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Sri Lanka offers Rs5bn bonds to foreigners

March 11, 2008 (LBO) - Sri Lanka is selling three maturities of rupee bonds to foreign buyers valued at five billion rupees under a new process with bids closing on March 17, the government's debt office said. Updated The Central Bank which runs the debt office said two billion rupees of bonds maturing on 2010, January 15 giving an after tax yield of 17.9 percent and two billion rupees of bonds maturing on 2011, February 02, yielding 17.0 percent are on offer.

A one billion rupee tranche of bonds maturing on July 15, 2007 yielding 15.50 percent after tax was also on offer, making the total volume about 46 million dollars.

The 2010A series bonds have a coupon of 15.50 percent, 2011A series have a coupon of 14.50 percent and 2013B series have a coupon of 8.50 percent.

Sri Lanka raised more than 400 million dollars through rupee bonds in 2007 and doubled the limit for foreign bond holdings to 10 percent of outstanding debt in November.

The island has more than 1,100 billion rupees of bonds outstanding.

There has been active secondary market trading in foreign held bonds in recent weeks with some buyers booking forex gains by switching securities among different accounts, dealers said.

Booking forex gains allows bond funds to cut some of the mark-to-market losses when interest rates rose from 14.5 percent levels at the beginning of last year to around 18 percent now.

The government also received firm commitments from foreign banks to raise 200 million dollars through dollar denominated bonds last week, though raising 3 to 5 year money was difficult with lenders fighting shy of buying bonds over 12-months.

Standard Chartered was mandated to raise 150 million dollars for three years, at 259 basis points above London benchmark rates but with an option to sell after 12-months and a further 100 million dollars if enough demand was there.

Deutsche Bank however committed to raise 50 million dollars in 5-year money but at 370 basis points above the London Interbank Offered Rate.

Analysts say international bond market conditions had made lenders wary of going beyond one year, while an intensifying conflict and weak budgets had also undermined Sri Lanka's sovereign credit standing.

Standard & Poor's downgraded the outlook on Sri Lanka's B+ rating to negative last month. But rupee bonds are rated a notch higher.

Fitch has a BB- rating also with a negative outlook for both local and foreign currency bonds.

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