August 15, 2017 / 6:59 AM / 2 years ago

UPDATE 2-Sri Lanka's suspends PABC's primary dealer status after bond probe

(Adds company statement, shares resuming trade)

By Shihar Aneez and Ranga Sirilal

COLOMBO, Aug 15 (Reuters) - Sri Lanka’s central bank suspended on Tuesday the primary dealer status of Pan Asia Banking Corporation (PABC) for six months, following an investigation into alleged irregularities in government bond sales.

The central bank said in a statement it imposed the suspension because of the findings of an investigation carried out by the monetary authority related to PABC’s transactions with Perpetual Treasuries Ltd in the government securities market. It did not provide further details.

Last month, the central bank suspended the business operations of Perpetual Treasuries, which is being investigated in relation to possible irregularities at a 30-year government bond sale in 2015.

“Action will also be taken by the central bank to safeguard the interests of the customers and counterparties of PABC in the government securities market, in an orderly manner,” the central bank said.

“The central bank wishes to emphasise that this regulatory action restricts PABC’s access to the primary auctions for government securities. It does not affect any of the other activities/services of PABC.”

Shares of PABC resumed trading after being suspended for more than an hour by the Colombo Stock Exchange. The company said the suspension would have no bearing on the bank’s regular banking activities.

By 0740 GMT, the shares were down 3.5 percent.

Officials from PABC and Perpetual Treasuries were not immediately available for comment.

PABC’s suspension comes less than a week after former finance minister Ravi Karunanayake stepped down from his foreign minister post over corruption charges also linked to Perpetual Treasuries, a subsidiary of a company owned by the son-in-law of Arjuna Mahendran, the former central bank governor.

The 2015 auction under investigation was originally intended to raise 1 billion rupees ($7 million) in 30-year bonds, but eventually grew to more than 10 times that amount to meet government borrowing needs.

More than half of the issue was sold to Perpetual Treasuries in what has been criticised as a conflict of interest.

Perpetual Treasuries, Mahendran, and his son-in-law have denied any wrongdoing. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Eric Meijer and Jacqueline Wong)

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