Sri Lanka to double development bond issue limit to USD 3 Billion to raise liquidity – LBO.

Sri Lanka to double development bond issue limit to USD 3 Billion to raise liquidity – LBO.

Cabinet has approved a proposal to increase the limit of Sri Lanka Development bonds from 1,500 Million USD to 3,000 million USD which include the bonds due to expire in the year 2017 as well. The move comes in the backdrop of the country facing a low liquidity and due to the interest rates of treasure bills and bonds in the country.
The approval was announced by co-cabinet spokesperson Minister Rajitha Senaratne who confirmed that this was indeed a decision taken in view of the low liquidity and various interest rates. The Finance Ministry commenting on the move stated “It is prudent to explore raising more funds through the issuance of SLDBs. And also, enhancement of the limit of issuance of SLDBs from US $ 1,500 million to US $ 3,000 million, within the borrowing limit of Rs 1,579 billion approved by the Parliament for 2017”.
It is expected that the interest rates will continue to grow upwards in the short term due to expectation of US Federal Reserve raising rates. By the Appropriation Act No. 24 of 2016, a gross burrowing limit was set at Rs 1,579 Billion for the year 2017 of which Rs. 800 Billion was to be used to repayment of existing loans and another Rs 779 billion towards various development projects and other expenses. The burrowings were expected to be both domestic and foreign sources. The domestic burrowing is expected to raise Rs 1,129 billion Rs 450 billion through foreign sources.
Of the domestic burrowing the SLDB were expected to contribute the largest share and within the first quarter of the year 1,023 Million USD worth of SLDB’s have reached maturity with another 854 million USD expected mature within the year.
A memo issued by the cabinet stated that the maturities are to be financed via utilization of Foreign Currency Term Financing facility of USD 300 – 1000 Million and any other financing options that may become available.
A full eligibility purchaser list can be found on the website of Central Bank of Sri Lanka under http://www.cbsl.gov.lk/pics_n_docs/07_af_2pdm/_docs/sldb2017/sldb_brochure_mar_2017.pdf. However, it is worthwhile to note that due to certain restrictions of the bond issue SLDB’s are not sold in the USA or for persons residing in USA.
SLDB’s have a maturity periods from 1 year to 5 years. The bonds are denominated in US dollars with a minimum auction set at 10,000 USD followed by multiples of the same number. Interest will be paid to holders on a bi-annual basis from the date of issue with the principal repayment being made at the end of the maturity period. The interest payment is based on the London Inter Bank Offered Rate (LIBOR) per annum plus a margin determined by competitive bidding or fixed margin set at the auction via a competitive bidding process. A functional of the SLDB’s are also that they can be held jointly and is free from tax and is not liable for withholding tax.
Earlier in the year the issuance of SLDB for 830 million US dollars were oversubscribed with total bids received amounting to nearly 1.4 billion US dollars according to statements made by the Central Bank. This was an oversubscription ratio of over 7% which signals investors growing confidence in the Sri Lankan economy.

Article Code : VBS/AT/08052017/Z_1

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