PTL earned phenomenal profits by selling at lower rates to EPF: DSG Gunatilleke

Senior Deputy Solicitor General Milinda Gunathileke said yesterday Perpetual Treasuries Ltd (PTL) would not have earned phenomenal profits in Treasury bond trading if it hadn’t ultimately sold bonds, which had been bought from Primary Auctions, to the EPF and other Government institutions in the secondary market at a ‘yield rate’ which was relatively ‘low’.

He made this observation when concluding the cross-examination of PTL CEO Kasun Palisena on the PTL’s secondary market transactions.

During the cross-examination, it was explained that PTL had bought Rs.5 billion worth of bonds directly and through the Bank of Ceylon at the primary auction on February 27, 2015. Thereafter, part of those bonds had been sold to the EPF in June, 2015 in the secondary market.

It was also explained that PTL had bought those Treasury Bonds at a higher yield rate between 11.5 % and 12.27% at the February auction and subsequently sold them to the EPF in June at less than 10.5%. (This is at an advantage to PTL)

DSG Gunathileke also explained that PTL had bought Treasury Bonds from an auction in October 2015 at a higher yield rate and in the very next month sold them to the EPF at a lower yield rate through an intermediary (PABC) gaining considerably higher profits.

Comparing both instances, when PTL had sold bonds to EPF at a lower rate, in June and November, 2015, DSG Gunathileke explained that on both occasions PTL had in fact engaged in outright transactions with its other counter parties at higher yield rates which are not comparable to its sale rate with the EPF.

However, Mr. Palisena was of the view that PTL had not dealt with EPF at rates which prevailed in the market at that time. He said the other outright transactions mentioned by the DSG were actually not outright sales but a transaction mode called ‘sell and buy back’, which happens on an agreed buying back date when the parties involved enter into a transaction.

He said the “sell and buy back” took place at a different yield rate when compared with the prevailing rates in the market and therefore could not be taken into consideration when determining the market’s prevailing yield rate at that time.

However, Justice Prasanna Jayawardena appeared unconvinced by the explanation given by the witness about the ‘sell and buy back’ yield rates and repeatedly questioned Palisena about it.

He also questioned the witness based on the documents provided by PTL on its secondary market transactions and pointed out several transactions which were not apparently ‘sell and buy back’ because of the differences reflected in the entering day of the transactions.

The witness was of the view that those ‘sell and buy back’ transactions could have gone through a method called ‘roll over’ with counter parties. Justice Jayawardena again appeared unconvinced with the answers given by the witness.

DSG Gunetilleke questioned the witness from where PTL had adopted the ‘sell and buy back’ method, because the witness said those ‘sell and buy back’ transactions were not similar to ‘REPO’ transactions (which are frequently used in bond trading).

Mr. Gunetilleke was of the view that CBSL has no product called ‘sell and buy back’.

The witness said he was taught about it at a seminar conducted by ACCA over the potential of using such a method in their bond trading.

DSG Gunathileke was of the view that during the time period where PTL had sold bonds to the EPF in the secondary market at a lower yield rate, PTL had also engaged in outright sales with its counter parties at higher rates when compared with its sale rate to the EPF.

The DSG was of the view that PTL would not have gained significant profits if they had not sold bonds bought from primary auctions to the EPF at a lower rate.

PTL CEO Kasun Palisena will be re-examined by Nihal Fernando PC today.