- As of March 3, SL had record US$ 1.1bn SLDB maturities for this year
- Analysts say minimum of 2% premium on current rates necessary for successful rollover of maturing SLDBs this year
While expressing full confidence on the government’s willingness and ability to honouring future debt obligations, a leading asset manager wants the Central Bank (CB) to consider offering higher interest rates for future US$-denominated Sri Lanka Development Bonds (SLDBs) to induce rollover of the record SLDB maturities scheduled for
As of March 3, this year, Sri Lanka had US$ 1.1 billion worth of SLDB maturities for the rest of the year (excluding interest payments), including a US$ 693.89 million SLDB maturity scheduled for May 1. The SLDB maturities this year account for nearly half of the country’s current outstanding SLDBs.
However, the CB was only able to raise US$ 83.83 million at fixed interest rates ranging from 6.05-6.92 percent so far during the year.
In the last SLDB public auction held during 15th-19th of January this year, the CB was only able to raise around US$ 49 million, although it expected to raise up to US$ 200 million.
The investors in particular refrained from bidding on long term SLDBs while limiting the focus on short-term SLDBs (1 Year 2 months) as seen in previous auctions held during the
Industry analysts opined that current interest rates on US$-denominated bonds are not attractive enough for investors.
“The government may consider increasing interest rates to induce a rollover of maturing SLDBs,” Ceylon Asset Management Co. Ltd Managing Director Dulindra Fernando opined.
Several other asset managers stressed that a minimum of two percent premium on current rates is necessary for a successful rollover of maturing SLDBs this year.
A recent media report claimed that the CB and the Treasury may differ on settlement of maturing SLDBs and other foreign loans until next year, in order maintain the current foreign reserves and to reduce the pressure on rupee. However, the CB issuing a statement immediately denied such
“So far, during 2021, on account of SLDBs and foreign currency loans from domestic banks, debt service payments of close to US$ 1.2 billion have been met, and all due obligations will also be serviced in a timely manner,” the CB said.
Last month, the Central Bank entered into a bilateral currency swap arrangement with the People’s Bank of China (PBOC) amounting to US$1.5 billion (CNY 10 billion).
At the end of March, Sri Lanka’s gross official reserves came down to US$ 4.1 billion (excluding the swap facility with the PBOC), with an import cover of 3 months.Fernando noted that the swap arrangement with China has greatly reduced the exchange pressure on rupee. “The worst is over,” he said.
Meanwhile, the secondary market yields on Sri Lanka’s issued international sovereign bonds (ISBs) have been trending downward since the finalization of the swap arrangement with China.
Fernando opined that the government can maintain single-interest rates on future SLDB issuances, while increasing current rates on the US$-denominated bonds to successfully rollover the scheduled maturities for the rest of the year.Speaking of a possible return to international capital markets, he viewed that the Renminbi-denominated Panda bonds and yen-denominated Samurai bonds to be most viable options to raise funds in international capital markets, as the yields on US dollar-denominated ISBs remain too high and international rating agencies maintain Sri Lanka’s sovereign rating below investment grade.(NF)