Cabraal says “sign of desperation” USD 2.4 BILLION BONDS BY CENTRAL BANK -RATES BETWEEN 6.9% – 7.90%

On March 7th, 2019, the Central Bank of Sri Lanka (CBSL), on behalf of the Democratic Socialist Republic of Sri Lanka (Sri Lanka), returned to the USD bond markets, successfully pricing a new issuance of USD 1.0 billion 5-year and USD 1.4 billion 10-year Senior Unsecured Fixed Rate Bonds (the Bonds) with maturity dates of March 14th, 2024 and March 14th, 2029, respectively. The Bonds have been rated ‘B2’, ‘B’ and ‘B’ by Moody’s Investors Service, Standard and Poor’s and Fitch Ratings respectively.

The Central Bank in a release said, “Capitalizing on the strong market backdrop, and leveraging on the positive momentum generated by the recent IMF staff-level agreement on the fifth review of Sri Lanka’s Extended Fund Facility, Sri Lanka announced the transaction during the Asia morning of March 7th, 2019.”

The joint syndicates released terms and initial price guidance for new 5-year and 10-year tranches at 7.20% area and 8.20% area respectively. The transaction saw strong interest from a wide range of high quality investors, which allowed Sri Lanka to tighten final price guidance to 6.90% (+/- 5bps) on the 5-year tranche, and 7.90% (+/- 5 bps) on the 10-year tranche. The Bonds eventually priced at the tighter end of the range during New York hours, with a yield of 6.85% and 7.85% for the new 5-year and 10-year tranches, respectively, representing price tightening of 35 bps from initial guidance, for both tranches.

The final order book stood at over USD 2.7 billion across 190 accounts for the 5-year tranche and over USD 4.8 billion across 252 accounts for the 10-year tranche – clearly reflecting global investors’ continued confidence and positive outlook on Sri Lanka’s economic growth story.

The order book was well diversified across both tranches. The 5-year tranche saw allocations of 39% to the U.S., 38% to Europe, and the remaining 23% to Asia. By investor type, the split was 91% to fund managers, 5% to insurance and pension funds, 3% to banks, and 1% to other investors. The 10-year tranche saw allocations of 44% to the U.S., 39% to Europe, and the remaining 17% to Asia. By investor type, the split was 90% to fund managers, 5% to insurance and pension funds, 4% to banks, and 1% to other investors.

In a first for Sri Lanka, the Bonds are also expected to be listed on the London Stock Exchange (LSE), to be admitted to the LSE’s International Securities Market (ISM), in addition to the listing on the Singapore Exchange Securities Trading Limited (the SGXST), for the listing and quotation of the Bonds on the SGXST.

REACTION FROM FORMER GOVERNOR NIVARD CABRAAL:

The former Governor of the Central Bank of Sri Lanka was unhappy at the high rates offered by Sri Lanka. Mr. Cabraal said that this latest borrowing by the government was an indication of the desperation the government of the day found itself in. The former Governor maintained that no other country had offered such high rates and that to attract the necessary interest the Central Bank had been forced to offer above high rates of interest. Mr. Cabraal maintained that the perilous economic situation and poor fiscal management had led to a situation that Sri Lanka was forced to offer high rates to secure success with these bonds to meet urgent payments.

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