Sri Lanka’s First Capital offers medium term fixed rate Treasury repos

May 07, 2014 (LBO) – First Capital Treasuries said it has launched a 3,4 and 5-year investment instrument backed by Sri Lanka government bonds that paid a fixed return. For a minimum investment of 1 million rupees investors could buy a ‘First Capital Treasuries Platinum Bond’. A 3-year instrument had an annual effective rate of 7.87 percent, a 4-year instrument paid 8.78 percent and a 5-year instrument paid 9.16 percent.

An investor who paid a million rupees would receive 1.255 million rupees after 3-years (an annual effective rate of 7.87 percent), 1.4 million rupees after 4 years (8.78 percent) and 1.55 million rupees after 5-years (9.16 percent).

“We expect this new debt security to attract retail and high net worth investors as well as corporate entities that have mandatory requirements to maintain long-term investments,” Dilshan Wirasekara, Deputy CEO of First Capital Holdings said in a statement.

“Because the rate of return is fixed, investors will be insulated against the volatility of interest rates, making the Platinum Bond a risk-free investment opportunity.”

The collateral backing the instrument will be lodged in a Central Depository System account opened in the name of the investor to eliminate the default risk.

First Capital Treasuries was able to reduce maturity mis-matches with the product and it was also an opportunity to attract new clients and incremental business, Wirasekara said.

Though the yields are slightly below Treasuries rates, analysts say there is no re-investment risk on the coupons (Treasuries yields are calculated on the basis that coupons will be re-invested at the same rate).

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