Green Shoots

Aug 31, 2009 (LBO) – Sri Lanka’s corporate debt market is generating green shoots with rates coming down, lenders gaining confidence and credit spreads narrowing, officials said. “We are seeing the first securitizations transactions after the absence of more than six to eight months,” says Ajith Fernando, head of Capital Alliance Holdings.

“Corporate debt markets are starting to become active.”

Among the new issuers are plantation firms, which are securitizing tea receivables. Leasing firms which securitized lease receivables used to be among the most active debt issuers. Three month commercial paper was also popular.

Liquidity Crunch

The corporate debt market started to lock up in late 2008, when about 600 million US dollars of foreign hot money fled the country. Local banks also found it difficult to roll-over foreign loans.

A persistent defence of a dollar peg caused continuous liquidity shortages and simultaneous intervention in money markets (sterilized intervention) by the central bank pushed the country into a full blown balance of payments crisis.

Liquidity dried up and overnight rates went up towards 20 percent.

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