Sri Lanka's $2.4 Billion Bond Sale Will Cover Its 2019 Debt Obligations

(Bloomberg) -- Sri Lanka’s success in tapping the overseas bond market for $2.4 billion will help the island nation cover its debt obligations for this year and lift foreign reserves, Central Bank Deputy Governor Nandalal Weerasinghe said.

Sri Lanka’s currency is also likely to continue to appreciate in 2019 after falling to record lows in 2018 amid a political crisis, due to the “additional boost of increasing reserves,” Weerasinghe said in a telephone interview on Friday. The bond sale will increase reserves to more than $8 billion, the most since August of last year, central bank data show.

The strong demand for the sovereign’s dollar bonds shows a return of confidence in Sri Lanka since a leadership crisis abated at the end of 2018, and may also filter through to more foreign purchases of rupee-denominated debt, the deputy governor said. Funds have flowed into the single B rated nation this year after a dovish turn from U.S. Federal Reserve spurred emerging-market bond gains that some worry may be overdone.

“Going forward, I see lots more stability in the currency and local bond market,” Weerasinghe said.

Key Insights

• Sri Lanka tapped the international market days after it reached a staff-level agreement for a one-year extension to its $1.5 billion loan from the International Monetary Fund. The approval was stalled last year amid a crisis in which President Maithripala Sirisena abruptly fired Ranil Wickremesinghe on Oct. 26, only to bow to pressure in December and reinstate him as prime minister.
• Demand for Sri Lanka’s dollar bond deal was more than three times the issue size
• Finance Minister Mangala Samaraweera in his federal budget speech on Tuesday said he aims to narrow the fiscal deficit this year to 4.4 percent from 5.3 percent in 2018, by strengthening revenue collection. That is a key condition for the IMF facility. The island heads for presidential and parliamentary elections later this year and in 2020 respectively.
• Overseas investors are returning to Sri Lankan government debt after pulling out in 2018 amid the political chaos that plunged the rupee to record lows and prompted Moody’s Investors Service, S&P Global Ratings and Fitch Ratings to cut the nation’s credit rating.

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• Sri Lanka raised the amount in funds the parliament had approved for external financing, Weerasinghe said.
• May look at raising funds via panda, Samurai or other “commercial financing” once the Federal budget is passed.
• The central bank has been purchasing dollars in the currency market amid the rupee’s appreciation.
• To read the central bank’s statement on sovereign bond sale, click here

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Finbarr Flynn, Ken McCallum

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