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Friday, June 24, 2011

Lead managers to US$ 1bn euro bond issue appointed

BOC out, Barclays Capital in

The Central Bank on Thursday (23) announced the appointment four leading international financial institutions as joint managers to an upcoming US$ 1 billion sovereign euro bond issue, the proceeds of which the government hoped to retire public debt and finance infrastructure.

Bank of America Merrill Lynch, Barclays Capital PLC, HSBC and the Royal Bank of Scotland PLC were appointed joint managers after the Central Bank had evaluated a total of seven proposals received from international banks and investment houses seeking to manage the island’s third euro bond issue to international capital markets.

HSBC, Bank of America Merrill Lynch and the Royal Bank of Scotland were joint managers of the successful US$ 1 billion euro bond issue in 2010, along with state-owned banking giant Bank of Ceylon, who has been replaced for the latest issue by Barclays Capital PLC.

Hong Kong and Shanghai Banking Corporation (HSBC), Bank of America Merrill Lynch, and the Royal Bank of Scotland are already functioning as Sovereign Rating Advisors to the government, until 2014.

Sovereign ratings reviews have already commenced with Standard and Poor’s concluding a visit to Sri Lanka recently. Fitch Ratings and Moody’s are expected visit soon, followed by visits of a Sri Lankan delegation to their head offices.

Central Bank Deputy Governor Dharma Dheerasinghe said the bank was confident Sri Lanka’s sovereign ratings would improve this year, given the vibrant economic growth and most importantly, the significant improvements to fiscal performance.

The Central Bank last January forecast a GDP growth rate of 8.5 percent for 2011 while fiscal consolidation is expected to continue with the budget deficit reaching 6.8 percent of GDP this year. The International Monetary Fund (IMF) told journalists in Colombo earlier this month that interim data suggested that the deficit target would be met.

IMF Mission chief to Sri Lanka Dr. Brian Aitken had said that the government had met its June target for the budget deficit. "We have six months to go, but there are no signs that the deficit target of 6 ¾ % would not be met. We measure the fiscal position of the government by looking at the borrowings for which we have (up to date) data, Treasury bill and bonds holdings etc almost everyday."

According to recent Central Bank data, government revenue grew 17.63 percent during the first four months of this year to Rs. 286.2 billion from Rs. 243.3 billion a year earlier on strong tax revenue growth, up 22.45 percent from Rs. 204 billion the previous year to Rs. 249.8 billion.

Recurrent expenditure growth was at a slower 10.18 percent, reaching Rs. 360.3 billion as at end April 2011 from Rs. 327 billion a year earlier while capital expenditure expanded 17.18 percent to Rs. 98.2 billion from Rs. 83.8 billion a year earlier, a good sign because it shows the government was no longer sacrificing public investments to cover its day-to-day expenses.

The budget deficit expanded 2.86 percent from Rs. 167.5 billion during the first four months of 2010 to Rs. 172.3 billion this year. As a percentage of GDP, this amounts to 2.71 percent, a reduction compared to 2.99 percent last year, on account of higher growth.

Inflation remains a concern, but both the Central Bank and IMF are expecting prices to moderate as the year progresses. IMF’s Dr. Aitken said the Central Bank’s monetary policy stance to keep interest rates unchanged was a good move and would facilitate economic growth, while signs of overheating were not visible.

It is also expected that the upcoming bond issue would cost less than the previous issues.

In September 2010, the US$ 1bn sovereign bond issue closed within 14 hours of the order books being opened. Around 362 investors threw in more than US$ 6.3 billion with the issue being prices at 6.25 percent, lower than previous issues in 2007 and 2009.

Sri Lanka’s maiden sovereign bond issue to international markets in 2007 was priced at 8.25 percent through competitive bidding while the second, soon after the war in 2009, was 13 times oversubscribed and was priced at 7.4 percent.

source - www.island.lk