CB puts ISBs first in quest for debt repayment funds

• After yields fall, CB focuses on sovereign bonds

• Will look to swaps and other options to fill gaps after ISBs 

• People’s Bank of China offers $1.5b in swap arrangement   

By Uditha Jayasinghe

The Central Bank has ‘recalibrated’ its strategy to raise funds to repay debt, prioritising International Sovereign Bonds (ISBs)over bilateral arrangements, but the secondary options include a $1.5 billion swap arrangement with People’s Bank of China.   

Central Bank Governor Dr. Indrajit Coomaraswamy explained that the decision to return to the market was motivated by yields reducing significantly in January, largely motivated by the Government’s signal to continue with the International Monetary Fund (IMF) program and repayment of the $ 1 billion SBI in January. The Central Bank will have to raise $ 5.9 billion to repay debt in 2019 with $ 2.6 billion to be repaid in the first quarter. An additional $ 500 million payment is also due in April.    

“We are in radio silence mode at the moment so I can’t say very much. But the background of our thinking was that earlier, the yields on our bonds spiked sharply after 26 October 2018, so for a while it didn’t seem an attractive option to go down the route of dollar-denominated ISBs, and we were looking at other options.

But now those yields have come down and they are slightly lower than they were on 26 October 2018, so we have recalibrated our strategy and given priority to going for an ISB first. We will see how much money we can raise at reasonable cost and after that we will look at what other borrowing we would have to do to meet the financing gap that remains,” he said. 

The Central Bank is finalising administrative and legal proceedings to access $ 400 million swap arrangement with Reserve Bank of India (RBI). Dr. Coomaraswamy also said they favoured ISBs over swaps as it would be longer term money. The RBI swaps would need to be rolled over every three months, but an SBI would be for a five- or ten-year tenure. The Governor, however, did not give an indication of how much the Government would attempt to raise. 

Last month, Cabinet gave permission for the Central Bank to raise up to $ 2 billion in ISBs. The Central Bank has also said it will go to the market to raise panda and samurai bonds but these would come after the ISBs. The Central Bank has also been offered $ 1.5 billion in swaps from People’s Bank of China and a second swap is also possible from the Central Bank of Qatar. 

“Everything is still on the table, including the panda bond, the samurai bond, and possible term loans,” the Governor said. 

Nonetheless Dr. Coomaraswamy said panda and samurai will take time as it would be the first time such bonds would be issued by the Central Bank while SBIs have been more frequent. A $ 300 million loan from the State Bank of China would also likely take longer as negotiations have to be ironed out.

“We want to raise everything as early as possible so we will keep moving. The great advantage about SBI is its maturity.We can get five or ten years.Things have improved on the SBI front, so that has given us a window, and then we will move to fill the gap. Given our debt dynamics, that is more attractive.”