11 May 2011

Sri Lanka to Sell $1bn 10yr Sovereign Dollar Bond in September to Fund Infrastructure & Retire Expensive Loans. Roadshows in London/Singapore/New York

10th May 2011, in.reuters.com, By Shihar Aneez

Sri Lanka plans to sell a billion sovereign dollar bond this year with a tenure of 10 years or more to retire expensive debt and fund vital infrastructure projects, the island nation's central bank said on Tuesday.

The issue will be Sri Lanka's fourth eurobond offering since it first tapped international capital markets in 2007.

"It will be $1 billion and the tenure will be 10 years or even more," Dharma Dheerasinghe, the central bank's deputy governor, told Reuters in an interview. "We are in the process of writing to investment banks and other institutional investors and the road shows will be done in June."

This issue will be used to refinance expensive debt and fund infrastructure projects. Proceeds from earlier bonds were mostly used to pay for infrastructure projects during the last years of a quarter-century civil war that ended in May 2009 and after.

In September, Sri Lanka's issued a $1 billion, 10-year eurobond yielding 6.25 percent which received $6.33 billion in offers.

That followed two $500 million, five-year bond sales, the first in 2007 and the second in 2009. Sri Lanka wants to trim its long-term borrowing costs and cut its debt-to-GDP ratio to 67 percent by 2014 from last year's 81.9 percent.

"We could go to the market even earlier than October this year," he said.

INFRASTRUCTURE DRIVEN GROWTH

Sri Lanka has allocated about $6 billion to road, railway, port, airport, and power generation projects projects that are either underway or in the pipeline, hoping to keep its $50 billion economy growing sustainably at 8 percent or more.

Sri Lanka has forecast a record economic expansion of 8.5 percent this year, from last year's 32-year high of 8 percent, despite rising inflationary worries.

"We can achieve a growth between 8.2-8.5 percent this year as the economy has the capacity to expand more with the end of the war and we are underperforming in a number of sectors," Dheerasinge said.

Sri Lanka's annual inflation jumped to a 27-month high of 9.8 percent in April from a year earlier and the annual average inflation hit a 19-month high in April, well above analysts forecast.

"Both annual average and point-to-point inflation will be below what it is now and the rise in inflation is purely due to supply constraints."

The central bank raised commercial banks' deposit requirement by 1 percentage point to 8 percent in April to try and ease potential demand-side inflation by reduce excess liquidity caused by foreign currency inflows.

"We will see a reduction in excess liquidity with the expansion of the economic activity," Dheerasinghe said. (Editing by Bryson Hull).

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