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Finance Minister Ravi Karunanayake, Former President Mahinda Rajapaksa
A major battle has erupted between Finance Minister Ravi Karunanayake and former president Mahinda Rajapaksa over a 2015 January gazette by the Central Bank listing past and future Treasury bond issues with an aggregate value of a staggering Rs. 1.8 trillion.
Karunanayake yesterday charged that the Central Bank under the Rajapaksa regime had violated regulations as well as legalised corruption-prone private placements of Treasury bonds whilst Rajapaksa in his rebuttal blamed the Yahapalanaya Government for a “diabolical attempt” to foist the blame for the “great” Central Bank bond scam on him. The former president also threatened legal action against Minister Karunanayake.
The basis for the battle, which is likely to create shockwaves within and beyond political circles, is Extraordinary Gazette Notification No. 1895/19 dated 1 January 2015 i.e. seven days before the 8 January 2015 Presidential Election, issued by Mahinda Rajapaksa, the then Minister of Finance and Planning.
This gazette transpired when the Secretary to the Ministry of Finance Dr. R.H.S. Samaratunga appeared before the Presidential Commission of Inquiry on Treasury bond issuances last Thursday (23 February).
“This gazette is a unique example of relevance of fraudulent management of public debt by Mahinda Rajapaksa, Ajith Nivard Cabraal and his fellows in the Central Bank in violation of laws,” said Finance Minister Karunanayake yesterday. In a statement highlighting preliminary observations while awaiting a full-scale investigation, the Minister said this gazette contains authorisation given under Section 4 of the Registered Stock and Securities Ordinance to raise loans during 2015 through the issuance of 31 Treasury bonds of different redemption periods at different interest rates at auctions as notified by the Registrar of Public Debt through newspapers.
The bonds stipulated in the gazette include many bonds issued in the past at various interest rates since 2011 as well as new bonds.
There is no indication as to how bonds already issued in the past are issued again in 2015. It appears that the gazette authorises the past bonds too.
As per the gazette, loans will be raised through those bonds within the sum of Rs. 1,780 billion, authorised in the Appropriation Act, No. 41 of 2014.
The practice that has been followed in the past by the Central Bank is to issue this gazette backdated as 1 January each year after issuing all bonds during the year in a hidden attempt to comply with the requirement of Section 4 of the Registered Stock and Securities Ordinance while mismanaging bond issuances.
When issuing this gazette, the required protocol has not been followed. With regard to the issuance of a gazette by any Minister, the relevant institution should send the draft to the Secretary of the line ministry. The Secretary then obtains legal and technical clearance from the relevant officials in the Ministry and submits the gazette for the signature of the Minister. Only after obtaining the Minister’s signature is the gazette sent to the Government Printer for publication.
The Central Bank has not followed this procedure with this gazette in the recent past. Instead, the Superintendent of the Public Debt Department has directly sent it to the Government Printer after getting legal clearance from Central Bank lawyers.
Information is available that the gazette dated 1 January 2016 to be published under the name of Ravi Karunanayake, Minister of Finance, for 2016 also has already been sent to the Government Printer in the same way in 2017. The publication of this gazette was immediately withheld.
As such, all Treasury bonds have been issued in violation of the provisions of the Registered Stock and Securities Ordinance. This is how the Central Bank officers, so-called experts and professionals, mismanaged public debt to facilitate Mahinda Rajapaksa’s Government and Ajith Nivaard Cabral through the questionable private placements of bonds, Karunanayake said. In such gazettes issued in the past, all private placements were also legalised as issuance at auctions announced by the Registrar of Pubic Debt.
The full report will be issued to the media after investigations and corrective actions are taken immediately. Appropriate legal action will be taken against the errant officers under the provisions of the Registered Stock and Securities Ordinance.
Former president Rajapaksa in his rebuttal expressed regret over the diabolical attempt by the Yahapalana authorities to foist the blame for the Central Bank bond scam on his Government.
Rajapaksa’s statement said: “The established practice in relation to Government finance is that towards the third week of each month or even earlier, the Treasury determines the financial needs of the Government for the coming month and informs the Public Debt Department which functions under the Central Bank that a certain amount of money is required by a certain date. The Public Debt Department then takes steps to borrow the required amount from the market by issuing the appropriate instruments such as Treasury Bills and Treasury Bonds. The gazette notifications relating to such bond issues are published only after the transactions have been completed. The reason for this is that until the transaction is complete no one will know its final details because many variables are determined by the market.
“For example, when bids are called for a bond issue at a certain interest rate, all the bids received may end up being rejected. Furthermore, the bids may exceed the amount of bonds offered and then the Public Debt Department will have to decide how much to accept. Since none of these factors can be known beforehand, the gazette notification relating to a bond issue is issued only after the entire transaction has been completed.
“The great Central Bank bond scam began with the bond auction of 27 February 2015. What happened in this instance was that following the usual practice, on or around 20 February 2015, the Treasury informed the Public Debt Department that the Government would need Rs. 13.5 billion by 2 March 2015. The Public Debt Department was able to raise about Rs. 3 billion immediately but needed another Rs. 10.5 billion. They called for bids for Rs. one billion worth of 30-year bonds with a face value interest rate of 12.50%. Bids amounting to Rs. 20 billion were received and a little over Rs. 10 billion was accepted.
“How this particular bond issue became a major scam is well known and need not concern us here. The issue at hand is that the Yahapalana Government has tried to foist the entire responsibility for this bond issue on me through the extraordinary Gazette No. 1895/19 dated 1 January 2015. This gazette contains details of bond issues going back to 2011 and in the midst of this, the bond issues made during the year 2015 on 1 March, 15 March, 1 May, 15 May, 1 August and 15 December have also been gazetted under my name. Through such devious means they are attempting to suggest that I issued a gazette notification on 1 January 2015 in relation to a transaction that took place about seven weeks after a new President and a new Finance Minister had assumed office.
“It is obvious that I could not possibly have known back on 1 January 2015 that the Treasury would need Rs. 13.5 billion on 2 March 2015, that the Public Debt Department would call for bids for Rs. 1 billion in 30-year bonds at the face value rate of 12.50%, and that they would receive Rs. 20 billion in bids of which Rs. 10 billion would be accepted.
“As I pointed out earlier, gazette notifications relating to bond issues are published only after the transaction not before it. Even though gazette No. 1895/19 bears the date 1 January 2015, it is clear that it has been published long after that date. The small print on the Sinhala version of the gazette seems to indicate that it was actually printed only in November 2016. Therefore, I see this as a diabolical attempt to mislead the public and palm off the Yahapalana Government’s crooked bond issues on me and my Government. I will be taking legal action in this regard.”
FT Insight
The Extraordinary Gazette Notification No. 1895/19 dated 1 January 2015 lists the following issuance of Treasury bonds from way back in June 2011 and up to 2015 December with a combined value of Rs. 1.78 trillion
Amount Offered: Rs. 13,300 million
Date of Issue: 1 January 2012
Coupon Rate: 8.00% per annum
Maturity Period: Original - 10 years remaining - 7 years
Date of Maturity: 1 January 2022
Amount Offered: Rs. 500 million
Date of Issue: 1 September 2011
Coupon Rate: 8.00% per annum
Maturity Period: Original - 5 years remaining - 2 years
Date of Maturity: 1 September 2016
Amount Offered: Rs. 9,500 million
Date of Issue: 1 June 2011
Coupon Rate: 8.00% per annum
Maturity Period: Original - 5 years remaining - 1 year
Date of Maturity: 1 June 2016
Amount Offered: Rs. 1,700 million
Date of Issue: 1 November 2011
Coupon Rate: 08.00% per annum
Maturity Period: Original - 8 years remaining - 5 years
Date of Maturity: 1 November 2019
Amount Offered: Rs. 12,920 million
Date of Issue: 15 June 2012
Coupon Rate: 08.00% per annum
Maturity Period: Original - 5 years remaining - 2 years
Date of Maturity: 15 June 2017
Amount Offered: Rs. 23,109 million
Date of Issue: 1 June 2012
Coupon Rate: 08.00% per annum
Maturity Period: Original - 8 years remaining - 5 years
Date of Maturity: 1 June 2020
Amount Offered: Rs. 1,500 million
Date of Issue: 15 November 2011
Coupon Rate: 08.00% per annum
Maturity Period: Original - 7 years remaining - 2 years
Date of Maturity: 15 November 2018
Amount Offered: Rs. 42,758 million
Date of Issue: 1 June 2012
Coupon Rate: 08.50% per annum
Maturity Period: Original - 6 years remaining - 3 years
Date of Maturity: 1 June 2018
Amount Offered: Rs. 15,300 million
Date of Issue: 1 September 2012
Coupon Rate: 09.00% per annum
Maturity Period: Original - 11 years remaining - 8 years
Date of Maturity: 1 September 2023
Amount Offered: Rs. 1,500 million
Date of Issue: 1 May 2013
Coupon Rate: 09.00% per annum
Maturity Period: Original - 12 years remaining - 10 years
Date of Maturity: 1 May 2025
Amount Offered: Rs. 34,130 million
Date of Issue: 1 July 2013
Coupon Rate: 10.60% per annum
Maturity Period: Original - 6 years remaining - 4 years
Date of Maturity: 1 July 2019
Amount Offered: Rs. 18,240 million
Date of Issue: 1 July 2013
Coupon Rate: 11.20% per annum
Maturity Period: Original - 9 years remaining - 7 years
Date of Maturity: 1 July 2022
Amount Offered: Rs. 10,251 million
Date of Issue: 1 January 2014
Coupon Rate: 11.40% per annum
Maturity Period: Original - 10 years remaining - 9 years
Date of Maturity: 1 January 2024
Amount Offered: Rs. 21,239 million
Date of Issue: 15 May 2013
Coupon Rate: 8.75% per annum
Maturity Period: Original - 4 years remaining - 2 years
Date of Maturity: 15 May 2017
Amount Offered: Rs. 6,323 million
Date of Issue: 1 June 2014
Coupon Rate: 13.50% per annum
Maturity Period: Original - 30 years remaining - 29 years
Date of Maturity: 1 June 2044
Amount Offered: Rs. 40,091 Million
Date of Issue: 15 September 2013
Coupon Rate: 10.60% per annum
Maturity Period: Original - 6 years remaining - 4 years
Date of Maturity: 15 September 2019
Amount Offered: Rs. 60,628 million
Date of Issue: 1 August 2013
Coupon Rate: 11.00% per annum
Maturity Period: Original - 8 years remaining - 7 years
Date of Maturity: 1 August 2021
Amount Offered: Rs. 5,261 million
Date of Issue: 1 May 2014
Coupon Rate: 13.00% per annum
Maturity Period: Original - 15 years remaining - 14 years
Date of Maturity: 1 May 2029
Amount Offered: Rs. 81,694 million
Date of Issue: 1 September 2013
Coupon Rate: 11.20% per annum
Maturity Period: Original - 10 years remaining - 8 years
Date of Maturity: 1 September 2023
Amount Offered: Rs. 64,213 million
Date of Issue: 1 October 2013
Coupon Rate: 10.00% per annum
Maturity Period: Original - 9 years remaining - 8 years
Date of Maturity: 1 October 2022
Amount Offered: Rs. 39,977 million
Date of Issue: 1 June 2014
Coupon Rate: 11.00% per annum
Maturity Period: Original - 12 years remaining - 11 years
Date of Maturity: 1 June 2026
Amount Offered: Rs. 10,058 million
Date of Issue: 1 March 2015
Coupon Rate: 12.50% per annum
Maturity Period: Original - 30 years remaining - 30 years
Date of Maturity: 1 March 2045
Amount Offered: Rs. 53,250 million
Date of Issue: 15 March 2015
Coupon Rate: 10.25% per annum
Maturity Period: Original - 10 years remaining - 10 years
Date of Maturity: 15 March 2025
Amount Offered: Rs. 74,565 million
Date of Issue: 15 March 2015
Coupon Rate: 11.50% per annum
Maturity Period: Original - 20 years remaining - 20 years
Date of Maturity: 15 March 2035
Amount Offered: Rs. 60,181 million
Date of Issue: 1 May 2015
Coupon Rate: 9.25% per annum
Maturity Period: Original - 5 years remaining - 5 years
Date of Maturity: 1 May 2020
Amount Offered: Rs. 27,437 million
Date of Issue: 15 May 2015
Coupon Rate: 11.00% per annum
Maturity Period: Original - 15 years remaining - 15 years
Date of Maturity: 15 May 2030
Amount Offered: Rs. 7,615 million
Date of Issue: 15 October 2014
Coupon Rate: 9.45% per annum
Maturity Period: Original - 7 years remaining - 6 years
Date of Maturity: 15 October 2021
Amount Offered: Rs. 4,670 million
Date of Issue: 15 October 2014
Coupon Rate: 8.75% per annum
Maturity Period: Original - 4 years remaining - 3 years
Date of Maturity: 15 October 2018
Amount Offered: Rs. 51,139 million
Date of Issue: 1 August 2015
Coupon Rate: 11.00% per annum
Maturity Period: Original - 10 years remaining - 10 years
Date of Maturity: 1 August 2025
Amount Offered: Rs. 23,424 million
Date of Issue: 1 September 2013
Coupon Rate: 11.50% per annum
Maturity Period: Original - 15 years remaining - 13 years
Date of Maturity: 1 September 2028
Amount Offered: Rs. 53,450 million
Date of Issue: 15 December 2015
Coupon Rate: 9.50% per annum
Maturity Period: Original - 5 years remaining - 5 years
Date of Maturity: 15 September 2020
