Bond investors find Sri Lanka hot!

Bond investors figuratively made a beeline to Sri Lanka yesterday as the country’s $ 1 billion 10 year Sovereign issue drew $ 7.5 billion demand reflecting an oversubscription by 7.5 times giving a major boost.

On the back of overwhelming support with orders from 315 accounts globally, Sri Lanka succeeded in pricing the issue to yield 6.25%.

Investor distribution was very well diversified, with Asia taking 27%, Europe 30% and the US at 43%. Fund Managers were the largest investors in the transaction, representing 86%, with Banks/Private Banks taking 8%, Corporates 3% and Insurance companies 3%.

An elated Central Bank Governor Nivard Cabraal following the successful conclusion of the Sovereign Bond issue said: “We are very pleased with the strong response to this transaction, in volatile market conditions, which reflects high levels of investor confidence in Sri Lanka’s economy and the robust growth prospects for the country.”

The successful conclusion follows the Government recently launching and pricing a US$ 1.0 billion 10-year global bond offering. The transaction priced at a fixed-rate yield of 6.25%, equivalent to a spread of +332.2 bps over the 10-year US Treasury.

This transaction represents the fourth US Dollar benchmark offering in the global bond markets by Sri Lanka since 2007.  Bank of America Merrill Lynch, Barclays Capital, HSBC and the Royal Bank of Scotland acted as joint bookrunners and joint lead managers on the transaction. Bank of Ceylon acted as the co-manager on the transaction.

Prior to launch of the transaction, Sri Lanka conducted a series of fixed income investor update meetings with investors in Singapore, Hong Kong, various cities in the USA and London. During the roadshow, Sri Lanka achieved a credit ratings upgrade by Fitch to BB-, and both the Moody’s and S&P ratings were improved to positive outlook.

With a positive backdrop from the rating agencies, strong support from investors and a positive window of execution in the market, Sri Lanka announced its USD transaction during the Asia morning on 20 July, 2011. Initial price guidance was set at 6.5% (area) for a 10-year benchmark size issue. The transaction enjoyed strong momentum, with order books growing rapidly, allowing Sri Lanka to tighten the final price guidance to 6.25 – 6.375% for a deal size of US$ 1.0 billion.

The Central Bank said with this transaction Sri Lanka succeeded in achieving a cost of funds more than 40 bps lower, as a margin over the US Treasury, compared to Sri Lanka’s last 10-year bond offering in September 2010, which was issued at a spread of +373.1 bps. “This achievement is all the more impressive, given the volatility seen in markets globally in recent months,” the Bank added.