Spinning Dollars

The Treasury of Sri Lankas largest state bank on Monday, snapped up the entire issue of the countrys first dollar denominated two-index linked commercial paper.
Hayleys MGT Knitting Mills Ltd., the textile arm of the Hayleys Group, became the first local company to come out with a US$ 700,000 three month commercial paper.rn

rnThe risk averse Peoples Bank, remained neutral and bought equal quantities of the entire Bull and Bear commercial paper, as it offered them better rates than some of its overseas investments.rn

rnldblquote Generally most commercial banks invest abroad, usually in US dollar instruments. We took the entire issue up as it gave us better returns and a chance to invest in a Sri Lankan company who will benefit from the money,
dblquote explains N Vasantha Kumar, Head of Treasury at Peoples Bank.rn

rnThe dollar denominated debt is benchmarked against the Dow Jones Stock Index as against the traditional London Interbank offered rate or LIBOR. rn

rnThe floor and cap of the issue is limited to movement of 100 points above/below the Dow Jones Stock Index. The interest rate is also fixed within a margin of 50 basis points, explains Mangala Boyagoda, CEO National Wealth Corp, who actually structured the innovative instrument.rn

rnHatton National Bank, who guaranteed the debt paper, says the issue will open the door for other local companies to raise dollar funds at competitive rates. ldblquote The issuer get a chance to take advantage of an international index like the Dow, while the investor gets a chance to invest in a fixed income security,
dblquote says Gamini Karunaratne, HNBs Senior DGM Treasury.rn

rnHayleys MGT made use of this opportunity to re-package some of its existing debt. The firms long-term debt carries a SL BBB+ credit rating from Fitch Ratings Lanka. rn

rnThough they managed to shave off between 50 to 75 basis points off their earlier borrowing cost through the issue, Director Richard Ebell says the firm did not use its credit rating.rn

rnldblquote We hope to use it the next time we raise some funds,
dblquote Ebell said.rn

rnListed on the Colombo Stock Exchange, Hayleys MGT is the second largest knitted fabric manufacturer in the country.rn