Sri Lanka sells US $ 1.5bn, 10-year sovereign bond at 6.85% yield

29 October 2015 03:29 am - 0     - {{hitsCtrl.values.hits}}

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REUTERS: Sri Lanka paid less than it had expected to borrow US $ 1.5 billion via a 10-year sovereign bond on Tuesday, with strong orders helping bring down the yield on the issue to 6.85 percent from initial guidance of around 7 percent.

The Finance Ministry will use the funds to help plug a gap in the budget, government sources said.

After the August 17 election, the new government said it would not be able to limit the 2015 deficit to a targeted 4.4 percent of gross domestic product (GDP) due to heavy spending and weak revenue. 

Finance Minister Ravi Karunanayake has said the deficit is likely to reach 6.5-6.8 percent of GDP.

The size of the issue matched the initially planned amount after orders came in for US $ 3.3 billion across 290 accounts, with 55 percent of the orders coming from the United States, 29 percent from Europe and the rest from the Asia.

Of the accounts, 88 percent represented fund managers, 9 percent represented banks and 3 percent bid on behalf of pensions and insurance funds.
In a statement early on Tuesday assigning a ‘B+’ rating to the bond, Standard & Poor’s put the size of the issue at US $ 1 billion. 

But it later corrected its release to say the size had not been decided.

Currency dealers and economists had varied on the government’s ability to borrow whole US $ 1.5 billion at 7 percent.

Amal Sanderatne, Chief Economist and CEO at Colombo-based Frontier Research, called the initial pricing guidance “very high” compared to past Sri Lankan sovereign bonds.

On May 28, the country had raised US $ 650 million via a 10-year sovereign bond after aiming for US $ 1 billion. That bond carried a 6.125 percent per annum yield.

But given Sri Lanka’s low foreign currency reserves and an uncertain global interest rate environment, a high pricing “is something they need to do,” Sanderatne said.

Sri Lanka’s reserves stood at US $ 6.5 billion in August, well down from US $ 8.8 billion in October 2014 as the Central Bank propped up the rupee while keeping interest rates low. 

After facing heavy pressure on its reserves, the Central Bank opted to let the currency float on September 4.

Sri Lanka, rated B1/B+/BB- by Moody’s, S&P and Fitch, respectively, mandated Citigroup, Deutsche Bank, HSBC and Standard Chartered for the US dollar bond offering, the people familiar with the plans said.

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

The International Monetary Fund has raised concerns about Sri Lanka’s revenue shortfall and says the government needs to implement tough reforms, including tax measures, to address the matter. 



Bond oversubscription testifies investor confidence in Sri Lanka: StanChart CEO
The oversubscription of the country’s latest international bond issue is a testament of the confidence investors and markets have in Sri Lanka and its growth story, according to Standard Chartered Bank (StanChart) CEO Jim McCabe. 
“This is the country’s largest bond issue to date and the oversubscription of 2.2 times strongly reflects the confidence investors and markets have in Sri Lanka and its growth story,” he said. 

“Once more the Central Bank has taken a bold step in order to take advantage of market conditions with this new issue, and I congratulate the team on this success,” McCabe added. 

Standard Chartered acted as the Sovereign Raging Advisor, Joint Lead Manager and Joint Bookrunner to the issue. This was Standard Chartered’s forth issuance for the Sri Lanka Sovereign.

Standard Chartered Director Head Financial Institutions Lakshan Goonetilleke commenting the deal said, “Markets have been extremely volatile but the Government of Sri Lanka (GOSL) bonds continue to outperform similar rates Asian bonds.”

The timeline was extremely tight during a time of significant economic releases— PBOC’s and the EU Central Bank’s announced benchmark rate cut and quantitative easing plans, respectively, the highly anticipated U.S. FOMC announcement of a possible rate hike, and the GOSL’s 2016 budget announcement on November 20.
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