SL to issue up to US $ 3bn sovereign bonds amid debt, looming crisis

REUTERS: Sri Lanka is planning to return to international capital markets to issue international sovereign bonds and raise up to US $ 3 billion, the Central Bank said on Tuesday. The government is in negotiat ions on an International Monetary Fund (IMF) loan for up to US $ 1.5 billion to avert a balance of payments (BoP) crisis.

“The issuances in single or multiple tranches would be in US dollar and Chinese Renminbi (Panda/Dim Sum) with a fixed coupon and medium to long-term maturities where non-resident investors will be eligible to invest at the primary issuance,” the Central Bank said in a statement. Sri Lanka borrowed US $ 2.15 billion through sovereign bonds last year. The island nation’s foreign borrowing has risen sharply, partly due to paying off some of the massive buildup of debt under the previous government.

Rising debts, rating downgrades and revisions by rating agencies, slowing economic growth, widening fiscal deficit, looming BoP crisis and changes in budget proposals have dented investor sentiment. Finance Minister Ravi Karunanayaka last week said Sri Lanka borrowed over 25 percent more last year than in 2014, blaming the high cost of refinancing loans raised by the previous government without parliamentary approval.

The US $ 82.2 billion economy has already tightened its monetary policy and is planning to raise taxes to avert the BoP crisis and curb ballooning fiscal deficit. Heavy foreign outflow from government securities in the face of possible Fed rate hike, higher imports in a lower interest rate regime and the Central Bank’s defence of the rupee last year resulted in decline of the foreign currency reserves. They fell by a third in 16 months through February. The rupee, which is hovering around its record low, has fallen 8.7 percent since September 4 after the Central Bank floated it.