Sri Lanka to offer US$ 250 mn bonds to market this month

June 2, 2006 (LBO) – Sri Lanka will offer the first tranche of a medium term bond issue, worth 200 million dollars to market players later this month, as the government looks for ways to pay for hefty imports of oil, wheat and sugar, officials said Friday. Central Bank’s public debt department told primary dealers that the first 150 million dollars will carry two-year tenure while 50 million dollars will be offered for three-years at a premium above the London Interbank offered rate.

The Sri Lanka Development Bond or SLDB issue forms part of a 300 million dollar debt issue, which the government hopes to raise in a staggered basis till September, Central Bank’s Deputy Governor W A Wijewardene said.

SLDBs were first issued in June 2002, raising 250 million dollars, mainly to bridge the budget deficit. The bonds were re-issued for 250 million dollars in June 2004.

Of the present issue, 144.75 million dollars are schedule to mature on June 28, while 50.00 million dollars will mature on August 18, and 55.25 million dollars expire on September 9 this year, according to Central Bank figures.

The upcoming 300 million dollar issue will replace debt maturing this year and include new bonds worth 50 million dollars.

A separate 250 million dollar ‘patriotic’ bond issue was announced in March with the first tranche of 25 million dollars being offered to Sri Lankans residing overseas.

Response to the first tranche, which has been priced around AAA rated OECD country debt, has however, been poor.

Fitch has assigned a ‘BB-‘, while S&P gave it a ‘B+’.

The government was earlier planning to push a billion dollar bond issue of 7 to 10-year tenure with Citibank as the manager, using the country’s sovereign rating.

In April, Fitch and Standard & Poor’s cut Sri Lanka’s credit outlook to negative from stable, reflecting the island’s worsening security situation.

The development bonds will target local commercial banks, but the state owned Bank of Ceylon is planning another 250 million bond targeting foreign banks.

Sri Lanka’s official foreign reserves rose to 3 billion dollar upto April, but a net reserve outflow has started in May. The rupee came under pressure on early morning trade Friday after news of Central Bank Governor Sunil Mendis’ resignation hit the markets.