Wednesday, May 12, 2010

Sri Lanka - UPDATE: Buoyed By Growth, Sri Lanka Aims To Tap Bond Investors


NEW YORK (Dow Jones)--Sri Lanka is considering a new sovereign bond deal for up to $1 billion that could be brought to market as soon as July, Central Bank Governor Ajith Nivard Cabraal said Tuesday in an interview with Dow Jones Newswires.

The small Asian island nation is enjoying healthy rates of growth after a decades-long ethnic civil war ended last year, and the newfound peace has opened up opportunities for foreign investment in a number of sectors.

After a successful $500 million, five-year bond sale in October, the first since the end of the conflict a year ago, officials are looking to raise additional funds to help rebuild parts of the economy that were ravaged by the war, Cabraal said.

Officials estimate that around $2.7 billion will be needed over the next few years for new roads, utility services and other infrastructure projects.

The central bank governor said a dollar-bond sale is possible but the country is also weighing a potential rupee-denominated bond. There is ample interest in local-currency securities, especially among foreign investors because there are expectations for the rupee to strengthen, he added.

The reconstruction efforts, which have picked up in recent months, should strengthen the economic expansion, increasing the likelihood that growth forecasts for 2010 and subsequent years will be revised upward.

"We'll be seeing the real impact [of the rebuilding measures] during the second half of this year," said Cabraal.

The central bank anticipates more than 6% expansion in 2010, 7.5% in 2011 and 8% in 2012.

Lending has picked up Cabraal said--17 banks have opened and are offering loans in the northern city of Jaffna, one of the epicenters of the government's war against separatist members of the country's minority Tamil population. Cabraal said he expects increased investments and growth in key sectors such as tourism, transportation, fisheries and trade thanks to the end of the conflict.

Cabraal also said local companies are pushing for improvements in productivity as a way to remain competitive even if the local currency remains strong relative to other Asian exporters.

The rebuilding efforts and the sustained growth in Sri Lanka's economy have drawn attention from overseas investors. The $500 million bond offering in October drew $6.8 billion in bids from 269 buyers. Around $1.6 billion of the country's $5.4 billion in reserves is held by U.S. hedge funds, Cabraal said.

Sri Lankan bonds also benefit from being included in widely tracked indexes like JPMorgan's Emerging Market Bond Index Global.

Investors are closely watching the government's negotiations over the third tranche of a $2.6 billion loan program with the International Monetary Fund, which helped provide a cushion for the country during the global economic crisis in 2008.

"We'd like to continue with the IMF program because it's an important anchor for us in today's day and age," Cabraal added.

The IMF, which kicks off a week-long tour of the country Wednesday, has said fiscal reforms are necessary in the budget, due in June, for the loan program to continue.

But some officials, like Sri Lanka's treasury secretary, P.B. Jayasundera, have said that the IMF's targets need to be revised now that the economy has stabilized and that reserves have topped $5 billion, compared with the $1.3 billion the country had when the multilateral lender was initially approached.

-By Kejal Vyas, Dow Jones Newswires; 212-416-2185;

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