Govt. issues first post-default Domestic Dollar Bond under new PDMO

President and Finance Minister Anura Kumara Dissanayake

Treasury Secretary Dr. Harshana Suriyapperuma 

• Sri Lanka will issue $ 50 m Domestic Dollar Bond on 3 December, its first foreign-currency instrument since 2022 default
• PDMO to handle the issue, previously under purview of CBSL
• In Oct., Cabinet approved proposal for $ 100 m issue, but PDMO opts for $ 50 m
• The auction offers one-, two- and three-year maturities, with rates set through competitive bidding and subscriptions limited to local licenced commercial banks
• SLDBs were suspended in 2023 after holders exchanged $ 791.4 m for rupee Bonds under DDO, a 94.49% acceptance rate
• PDMO now centralises all public-debt functions and is central to IMF program compliance and restoring international market access

Sri Lanka will issue a $ 50 million Domestic Dollar Bond (DDB) next week, the country’s first foreign-currency borrowing instrument since the 2022 default and the first Bond issued under the newly operational Public Debt Management Office (PDMO).

The move also comes against the backdrop of an earlier Cabinet proposal in October to raise up to $ 100 million through the DDB window, with the authorities opting to begin with a $ 50 million tranche.

The upcoming auction on 3 December will offer one-year, two-year, and three-year maturities. Rates will be determined through competitive bidding, with interest payable semi-annually or annually in accordance with domestic tax laws. 

Subscriptions from locally incorporated licenced commercial banks will open at 9 a.m. on 1 December and close at noon on 3 December, with settlement scheduled for 10 December. 

The minimum investment is $ 1 million, increasing in multiples of $ 100,000. Payments must be made to the Central Bank of Sri Lanka’s (CBSL) account at the Federal Reserve Bank of New York. Transfers will be allowed on request through delivery and registration.

Authorities have positioned the Bond as a tool to mobilise dollars already within the domestic banking system rather than approaching international markets. 

Before the default, the Central Bank issued Sri Lanka Development Bonds (SLDBs), which were suspended in February 2023. 

In August 2023, holders of SLDBs agreed to exchange $ 791.4 million of their holdings for rupee-denominated Treasury Bonds under the Government’s Domestic Debt Optimisation (DDO) program. The eligible outstanding stock amounted to $ 837.5 million, giving the exchange an acceptance rate of 94.49%, including individual investors. 

The SLDBs were replaced with five new rupee-denominated Treasury Bonds with variable coupons. The Government also undertook to settle overdue interest equivalent to $ 69.31 million in rupees.

The PDMO, established in January 2024 under the Finance Ministry and formalised through the Public Debt Management Act, now consolidates functions previously dispersed across the Central Bank, the Treasury, and the External Resources Department. 

It is tasked with managing the entire public debt portfolio, implementing borrowing plans, conducting domestic and external restructuring, managing cash flows, and maintaining a single authoritative public debt database. The agency is central to International Monetary Fund (IMF) program compliance and efforts to restore market access.

The DDB was authorised by the Cabinet in October on a proposal submitted by President Anura Kumara Dissanayake and issued after approval from the Central Bank under the Foreign Exchange Act, No. 12 of 2017. 

The Cabinet last week also cleared the submission of the Public Debt Management Regulations to Parliament, further empowering the PDMO to engage directly with primary dealers and non-bank bidders and to set operational guidelines for Government securities issuance.

A market survey by the Central Bank’s Department of Public Debt in August indicated appetite of up to $ 100 million for tenors ranging from under one year to three years, supporting the decision to launch the instrument.

Sri Lanka is locked out of the international capital market till 2028. It has completed 99% of its external debt restructuring, including International Sovereign Bonds.