advantage of buying the required US dollars vis-à-vis such exits at a discounted price of Rs 146.90 to the dollar, whereas the market, as at Monday was buying the same at Rs 147/85/95 to the dollar.
Who's cheating whom?
