Govt. announces plans for new foreign currency term loan

• Calls for proposals to raise a foreign currency term loan denominated in USD, euro, renminbi or Japanese yen
• But doesn’t indicate an exact amount planned to be raised or an upper bound
• SL has around US $ 6.5bn in external debt to be serviced in 2022

In a fresh attempt to rebuild the country’s foreign reserves ahead of external debt services running into billions next year, the Finance Ministry this week called for proposals from banks, investment houses and institutional investors to raise a foreign currency term loan denominated in US dollars, euro, renminbi or Japanese yen.

“The Foreign Currency Term Financing Facility (FCTF) is expected to be raised at a fixed rate or a floating rate, with a maturity period of one year or more. The proceeds of the FCTF will be used for the purposes of financing the expenditure as approved in the annual budget,” the Request for Proposal (RFP) floated by the Finance Ministry stated.

The financial institutions need to submit proposals with facilities to raise a minimum of US $ 50 million. However, the Finance Ministry didn’t indicate an exact amount or an upper bound that the government expects to raise. 
“Repayment can be in bullet or in tranches, while interest will be paid half yearly,” it noted.

According to Fitch Ratings, Sri Lanka has around US $ 6.5 billion in external debt to be serviced in 2022, including ISBs, Sri Lanka Development Bonds and bilateral loans. 

The next largest external debt repayment of US $ 500 million ISB is scheduled to mature on January 18, 2022, followed by US $ 1 billion ISB scheduled to mature on July 25, 2022.

By end of July, the country’s foreign exchange reveres fell to a record low of US $ 2.83 billion, from US $ 4.06 billion in June. However, the foreign exchange reveres were expected to receive a boost from US $ 150 million received via a swap facility from Bangladesh Bank and a US $ 797 million worth of special drawing rights allocation from the International Monetary Fund (IMF), according to the Central Bank. 

When the country last resorted to raise an FCTF in 2018 through a tender process, China Development Bank (CDB) was selected to raise US $ 1 billion and the government in 2020 and this year further enhanced the facility with the CDB. 

The interested parties are required to submit their proposals on or before 16:00 hours (Sri Lanka time) on the 22nd of this month and submitted proposals are scheduled to be announced on or before the same day.

The Finance Ministry noted that the government maintains the discretion to reject any or all the proposals without assigning or providing any reason as well the right to negotiate with the selected parties. 

“It should be noted that this request for proposals is not a commitment on the part of the GOSL to accept any proposal. The GOSL reserves the right to reject any or all the proposals without assigning any reason thereto. The GOSL also reserves the right to negotiate the terms of the proposals with the relevant bank(s)/institutional investor(s)/investment house(s),” it stated.