Foreign investors gobble Lankan debt US$ 1bn sovereign bond issue closes in 14 hours

* 362 investors throw in more than US$ 6.3 billion
* Yield at 6.25 percent, lower than issues in 2007, 2009

Central Bank’s Public Debt Department Superintendent C. J. P. Siriwardena said the global issue of the US$ 1 billion sovereign bonds closed within 14 hours after opening at 9 a.m. Hong Kong time on Monday (27), attracting bids amounting to more than US$ 6.3 billion.

The 10 year bonds yielded 6.25 percent through competitive bidding in an issue managed by jointly HSBC, Royal Bank of Scotland, Bank of America Merrill Lynch and Bank of Ceylon. The three foreign banks have also been appointed as sovereign ratings advisors to the government for the next four years.

"There are two things that make this bond issue different from the previous sovereign bond issues. The first being the extension of the yield curve from five years to ten, while the second, the size, US$ 1 billion from the previous issues of US$ 500 million. Investor response was overwhelming," Siriwardena told The Island Financial Review.

"The fact that investors picked up the issue at 6.25 percent is also a reflection of their confidence in Sri Lanka’s economy. Inflation is benign, the exchange rate is stable, reserves are strong and the economy has shown strong growth during the first and second quarters (7.1 percent and 8.5 percent), this is why they accepted the bonds at this rate for ten years," he said.

The proceeds from this sovereign bond issue would be utilized for infrastructure development activities carried out by the government and also to restructure the existing government debt portfolio by retiring high cost domestic debt and short term foreign currency denominated debt.

A sovereign bond issue for US$ 500 million, after the end of the conflict last year, was 13 times oversubscribed and was priced at 7.4 percent. This issue was the second since October 2007, which was also for US$ 500 million priced at a much higher rate of 8.25 percent.

"Orders were received from 362 investors globally. By geographic distribution, 52.5 percent of the bonds were allocated to investors in the United States, 25 percent to investors in Europe and 22.5 percent to investors in Asia. By investor type, 85 percent of the bonds were allocated to Fund and Asset Managers and the balance to Pension Funds, Insurance companies and banks," the Central Bank said in a statement last afternoon.

"The Offering is of 144A / Reg. S format and the bonds will mature in October 2020. The bonds are rated B+ by two international rating agencies, Standard & Poor’s and Fitch Ratings and will be listed on the Singapore Exchange.

"The current coupon rate of 6.25 percent for the 10 year sovereign bond is significantly lower than the cost of borrowings as compared to previous two international offerings in 2009 and 2007," the Central Bank said.

source - www.island.lk