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Sri Lanka sells US$1.5bn sovereign bond at 6.85-pct

ECONOMYNEXT – Sri Lanka has sold a 1.5 billion US dollar 10-year sovereign bonds to yield 6.85 percent, higher than a similar tenor bond sold in May 2015 but in tight market conditions.

Bloomberg Newswires said Sri Lanka went to the market with initial price guidance at 7.0 percent levels which was narrowed.

A 10-year bond sold in May was trading in the secondary market at around 6.5 percent indicating a premium of over 30 basis points paid for the new issue.

In May Sri Lanka paid a premium of about 398 basis point above the 10-year US Treasury note, which was around 2.13 percent at the time.

Citi, Standard Chartered, HSBC and Deutche Bank which also sold the October bond, completed the May sale days before US Treasuries surged by around 30 to 40 basis points.

The premium for the latest bond is around 477 basis points above the 10-year note which was priced at 2.05 percent on October 27.

Fitch rated the bond ‘BB-‘ and Standard & Poor’s ‘B-‘. Both had stable outlooks in line with Sri Lanka’s sovereign credit.

"The sovereign credit rating on Sri Lanka reflects the country’s relatively low wealth, improving but still moderately weak external liquidity, and a high government debt and interest burden," S & P said.

"In addition, while the government has recently taken steps to strengthen governance, we consider the current gaps in institutional capacity to pose risks to Sri Lanka’s institutional and governance effectiveness."

Strong growth, state investment in infrastructure and low inflation supported the rating, the agency said.





Global capital markets had been volatile and similar Asian emerging nations had found it tough to fill the order book, investment bankers say.

Sri Lanka has also experienced deteriorating monetary and fiscal conditions at home which has precipitated a currency fall and balance of payments pressure.

At current interest rates, domestic credit spurred by state and private demand, Sri Lanka has been losing about 500 million US dollars in forex reserves a month.

A sovereign bond sale can ease pressure from the State on the domestic credit system for a few months. (Colombo/Oct28/2015)

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