Arjuna Mahendran | ( Pic by Ravindra Dharmathilake)

The Governor of the Central Bank of Sri Lanka, Arjuna Mahendran on Friday made a shocking revelation that though he had initially suggested to officials in the Public Debt Department (PDD) of the Bank to accept Rs. 20 billion out of the Rs.20.708 billion worth of bids received at the controversial bond auction, the officials at PDD however turned down his suggestion. The Governor made this revelation yesterday despite the fact that he is already facing heavy criticism from various quarters for even accepting Rs. 10 billion, which is ten times the value of the bond that was initially advertised at the February 27, 2015 thirty-year auction.

“Once I knew we had bids to the tune of over Rs.20 billion, my initial suggestion was to accept Rs. 20 bn itself. However the officials at the Department agreed that they would only accept Rs.10 billion,” Mahendran said.

The former Governor of the Central Bank of Sri Lanka Ajith Nivard Cabraal had recently charged that the losses arising as a result of the decision of the PDD to accept ten times the auction value advertised had already run to the tune of a staggering Rs. 54.5 billion by mid June this year. The government or the Central Bank has not so far responded officially regarding the assessment of loss by the Former Governor whose calculations were based due to the sudden hike in the cost of borrowings borne by the government.

Had Rs. 20bn been accepted and going by the bid pattern, experts said that the government would have had to bear interest rates as high as 13.5% for its borrowing.
According to a leaked draft interim report by the Committee on Public Enterprises (COPE) which investigated the Treasury Bond auction, it has been revealed that though the Government fund requirement as at 02 March 2015 amounted to Rs.13.5 billion, the Domestic Debt Management Committee (DDMC) had originally recommended to raise Rs. 1 billion out of the auction. However, the Public Debt Department upon receiving Rs. 20.7 billion worth of bids on 27 February had also initially recommended raising only Rs. 2.6 billion as the best alternative having analyzed different options to the said 30 year Treasury Bond.

“…The Governor had looked at the list of all bidders (Auction sheet) and had initially informed the officials to accept all bids amounting to Rs. 20.7 billion. However, Dr. M Z M Azim, Additional Superintendent of Public Debt and Mrs. C M D N K Seneviratne,
Superintendent of the Public Debt Department had not agreed with that decision and were able to convince the Governor that it was not a proper decision considering the volume and the too high rates then the Governor had instructed them to raise funds by Rs. 10 billion from the auction and to convey that message to the Tender Board. Finally the officials had agreed upon the decision since the Governor had also stated that he would not allow Direct/Private Placements,” the report said.

The essence of the report, which was first published by Colombo Telegraph has been analysed by The Nation and is carried in this week’s edition of the business section (GAIN).