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Wednesday, 14 December 2011 01:48 - - {{hitsCtrl.values.hits}}
By Dinali Goonewardene
The private sector yesterday welcomed the relaxation of rules for foreign investment in debentures and overseas borrowings by Sri Lankan firms.
The Central Bank yesterday announced it was relaxing regulations for foreign investment in corporate debentures of Sri Lankan firms and foreign borrowings by local firms.
In the case of corporate debentures raised by local companies, the ceiling on the interest rate of debentures has been removed and the minimum tenure of the debenture has been reduced from five years to two years. The requirement of the maintenance of a sinking fund by the issuing company has also been removed.
In the case of foreign borrowing, the current limit on borrowing applicable to a local firm has been increased from US$ 20 million to US$ 50 million. Local firms have been permitted to raise foreign loans against corporate or bank guarantees.
Other borrowing arrangements of a short-term nature and those by newly-incorporated firms would also be considered for approval by the Central Bank based on the merits of each case.
“This will allow corporates to reduce borrowing rates and encourage capital flows to the country,” Wealth Lanka Management Pvt. Ltd. Chairman Mangala Boyagoda told the Daily FT.
“It will enable a better matching of assets and liabilities. Foreign currency borrowings lead to an exchange rate risk, which is hedged by matching assets and liabilities and corporates will have to be mindful in managing their exchange rate risk.”
“We need to mobilise resources from overseas. In order to maintain growth, the country needs to mobilise resources from overseas. Since we are already doing so by way of direct Government borrowings and Foreign Direct Investments, portfolio investments in equity corporate borrowings opens up another vital avenue,” said Capital Alliance Pvt. Ltd. Managing Director/ CEO Ajith Fernando.
“It is difficult to say whether money will start flowing into the country due to the rules being relaxed; it is too early to say at this point. The five-year restriction killed the market. With this and the 2% interest rate ceiling being removed, this will have an impact. The US$ 20 million ceiling being increased to US$ 50 million is also important as this is a small amount for foreigners.”
The Gazette notification regarding foreign investments in corporate debentures will be issued shortly, the Central Bank said.
“We have seen an appetite that has been coming through the private sector, which we thought we should encourage,” Central Bank Governor Ajith Nivard Cabraal told Reuters.
