Sri Lanka sold $1 billion of 10-year dollar-denominated bonds at record-low yields in the country’s fourth global offering since the end of a three-decade civil war in May 2009.
The government sold the securities maturing in July 2022 at 5.875 percent, a premium of 437 basis points, or 4.37 percentage points, more than similar-maturity Treasuries, according to data compiled by Bloomberg. That’s lower than the initial guidance of 6.125 percent and the 6.25 percent in a sale of similar-dated debt a year ago.
President Mahinda Rajapaksa is raising cash to build roads, ports and power plants to help boost growth after the $59 billion economy expanded in the first quarter at the slowest pace in two years. The bonds attracted $10.5 billion of subscriptions, the “largest order book as well as the largest number of investors in the order book for Sri Lanka ever,” with fund managers accounting for 90 percent, according to central bank statement issued today.
“The response to the bond shows the confidence in post-war Sri Lanka, despite weaker overall global sentiment,” said Bimanee Meepagala, a Colombo-based analyst at NDB Aviva Wealth Management Ltd., the country’s largest private fund. “It should draw further foreign inflows that will help the Sri Lankan rupee, inflation and the trade account stabilize.”
The latest offering may allow the treasury to repay costlier debt as $500 million of bonds with an 8.25 percent coupon issued in 2007 mature in October. The South Asian nation previously sold $1 billion of 10-year notes in July 2011 at a 332 basis-point spread over Treasuries.
The new securities were quoted to yield between 5.69 percent and 5.74 percent as of 11:10 a.m. in Singapore, according to prices from ING Groep NV and Royal Bank of Scotland Group Plc.
“The tighter yield reflects improved confidence that international investors have placed in the sovereign bond issuance of Sri Lanka,” according to the central bank’s statement. “With this transaction Sri Lanka succeeded in achieving a cost of funds which is progressively lower compared to the previous issuances.”
U.S. Investors Dominate
Bank of America Corp., Barclays Plc, Citigroup Inc. and HSBC Holdings Plc arranged the latest sale. The notes are rated B+ by Standard & Poor’s and B1 by Moody’s Investors Service, four levels below investment grade. U.S.-based investors accounted for 44 percent of the orders, Europe 29 percent and Asia 27 percent, according to the Central Bank of Sri Lanka.
The president devalued the rupee in November and adopted a more flexible floating exchange rate in February, driving the currency to a record low of 134.30 per dollar on June 28.
Policy makers also raised interest rates in February and April, the first increases since 2007, to restrain consumer prices and curb spending. Inflation quickened to 9.3 percent in June, a 14-month high and the fastest pace after Pakistan and India in a basket of 17 Asia-Pacific economies tracked by Bloomberg.
A persistent trade gap has also eroded the nation’s foreign-exchange reserves to $5.82 billion in May from an all- time high of $8.1 billion in July 2011, according to central bank data.
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