Dip in global yields helps Sri Lanka issue

Thursday, 19 July 2012 00:01 - - {{hitsCtrl.values.hits}}

The relatively low rate under which the $ 1 billion 10-year sovereign bond issue was concluded is largely due to overall low yields in global markets and not necessarily because of claimed improvement in Sri Lanka’s fundamentals or the economy, independent analysts told the Daily FT yesterday.

They pointed out that global yields have fallen for the 10-year US Treasuries from 2.5% in September 2010 (first 10-year bond); 3.03% in July 2011 (second 10-year bond) and dramatically to 1.53% at present. It was also claimed that during this period Sri Lanka’s risk premium had actually increased.

According to these analysts, in September 2010 it was 3.75%; in July 2011 it was 3.22% and in July 2012 it increased significantly to 4.345%.

They also pointed out that S&P’s had the context in proper perspective in its rating on the bond. It said Sri Lanka’s weak external liquidity, moderately high and increasing external debt, fundamental fiscal weakness and the attendant high public debt and interest burden and weak institutions that lack transparency and independence were factors increasing the country’s risk.

Despite this view, others noted that the country’s bond issue being oversubscribed by 10.5 times in spite of the challenging local and global issues was a big boost, reflecting investor confidence. The appetite had dwarfed any negativities or risks associated since investors were taking a long-term position on Sri Lanka.