Where Will The Next Act In Treasury Bonds Drama Be Staged? – Analysis

June 2, 2015

On 13 May, a three-member bench of the Supreme Court (SC), including the Chief Justice, rejected the fundamental rights petition regarding the recent controversial Treasury bond issue of 27 February. But what did the ruling actually mean in practical terms?

Merely that the case will not be allowed to proceed to a full hearing because, strictly speaking – procedures of the Central Bank (CB) had not been transgressed and
no law had been violated by any of the respondents. The judges seem to have taken a strictly legalistic view and decided to reject the petition ruling out any further consideration.

In addition, a special Committee of 13 Parliamentarians has also been appointed by COPE to look into the matter

The ruling does not mean that the actions taken by the respondents in this instance

1.were fair and above board or

2.that the Treasury did not incur unnecessarily higher interest costs.

What it means is simply that, in the opinion of the judges, there was no legal basis for the granting of leave to proceed to a hearing.

However, an official statement had been issued on 19 April, about the (then unreleased) report of the three-man committee appointed by the Prime Minister to report on this matter. It contained a strong recommendation to investigate the actions of Perpetual Treasuries (PT), one of the main respondents in the petition to the SC. The potential conflict of interest due to PT being owned by the family of the CB Governor’s son-in-law was thus highlighted and was public knowledge.

It was also public knowledge that, although the CB announced that only 30-year bonds worth Rs. 1 billion would be issued at yields in the region of 9.25-9.75% per annum, eventually Rs. 10 billion were issued at yields up to 12.5% per annum. It’s plain that this resulted in a much higher cost for the Treasury, especially since it is a bond that runs for 30 years, irrespective of how that cost is calculated. The fact that PT was awarded Rs. 5 billion of the bonds (50%) at yields in the range 11.5% – 12.5% per annum raises further questions.

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