PTL bid 15 times higher by forecasting Govt’s need: CEO

Perpetual Treasuries Ltd., CEO Kasun Palisena who testified before the PCoI, was today repeatedly questioned by Justice Prasanna Jayawardena as to why PTL made a Rs.15 billion bid when the offer was just for bonds worth Rs.1 billion at the auction on February 27, 2015.

Continuing his evidence before the PCoI, he explained the manner in which they bid at the controversial bond auction and the basis on which they decided to place a bid 15 times higher than the amount offered at the auction.

On February 26, 2015, the Central Bank had advertised for a bond auction for Rs.1 billion.

However, Perpetual Treasuries Ltd. placed a Rs.15 billion bid at the auction — Rs.2 billion in its name and Rs.13 billion through the Bank of Ceylon (BOC).

The bid of Rs.2 billion placed in the name of PTL and Rs.3 billion of the Rs.13 billion bid through BOC making a total of Rs.5 billion was accepted at the auction.

During the yesterday’s proceedings, the commission repeatedly questioned the witness to specify the reasons for making a bid 15 times more at a high interest rate of12.5%.

The witness was of the view that the interest rate should move upwards by February, 2015 because in 2014 the interest rate was suppressed by the government and also because of the uncertainty prevailing in the market with the elections the interest rate was bound to move upward.

Then Justice Jayawardena questioned the witness whether it was his assumption that the interest rate would be moving upward due to various reasons, because such an upward trend had not been taken place and even the market reflected a much lesser rate despite their expectation.

The witness said that the interest rate expected to move upward since it was quite low in 2014 and that he was unaware about other’s rates on the bids since he was of the view that his rates (11.5% -13 %) were much reasonable.

Giving reasons as to why PTL had bidded a much higher value irrespective of the offered value of the CBSL at the auction, Mr. Palisena put forward various factors, which made him come to that conclusion by February 2015.

The witness said there were repayments made by the Government on the maturity of the Bonds paid using reserves without raising borrowings, interest rate payments of IMF loans and expenditure hike due to Mini budget proposals by February 2015.

He said analyzing those factors, approximately about Rs. 300 billion was required by the Government by the early part of 2015.

“All details were in the public domain, and we keep an eye on government requirements. And also the Public Debt Department was canvassing about the auction by calling us before February 27, 2015, so we predicted that the Government was in need of urgent money”, the witness said.

When the witness had stated the fact that there was no limit on bidding at auctions, Justice Prasanna Jayawardena started questioning him more on their bids value which was much higher than what had been offered.

Justice Jayawardena asked “Your average bond holding as per what reflects in PTL’s management Accounts are around 3.5 billion, so what prompted you to bid such higher amount at this auction although PTL’s capital was around Rs. 1.039 and the bid 15 times higher at the auction”.

The witness said “we knew the Government was desperate for money analyzing various factors, such as debt payments without raising money, mini budget and canvassing of the PDD”

“Was it prudent to bid a 15 times bigger value having very uncertain prospects?”, Justice Jayawardena asked. The witness said “We wanted to specialize in longer term bonds”.

“Can you provide one instance that you had bid 4/5 times bigger value than what was offered at an auction earlier?” Justice Jayawardena asked. The Witness said no.

“You have not bid a 4/5 times bigger value at the past auctions but on 27 February, 2015 it was 15 times bigger than what was offered by the CBSL” Justice Jayawardena said.

After a series of questioning by the Commission, it came to light that the PTL was having a capital of Rs. 1.039 billion, and about Rs. 3 billion worth of short term bonds and also a maturity payment of Rs. 500 million by March 2, 2015.

Justice Jaywardena asked “your cash in hand was amounting about Rs. 1.5 billion and another 3 billion on bonds, so if all your bids had been accepted how were you to settle the payments”?

Justice Jayawardena was of the view that if the bids were successful then PTL had to settle an amount worth Rs. 14 billion and out of it 9.5 billion has to be raised through some other means because they were not having liquid cash of that amount at that time.

The witness said they had other mechanism to raise such money which he explained as classic Repos with parties and entering into sell and buy agreements with parties such as NDB Wealth Management, BOC, Wealth Trust, First Capital, etc.

Justice Jayawardena seemed unsatisfied with the answers given by the witness and repeatedly questioned on the matter.

Focusing on the limited time frame that PTL had to gain such money if all their bids had been accepted; Justice Jayawardena questioned the witness as to whether they were expecting to conduct transactions amounting to Rs. 10 billion within a short period of time. The witness’ answer was affirmative.

Questioning again on PTL’s bids amounting to Rs. 15 billion at the auction which only offered 1 billion in the advertisement, Justice Jayawardena asked

Justice- “there was only one billion offered at the auction ?”,

Witness – “yes”

J-“But you still bid a bigger value with the confidence that the government was in need of money?

W- “yes”

Justice Jayawardena said “Such a massive liability for country like Sri Lanka may have existed in previous years as well, it was not a particularly an unusual auction situation”

The witness was of the view that due to the change in the Government and not holding an auction since December 2015 to February 27, 2015 they were predicting that the Government was in need of more money.

Justice Jayawardena said “even though the Government was not holding auctions for the time period of December to February, 2015 it had gained borrowings through Direct Placement method and the auctions were not that frequent even in the past.”

Questioning the witness’ reason on government’s change in January 2015, Justice Jayawardena questioned “was there a policy change of the Government or any announcement with regard to any fiscal policy change by the CBSL”.

The witness said “no”.

“Then you had no reason to think February 27 auction as an extraordinary one because it was another auction conducted by the CBSL”, Justice said.

Justice Jaywardena also said “apart from the New Governor and the new Superintendent of the Public Debt Department of the CBSL there was no change in the CBSL”

“General practice was to obtain 80% of the fund requirement through Direct Placement Method while Auction being used to test the market rate, and that was the system at the CBSL in fund raising”, Justice Jayawardena added.

Justice Jayawardena asked “So what made you to bid 15 times more and to think that CBSL would accept greater that what they had offered at the auction”

The witness repeated with his stance that they were predicting the Governments fund requirement.

“I still cannot see any reason, why you had bid a15 times bigger value when the offer was Rs. 1 billion. It was completely unprecedented as far as PTL’s history is concern, do you have a reason to justify it”, Justice asked.

Witness said “Rs. 300 billion worth of payments made by the Government using reserves without raising borrowings for the maturity repayments of the Bonds, interest rate payments of IMF loans and for the Mini budget proposals by February 2015 and also the canvassing conducted by the CBSL officials on February 27 auction hinted them that the Government in need of money”

Mr. Palisena’s evidence will continue today.