Govt. may sell $1 bln, 10-yr bond in 2012- CB Chief

Wednesday, 22 December 2010 00:31 -     - {{hitsCtrl.values.hits}}

  •  $500 million debut bond matures in 2012
  •  New bond could be $500 million, up to $1 billion
  •  Governor tries to ease concerns over inflation

By Shihar Aneez

MANNAR, Sri Lanka (Reuters) - Sri Lanka may sell up to $1 billion in a 10-year sovereign bond in 2012, the year when the island’s debut $500 million dollar bond matures, Central Bank Governor Ajith Nivard Cabraal said on Tuesday.

“We may sell a sovereign bond in 2012. We are looking at a longer tenure of at least 10 years and a size of between $500 million to $1 billion,” he told Reuters, after a tour of the former northern war zone in Mannar, where the government is planning several infrastructure projects. “The amount will be decided according to the requirement of that time.” The government wants to revive the long-neglected infrastructure of its $42 billion economy following a 25-year civil war that ended in May 2009. Sri Lanka has already sold three Eurobonds since 2007 and the last one, a $1 billion, 10-year bond was sold in September to yield 6.25 percent.

Sri Lanka’s debut $500 million Eurobond issued in 2007 with a coupon of 8.25 percent is now trading to yield around 3.2 percent to 3.7 percent.

Its second bond sold last year with a coupon of 7.4 percent, now yields 4.4 percent to 4.6 percent, Reuters data showed.

“Our spreads are getting tighter now. So we can raise money at a cheaper rate than the debut bond. We can manage the repayment of the debut bond in 2012 without much pressure,” he said.

The governor said the island had no funding needs for 2011, and had not decided whether to issue an international bond that year or not.

The economy, which is expected to expand by near 8 percent this year from an eight-year low of 3.5 percent in 2009, is expected to expand robustly in 2011 as well.

“Eight percent should definitely be something that we should estimate,” Cabraal said when asked about the economic growth in 2011, which the Central Bank will officially announce on 4 January.

The Central Bank has kept its policy rates unchanged at more than five-year lows even as markets have grown concerned that private-sector credit growth — running a more than 20 percent over a year earlier in October — could be providing fuel for future inflation. The Central Bank’s year-end target for credit growth is 15 percent.

Annual inflation hit a 21-month high in November of 7 percent and has been rising for the last four months, but Cabraal said price pressures were contained because there was a slack in the economy.

“We are targeting mid-single digits,” he said, referring to inflation in 2011. “We have less of a risk (of inflationary pressures) mainly because we have a lot of spare capacity that has not been utilised, particularly in tourism, fisheries, and agriculture,” he said.

Zero aftershocks of global crisis for SL – Cabraal

Deepal V. Perera reporting from Mannar

The year 2010 is a significant year where the Sri Lankan economy is concerned since it showed a remarkable growth of 8%, signifying that the country has come through the global downturn, said Central Bank Governor Ajith Nivard Cabraal, in an interview with Daily FT.

“We have performed remarkably well and World Bank Managing Director Dr. Ngozi Okonjo-Iweala who came to Sri Lanka last week confirmed that Sri Lanka was an example in the face of the global economic recovery where the country performed well with zero aftershocks,” the Governor said. He also said that the Sri Lankan financial sector was shaken only due to the fall of Golden Key, where the company was highly dependent on a self-issued credit card system, which had a direct link with its deposits. Commenting on the financial cost that the country had to incur to recover from the global economic downturn that started in 2008, Cabraal said that there hadn’t been any cost incurred for the bank and it therefore stood at zero.

“Our role during the period was to correct certain institutions by means of intervention and apart from that we did not incur any costs,” he asserted.

The Central Bank Governor made these remarks on Monday during a tour of Mannar District. During his tour of Mannar, he also declared open a new Seylan Bank branch in Mannar Town, in a 200-year-old Dutch era house which had been restored by Seylan Bank.