ECONOMYNEXT – Sri Lanka’s central bank said there appeared to be no significant volumes of sovereign bonds due in 2022 for sale by holders to start a buy-back program, though there were quotes at steeply discounted prices reported on trading systems.
Central Bank Governor Nivard Cabraal said last week that Sri Lanka was prepared to buy back bonds at the discounted prices quoted.
The central bank had discussed a bond buy back program on ISBs due in January and July 2022 with lead managers and international banks.
But in September “based on market information, it was observed that there was no tangible interest from the bond holders to sell the January 2022 ISB maturities at the discounted price that prevailed during the latter part of September 2021, thereby indicating that buying back a significant volume in order to enjoy a reasonable cost benefit to the issuer would not be possible,” the central bank said.
“The inquiries also revealed that not even 5 per cent of the outstanding January 2022 ISB maturity was available for sale at the discounted prices that were quoted.”
Unlike some Latin America countries which default regularly Sri Lanka is trying hard not to default on bonds and maintain its record.
The Central Bank said it made the following observations on the attempted buy-back initiatives
• The volume of ISBs that would be sold by ISB investors at the discounted prices that prevailed towards the latter part of September 2021, is highly insignificant. Hence, any attempt by the issuer to buy the very small volume available will not be fair by the large number of ISB holders who wish to hold the ISBs to maturity.
• It is clear that the large majority of ISB holders are not ready to part with the above GOSL ISBs unless prices are at par or closer to par. Hence, a buy-back initiative will also not result in any significant price or coupon benefit to the issuer.
• The above mentioned investor behaviour signifies the continuing confidence of the ISB holders regarding the ability of the issuer (GOSL) to honour its obligations and maintain its unblemished record of debt servicing. Therefore, the concerns raised by certain quarters regarding a possible vulnerability in 2022 are clearly not reflected by this investor sentiment.
• The continuing investor preference seems to be to hold the above GOSL ISBs. Hence, the Central Bank’s initiative to proceed with a buy-back of the 2022 ISBs will not yield a successful outcome, given the appetite of ISB holders to hold the GOSL ISBs.