Sri Lanka opposition would not ‘willfully default’ bond: Fitch

Oct 08, 2007 (LBO) – Sri Lanka’s opposition United National Party is not expected to “willfully default” a proposed 500 million dollar sovereign bond if the party comes power in the future, Fitch Ratings has said. The 500 million dollar proposed bond ran into controversy after UNP leader and former Prime Minister Ranil Wickremesinghe said it was illegal and not properly authorized by parliament and future administration headed by his party would not honour it.

“Fitch currently judges that any future UNP administration would not wilfully default,” the rating agency said.

Wickremesinghe also accused a lead-manager of the deal, HSBC, of helping the current administration break a fiscal responsibility law by perpetuating an unsustainable budget deficit.

He warned lenders that his party would be ‘make resolutions’ if the government went ahead with the bond and refuse to pay if an administration led by his party comes to power in the future.

Wickremesinghe, during a two year stint that ended in April 2004, brought in a fiscal responsibility law to reduce budget deficits and national debt, which were running at around 100 percent of the economy at one time.

The government has said that the bond does not require parliamentary approval as it is covered by earlier mandates covering debt.

Fitch said Sri Lanka had an unblemished debt service record which it said was a “rare trait among sub-investment grade sovereigns”. Sri Lanka has been given a BB- or ‘junk bond’ rating by Fitch.

However concerns have been rising among economic analysts in Sri Lanka at the rising level of commercial foreign borrowings to cover current expenditure.

A number of foreign loans are bunching up in 2009.

Earlier in the year, the government raised 460 million dollars in rupee denominated 5-year bonds, but some investors have since shifted to shorter maturities with yields rising from 14.25-50 percent levels at the time of purchase to above 17.00-50 percent now.

About 475 million dollars worth dollar denominated bonds are also due in 2009. Several dollars loans from the state-owned Bank of Ceylon are also due in 2009. .