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Tuesday, June 22, 2010

Sri Lanka Development Bonds oversubscribed

By Devan Daniel

The US$ 275 million Sri Lanka Development Bonds issue to settle maturing government bonds has been oversubscribed with bids amounting to US$ 289.1 million from foreign and local commercial banks. The government has accepted bids amounting to US$ 278 million.

The Public Debt Department of the Central Bank said the government accepted bids amounting to US$ 102 million for the reissue of US$ 100 million two year bonds while it accepting bids amounting to US$ 176 million for reissued US$ 175 million three year bonds.

The market determined rate for the three year bond was the six month London Inter Bank offered Rate (LIBOR) for dollars plus a margin of 3.95 percent. LIBOR was 0.75 percent as at yesterday, so the rate on the bonds would be 4.7 percent.

The market determined rate for the two year bond amounted to 4.55 percent, which is LIBOR (0.75 percent) plus 3.8 percent.

The premiums, which reflect investor confidence in the government’s ability to repay, on these bonds remain unchanged from the previous issue last March while LIBOR has increased from 0.40 percent to 0.75 percent.

Dealers said they expected premiums to come down from the previous issue, given the political stability in the country after a 30-year war, although rising dollar rates were a concern.

In March this year, the government accepted US$ 92 million after a US$ 100 million SLDB issue was 1.34 times oversubscribed, with total bids from local and foreign commercial banks amounting to US$ 134 million.

The government accepted US$ 55 million on development bonds with a three year maturity period at about 4.35 percent. US$ 37 million development bonds with a two year maturity period were accepted at about 4.20 percent.

These bonds were priced at the six-month LIBOR, which was 0.40 percent then. The three year bond was priced at a premium of 3.95 percent (395 basis points) while the premium on the two year bond was priced at 3.80 percent (380 basis points). The premiums were determined through competitive bidding.

The premiums on the March 2010 issue was lower than the premium for the three year bond issue in September 2009 which was 4.25 percent (425 basis points) and the 4.50 percent (450 basis points) premium for the two month bond issue in August 2009.

source - www.island.lk