Sept. 14 (Bloomberg) -- Sri Lanka’s debt ratings were raised by Standard & Poor’s after the end of a civil war and a $2.5 billion loan from the International Monetary Fund bolstered government finances.
S&P raised the nation’s long-term foreign-currency rating to B+ from B and the local-currency rating to BB- from B+, with a stable outlook, it said in a statement today. Both are still three to four levels below investment grade.
An improvement in credit worthiness may help the government lower its borrowing costs as President Mahinda Rajapaksa seeks funds from overseas investors for the reconstruction of the tear-drop shaped South Asian island. Sri Lanka will this week start meeting investors as part of a plan to raise $1 billion from the sale of dollar-denominated bonds in its third international offering.
Rajapaksa is aiming to accelerate economic growth to 7 percent in 2010, the fastest pace since 2006, after defeating the separatist Liberation Tigers of Tamil Eelam rebels in May 2009. He unveiled plans on June 29 to slash the budget deficit by the most in eight years and pledged to cut taxes and overhaul tax rates.
The measures will “yield modest fiscal improvement and support stronger external liquidity position,” S&P said in the statement. “Improving investor confidence, as the economy completes its transition from a war footing to an investment and construction phase, supports the balance-of-payments position.”
Bonds Rally
Sri Lanka’s 7.4 percent dollar bond due January 2015 rallied by the most in seven weeks, sending the yield to 5.188 percent, the lowest level this month, according to Royal Bank of Scotland Group Plc. The spread over like-maturity U.S. Treasuries narrowed to 402 basis points, versus 506 when the notes were first sold in October 2009. A basis point is 0.01 percentage point.
The sovereign, which hired HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Bank of America Corp. to manage the proposed overseas bond sale, will meet with investors starting tomorrow in Singapore, Hong Kong, London and the U.S., according to a person familiar with the matter.
Sri Lanka in July announced plans to sell the bonds, with maturities of as much as 10 years, by the end of 2010 to help refinance costlier loans.
Sri Lanka turned to the IMF last year after foreign- exchange reserves dropped to an eight-year low. The Washington- based lender on June 28 released $408 million and agreed to a one-year extension on a pledge to trim its budget shortfall.
The island’s foreign reserves rose to a record $5.8 billion due to higher aid and investment flows, the central bank said Aug. 12. The IMF said Aug. 23 it will consider giving the next loan tranche of about $200 million.
The island’s ratings may be lowered in the event of a “substantial deviation” from the IMF program or should “expectations on recovery in growth prospects and revenue improvements disappoint,” S&P said today.
source - noir.bloomberg.com
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