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Thursday, 29 October 2015 00:00 - - {{hitsCtrl.values.hits}}
The Central Bank yesterday raised a $ 1.5 billion 10-year International Sovereign Bond, which it insisted showed investor confidence in the country.
The bond drew a coupon of 6.850% per annum at par on 27 October. This marks Sri Lanka’s ninth US Dollar benchmark as well as the largest offering in the international bond market since 2007.
The bonds have been rated ‘BB-’, ‘B1’ and ‘B+’ by Fitch Ratings, Moody’s Investors Service and Standard and Poor’s respectively, the Central Bank said in a short statement.
Citigroup, Deutsche Bank, HSBC and Standard Chartered Bank were Joint Lead Managers and Bookrunners of this successful transaction.
“Final order books stood at $ 3.3 billion from 290 investor accounts, achieving an oversubscription ratio of 2.2 times. The allocation of the bond was 55% for The US, Europe 29% and Asia 16%. The allocation by investor type was 88% for fund managers, banks 9% and pension / insurance agencies 3%,” the statement said.
The outcome of this bond issuance shows the continued investor confidence in Sri Lanka, despite the volatility in the international bond market, it added.
Sri Lanka paid less than it had expected to borrow $1.5 billion via a 10-year sovereign bond on Tuesday, with strong orders helping bring down the yield on the issue to 6.85 percent from initial guidance of around 7%, Reuters reported.
The Finance Ministry will use the funds to help plug a gap in the budget, it said quoting Government sources. After the 17 August election, the new Government said it would not be able to limit the 2015 deficit to a targeted 4.4% of Gross Domestic Product due to heavy spending and weak revenue. Finance Minister Ravi Karunanayake has said the deficit is likely to reach 6.5-6.8% of GDP.
Currency dealers and economists had varied on the Government’s ability to borrow whole $1.5 billion at 7%.
Amal Sanderatne, Chief Economist and CEO at Colombo-based Frontier Research, called the initial pricing guidance “very high” compared to past Sri Lankan sovereign bonds.
On 28 May, the country had raised $650 million via a 10-year sovereign bond after aiming for $1 billion. That bond carried a 6.125% per annum yield.
But given Sri Lanka’s low foreign currency reserves and an uncertain global interest rate environment, a high pricing “is something they need to do,” Sanderatne said.
Sri Lanka’s reserves stood at $6.5 billion in August, well down from $8.8 billion in October 2014 as the central bank propped up the rupee while keeping interest rates low. After facing heavy pressure on its reserves, the central bank opted to let the currency float on 4 September.
S&P said its Sri Lanka sovereign credit rating “reflects the country’s relatively low wealth, improving but still moderately weak external liquidity, and a high government debt and interest burden.”
The International Monetary Fund has raised concerns about Sri Lanka’s revenue shortfall and says the Government needs to implement tough reforms, including tax measures, to address the matter.
Meanwhile Standard Chartered Bank noted it “successfully” priced the $ 1.5 billion, 10 year Fixed Rate Senior Unsecured 144A/Reg S issuance for Sri Lanka, acting as Sovereign Rating Advisor, Joint Lead Manager and Joint Bookrunner.
“This marks the country’s ninth US Dollar benchmark offering in the international bond markets by Sri Lanka since 2007 and reflects the continued international support for Sri Lanka through the years of political reform. Sri Lanka is progressively changing its governance and consolidating its status as an emerging market country on the rise, characterised by strong growth, an increasingly diversified economy, and an improving institutional framework. The economy has witnessed sustainable improvement in economic performance despite a volatile 2015 global financial environment,” the bank said in a statement.
The Sri Lankan economy grew by 5.6% during the first six months of 2015, compared to a growth of 1.3% in the corresponding period for 2014. This was mainly attributable to the 7.1% growth in the services-related activities and to the substantial expansion in financial, insurance and real estate activities, including ownership of dwellings.
Standard Chartered Bank CEO Jim McCabe stated: “We are honoured to be part of the team that worked on this landmark transaction for the Government of Sri Lanka. This is the country’s largest bond issue to date and the oversubscription of 2.2 times strongly reflects the confidence investors and markets have in Sri Lanka and its growth story. Once more the Central Bank has taken a bold step in order to take advantage of market conditions with this new issue, and I congratulate the team on this success.”
Standard Chartered continues to remain dominant having led 10 FCY issuances in 2015 for South Asian issuers. This is Standard Chartered’s forth issuance for the Sri Lanka Sovereign, evidence of the strong relationship built through continuous engagement and strong on the ground presence, it said.
Orders flowed in steadily as soon as the transaction was announced with strong participation witnessed from high quality investors in Asia, followed by blue chip investors in Europe and sizable orders from institutional investors from the US, the final order book was $ 3.30 billion, 2.20x oversubscribed with participation from over 290 accounts.
Standard Chartered Director Head Financial Institutions Lakshan Goonetilleke commenting further on the deal said: “Markets have been extremely volatile but the Government of Sri Lanka bonds continue to outperform similar rates Asian bonds.”
The timeline was extremely tight during a time of significant economic releases: PBOC’s and the EU Central Bank’s announced benchmark rate cut and Quantitative Easing plans respectively, the highly anticipated US FOMC announcement of a possible rate hike, and the GOSL’s 2016 Budget announcement on 20 November.
Reuters: The rupee ended firmer on Wednesday as exporters sold dollars on fears that greenback inflows from a $1.5 billion sovereign bond sale would push the local currency higher, dealers said.
The rupee ended at 140.85/95 per dollar, rising from Monday’s close of 141.05/15. Both forex and stock markets were closed on Tuesday for a Buddhist religious holiday.
“Import demand was there, but we saw some panic dollar selling in the morning with the sovereign bond sale,” a currency dealer said on condition of anonymity.
Rupee forwards also gained between 0.15 and 0.3% due to the sovereign bond sale, dealers said.
Some dealers said the bond inflows were unlikely to help the currency in the medium term because of the heavy repayment in the near future.
The rupee hit a record low of 141.40 per dollar on 28 September, but recovered slightly after a State-run bank sold dollars.
