Govt finalises $ 500 m sovereign bond issue

Projects to be implemented without any conditions:

by Gamini Warushamana

The Government last week successfully finalised the sovereign bond issue amidst continuous protests from the main opposition, the United National Party (UNP). Accordingly the government would borrow US$ 500 million from the bond issue which is oversubscribed by 210 percent.

Over the past few weeks the Central Bank of Sri Lanka conducted global investor road shows in Asia, Europe and the US. A $1.6 billion demand for bonds was received from 30% Asian, 30% Europe and Middle East and 40% US investors.

The Government said that the bonds were issued to raise funds to fulfil pledges given under the Mahinda Chintana and implement infrastructure projects. We want to implement these projects without any conditions of the donors and we are certain that those projects would earn revenue to repay the loan, Deputy Finance Minister Ranjith Siyambalapitiya told the media.

Sri Lanka is not among the poorest countries today and as a middle income country we can go to the international credit market and raise money to fund the development projects, he said.

The 8.25 percent indicated yield of the five-year bonds remain unchanged despite protests and threats of the main opposition UNP.

The UNP campaign against the bond issue continued last week and party frontliner MP Ravi Karunanayake said that a future UNP government would not honour the repayment of this debt.

Siyambalapitiya said that the UNP is partly responsible for the 8.25 percent high interest the government has to pay for the credit.

The UNP threats increased the risk perceptions of the bonds and as a result we have to pay a higher interest rate. However, we received lower rates than Pakistan (9.5%) and Ghana (8.5%).

This is an achievement for the government and it has proved the confidence about the sustainability of the government's economic policies, he said.

The issue is rated B-plus by Standard and Poor's and is managed by HSBC, Barclays Capital and JP Morgan.

Economic analysts said that the bond issue has a positive impact on the country's economy. It would reduce the interest rates and will check the weakening of the rupee, analysts said.

Last week's stock market performance was also positive and market analysts said that this would boost the investor confidence and we expect an improvement in the market.

The Central Bank said that the successful bond issue will open the doors of international capital markets for Sri Lankan corporates. With this inaugural bond issue Sri Lanka enters the international capital markets and this would substantially broaden the country's investor base, the Central Bank said.

Deputy Minister Siyambalapitiya expressed confidence of repaying the loan without any failure. The money will be used to construct the Weerawila Airport, Hambantota harbour, power projects and highways and they will earn high returns. The Hambantota harbour will be a huge source of income, Siyambalapitiya said.

Today the country has a Rs. 1.2 trillion debt and it is 93 percent of the country's GDP and one-third of the government's revenue goes for debt servicing.

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