Govt. to raise $ 5 b via Sovereign Bonds, SLDBs in 2018

• Money needed for loan payments and to finance development projects
• Govt. to issue $ 2 b in Sovereign Bonds and $ 3 b in SLDBs
• Cabinet nod to call for RFPs for experienced lead managers to facilitate both the Sovereign Bond issuance and future liability management programs

By Chathuri Dissanayake

The Government yesterday approved a proposal by the Ministry of Finance and Mass Media to raise up to $ 2 billion through foreign commercial borrowings and a further $ 3 billion via Sri Lanka Development Bonds to raise the funds needed to repay loans and finance development projects.

Finance and Mass Media Minister Mangala Samaraweera received Cabinet approval to proceed with the 2018 borrowing program outlined by the Central Bank and issue International Sovereign Bonds (ISB) and Sri Lanka Development Bonds (SLDBs).

The maximum borrowing limit of Rs. 1,893 billion has been set for 2018. The borrowings will be utilised for repayment of a loan amounting to Rs. 1,150 billion and another for Rs. 743 billion for development projects.

The total estimated foreign debt service payments, including interest and principal payments, amount to over Rs. 445.82 billion ($ 2.914 billion) in 2018 while total estimated foreign currency debt service payments, including foreign currency denominated domestic debt, amount to around Rs. 842.96 billion ($ 5.503 million). A further $ 3.5 billion will be maturity payments and $ 1.5 billion in coupon payments (based on the current outstanding stock of ISBs) for ISBs are due from 2019-2021.

Out of the total amount borrowed, the Government proposes to borrow Rs. 1,313 billion from local sources and Rs. 580 billion from foreign sources. The domestic borrowing is to be conducted mainly through the issuance of Treasury Bonds and SLDBs, the Finance Minister informed Cabinet.

Samaraweera proposed to issue ISBs up to $ 2 billion to meet the funding requirement, preferably within the first quarter of the year. Further, the Government also gave approval to issue SLDBs to the value of $ 3 billion, Cabinet Co-spokesperson Gayantha Karunathilaka said.

This year there are no maturing Sovereign Bonds while $ 2.304 billion worth of SLDBs will mature this year, and the proposed issuance would be able to cover the maturities, coupon payments of the SLDBs and other foreign currency debt services maturing in 2018, according to the proposal made by the Finance Ministry to the Cabinet.

The Finance Minister also recommended commencing liability management exercises in 2018 to address the bunching of maturities. The Ministry recommended the smoothening of the ISB’s maturity profile through liability management exercises.

While noting that liability management exercises had to be facilitated through the necessary legal framework by enacting the Liability Management Act in Parliament, the Minister obtained approval from Cabinet to request for experienced lead managers and book runners when issuing a Request for Proposals relating to the issuance of ISBs during 2018. 

This exercise, Samaraweera stated, would enable the Ministry to avoid calling for separate RFPs for liability management exercises and save time.

Minister Samaraweera advocated for the liability management exercises to commence this year as the move would help the Government to “diversify the investor base, reduce the average cost of borrowing based on prevailing favourable market rates, extend the duration of the liability portfolio, reduce refinancing risk in the near term and create a favourable price tension for any new issuances.”