CB Treasury bond deal deepens WILL ARJUNA SURVIVE? Report to PM on 10 April

The three-member committee which probed the controversial Treasury Bonds deal of the Central Bank has concluded inquiries and the report will be handed over to Prime Minister Ranil Wickremesinghe on 10 April, authoritative sources said yesterday.

Highly placed very reliable sources disclosed that according to the findings of the committee the crisis has deepened with political circles keeping fingers crossed about the future of incumbent Central Bank Governor Arjuna Mahendran.
Sources said the committee reportedly has found many 'grey' areas and added that the crisis had deepened forcing the intervention of the authorities to think on remedial action.

The three-member committee comprised Gamini Pitipana (Chairman), Mahes Kalugampitiya and Chandima Mendis.

Prime Minister Wickremesinghe appointed the three-member legal team to probe the crisis after it was brought to the notice of Parliament. Some sections leveled allegations against the Prime Minister stating that Wickremesinghe had appointed three lawyers close to his party. However, the Prime Minister maintained he had confidence in that committee. He announced to the House that the Central Bank Governor would be on leave till the probe was over.

Prime Minister Wickremesinghe earlier told Parliament that he would table the committee report once it is handed over to him.

The Governor was probed for alleged 'insider dealings' for reportedly helping his son-in-law Arjun Aloysius' company 'Perpetual Treasuries' to get unfair advantage in a Rs 10 billion Treasury Bond transaction.

Sources said the three-member committee which probed the scandal has detected violations of the State financial regulations and the Statutes of the Central Bank in the execution of this shady deal. 

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SEC requests info on suspect stock transactions

The Securities and Exchange Commission (SEC) has request the Colombo Stock Exchange (CSE) to provide information on suspicious transactions during 2011-2013, sources close to CSE said.

“There were certain transactions that were allegedly fraudulent and those which were ‘literally swept under the carpet,” a source told the Business Times. According to him most probes were shut in the past owing to ‘insufficient’ information which was a popular ‘excuse’ when certain probes didn’t see the light of day.

“There are a number of allegations of violations of the Colombo Stock Exchange market rules and SEC regulations. The minor ones were compounded. Thirteen large cases were abandoned purportedly on a lack of evidence,” he told parliament, adding that they were not probed or were settled when it should have been probed further.

The source added that Environmental Resources and Investments (ERI), Colombo Land and Reefcomber were specifically mentioned by Prime Minister Ranil Wickremesinghe in Parliament recently and that they are cottoning onto those probes. “The ERI has been fined (in the past), but we are trying to see whether ‘all’ information was considered when they were penalised. Also we are probing into the other two cases,” he said. The fact that the SEC has reopened probes into these three companies was also confirmed by SEC Chairman Thilak Karunaratne in recent media reports.
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Central Bank to exit EPF

By Duruthu Edirimuni Chandrasekera

The Government is in the process of changing crony directors installed by the previous regime in several banks, and plans to separate the functions of the Employees Provident Fund (EPF) from the Central Bank (CB), a state Minister says.

Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva told the Business Times that it is ‘incestuous’ for the CB to trade in shares held by the EPF. “This incestuous relationship must end and we will take the EPF away from the CB,” he said.

The deputy minister said with such a move situations where financial institutions were controlled according to the whims and fancies of political masters will not arise.
After parliamentary elections, the new Government will start major reforms in the financial services sector, he said. “We will amend the Monetary Act and the Banking Act to ensure the independence of the CB while separating its core functions.” He added that former HNB chairperson

Ranee Jayamaha did the ‘right thing’ by stepping down and charged that others (cronies of the last regime) should follow suit. He added that a majority of directors (in private banks) are good and it’s the bad apples that the government is worried about.

A senior industry official said that planned changes in the boards of some of the banks may take place this month and that the Policy Planning and Economic Affairs Ministry through state-owned entities which are shareholders of these banks plan to recommend certain chairmen to them. Dr. de Silva confirmed this when he said, “We will certainly clean up the mess. We’ll remove this disgusting control that CB has had from the commercial banks.”

When the Business Times pointed out that the government would be using the same powers that they had criticised (when in opposition) in taking control of these banks (using EPF to nominate directors), he said, “We need to come out from the same well that we were made to get into.”

He was adamant that bank boards should be clean. “In the medium term we are keen to revert to the former status quo where normal procedures were adapted when appointing directors to the boards as in the case of other public-listed companies,” he added.

“We can’t tolerate convicted criminals on these boards. We need to use the same method to get out from this mess,” he said.

The Sunday Times last week exclusively reported that sweeping changes are set to take place on the boards of six Sri Lankan private commercial banks in which the Government has a stake, triggering concern across the banking sector.
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Eureka … Finally 15% interest to all senior citizens

By the Business Desk

Business Times-led campaign for justice for elders succeeds

Eureka … that’s how one elderly customer of a Sri Lankan bank expressed his delight this week on learning that the 15 per cent interest on deposits of senior citizens would be provided to all irrespective of how much they had in a bank.

There had been utter confusion in commercial banks for several weeks over the budget proposal on the 15 per cent special interest rate benefit to senior citizens (aged 60 years and over).

The Business Times has been urging the Government – through news stories, editorials and pleas (through letters) from senior citizens – to stick to the budget proposal which didn’t have any restrictions but were subsequently imposed in the operating instructions to banks.

Bankers said the facility, which went through several amendments after the presentation of the January budget, was finally made clear to banks two weeks ago.

According to the latest circular to commercial banks, all senior citizens – irrespective of how much they have in fixed deposits – are eligible to open a fixed deposit at 15 per cent interest on an amount not exceeding Rs.1 million.

This means they are entitled to an interest of Rs.150,000 per annum compared to the earlier interest rate of 7-8 per cent which worked out to around Rs. 80,000 per annum (on a Rs.1 million deposit).

Just before a March 18 notice was published by the Sri Lanka Banks Association (SLBA) citing amendments to the proposal, senior citizens were eligible to this special interest rate only if they had Rs.1million or below in total, in all banks. For example if a senior citizen had a total of Rs.2 million in all banks, he or she was not eligible.

Furthermore, bankers said a further amendment to the earlier proposal permits senior citizens to combine the Rs.1 million from savings and current accounts, which was not permitted before.

“In reality there is no restriction at all on these deposits. Every senior citizen who has money in banks of any amount is eligible to this scheme,” one elderly lady said after opening a new account. “We should also thank the government for listening to the people. This is much appreciated.”

Senior citizens exempt from withholding tax on security deposits Senior Sri Lankan citizens over 60 years of age are to get another relief under the 2015 budget proposal came into effect this week.

The government has revised the present withholding tax regime applicable to deposit holders in commercial banks and non-bank financial institutions offering a New Year bonanza for senior citizens.

According to the circular issued by the Finance Ministry with operational guidelines to banks and financial institutions, “exemption on interest income of senior citizens was made by removing the exempt threshold presently applicable on interest income”.

The circular stipulated that present withholding tax regime applicable to individuals and charitable institutions will be revised by introducing a single withholding tax rate of 2.5 percent irrespective of the amount of interest.

 The present withholding tax rate of all deposit holders in banks and financial institutions with an annual income of over Rs. 500,000 was in the range of 5 to 8 per cent.

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JKH considering scouring capital markets to fund waterfront project

By Duruthu Edirimuni Chandrasekera

John Keells Holdings (JKH), which intends to continue the Waterfront Properties project as planned despite the new government’s amendment to restrict the ability to rent space for gaming, is contemplating going to the capital market for additional funding, officials said.

This has come on the back of a delay in securing a 7-year syndicated loan to the tune of US$445 million. Last December JKH announced its intent to enter into a syndicated project loan facility with the Standard Chartered Bank to partly finance this US$650 million plus integrated resort project which was backed by the previous government. The company raised more than Rs. 40 billion two years ago from shareholders from a rights issue, that was attached with warrants.

“Some (in the syndicated loan) had withdrawn, but we had roped in others at a higher (pay back) rate,” an official told the Business Times.

Chairman JKH Susantha Ratnayake was quoted in the media recently as saying that the project is progressing well and it has now released the space earlier (for other development) reserved for the casino parlour, under a new government ruling. Prime Minister Ranil Wickremesinghe announced in Parliament that the agreements entered into with Waterfront Properties (Pvt) Ltd under the Strategic Development Act will be amended to restrict the ability to rent space for gaming activities.

Analysts say that if JKH wants a debenture they will need to obtain a rating as per ColomboStock Exchange (CSE). But, the company informed the CSE recently that it’s terminating its rating arrangement with Fitch Ratings on the back of the latter downgrading the company’s AAA rating to AA+, due to the poor performance of its associate company South Asia Gateway Terminal (SAGT). But the company has ideas for an international rating.

“The company believes that a local rating is not warranted at this juncture of time considering the company’s current debt funding sources which are predominantly in foreign currency,” JKH said in a CSE filing.

Construction work has already started on the project on freehold land at Glennie Street in Colombo.
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CSE-SEC talks on making double ratings mandatory for listed debt

By Duruthu Edirimuni Chandrasekera

The Colombo Stock Exchange (CSE) is in talks with the Securities and Exchange Commission (SEC) on making two ratings mandatory for debenture issues, sources said.

“We are seriously contemplating changing the rules of debt listings. As a start we want companies issuing debentures to get two ratings (from two agencies). This is done internationally and we want to implement it here,” a CSE source told the Business Times.

This comes on the back of withdrawal of mandates and approaching fresh credit ratings from other agencies with higher credit ratings. A case in point is listed debt. “The concern here is the hurdle (the minimum) rate of BBB with which one cannot list debt or existing debt would have to be de-listed (as per existing CSE rules) in case of a downgrade,” an industry official said. He added that the risk here is that relatively lower credit quality gets access to listed securities market and access to wholesale financing putting greater systemic risk in the market. The CSE in 2013 announced a series of amendments to listing rules stamping it mandatory for debt issues to obtain ratings one notch above investment grade.

As such all debt issuances must carry a minimum credit rating of one notch above the investment grade.

The CSE source said that two ratings are better than one. “It at least places checks and balances. Most developed and regional markets follow that practice.” www.sundaytimes.lk