Prime Minister Ranil Wickremasinghe, defending the actions of Central Bank Governor Arjuna Mahendran, on Tuesday slammed corrupt sections of Sri Lanka’s private sector to the extent of naming businessmen like Dilith Jayaweera and Nimal Perera.
Making a special statement in Parliament on the controversial Treasury bond issue which led to Mr. Mahendran going on leave pending the investigation, the Prime Minister spoke about the irregularities in the stock market and said:
“Take the name of Nimal Perera at Pan Asia Bank or (Ms) Ranee Jayamaha of Hatton National Bank. Who are they and how did they benefit from certain political personalities of the previous administration? How can Mr. Perera head a bank given the large number of surveillance referrals made to the Colombo Stock Exchange? The National Savings Bank purchased 13 per cent of The Finance Company at fifty rupees per share. That is twenty rupees above market value. The mastermind behind this was Ajith Devasurendera and Dinal Wijemanne. Today, The Finance Company has recorded accumulated net losses of Rs 16 billion.” Turning to Dilith Jayaweera, Chairman of George Steuart’s Group and many other companies, Mr. Wickremasinghe said, Mr. Jayaweera’s roles in the Colombo Land and Development Company and the ReefComber (hotel) have to be probed by the authorities. Another such instance is Scott Newman and Kosala Heengama. Similarly their role in Environment Resources Investments require very close scrutiny.
The Prime Minister also referred to conglomerate John Keells, saying the Government’s decision to cancel the casino licenses has resulted in shareholders dumping their shares. “This is the only way to show their protest against questionable choices by the management,” he said.
In a lengthy statement speaking in both Sinhala and English, the Prime Minister said he had insisted on a public auction because private placements on bond issues by the Central Bank have led to corruption and lack of transparency. “Previously, parcels of Government bonds were handed out to selected individuals on a favored basis through a system of private placement. It took place outside the normal auctions of Government bonds,” he added.
Here are excerpts of his statement:
“Private placements were usually as large as ten times bigger than the amount of Government bonds sold through the auctions. This led to an unhealthy link between some of the officers of the Central Bank’s Public Debt Department, Primary Dealers and large Corporations who benefited from such private placements.
This practice only enriched a handful of cronies of the previous Government.
Records confirm that private placements had become a norm rather than an exception. In just one instance in 2013, Rs 16 billion worth of 5 year bonds were sold through auction at a yield of 10.9% and thereafter Rs 76 billion of the same bond were sold through private placements at a HIGHER yield of 11.42%.
Who stood to benefit from such acts? The answer is obvious. As a result of such anti-competitive practices the primary dealers had lost sight of their principal role in making for a transparent, liquid and competitive bond market.
They were asking the Central Bank to dictate to them at what interest rate they should bid at the bond auctions. Such a practice has never been a norm and is unheard of in transparent auctions anywhere in the world. At this particular auction, where ill informed and intentioned criticism has been leveled, there were 36 bids from various Primary Dealers amounting to just over Rs. 20 Billion.
These monies that were raised were paid to the Treasury to fund the Divisional level Development Projects that was the subject of discussion in the House recently. Subsequent to this bond issue allegation of insider trading were made. The name of the Governor was mentioned in these allegations and aspersions cast.
There are a number of allegations of violations of the Colombo Stock Exchange market rules and Securities and Exchange Commission regulations. The minor ones were compounded. 13 large cases were abandoned purportedly on the lack of evidence. They were not investigated or were settled when it should have been probed further. I would like this to be recorded in the Hansard. I have requested the Securities and Exchange Commission to go into these cases. If necessary, I will bring legislation to permit such inquiry. I am also seeking for the appointment of a Parliamentary Select Committee to inquire into these transactions. Since some of the issues raised are under consideration by the Committee, I prefer to give an answer elaborate after the report is submitted. We plan to table this report in Parliament.
Sri Lankan Airlines: The Cabinet approved by decision 11/1459/545/009 of 4 August 2011 the investment of 520 Million US Dollars of equity in to Sri Lankan Airlines and Mihin Lanka over a five year period. US Dollars 230 million was required for re-fleeting. The other requirements being – Repayment of bank overdrafts/loans – US Dollars 52 million – Repayment of outstanding creditors – CPC US Dollars 28 million and others US Dollars 15 million – Funding of working capital (maintain adequate cash reserves) US Dollars 94 million – Investment in infrastructure/fixed assets – US Dollars 81 million (includes investment required in Mattala and Ratmalana airports to provide ground handling services) Mihin Lanka: – Re-fleeting – US Dollars 10 million – Funding of working capital (maintain adequate cash reserves – US Dollars 5.5 million) – Repayment of previous outstanding creditors US Dollars 4.5 million The airline has received a total of 375 Million US Dollars. Out of this, 50 million Dollars was spent for re-fleeting and the balance was utilized to cover the losses. As a result, Sri Lankan Airlines does not own a single aircraft.
As a result of past misdeeds, the Central Bank has now been forced to embark on the task of re-building their credibility and standing as the country’s most credible financial institution. This is no easy task, since the spin masters have turned the institution into a wasteland. They left behind a legacy of mismanagement and misrule. They have been adopting a system of private placements of bonds. The criteria they adopted allowed the Central Bank to cut deals with Primary Dealers. Rebuilding international confidence and credibility has become an uphill task. Who are the people who are responsible for this mess? We have may be a half a Trillion to a Trillion Rupees worth of commitments made on highway projects.”
Criticising the media, he said: I also want to state that there is an imperative need in Sri Lanka for an Independent Broadcasting Authority. This is like the one existent in the United Kingdom to ensure ethical and fair conduct. Some institutions at present have become tools in the hands of their owners who have to protect not only their business empires but also more importantly their secrets and sinister ambitions.
It is only after we assumed office that the Central Bank adopted a more prudent system of calling for competitive bids. As a result the Government is able to raise funds at the most competitive rates. This would ensure that the government is able to raise money at the most competitive rates. The way the bond markets behave and how the secondary market works can be complicated and not many would understand the complex nature of transactions.
But we can compare the latest 30-year bond issued under this government and the ones that were issued under the previous one. The 30-year bond of June 2014 was issued at an average interest rate of 11.75 percent. The latest bond was sold at 11.73, slightly lower than the rate paid last year. This means we were able to raise just over 10 billion rupees at a rate cheaper than what the previous government paid.
Furthermore, there are several previous instances of the Central Bank accepting much higher volumes of bids than what were advertised. On 14 February 2014, Rs 1 billion worth of treasury Bills were offered and over Rs 11 billion were eventually sold. On 14 November of the same year Rs 2 billion were offered and over Rs 13.5 billion were sold. What our government and the Central Bank have done is to raise money for the Government at the best possible rate through a competitive bidding process instead of using private placements. The House would agree that it is not a healthy practice to allow private placements when we could get better terms by opening up to a competitive environment. By resorting to a traditional transparent auction of government bonds, the Central Bank has already made significant progress in raising funds for the Government. Just last week a record Rs 100 billion was raised in 4 auctions to repay Rs 79 billion of bonds coming due this week and to keep funding government projects.
The most important aspect of the entire issue is the transparent manner in which we responded to the criticism directed at us from various quarters. We never stifled any voice of criticism.
The media, the civil society, political parties were given total freedom to voice their opinion on the bond issue.
There were no white-vans at the doorsteps of those who criticized the government on this matter. Secret units did not tap their telephones. No one received threatening phone calls after voicing their opinion on the bond issue at public forums – like they did in the past, under the watch of the Rajapaksa regime. The People, the legislature, the civil society and the media were either hoodwinked or intimated when it came to problems involving public money.
That is the main difference of the present government. It acts in a responsible manner and is accountable to the public as well as to the Parliament. When I raised a question about the Colombo Port City issue in Parliament, the previous government said “documents” of the deal should be brought to Parliament in Lorries. That was the manner in which they responded to allegations leveled by the opposition. Two Director Generals of the Securities and Exchanges Commission were forced to resign when they tried to investigate allegations of corruption. Journalists were not even allowed to write about the circumstances under which the Director Generals of the SEC had to leave their positions. We have acted in a totally different manner, demonstrating that we are a government that is accountable to Parliament.” - See more at: http://www.sundaytimes.lk/news-online/sl-prime-minister-defends-bond-issue-slams-powerful-private-sector-businessmen.html#sthash.CYQnS15L.dpuf
The Prime Minister also referred to conglomerate John Keells, saying the Government’s decision to cancel the casino licenses has resulted in shareholders dumping their shares. “This is the only way to show their protest against questionable choices by the management,” he said.
In a lengthy statement speaking in both Sinhala and English, the Prime Minister said he had insisted on a public auction because private placements on bond issues by the Central Bank have led to corruption and lack of transparency. “Previously, parcels of Government bonds were handed out to selected individuals on a favored basis through a system of private placement. It took place outside the normal auctions of Government bonds,” he added.
Here are excerpts of his statement:
“Private placements were usually as large as ten times bigger than the amount of Government bonds sold through the auctions. This led to an unhealthy link between some of the officers of the Central Bank’s Public Debt Department, Primary Dealers and large Corporations who benefited from such private placements.
This practice only enriched a handful of cronies of the previous Government.
Records confirm that private placements had become a norm rather than an exception. In just one instance in 2013, Rs 16 billion worth of 5 year bonds were sold through auction at a yield of 10.9% and thereafter Rs 76 billion of the same bond were sold through private placements at a HIGHER yield of 11.42%.
Who stood to benefit from such acts? The answer is obvious. As a result of such anti-competitive practices the primary dealers had lost sight of their principal role in making for a transparent, liquid and competitive bond market.
They were asking the Central Bank to dictate to them at what interest rate they should bid at the bond auctions. Such a practice has never been a norm and is unheard of in transparent auctions anywhere in the world. At this particular auction, where ill informed and intentioned criticism has been leveled, there were 36 bids from various Primary Dealers amounting to just over Rs. 20 Billion.
These monies that were raised were paid to the Treasury to fund the Divisional level Development Projects that was the subject of discussion in the House recently. Subsequent to this bond issue allegation of insider trading were made. The name of the Governor was mentioned in these allegations and aspersions cast.
There are a number of allegations of violations of the Colombo Stock Exchange market rules and Securities and Exchange Commission regulations. The minor ones were compounded. 13 large cases were abandoned purportedly on the lack of evidence. They were not investigated or were settled when it should have been probed further. I would like this to be recorded in the Hansard. I have requested the Securities and Exchange Commission to go into these cases. If necessary, I will bring legislation to permit such inquiry. I am also seeking for the appointment of a Parliamentary Select Committee to inquire into these transactions. Since some of the issues raised are under consideration by the Committee, I prefer to give an answer elaborate after the report is submitted. We plan to table this report in Parliament.
Sri Lankan Airlines: The Cabinet approved by decision 11/1459/545/009 of 4 August 2011 the investment of 520 Million US Dollars of equity in to Sri Lankan Airlines and Mihin Lanka over a five year period. US Dollars 230 million was required for re-fleeting. The other requirements being – Repayment of bank overdrafts/loans – US Dollars 52 million – Repayment of outstanding creditors – CPC US Dollars 28 million and others US Dollars 15 million – Funding of working capital (maintain adequate cash reserves) US Dollars 94 million – Investment in infrastructure/fixed assets – US Dollars 81 million (includes investment required in Mattala and Ratmalana airports to provide ground handling services) Mihin Lanka: – Re-fleeting – US Dollars 10 million – Funding of working capital (maintain adequate cash reserves – US Dollars 5.5 million) – Repayment of previous outstanding creditors US Dollars 4.5 million The airline has received a total of 375 Million US Dollars. Out of this, 50 million Dollars was spent for re-fleeting and the balance was utilized to cover the losses. As a result, Sri Lankan Airlines does not own a single aircraft.
As a result of past misdeeds, the Central Bank has now been forced to embark on the task of re-building their credibility and standing as the country’s most credible financial institution. This is no easy task, since the spin masters have turned the institution into a wasteland. They left behind a legacy of mismanagement and misrule. They have been adopting a system of private placements of bonds. The criteria they adopted allowed the Central Bank to cut deals with Primary Dealers. Rebuilding international confidence and credibility has become an uphill task. Who are the people who are responsible for this mess? We have may be a half a Trillion to a Trillion Rupees worth of commitments made on highway projects.”
Criticising the media, he said: I also want to state that there is an imperative need in Sri Lanka for an Independent Broadcasting Authority. This is like the one existent in the United Kingdom to ensure ethical and fair conduct. Some institutions at present have become tools in the hands of their owners who have to protect not only their business empires but also more importantly their secrets and sinister ambitions.
It is only after we assumed office that the Central Bank adopted a more prudent system of calling for competitive bids. As a result the Government is able to raise funds at the most competitive rates. This would ensure that the government is able to raise money at the most competitive rates. The way the bond markets behave and how the secondary market works can be complicated and not many would understand the complex nature of transactions.
But we can compare the latest 30-year bond issued under this government and the ones that were issued under the previous one. The 30-year bond of June 2014 was issued at an average interest rate of 11.75 percent. The latest bond was sold at 11.73, slightly lower than the rate paid last year. This means we were able to raise just over 10 billion rupees at a rate cheaper than what the previous government paid.
Furthermore, there are several previous instances of the Central Bank accepting much higher volumes of bids than what were advertised. On 14 February 2014, Rs 1 billion worth of treasury Bills were offered and over Rs 11 billion were eventually sold. On 14 November of the same year Rs 2 billion were offered and over Rs 13.5 billion were sold. What our government and the Central Bank have done is to raise money for the Government at the best possible rate through a competitive bidding process instead of using private placements. The House would agree that it is not a healthy practice to allow private placements when we could get better terms by opening up to a competitive environment. By resorting to a traditional transparent auction of government bonds, the Central Bank has already made significant progress in raising funds for the Government. Just last week a record Rs 100 billion was raised in 4 auctions to repay Rs 79 billion of bonds coming due this week and to keep funding government projects.
The most important aspect of the entire issue is the transparent manner in which we responded to the criticism directed at us from various quarters. We never stifled any voice of criticism.
The media, the civil society, political parties were given total freedom to voice their opinion on the bond issue.
There were no white-vans at the doorsteps of those who criticized the government on this matter. Secret units did not tap their telephones. No one received threatening phone calls after voicing their opinion on the bond issue at public forums – like they did in the past, under the watch of the Rajapaksa regime. The People, the legislature, the civil society and the media were either hoodwinked or intimated when it came to problems involving public money.
That is the main difference of the present government. It acts in a responsible manner and is accountable to the public as well as to the Parliament. When I raised a question about the Colombo Port City issue in Parliament, the previous government said “documents” of the deal should be brought to Parliament in Lorries. That was the manner in which they responded to allegations leveled by the opposition. Two Director Generals of the Securities and Exchanges Commission were forced to resign when they tried to investigate allegations of corruption. Journalists were not even allowed to write about the circumstances under which the Director Generals of the SEC had to leave their positions. We have acted in a totally different manner, demonstrating that we are a government that is accountable to Parliament.” - See more at: http://www.sundaytimes.lk/news-online/sl-prime-minister-defends-bond-issue-slams-powerful-private-sector-businessmen.html#sthash.CYQnS15L.dpuf
