Sri Lanka bond navigates market uncertainty: CB Governor

July 21, 2011 (LBO) – Strong demand for Sri Lanka’s billion dollar sovereign bond among international fund managers indicated that the country’s credit has matured in international market, Central Bank Governor Nivard Cabraal said. “It’s really a reflection of Sri Lanka’s maturity in the international markets,” Central Bank Governor Nivard Cabraal said.

“In a sea of uncertainty, investors have really chosen Sri Lanka in an overwhelming manner which is very encouraging.”

A unit of the central bank manages Sri Lanka’s state debt.

Sri Lanka went to the market amid jitters about sovereign credit in smaller European states and a credit ceiling row in the US. Sri Lanka has emerged from a 30-year war in 2009. Since 2007 it has gone to the market four times.

US fund managers took 43 percent of the issue, Europe 30 percent and Asian funds 27 percent. Fund managers took 86 percent of the bonds, banks 8 percent, insurers 3.0 percent and and other companies 8 percent.

Bank of America Merrill Lynch, Barclays Capital, HSBC and the Royal Bank of Scotland were joint lead managers backed by state-run Bank of Ceylon as co-manager.

Sri Lanka’s billion dollar bond was oversubscribed 7.5 times and was sold to yield 6.25 percent. The bond has the same coupon as an earlier bond in September 2010.

But the spread above 10-year US Treasuries is narrower, as US yields are now around 2.9 percent compared to around 2.5 percent last September.

Sri Lanka’s central bank said the spread over US Treasuries of the latest bond was 332.2 basis points down from 373.1 basis points in 2010.

Sri Lanka got one rating upgrade to ‘BB-‘ from Fitch and two outlook upgrades from Standard and Poor’s and Moody’s on their ‘B+’ ratings ahead of the bond sale.

Two-way quotes the bond are already quoted on Bloomberg securities trading system to yield just over 6.0 percent, dealers said.