Re: Treasury bill auction held on 18 March 2015

Fri Mar 20, 2015 8:39 am

First Guy wrote:RPPA - can you shed some light on the private placements that happened earlier?

Yes there were private placements happened under previous regime. And they also had played the game, where they have offered the lending party max 0.50%-1.00% higher than the normal rate (Never 2.50% above) for larger chunk of money (25Bn or above).In normal scene we know when some one is willing to provide lend large chunk of money you need to pay a premium don't you. That's what has happened. Those sort of things happen not only Sri Lanka but all over the world.That is what a private placement is there for.

But i have not heard a thing like what had happen on 30Yr Bond in any country other than under Mehendran.

But those placements had no effect in the market or the rate fluctuations in the overall economy (now AWPLR is climbing, FD rates are high, Equity market is falling etc had happen).That is the difference. As I said before I am not going to say what they have done is correct. And I am not afraid to say that MR is the biggest crook in this country & he along with his family influenced all other officials to dance to their tunes. You all know if those officials say no what will happen.

Fri Mar 20, 2015 11:36 am

Yes I also like to also see a transparent and fair system .
The past 30 year bond event did not qualify such in my thinking and that why I wrote my concerns.

If someone bidded for 10.5% ( as CB inferred 9.5%) they got it.
But anyone who bidded for 12.5% also got it.

Even leaving out the short term issues it created for market and the confidence harm that anyway does not sound fair.

To be fair , even if they badly needed money
1) every one should have been given 12.5% ( highest accepted)
2) or this bond has to be cancelled.

Alternative options should have been to collect money from a) an emergency short term Bond b) treasury bills c) plan/identify this issue to get it from a past or future bond

RPPA wrote:

slstock wrote:RPPA,

What is the main concern you find with this recent rate flucuations for primary dealer to conduct business? Is it the more than expected unpredictability and uncertainty in secondary markets?

1) To my thinking any primary dealer would have expected some secondary market rate change in jan-February due to $ bond payment issues . Am I right? Also due to political instability. They are wiser and more resourceful than share traders naturally. So I would have guessed some dealers may have sold some part to protect themselves in anticipation and be ready to buy at the higher rates as risk mitigation.

I do see Perpetual would have made a killing 2 ways ( selling before the rise and buying at the maybe highest). As they some how seems to have cash to meet transactions deadlines.

2) I see this goverment/CB also wants to keep rates low as possible ( primary rates) . So there is indication that we can expect rates to stalibilize if they do not keep making messes.

Note I too am very against the procedure followed by CB in the 30 yer old bond matter and then lifting the 5% rate out of a monetary policy meeting. This is not acceptable transparency. Also Perpetual deals I find fishy too. It also not they never had issues before.

See my posts
http://forum.lankaninvestor.com/t4461-cb-fiasco-and-cse-future
http://forum.lankaninvestor.com/t4555-note-to-government-and-members-to-understand

So don't think I don't agree that some irregularities have happened.
But am trying to understand the issues from dealer perspective. I saw PM also saying something like he will not dance to Primary dealer requests

As you said it is uncertainty for sure. But the problem currently PDs are facing is unpredictable uncertainty. So no client is willing to take any positions. Because the big clients, foreigners & the whole market had lost faith in the Governor. Now the market had already had concluded that the Governor is a deal maker after the issue of 30 Bond & the way CBSL issued other bonds in descending order (based on maturity) rather than issuing them in a ascending order. Which is the only way the Government could have benefited. Why they could have raised the required amount of funds at lower cost.

Actually though the government has changed there was not much of a disaster in the economy.Inflation is at the rock bottom. IMF also says Sri lanka doesn't need any immediate financial support.But industry expected an interest rate increase of 0.50 max to absorb miner shocks you have pointed out nothing more. So every body started selling due to fear the rate would have sky rocketing before the elections.

By profession Mahendran is dealer in HSBC in Singapore in the Investment Banking section. So he is a deal maker. Therefor I don't thing anybody needs rocket science to understand what he has done here.
And please note Perpetual (PP) didn't stop from 30Yr Bond. They continuously & successfully subscribed for other Bonds that came later at higher rates without any fear. So all these are pre planned deals. And now they don't care whether their Primary Dealership is cancelled. Because to get a PD license minimum capital Requirement is Rs.300Mn. And now they could have made at least 2Bn in less than 2 years.Currently half of the market players had stopped dealing with PP due to things that had taken place.And i got to know that Mr. Cabrals wife also director of PP. So this is some kind of a continuation from previous regime. And it got stronger with the appointment of Mahendran.But the previous regime had not interfered the markets.So others not effected much.

PM does not need to react for PD requests. What PDs requests is to have a true, fair & confidential bidding system with out any fevers to known parties. That is to have a fair playing field. No one request favors from any other than PP.

In my opinion for this Governer to understand to system only it will take alt least a year if not more. He is like a alien at the few meetings held. The few words he spoke are rubbish i heard from colleges.

So he should go. It is simple as that.