President orders probe into controversial bond sale

10 March 2015 05:07 am Views - 1365

President Maithripala Sirisena has instructed his Secretary to set up a three-member committee to probe into the irregularities that were said to have taken place during a 30-year bond sale by the country’s Central Bank.
A statement by the President’s Media Unit yesterday said if the committee discovers any transgression, the perpetrators will be punished despite their ranks.
However, our sister paper Sunday Times quoting Central Bank Governor Arjuna Mahendran said an independent lawyer had been appointed to probe into 
the matter. 
Sri Lanka’s bond market was in a state of shock last week after a 30-year bond was sold at higher yields, with about half of the auction (about Rs.5 billion) worth of bonds being ultimately allocated to Perpetual Treasuries, a firm connected to Central Bank Governor Mahendran’s son-in-law.
Amid pressure from various quarters, the Policy Planning and Economic Affairs Ministry, under which the Central Bank falls, issued a press statement last Friday explaining the background to the said bond sale.
However, it failed to provide a rational explanation as to why the bond issue size was raised by 10 times. The Central Bank originally announced the sale of bonds worth only Rs.1 billion. According to money market dealers, the Central Bank has been in the habit of upsizing the bond sale size but not in this proportion.  
At the same time, the justification given for the sudden spike in the bond yield from 9.5 percent to 12.5 percent in the press statement remained unconvincing. 
Meanwhile, the Highways, Higher Education and Investment Promotion Ministry, for which the proceeds of the bond issue went, distanced itself from the situation in a possible attempt to avoid political stigma.

“The Ministry of Highways, Higher Education and Investment Promotion requested the funds from the Ministry of Finance. The Ministry of Finance determines the manner in which the said funding is raised,” a ministry statement said yesterday. The ministry held that it had requested urgent funds amounting to Rs.15 billion from the Finance Ministry to ensure that the construction of the highways went ahead without disruption.The statement further noted that the funds were to be raised to compensate lands that were forcibly acquired by the previous administration, amounting to Rs.40 billion, and for road construction amounting to Rs.12 billion.