Sri Lanka says debut bond issue three times oversubscribed

Oct 18, 2007 (LBO) – Sri Lanka’s Central Bank Thursday said the government’s first international sovereign bond issue of 500 million dollars was more than three times oversubscribed. The bonds have a five-year maturity and a coupon of 8.25 percent per annum, the bank statement said.

The issue carries a “junk bond” or below investment grade rating of B-plus by Standard and Poor’s and BB-minus by Fitch Ratings, foreign news wire AFP says.

The proceeds from the bonds will be used to build infrastructure projects such as power, roads and ports to boost the 26-billion-dollar economy that is under pressure from soaring inflation and intensified fighting.

Inflation in 2007 has averaged 17.3 percent, public debt is at a hefty 93 percent of gross domestic product and interest payments absorb almost a third of government revenues, Fitch recently noted.

The Central Bank statement said a team led by Governor Ajith Nivard Cabraal over the past week conducted a global investor roadshow through Asia, Europe and the United States.

“The roadshow raised Sri Lanka’s profile with international investors and developed broad investor interest in the offering, resulting in an order book that was more than three times oversubscribed,” the statement said.

“Distribution was 30 percent to investors in Asia, 30 percent to investors in Europe and the Middle East, and 40 percent to investors in the USA.”

Barclays Capital, HSBC and JP Morgan acted as Joint Lead Managers to the debut bond issue. Bank of Ceylon was co-manager.

“The net proceeds of the bond issue will be utilized by the government to supplement available concessionary funds to develop infrastructure projects that have been previously approved,” the statement said.

These include electricity generation, water supply, roads, port facilities and railway lines.

“The success of Sri Lanka’s inaugural international sovereign bond issue will also help open the door for Sri Lankan corporates to tap the international markets in the future,” the Central Bank said.

It said the bond issue enables Sri Lanka to establish a presence in the international capital markets and substantially broaden the country’s investor base.