Sri Lanka plans to raise US$500mn from foreign markets: report

Sri Dharanee Performance Arts Theatre

July 31, 2009 (LBO) – Sri Lanka plans to raise 500 million dollars from foreign investors through a bond or syndicated loan, with an International Monetary Fund endorsement under its belt, a media report said. Sri Lanka is seeking to raise money overseas along with countries like the Philippines and Indonesia at a time the global credit crisis is easing, making it cheaper to borrow abroad.

Bloomberg said the extra yield demanded by investors to buy emerging-market debt over US Treasuries has dropped to 3.86 percentage points from as high as 8.65 percentage points on October 24, according to an index compiled by JPMorgan Chase & Co.

The Philippines raised 750 million dollars on July 13 in its second bond sale for the year, and priced the 10-year debt to yield 6.625 percent, or 3.326 percentage points more than US Treasuries of similar maturity, the wire service said.

Indonesia sold 3.0 billion dollars of dollar bonds in February, pricing 10-year securities to yield 11.75 percent, or 8.759 percentage points more than US debt.

Cabraal told Bloomberg he expects the government’s move on May 1 to increase the nation-building tax to 3.0 percent from 1.0 percent will boost revenues and trim the deficit.

Slower inflation also enabled the central bank to cut interest rates, halving the government’s borrowing costs to about 10 percent in the past year, it said. “We will take a decision in the next few weeks,” Sri Lanka’s central bank Governor Nivard Cabraal was quoted as saying in Bloomberg newswires Friday, in Mumbai where he was meeting investors in one leg of a worldwide road show.

“We did an investor update in many parts of the world. We are here in India today to see whether there is appetite for syndicated loans, sovereign bonds.”

India’s executive director to the IMF said a 2.6 billion dollar loan to the island with limits on government spending signaled a message that the country was now safe for investors to come in.

Foreign funding dried up last year in the wake of turbulent capital markets and strained relations with the West, but the country is now looking for cash for a major reconstruction drive as well as budgetary finance.

The Asian Development Bank has said it may give a 300 million dollar loan to Sri Lanka.

In 2007 Sri Lanka raised 500 million dollars through a sovereign bond.

In 2007, the bond yielded 8.25 percent, but it rose to around 20.0 percent levels at the height of the turmoil.

Now the bond is trading with a yield of around 9.60 percent.

Cabraal was quoted as saying that as the country managed to sell the bonds in 2007 when the war was still going on, “with the end of the war, the outlook to raise funds abroad is much better.”

In the current road show Sri Lanka got HSBC and JPMorgan to arrange meetings with investors in the US, India, Hong Kong and Singapore to promote the island’s prospects after the end of its ethnic war.

Government forces defeated the Tamil Tigers in May.