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Friday, 8 March 2019 00:00 - - {{hitsCtrl.values.hits}}
The Sri Lankan Government has launched its first International Sovereign Bond (ISB) for 2019 and is expected to accept at least $2.5 billion, which will largely be used for debt repayment.
Sri Lanka launched the sale of US dollar-denominated bonds on Thursday and orders topped $3 billion, according to a term sheet seen by Reuters, the newswire reported.
Finance Ministry Secretary Dr. R.H.S. Samaratunga told reporters that the amount that could be accepted was limited by the Vote on Account (VoA) that was passed by Parliament in December, after the constitutional crisis. The VoA has a lower threshold than a Budget, explained Dr. Samaratunga.
The Government is expected to raise about $2.5 billion, according to a top Finance Ministry official.
Even though Cabinet in January gave approval to raise up to $ 2 billion through foreign commercial borrowings, and a further $ 3 billion via Sri Lanka Development Bonds (SLDBs), these could only be utilised after Budget 2019 is passed in April, the Treasury Secretary said.
“We are currently working under the guidelines set by the Vote on Account. Once the Budget is passed, we will borrow more,” Dr. Samaratunga, said acknowledging that payments worth $ 500 million would have to be made in April. In 2019, Sri Lanka has to repay $5.9 billion in debt, with $2.6 billion earmarked for the first quarter.
Following the $ 500 million in April, the remaining payments would likely be smaller, according to the Finance Ministry.
Sri Lanka is offering indicative coupons of 7.20% on the five-year bonds and 8.20% on the 10-year bonds, according to the term sheet. Standard & Poor’s and Fitch said they had assigned “B” ratings to the bonds. Last month, Sri Lanka raised its borrowing limit for dollar-denominated bonds to $3 billion, according to Reuters.
The bond was launched just days after the International Monetary Fund (IMF) extended its $1.5 billion Extended Fund Facility (EFF) program with the Sri Lankan Government by one year, and the Government presented its Budget for 2019.
The proposed Budget boosted spending on state employees, pensioners and the armed forces, and promised many rural infrastructure projects to woo voters before two elections.
Proceeds from the bond sale will be used “for expenditure sanctioned by the Parliament of Sri Lanka for 2019,” the term sheet said.
All three major rating agencies downgraded Sri Lanka’s debt after President Maithripala Sirisena sacked his Prime Minister in October and replaced him with pro-China former President Mahinda Rajapaksa, though that decision was later reversed.
BOC International, Citigroup, Deutsche Bank, HSBC, JPMorgan, SMBC Nikko and Standard Chartered Bank are joint bookrunners for the bond sale.
