Fitch Ratings sees expansion in Sri Lankan debt issuance

Wednesday, 7 August 2013 00:00 - - {{hitsCtrl.values.hits}}

Fitch Ratings expects Sri Lankan local and foreign currency debt issuance to expand threefold in five years, as demand for funding infrastructure projects and corporate investments increases. The agency predicts growth in activities such as structured finance, insurance, money market and bond funds, and infrastructure financing particularly under the public-private-partnership model. “The excitement in the bond market is a step in the right direction for Sri Lanka to become a financial hub for South Asia,” said Maninda Wickramasinghe, CEO and Head of Fitch Ratings Lanka Ltd, at the company’s inaugural Sovereign & Banking Roundtable in Colombo. “We see more financial institutions getting geared to finance their growth, corporates expanding their capital base and activities, as well as investing in technology to add value to their operations.”

Fitch forecasts Sri Lanka’s economy to grow 7% in 2013. The country’s economic growth slowed to 6.4% in 2012, after two years of consistent growth at 8% in 2010 and 2011 following the end of the ethnic conflict in 2009. To fuel their growth, larger export-driven corporates are likely to seek external funding, along with commercial banks as they cater to credit demand from exporters that generally lack the scale to tap global bond markets. Historically, several domestic corporates and banks have actively sought and successfully sourced medium-term foreign funding, largely from multilateral agencies. However, issuance has increased recently. In 2012, State-owned Bank of Ceylon (BB-/Stable), Sri Lanka’s biggest bank by assets, successfully raised US$ 1 b. The lender raised an additional US$ 500 m this year. Another state-owned bank, National Savings Bank (BB-Stable), plans an international bond sale of up to USD 1bn this year. The government has also permitted development lenders such as National Development Bank (B+/Stable) and DFCC Bank (AA(lka)/Stable) to tap the international capital markets this year. Fitch believes the recent increase in foreign bond sales out of Sri Lanka could be the start of a long-term trend for stronger entities attempting to overcome weak domestic liquidity. The government has also encouraged institutions to borrow offshore to bolster foreign-currency inflows and offered tax breaks for listed corporate debentures in the 2013 Budget. Fitch has assigned international ratings to seven Sri Lankan companies and has more than 60 clients including almost all the banks in Sri Lanka and over half of the financial institutions, as well as the leading conglomerates. Since its inception in Sri Lanka in 1999, Fitch has rated over Rs. 600 b (approximately US$ 4.6 b) of debt issues for domestic corporates, as well as US$ 1.6 b in international corporate debt. Fitch has also rated all of Sri Lanka’s five sovereign debt issues, which raised a total of US$ 4 b. It was the first international rating agency to issue Sri Lanka’s maiden rating of ‘BB-’ in December 2005 and the first agency to rate Sri Lanka’s maiden US$ 500 m sovereign bond issue in 2007. “We are optimistic about the development of Sri Lanka’s fixed income markets,” said Vivek Goyal, Managing Director and Head of Asia-Pacific Business Relationship Management. “More issuers are expected to tap the local and cross border markets,” added Goyal, who is also a Board Member of Fitch Ratings Lanka Ltd. – Pix by Lasantha Kumara