Sri Lankan Firms Allowed to Borrow Abroad and Sell Debt to Foreigners

23rd November 2010, www.lbo.lk

Sri Lankan firms can sell corporate debt to foreign buyers provided the securities are rated and not priced over 200 basis points over the benchmark sovereign yields, Central Bank governor Nivard Cabraal said.

The bank had set no limit to the volume, or the percentage of a particular issue a company can sell to foreign investors.

"We have an ideal of an overall national limit internally," Cabraal said. "But no limits have been set for a particular issue."

Local firms would also be allowed to borrow abroad through loans.

"The applications can be sent to a special unit at the central bank, which will process it within two weeks," he said.

Cabraal said access to foreign capital will reduce the competition for funds within the country and help bring down interest rates in the country over the longer term.

Sri Lanka has a pegged exchange rate which could result in excess capital flows, if the country continues to have higher than world interest rates.

"Initially only a few top corporates' debt may be accepted by overseas buyers," says Ajith Fernando, head of Capital Alliance, an investment banking house.

"But Sri Lankan companies are likely to be very interested in borrowing from foreign banks.

"But when infrastructure projects for example start issuing, there will be more interest. Foreign investors are more familiar with their models and revenue patterns."

Related Info:
Sri Lanka Relaxes Foreign Exchange Regulations. Allowed Foreigners to Invest in Corporate Debt & Open Businesses, and Locals to Borrow & Invest Overseas