Sri Lanka’s $2.4bn bond sale to cover debt issues

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 US 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.
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 (IMF).
The approval was stalled last year amid a crisis in which President Maithripala Sirisena abruptly fired Ranil Wickremesinghe on October 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 said he aims to narrow the fiscal deficit this year to 4.4% from 5.3% 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.