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Senior State Counsel questions PTL’s justification for bidding 15 times higher

Perpetual Treasuries Limited (PTL) Chief Executive Officer Kasun Palisena yesterday denied being privy to any information other than what all primary dealers in the Treasury Bond market had in hand on the 27 February 2015 auction.

Answering to a question directed by Senior State Counsel Shaidaa Barrie, Palisena told the Presidential Commission of Inquiry investigating into the Treasury Bond issue that the PTL had access only to information available in the public domain.

Asked if he was aware that the Central Bank has done away with the direct placement method by the 27 February 2015, Palisena denied knowing of such information. Palisena again denied being aware of the Central Bank planning to accept 10 billion bids instead of 1 billion as advertised on the same date.

Palisena said if by any chance, they had privileged information regarding the 27 Fabruary 2015 auction, they would have bid for a larger amount for higher yield rate.

At the beginning of yesterday’s proceeding, Deputy Solicitor General Milinda Gunatilake informed the PCoI that there are confusions and discrepancies regarding certain bundles of documents provided by the Perpetual Treasuries Limited.

He said documents were marked by the PTL legal counsel through PTL CEO Kasun Palisena. Questions were put to him based on these documents in the last two weeks, to make a case for the PTL against a series of allegation leveled against them. The documents were provided in comparison with several documents marked through Central Bank IT Director Wasantha Alwis. Alwis’s documents were dominantly based on the Lanka Settle System.

The PTL counsels marked the documents to bring in their version of the transactions regarding the final sales of the bonds purchased at the 27 February 2015 auction, in the secondary bond market.

DSG Milinda Gunatilake said he detected 24 errors in one set of documents relating to a single ICIN of a bond auction. He informed the PCoI that these discrepancies create difficulties when cross-examining the witness. Chairman K.T. Chitrasiri instructed DSG Gunatilake to put the errors to the witness and get them clarified through him.

The PCoI rejected PTL legal counsel’s request to submit a document correcting the aforesaid errors. The Chairman of the PCoI did not accept the suggestion based on the reason that PTL have been given enough time to present their evidence.

Chairman Justice Chitrasiri questioned Palisena as to “how can we rely on such differences?” to which no answer was given by the witness.

Meanwhile, Commissioner, Justice P.S. Jayawardena said if any inferences are to be drawn by some party regarding this erroneous documentation, it perhaps would be justified given the reason that PTL is responsible to provide accurate details supporting their argument.

Legal counsel for PTL, President’s Counsel Nihal Fernando while apologising for the errors in the documents, emphasised that the errors were not deliberate.

SSC Shaidaa Barrie led evidence through Palisena suggesting that PTL violated the Code of Conduct for the primary dealers. Barrie suggested when PTL bade for 10 billion through the Bank of Ceylon at the 27 February 2015 auction, the PTL has revealed its trading intentions to the BOC, which is a violation of section 4.3 of the Code of Conduct for Primary Dealers.

Meanwhile, SSC Shaidaa Barrie questioned Palisena extensively on justifications he gave on as to what led PTL to bid 15 times larger than the 1 billion advertised by the Public Debt Department for the 25 Fubruary 2015 auction.

Previously, answering to a query made by the PCoI as to what reasons led Palisena to believe the 27 February 2015 auction was significant enough to bid 15 times larger than the advertised amount, Palisena listed down several.

According to Palisena, there was a large government requirement running up to 300 billion by the end of March 2015. Another reason he pointed out was that Central Bank not holding at least one Treasury bond auction from the first week of December 2014 up until 27 February 2015. Palisena also listed the new government’s mini budget has been another reason. The requirement to fund IMF facility and a large chunk of sovereign bonds maturing in March were the other two reasons with which Palisena supported his argument.

Taking these reasons given by Palisena, one by one, SSC Shaidaa Barrie argued against Palisena’s position that larger government requirement would lead the Central Bank to accept extensively than what they have offered at the 27 February 2015 auction. She said Palisena’s documents do not support his position. Barrie questioned Palisena’s reference to the new government’s mini budget, pointing out that even though certain expenses were increased due to the raising of Rs.10000 for public servants, much expenditure were cut down by the same mini budget.

SSC Barrie also begged to differ with Palisena’s argument that the Central Bank had not held an auction from the first week of December 2014 to 27 February 2015. She said there was an auction held in 30 December 2015, and also suggested that even though the Central Bank did not raise money through auction, it did using private placements. She also suggested that there have been many instances where the Public Debt Department went without raising funds for two or so months. Drawing Palisena’s attention to a document recording the additional borrowing requirement in March 2015, Barrie pointed out that the amount was only 172 billion in contrast to his 300 billion. She marked a report submitted by the Secretary to the Finance Ministry to Parliament stating that government debt requirement has come down, in support of her counter argument.

The PCoI observed that Palisena’s justification that Sri Lanka had to fund the IMF facility in March 2015, can only be relevant if the Public Debt Department ever raised Rupee bonds to fund the IMF facility.

Upon being questioned on a call he received by Central Bank officer named Tyral Gunatilake prior to the questioned auction’s date, Palisena said he was not aware that the said officer is from the supervision division of the Central Bank. Palisena said he spoke with the officer several times on several occasions regarding auctions.

The PCoI observed that only the officers in the front office of the Central Bank discuss auctions with primary dealers.

Palisena is to testify before the PCoI today as well.