Sri Lanka to Raise $500 Million in Dollar Bond Sale After May

11th February 2010, www.bloomberg.com, By Anusha Ondaatjie and Asantha Sirimanne

Sri Lanka plans to sell $500 million of dollar-denominated sovereign bonds in 2010 in its third overseas offering, to fund the rebuilding of roads, ports and power plants after the end of a 26-year civil war.

The South Asian island will likely issue 10-year bonds after the government announces its budget for this year in April, Central Bank of Sri Lanka Governor Nivard Cabraal said in an interview in the northern Jaffna peninsula today.

“It will most likely be after May,” Cabraal said. “The funds will go towards capital expenditure and reconstruction. We think Sri Lanka has now matured and gained confidence amongst investors.”

President Mahinda Rajapaksa, who won reelection at a Jan. 26 ballot, plans to spend $1 billion on rebuilding to help the island economy expand as much as 7 percent this year. Police fired tear gas and water cannons in the capital yesterday when opposition supporters protesting the arrest of their candidate, former army chief General Sarath Fonseka, clashed with backers of Rajapaksa, the Associated Press reported.

Cabraal said yesterday that Sri Lanka may find it “challenging” to meet the 2010 budget deficit target of 6 percent of gross domestic product and may seek some “leeway” from the International Monetary Fund, which approved a $2.6 billion loan to the country in July.

Previous Debt Sales

Governments and companies in developing nations from Turkey to Slovenia and Indonesia have raised $70 billion from debt sales so far this year, according to data compiled by Bloomberg.

Indonesia sold $2 billion of 10-year bonds on Jan. 13, the Philippines issued $1.5 billion of debt the previous week and Vietnam completed a $1 billion offering on Jan. 26.

Sri Lanka in October attracted bids for more than 13 times the $500 million bonds offered in its first overseas sale in two years. It issued the 7.4 percent notes due in January 2015 to yield 5.06 percentage points more than similar-maturity U.S. Treasuries. They traded at 6.32 percent yesterday.

The nation’s debut overseas bond sale in October 2007, a $500 million sale of debt due October 2012, was sold at 8.25 percent, 3.97 percentage points over Treasuries.

Standard & Poor’s in October raised its outlook on the island’s credit rating to positive from stable. The nation has a long-term foreign currency debt rating of B, five levels below investment grade and two levels below the Philippines.

Peace has spurred economic growth and helped Sri Lanka to exceed its target in building foreign-exchange reserves, Cabraal said yesterday. The current level is $5.1 billion, enough to pay for about 6.2 months of imports, he said.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net.