Sri Lanka sovereign bond may yield 7.75-pct: report

Oct 15, 2009 (LBO) – A 500 million US dollar denominated bond maturing in 2015 now being sold by Sri Lanka may yield about 7.75 percent a year, lower than Sri Lanka’s first sovereign bond issued in 2007, a media report said. Foreign reserves have topped 4.4 billion US dollars from a low of around a billion US dollars in March, after a balance of payments crisis triggered by fleeing private flows into Treasuries was worsened by persistent defence of a dollar peg.

But rating agencies warned against persistent deficit spending by the government – especially for current expenditure – which is a core cause of most of the country’s ills.

Fitch said a more “sustainable medium-term fiscal framework” was needed with a credible strategy for raising government revenue.

Sri Lanka’s national debt at around 80 percent of gross domestic product was very mich higher than the 30.4 percent average debt seen in ‘B’ rated countries, Fitch has said.

Update II The first 500 million US dollar bond was sold for a coupon of 8.25 percent in October 2007.

Bloomberg newswires quoting a person familiar with the transaction said the bond may yield about 7.75 but the terms were not firmed as of Wednesday with only initial price guidance issued.

The bond was rated B+ by Fitch Ratings or four notches below investment grade, and B by Standard & Poor’s.

Reuters news agency quoted a London base fund manager as saying that there were about 2.0 billion US dollars of orders for the bond.

JP Morgan, HSBC and Royal Bank of Scotland are managing the deal, along with state-run Bank of Ceylon.

Sri Lanka economic growth this year is expected to record 3.2 percent or higher despite a global slump, after the end of a 30-year war and fiscal restraint imposed by a deal with the International Monetary Fund.

“In the agency’s view, there is a real opportunity for economic renewal as part of the post-war transformation of Sri Lanka,” Fitch Ratings said in a statement.

“A more settled political and security environment should allow policymakers to focus more on economic issues, including construction and development in areas directly affected by the war – a process that has already begun.”