Sri Lanka raises US$ 220 mn via inflation linked bond

Sri Lanka’s Central Bank said Friday that it had issued a Rs. 22 billion bond linked to an inflation index, which will help clear part of the government’s overdrafts with two state banks. Sri Lanka’s Central Bank said Friday that it had issued a Rs. 22 billion bond linked to an inflation index, which will help clear part of the government’s overdrafts with two state banks. The three-year tradable issue is believed to have been placed with state-run Bank of Ceylon and People’s Bank on Wednesday.




The Issue:

Amount offered – Rs.22,000
million

Maturity period – 3 years

Date of maturity – December
14,2008

Coupon payments – semi annual

Dates of coupon payments –
June 14th / December 14th

Coupon rate -11.2% (net of
tax) for coupon

payments in the first year

Coupon rate in the 2nd
and
3rd years-based on

average annual inflation rate
measured by the

change in the annual moving
average of CCPI
 during
the immediate previous six months plus a margin of 1 percent.

 

Principal repayment – by one
instalment at the end of the maturity period.

These bonds which are
tradable were issued in Scripless form.

The bond carries an 11.2 percent coupon rate in the first year.

The coupon rate is pegged at one percentage point above the country’s annual inflation rate for the remaining two years, Central Bank’s Acting Superintendent of Public Debt, M Hemachandra said in a statement.

“This issue is quite attractive, it also commits the treasury to keeping inflation down,” said Ajith Fernando, chief executive of Capital Alliance Holdings in Colombo. “It’s like putting the government on a treadmill.”

News of the tradable issue also helped pep up an otherwise dull bond market on Friday.

“There seems to be a lot of interest from long term institutional investors, who have been getting negative returns on quite a few occasions,” Fernando said.

Sri Lanka’s official inflation rate stood at 12.1 percent in November after ballooning to 18 percent last January.

The island’s Central Bank has forecast year-end inflation of around 10.0 percent, up from an annual average of 7.6 percent in 2004.

Inflation in the tropical island torn by ethnic conflict and with coastlines devastated by last December’s tsunami has been fuelled by rising food and fuel costs.

The island is anxious for cash to meet growing oil and tsunami-related reconstruction costs that have strained the nation’s finances.

Sri Lanka hopes to borrow Rs. 122.9 billion from the domestic market and 66.4 billion from foreign sources next year, the government said in its annual budget for 2006.

(US$ 1 = Rs. 101)

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