Sri Lanka plans rated bond to restructure debt

Feb. 17 (Dow Jones)– Sri Lanka wants to float an international bond this year to gauge market response as well as see if it can raise debt at a reasonably low interest rates, the treasury secretary said Thursday. The treasury is awaiting a response from Citibank advising on the size of the issue, which could be between $500 million and $1 billion with a maturity period of seven or more years, Treasury Secretary P.B. Jayasundera told Dow Jones Newswires in an interview.

“One reason we want to go for this is to test the market. Also there is nothing wrong if we can tap over 10-year money if it is available at reasonably low rates,” Jayasundera said.

The bond issue would be Sri Lanka’s maiden foray into the international debt market.

Sri Lanka obtained sovereign ratings from Fitch and S&P late last year.

Fitch assigned Sri Lanka a long-term foreign currency rating of BB-, shared by countries such as Vietnam, Indonesia, Turkey, and Brazil, and S&P rated Sri Lanka one notch lower, at B+.

The ratings give Sri Lanka the option of raising debt via an international bond issue, Jayasundera said.

“This is essentially to learn. Our departments and corporates need to know that in the near future mobilizing concessional funding will come to an end,” he said.

Sri Lanka will receive less concessional aid from donor countries in the future due to rising per capita income, which was around $1,190 in 2005.

The island had total foreign debt of Rs. 920 billion (US$9 billion) last year, or around 55% of GDP.

Jayasundera said the bond issue would be a “debt neutral restructuring exercise” and could replace some concessional loans received in the past that had become costlier due to recent currency movements.

He didn’t give details of the loans that were now more expensive to service.

Sri Lanka doesn’t need commercial borrowing for the next four years, he added.

Market sources expect the government to finalize plans for the bond issue within a couple of weeks and float it in 3-4 months time.

Commenting on the economy, Jayasundera said remittances from residents living abroad and growth in apparel exports contributed to a balance-of-payments surplus of $501 million last year, up from a deficit of $205 million in 2004.

This was despite an increase in oil imports of around $460 million, he said.

The balance-of-payments is expected to post a surplus of $550 million this year, while foreign reserves could climb to $3.5 billion from $2.7 billion at the end of last year, he said.

The economy is projected to grow 6% this year, up from last year’s estimated growth of 5.5%, Jayasundera said.

Commenting on government investment plans, he said the treasury will focus on key infrastructure projects such as a 300 megawatt coal-fired power plant in western Puttalam which will cost $300 million and will be funded by a concessional loan from the Chinese government.

The power plant will get underway in March, Jayasundera said.

Other planned infrastructure projects include a zone for eco tourism in southern Kalpitiya, an airport and harbor in southern Hambantota, a highway linking Colombo with the south of the island and a tourism and investment zone for Indian investors.

Concessional funding worth $600 million has been secured from donors for the projects which are expected to take about three years to complete, he said.

“Funding them is not the issue. Implementation, commitment and fast tracking them is the issue,” he said.

The treasury had also secured $700 million in funding for investment projects in the country’s north and east, such as new schools, hospitals and roads.

Jayasundera said investment in the conflict-affected north and east is likely to speed up this year after a slow start following a ceasefire between the government and Tamil Tiger rebels signed in February 2002.