According to foreign media, Sri Lanka will be selling five-year and 10-year sovereign bonds. (Photo: Paul Yeung/Bloomberg via Getty Images)

Sri Lanka on Monday (24) launched the second sovereign bond sale as the island nation looks to tap the global capital markets for the second time in three months, to meet the government expenditure and settle the maturing debt.

According to foreign media, Sri Lanka will be selling five-year and 10-year sovereign bonds.

According to Reuters, the sale is part of the plans to raise up to  $1.5 billion via sovereign bonds, as the government seeks new funds to repay the loans that are maturing in the wake of the deadly bomb attacks in April.

“The book building looks good, with the five-year bond likely to be tighter than the rate at what we sold in March,” Reuters said quoting a trader of a foreign bank.

In March, Sri Lanka sold $1 bn of five-year bonds at 6.85 per cent and $1.4 bn of 10-year bonds at 7.85 per cent.

Citi, Deutsche Bank, HSBC, JP Morgan, SMBC Nikko, StanChart and BOC International are managing the sale. The Central Bank officials in May said the government was planning to raise up to $2.5 bn in sovereign bonds, to manage the budgetary cash flows.

The Cabinet last week gave its nod to borrow up to Rs 480 bn ($two billion) more this year, from both local and foreign sources, under the Active Liability Management Act (ALMA), for future debt repayments between 2020 and 2029.

As per the ALMA, the government has the provision to borrow up to 10 per cent of the outstanding debt in the previous year for the debt management of the following year.
Sri Lanka’s next bond repayment is due in October, next year.

Meanwhile, Standard & Poor’s assigned the ‘B’ rating for the latest issue, while Fitch Ratings assigned an expected rating of ‘B(EXP)’ in line with Sri Lanka’s Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘B’ with a Stable Outlook.

Fitch downgraded Sri Lanka’s Long-Term Foreign- and Local-Currency IDRs to ‘B’, from ‘B+’, with a Stable Outlook, in December 2018.

Moody’s Investors Service said it has assigned the B2 rating to the senior unsecured dollar-denominated bonds based on the preliminary offering memorandum received on June 19.
Moody’s said the B2 rating assigned to the notes mirrors the Government of Sri Lanka’s issuer rating of B2. The proceeds of the bonds are intended to meet government expenditures.

“Sri Lanka’s credit profile reflects significant government liquidity and external vulnerability risks,” Moody’s noted.

The rating agency expects fiscal deficits to remain around five per cent of GDP in 2019-20, from 5.3 per cent in 2018 and government debt to stay at about 82-83 per cent of GDP in the next few years, higher than the many B-rated sovereigns.