Treasury Bonds for foreign investors

The Government has decided to open the Rupee denominated Treasury bond market for foreign investors from November 1. Treasury bond is a medium and long-term debt instrument issued by the government of Sri Lanka to raise funds from the domestic market to finance the government budgetary operations.

This is the first instance such a liberalisation of policy has been taken by the government to open the gilt-edged Rupee securities market for foreign investors.

This measure will increase the freedom in capital account transactions and thereby enhance the development of the capital market by broadening the investor base and increasing the competition in the bond market.

Foreign investors including foreign country funds, mutual funds and regional funds approved by the Securities and Exchange Commission (SEC) of Sri Lanka, corporate bodies incorporated outside Sri Lanka and citizens of foreign states are permitted to invest in Treasury bonds.

Foreign investors are permitted to purchase Treasury bonds with a minimum maturity period of two years and total investment limited to 5% of the value of Treasury bonds outstanding at any given point of time.

Foreign investors have to hold purchased Treasury bonds for a minimum period of one year before sale or transfer to a resident investor. However, this minimum holding period is not applicable if such sale or transfer is between foreign investors. Foreign investors can purchase Treasury bonds at any time from the secondary market through participating agents, i.e. Licensed Commercial Banks (LCBs) and Primary Dealers (PDs).

In addition, foreign investors are also permitted to bid at primary auctions of Treasury bonds through Primary Dealers.

Foreign investors have to advise their own banks to open a special Rupee account, i.e., Treasury Bond Investment External Rupee Account (TIERA) in an LCB in Sri Lanka. Foreign exchange brought in to the country for the purchase of Treasury bonds and all proceeds received by sale or transfer or maturity of Treasury bonds and interest income of Treasury bonds are routed through this TIERA account.

Participating agents (LCBs and PDs) will open a security account for foreign investors in the Central Depository System (CDS) maintained by the Public Debt Department (PDD) of the Central Bank of Sri Lanka. This account is debited/credited simultaneously based on foreign investors trading in the market.