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Sri Lanka raises $2 bln in bond sales amid strong risk appetite

Sri Lanka raised $2 billion through bond sales, the central bank said on Tuesday, as falling U.S. treasury yields helped boost risk appetite in the island’s debt despite a slowing economy.

Going to the international markets for the first time since a series of suicide bomb attacks on Sri Lankan hotels and churches killed more than 250 on Easter Sunday, the government raised $500 million on Monday via 5-year bonds at a 6.35% yield and $1.5 billion through 10-year bonds at 7.55%.

The yields of both bonds were more than 25 basis points below initial guidance by the lead manager and also less than the yields on similar bonds it sold in March.

In another indication of strong demand, the bonds were oversubscribed more than three times.

“Market conditions were conducive with 10-year U.S. treasuries down to near 2%. There was good supply (of funds) for emerging markets. The risk appetite was positive,” central bank governor Indrajit Coomaraswamy told Reuters.

The money raised would allow Sri Lanka to repay some loans and act as a buffer against political uncertainty, he said. The country is expected to face a presidential election towards the end of the year and a general election in 2020.

In March, Sri Lanka sold $1 billion in five-year bonds with a coupon of 6.85 percent and $1.4 billion in 10-year bonds with a coupon of 7.85 percent.

“The U.S. economy is weakening and they are looking at cutting rates. So there is higher appetite for emerging markets,” said Dimantha Mathew, research head at Colombo-based First Capital Holdings.

The bomb attacks have badly dented the Sri Lankan economy, in particular deterring many thousands of foreign tourists.

BOC International, Citigroup, Deutsche Bank, HSBC, JPMorgan, SMBC Nikko and Standard Chartered Bank, who were the lead managers for the $2.4 billion borrowing in March, are the joint bookrunners for the latest bond sale.

Ravin Basnayake, Citigroup’s country officer for Sri Lanka, said the price tightening and investor appetite underlined the continued confidence in Sri Lanka.

The sale comes as Sri Lanka is struggling to repay foreign loans, with a record $5.9 billion due this year, including $2.6 billion in the first quarter and more than $1.2 billion in the second, central bank data showed.

All three major rating agencies downgraded Sri Lanka’s debt after President Maithripala Sirisena sacked Prime Minister Ranil Wickremesinghe last October and replaced him with pro-China former president Mahinda Rajapaksa, though that decision was later reversed.

But the resulting seven-week political crisis hurt the rupee and drove sovereign bond yields higher, straining state finances.

Sri Lanka is unlikely to hit its full-year economic growth target of 3-4% following the bombings, the government has said. A Reuters poll has forecast growth to slump to its lowest in nearly two decades this year. (Reporting by Shihar Aneez; Editing by Martin Howell and Nick Macfie)

Courtesy – Reuters

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