Sri Lanka plans to raise $500 million overseas after IMF loan

By Cherian Thomas and Anusha Ondaatjie, 31t July 2009, Bloomberg

Sri Lanka plans to raise $500 million from overseas investors to help rebuild the war-torn island after an International Monetary Fund loan shored up the nation’s finances.

“We will take a decision in the next few weeks,” Sri Lanka’s central bank Governor Nivard Cabraal said in an interview in Mumbai today. “We did an investor update in many parts of the world. We are here in India today to see whether there is appetite for syndicated loans, sovereign bonds.”

President Mahinda Rajapaksa is seeking funds to turn the north and east of the South Asian island into productive parts of the economy after squashing the Tamil Tiger rebels’ 26-year hold on the region. The IMF last week approved a $2.6 billion loan to help Sri Lanka rebuild and replenish its foreign- exchange reserves.

“Sri Lanka has an excellent story to tell,” Nick Nicolaou, chief executive officer of HSBC Sri Lanka, said this week. “The IMF endorsement provides confidence to overseas investors.”

If Sri Lanka sells sovereign bonds to raise funds, it will be the second time since October 2007, when investors placed orders for more than three times the amount of debt sold. HSBC, JPMorgan Chase & Co. and Barclays Capital had arranged Sri Lanka’s debut overseas bond sale.

Sri Lanka’s government in 2007 sold $500 million of bonds due in October 2012, at a yield 397.2 basis points higher than U.S. Treasuries of similar maturity.

Sri Lanka has tapped HSBC and JPMorgan to arrange meetings with investors in the U.S., India, Hong Kong and Singapore to highlight prospects in the island nation after the end of its civil war.

“We managed to sell the bonds in 2007 when the war was still going on,” Cabraal said. “With the end of the war, the outlook to raise funds abroad is much better.”

To contact the reporters on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net; Anusha Ondaatjie in Colombo at anushao@bloomberg.net.