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Sovereign bond opportunity is “too good to miss” says new Chair of Ceylon Asset Management


The new Chairman of Ceylon Asset Management (CAM), Mr. Malaka Bandara highlighted “this is a rare opportunity to invest in SL Sovereign Bonds at discounted prices” after a Moody’s rating report overreaction to downgrade Sri Lanka to Caa1 in September (Source: Moody’s Investor Service, 28th September 2020).

However, Moody’s recent report, was positive on SL highlighting strong FDIs expected during 2021. Thereafter, Sri Lanka International Sovereign Bond (SLISB) prices bounced back with strong buying from foreign investors. Analysts expect the SLISB prices to maintain positive momentum with improving economic fundamentals of SL.

The Ceylon Dollar Bond Fund (CDBF) managed by CAM is exclusively invested in SL Government Guaranteed Dollar Sovereign bonds and is open to local individual investors who hold a Personal Foreign Currency Account (PFCA), corporate investors with a Business Foreign Currency Account (BFCA) and Foreign Investors. Investors can exit at any time without penalties, and repatriate dollars to the originating bank account. CDBF offers true diversificationfor a minimum investment of US $ 1,000 while an individual SLISB purchase has a minimum trade size of US $ 200,000.

Mr. Dinesh Ambani, the new Director to join the Board of Directors of CAM, expects new Foreign Direct Investments to SL following the 2021 budget announcement this month, while expecting a positive country rating outlook. He emphasized that “local dollar investors should exploit the opportunity available through the Ceylon Dollar Bond Fund”.

Sri Lanka International Sovereign Bonds (SLISBs) underwent a turbulent October after Sri Lanka (SL) was downgraded from B to Caa1 (stable outlook) by Moody’s on 28th September 2020. As a result, SLISB prices failed to gain despite the US $ 1 billion Sovereign Bond settlement on 4th October 2020 demonstrating SL’s creditworthiness.

Moody’s on 26th October 2020, published a favorable report on foreign direct investments into SL in 2021. The rating agency attributes the development of economic/investment zones by the ports and state-of-the-art development projects in Port City as the main factors for improved FDIs, including a BOI approved US $ 24 billion oil refinery investment over 5 years. Given the Geographic location of the Island and Intra-Island connectivity with development in infrastructure, global names are expected to invest in manufacturing facilities in Hambantota Free Trade Zone (FTZ).

The 2030 SLISB with a par value of US $ 100, traded at US $ 71.5 on 28th September 2020 levels before the rating downgrade by Moody’s but plunged to US $ 53.6 on 29th October 2020 after the downgrade. However, the bond prices recovered to US $ 62.31 on 18th November 2020 levels following the recent publication by Moody’s on Sri Lanka’s FDI.     

The Ceylon Dollar Bond Fund (CDBF), the only dollar denominated Sovereign Bond Fund in SL is managed by Ceylon Asset Management Co Ltd, an associate company of Sri Lanka Insurance Corporation. CDBF offers a unique opportunity to invest in dollar SLISBs that are traded globally. The fund is licensed by the Securities and Exchange Commission of Sri Lanka and Deutsche Bank AG acts as the Trustee and Custodian of the fund.

The CDBF reported a performance of 10.33% in USD during 2019.However, the fund performance as at 18th November 2020 is -31.09% (YTD), due to several challenges including the unprecedented pandemic shock and country rating downgrade of SL from B to Caa1.The CDBF is now trading at a unit buying price of US $ 0.7360 as at 18th November 2020 in comparison to the YTD highest unit buying price of US $ 1.0922 reached on 12th February 2020, (Source: Ceylon Asset Management). Accordingly, Investors are able to take advantage of the discounted SLISB prices via CDBF with improving economic fundamentals of SL. The fund size stands at US $ 21.84 Mn as at 18th November 2020, offering a current weighted average Yield-to-Maturity (YTM) of 17.25% in dollar terms as at 18th November 2020.

Past performance is not an indicator of future performance.Yield to Maturity (YTM) is variable and subject to market change, investors are advised to read and understand the contents of the explanatory memorandum on www.ceylonam.com

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