June 13, 2008 (LBO) – Sri Lanka has raised 150 million US dollars from a loan put together by Standard Chartered Bank at 250 basis points above the London Interbank Offered Rate (LIBOR), the government’s debt office said. At a current 6-month LIBOR rate of 3.13 percent the loan costs 5.69 percent a year with legal and bank charges, the debt office, which is a unit of the country’s central bank, said in a statement.
The loan with eight banks as lead arrangers was completed under a ‘club arrangement’.
Standard Chartered was joined by Bank Muscat S.A.O.G, Emirates Bank International PJSC, Indian Overseas Bank, the Colombo and Singapore branches of Indian Bank, State Bank of India, The Arab Investment Company S.A.A. and The Hong Kong and Shanghai Banking Corporation Limited.
Standard Chartered was awarded the deal on March 07, when the government went to the market to raise 300 million US dollars in 5-year money amidst tough international conditions and rising credit spreads combined with rising inflation at home.
At the time the government also announced a mandate to get 50 million US dollars in 5-year money from Deutsche Bank. No mention of the deal was made in the statement.
The government said the loan had a ‘Greenshoe Option’ through which a further 100 million US dollars could be lent to the government.
“Some international banks have already expressed their interest to join the present group of lending banks in upsizing the transaction,” the debt office said.
“The successful raising of this loan through a club arrangement which has been subscribed by as many as nine international banking institutions serves as a confirmation of the confidence that the international banking community has in the Sri Lankan economy and its the medium term prospects.”
The 3-year loan comes with a put option allowing lenders to withdraw at each year.
The government said the loan would be used for infrastructure. In the past Sri Lanka had been able to tap long term concessional loans for infrastructure.
In April, Fitch Ratings cut Sri Lanka’s sovereign rating by a notch to B+ saying budgets were weak, inflation was high and the country was borrowing heavily from foreign lenders at commercial rates.
Sri Lanka’s widely used price index which measured inflation in Colombo reported 29.9 percent inflation in the 12-months to April. The weights of the index were revised in May and official inflation is now 26.2 percent.
Standard & Poor’s also has a B+ rating on Sri Lanka with a negative outlook.