Sri Lanka Vulnerable to External Shocks - Moody's

04th January 2012, www.lankabusinessonline.com

Sri Lanka is still vulnerable to external shocks given, lower than expected year-end foreign exchange reserves and needs lasting reforms to better its credit rating, Moody's, a rating agency has said.

The island must further reduce government debt and budget deficits while a rapid and lasting improvement in credit strength depends on how successful ongoing reforms are, Moody's Investors Service said in a credit report.

Sri Lanka's B1 rating and positive outlook for its foreign-currency obligations is based on an assessment of the country's low economic and government financial strengths, moderate institutional strengths and moderate susceptibility to event risks, it said.

The report notes that the positive outlook announced in July 2011 was prompted by an increasingly evident peace dividend, after the end of a 30-year ethnic war in 2009.

This was seen in greater macroeconomic and financial stability, a policy orientation of fiscal reform and economic growth, supported by a successful IMF program, and a reduction in political event risk following the end of the war, the rating agency said.

"However, a deepening current account deficit and lower-than-expected foreign exchange reserve level projected for the end of 2011 suggests that external vulnerability event risk has not yet receded to a low level and remains moderate," it said.

Moody's assessment of government financial strength would improve if it continues to reduce debt, recently enacted fiscal reforms continue to perform well, and if strong economic growth is sustained and the external balance of payments strengthen over time.

A peace dividend in the form of a pick-up in economic growth, if sustained, should translate into greater credit strength.

"The pace and permanence of an improvement in credit fundamentals will also be determined by the success of ongoing structural and fiscal reforms," said Moody's annual report on Sri Lanka.

The country's economic scale and diversity, and per capita income level, are in line with most single B-rated sovereigns.

The rating agency said it sees financial weaknesses as a key rating constraint arising from the legacy of large budget deficits from the civil war years, and which have contributed to a large government "debt overhang."

Sri Lanka's fiscal space and flexibility are "constrained", in comparison to most other sovereigns, and could prove vulnerable to shocks, although contingent liabilities from state enterprises and the banking sector are currently remote, Moody's said.

Moody's will continue to place credit emphasis on an improvement in fiscal management in future because of Sri Lanka's shallow capital markets and relatively modest level of gross domestic savings.

It noted that with a population of 20 million and a 50 billion US dollar economy in 2010, Sri Lanka is wealthier than all its neighbors in the Indian subcontinent by per-capita income.

"Yet Sri Lanka's 5,040 dollar per capita income, on a purchasing power basis (as of 2010), is slightly lower than the Ba3- to B2-peer median of 5,152 dollars," Moody's said.

However, the rating agency praised Sri Lanka's debt service record saying: "Another noteworthy point is an unblemished track record of debt-servicing."

Sri Lanka has never restructured, or defaulted on sovereign debt, except for a voluntary relaxation of payment terms by the Paris Club in 2005 on account of the tsunami in December 2004, Moody's said.

This affected 227 million dollars in principal and interest payments out of the then-external debt stock of 13 billion dollars.

However, the rating agency also noted that Sri Lanka's political risk has not come down to low levels with no sign yet of a permanent solution to the ethnic conflict which gave rise to violence.

"In combination with a relatively low level of per capita income overall, its political Voice and Accountability governance indicator points to a heightened susceptibility to domestic political event risk," said the Moody's report.

"The reintegration of the Tamil minority in the war-torn northeast region is progressing, but the process of political reconciliation is at an early stage."

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• Fitch and Moody's Upgrade Sri Lanka's Sovereign Rating due to Key Factors

Fitch and Moody's Upgrade Sri Lanka's Sovereign Rating due to Key Factors

24th July 2011, www.sundayobserver.lk

Fitch Ratings has upgraded Sri Lanka's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'BB-' from 'B+'. The outlooks on these ratings are 'Stable'.

Further, Fitch has upgraded the Country Ceiling to 'BB-' from 'B+' and affirmed the Short-Term Foreign-Currency IDR at 'B'.

Meanwhile, Moody's Investors Service has upgraded outlook of Sri Lanka's B1 foreign currency sovereign rating from 'Stable' to 'Positive' due to the key factors - increasingly evident peace dividend reflected in greater macroeconomic and financial stability; policy orientation of fiscal reform and economic growth, supported by a successful IMF program; improving external payments position; and reduction in political event risk following the end of terrorism in 2009.

Fitch's decision to upgrade the ratings was based on the stabilis ation and recovery of the economy and increased efforts by the Government to bring down the budget deficit.

Moody's has said that augmented investor confidence and the increase in investments along with the falling inflation, the economy is expected to expand sustainably by 8-9 percent in the medium term.

The Central Bank has welcomed the upgrade and is confident that the measures taken towards macroeconomic stability and economic improvement would yield further favourable results.

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• Sri Lanka Raises $ 1bn 10yr Sovereign Bond Riding on the Country’s Recovery Story and Positive Reviews by Rating Agencies

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Sri Lanka Raises $ 1bn 10yr Sovereign Bond Riding on the Country’s Recovery Story and Positive Reviews by Rating Agencies

22nd July 2011, www.financeasia.com, By Denise Wee

Markets have hardly been conducive to new debt issues recently, but Sri Lanka took advantage of a brief calm early yesterday morning to successfully price a $1 billion 10-year global bond.

Sri Lanka is used to dealing with bigger problems than volatile financial markets, and the once war-torn country’s ability to raise such a large amount of money at a competitive yield is testament to just how far it has come since the civil war ended in 2009 — and contrasts sharply with the experience of its embattled European peers.

Bank of America, Merrill Lynch, Barclays Capital, HSBC and Royal Bank of Scotland were joint bookrunners for the deal. Bank of Ceylon acted as a co-manager.

The leads kicked off roadshows on July 11 and decided to push ahead with pricing slightly ahead of schedule as they saw a window to launch a transaction amid relatively stable markets. They released initial guidance in the area of 6.5% on Wednesday morning ahead of officials wrapping up one-on-one meetings with investors in London later that day.

During midday London time, the leads revised guidance to 6.25% to 6.375%. Momentum for the transaction continued to build and the order book reached more than $5 billion before the US opened. The bonds eventually priced at the tight end of that final guidance, offering a spread of 332.2bp over US Treasuries.

While it was on the road, Sri Lanka also received a vote of confidence from the rating agencies. Fitch upgraded its rating on Sri Lanka to BB- from B+ on July 18, citing the country’s stabilisation and economic recovery under the IMF programme, as well as its efforts to address its budget deficit. Moody’s and S&P both revised their outlooks on Sri Lanka to positive but kept their ratings at B1 and B+ respectively.

“Sri Lanka has come a long way,” said one person familiar with the deal. “We are getting bad news out of Europe on an almost daily basis, so we were pleasantly surprised when the deal was done at a coupon of 6.25%,” he added.

The deal appealed to the US emerging market and global funds, which saw rarity value in the deal. Sri Lanka tapped the market just 10 months ago, but has fewer outstanding bonds than Indonesia and the Philippines.

The final book stood at $7.5 billion, with orders from 315 accounts. US investors were allocated 43%, Europe was allocated 30% and Asia 27%. Fund managers were allocated the biggest share with 86%, banks/private banks were allocated 8%, corporates 3% and insurers 3%.

The rush of fund flows from the US into emerging market sovereigns — which started in 2009 and accelerated last year — has tapered off slightly this year as investors have turned defensive. However, Sri Lanka has shown that there is still ample demand in the US for the right credit.

Malaysia’s $2 billion sukuk global bond, in contrast, attracted a more muted response from US investors, who were allocated just 4% of the five-year tranche and 15% of the 10-year tranche.

Sri Lanka’s bonds traded at 101.5 in the secondary market yesterday morning, rising 1.5 points from the par issue price.

The deal is Sri Lanka’s second 10-year issue. The sovereign priced its debut $1 billion 10-year global bond in September last year via arrangers Bank of America Merrill Lynch, HSBC and Royal Bank of Scotland. That deal paid a similar coupon of 6.25% but offered a higher spread of 373.1bp over Treasuries. As a spread over Treasuries, Sri Lanka paid roughly 40bp less in its latest deal.

According to one person familiar with the deal, the Sri Lanka bonds maturing October 2020 were trading at a yield of 6.1% while the new bonds were being marketed. Taking into account the US Treasury yield curve, the nine-month extension was worth about 14bp. This put the theoretical value of the new 10-year bond maturing July 21, 2021 at about 6.24%, which meant that the new bonds came with hardly any new issue premium. Following the pricing of the deal, the existing Sri Lanka October 2020s rallied and were quoted at 102.5 and a yield of 5.9%.
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• Fitch Affirms Sri Lanka's LTIDR B+. Revised Outlook to Positive from Stable

• S&P Raises Sri Lanka’s Ratings. B+ for Foreign Currency Debt with a Stable Outlook

Sri Lanka Appoints Four Banks as Joint Lead Managers to Handle Sovereign Bond Issue

25th June 2011, www.island.lk

Sri Lanka’s Central Bank has appointed Bank of America Merrill Lynch, Barclays Capital, Hongkong and Shanghai Banking Corp, and Royal Bank of Scotland as joint lead managers to advise and handle a future international sovereign bond issue.

The appointments were made after evaluating proposals received from seven top international banks and investment houses, a statement said.

The central bank has said it intends to sell a billion US dollar sovereign bond this year with the money to be used to help pay off debt and build infrastructure.

Central bank governor Nivard Cabraal said the bond’s tenure was likely to be 10 years.

"We don’t want to go longer because then the situation will get tighter and tighter," he told LBO Wednesday.

"We don’t want to lock ourselves to a current credit number for a longer period. Interest rates – we cannot say for sure because it will depend on the world market conditions. We would certainly expect the rate to be lower than last year."

Cabraal said he expects the bond to be well received given the island’s accelerating economic growth after the end of its 30-year ethnic war.

"There is no doubt in anyone’s mind about Sri Lanka’s performance so we do not foresee any anxiety. So it will be a fairly well received credit."

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Upward Revision of Sovereign Ratings on Sri Lanka Expected with Favourable Recommendations from Three Major Rating Agencies

22nd May 2010, www.sundaytimes.lk

Sri Lanka expects an upward revision in sovereign ratings with favourable recommendations from officials from three major rating agencies who are expected to visit the island before the end of this month to review the current country rating.

They will hold meetings with Central Bank (CB) officials, politicians, financial experts, diplomats, foreign lending agencies, etc and report their findings to the rating committee, a senior CB official said.
CB Deputy Governor Dharma Dheerasinghe, who is also the head of the country’s high level Sovereign Rating Committee, told the Business Times that teams of analysts from Standard & Poor (S&P), Fitch and Moody would be visiting the island separately to prepare individual reports to review the ratings which will be forwarded to their top level committees to make the final decision.“The committee meetings will be held in London and New York in July and we are also visiting them to present our case,” he said.

The committee made up of top CB, Finance Ministry and private sector representatives had been appointed to develop a strategy to push Sri Lanka's sovereign rating to investment grade. It is charged with devising a strategy of taking Sri Lanka’s current speculative B+ (Fitch) and B (S&P) rating to an investment grade 'BBB-' or higher over the next four years. Dr. Dheerasinghe noted that "S&P may raise the ratings on Sri Lanka on evidence of more comprehensive fiscal or structural economic reforms”.

At the moment the country’s rating is B+ and “we hope that it will be upgraded by these committees based on the reports of these analysts,” he said adding that they expect an upgrade in the sovereign rating to minimum grade of BBB –or higher.

However an economic expert who wished to be anonymous told the Business Times that S&P may lower the rating if Sri Lanka deviates substantially from the IMF program’s framework, or if expectations on the recovery in growth prospects and revenue improvements disappoint."With inflation pressures mounting in Asia, Sri Lanka is ranked among countries that have lower risks of social unrest because of popular governments, higher growth and lower unemployment mitigating such risks caused by rising prices,” he revealed.

Last year Sri Lanka received a B1 sovereign rating from Moody’s with a stable outlook and officials are confident there would be an upgrade given the government’s improved fiscal performance for 2010, with the deficit reaching 7.9% of GDP, slightly lower than the 8 % target. S&P had given Sri Lanka a long term foreign currency rating of B+ and a long term local currency rating of BB-, both upward revisions from 2009. Fitch has affirmed Sri Lanka’s long term local and foreign currency issuer default rate at B+, revising the outlook from stable to positive.

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Sri Lanka Rating Upgrade Expected in the Next Review in May

07th February 2011, www.news360.lk

Sri Lanka is well on course to get a rating upgrade during this year, says the Central Bank.

Its Deputy Governor K. G. D. D. Dheerasinghe said “we are pretty sure of a rating upgrade during the next rating review in May”.

Dheerasinghe who heads the Central Bank’s Sovereign Ratings Committee appointed to work towards improving the “country rating” added “we expect the rating to move to BB- during this year“.

Sri Lanka plans to have a round of meeting with Fitch, S&P and Moody’s during April this year to discuss the next rating review.

At present Fitch has assigned a B + rating with a positive outlook, while S&P has given a B+ rating with a stable outlook.

Meanwhile the Moody’s who started rating Sri Lanka since last year also assigned a rating of B+ with a stable outlook.

Central Bank raised a sovereign bond of US$ 1 billion during the year 2010 at a rate of 6.25%.

Dheerasinghe said “It is now trading below 6% in the secondary market”.

He pointed out this situation is very good for a country which has a B+ rating.

Sri Lanka is planning to raise its country rating to a “BBB –“by 2015, which is the minimum investment grade.

“When people invest they look at the rating” added Dheerasinghe.

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Sri Lanka's Sovereign Rating Upgraded by an Agency

21st November 2010, www.sundaytimes.lk, By Bandula Sirimanna

Sri Lanka's sovereign rating has been upgraded by one notch since the economy is now very robust. This was a result of the Central Bank's efforts to implement a carefully designed, forward looking and effective strategy with the participation and co-operation of all stakeholders, country authorities, private sector business leaders, chambers and rating advisors, during the past few months, a member of the high level Sovereign Rating Committee, told the Business Times.

The committee makes regular reviews of developments of the economy and conveys these improvements to the rating agencies through rating advisors, to push the rating up, he said.

The committee is charged with devising a strategy of taking the Sri Lanka current speculative B+ (Fitch) and B (S&P) rating to an investment grade 'BBB-' or higher over the next four years.

A senior official of the Central Bank said that Capital Intelligence (CI), the international credit rating agency, announced that it has raised Sri Lanka's long-term foreign currency rating to 'B+' from 'B' and its long-term local currency rating to 'BB-'from 'B+'.

At the same time the rating agency has affirmed the sovereign's short-term foreign and local currency ratings of 'B'. The outlook is 'Stable' . The upgrade in the sovereign's ratings reflects the marked improvement in the political and security situation following the end of the civil war, a strong recovery in international reserves to record high levels, and better prospects for fundamental tax reform and fiscal consolidation over the medium term.

The ratings take into account CI's expectation that the government will move forward on promised tax reforms and reduce the large budget deficit and high public debt ratio in line with its medium-term plans, while at the same time taking steps to strengthen export performance and attract foreign direct investments, he said. Sri Lanka's sovereign ratings are foremost constrained by chronic fiscal problems including high indebtedness, weak revenue-generating capacity and a rigid expenditure structure.

Fiscal performance has improved in 2010, however, and the budget deficit should decline to about 8% of GDP from 9.9% in 2009.

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Sri Lanka Sovereign Strategy Brings Results, Says Central Bank

Sri Lanka Sovereign Strategy Brings Results, Says Central Bank

24th September 2010, www.island.lk

The Central Bank last afternoon said the medium term sovereign rating strategy brought positive results.

"Sri Lanka’s sovereign credit rating has been upgraded by the international rating agencies, Standard & Poor’s (S&P) and Fitch Ratings, who have recently assigned improved credit ratings to the country. A third rating agency, Moody’s Investors Service, has also assigned a comparable credit rating to Sri Lanka, as given below.

* On 14 September 2010, Standard & Poor’s (S&P) upgraded Sri Lanka’s long-term foreign currency sovereign credit rating to B+ and the long term local currency rating to BB- with a stable outlook.

* On 21 September 2010, Fitch Ratings affirmed Sri Lanka’s long term foreign and local currency Issuer Default Ratings (IDR) at B+ while upgrading the outlook to "Positive".

* On 22 September 2010, Moody’s Investors Service assigned a B1 foreign currency issuer rating with a stable outlook.

Given the many positive developments in the country during the post-conflict period, these rating upgrades have been expected. The improved macroeconomic fundamentals, prudent monetary policy, fiscal consolidation, planned structural

improvements of the economy, and high economic growth prospects will further support the enhancement of Sri Lanka’s sovereign credit rating in the near to medium term," the Central Bank said in a statement.

"These upgrades could be viewed as an outcome of the strategy towards upgrading Sri Lanka’s sovereign rating over the medium term. For this purpose the CBSL recently appointed a high level Sovereign Rating Committee (SRC), comprising senior officials

of the Ministry of Finance and Planning (MOFP), CBSL, and some private sector leaders. The SRC has been assigned to make regular reviews on the developments of the economy and have negotiations with the rating agencies through Rating Advisors towards upgrading the country’s sovereign rating," it said.

The Central Bank has also upgraded the forecast for economic growth to between 7.5 and 8 percent given the robust 8.5 percent growth in GDP during the second quarter of the year, from 7.1 percent the previous quarter. Sri Lanka’s economy grew by 3.5 percent in 2009.

All three ratings agencies said the government’s fiscal performance would have to improve if ratings are to be improved in future. The budget deficit for 2009 ballooned to 9.9 percent of GDP from an estimated target of 7 percent.

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Moody's Gives Sri Lanka B1 Sovereign Rating with a Stable Outlook

Moody's Gives Sri Lanka B1 Sovereign Rating with a Stable Outlook

22nd September 2010, www.lankabusinessonline.com

Moody's Investors Service said it had given a 'B1' sovereign rating for Sri Lanka with a 'stable' outlook on the end of a war, low inflation and efforts to contain budget deficit, despite having high levels of debt.

"The stable outlook also considers Sri Lanka's small size, partial dollarization, and relatively modest gross domestic savings," Aninda Mitra, Moody's lead sovereign analyst for sri Lanka said in a statement.

"We therefore place more forward-looking credit emphasis on an improvement in fiscal management, which is an area where reforms are planned, but a track record is awaited."

He said the rating agency expected the "re-integration of the northern and eastern regions into Sri Lanka's economy will sustain a higher growth rate with single-digit inflation without destabilizing the external current account position."

In second quarter of 2010 Sri Lanka's economy grew by 8.5 percent, according to the country's statistics office.

"The outlook also reflects considerable scope for fiscal reforms and high likelihood of foreign investment inflows against lingering risks posed by a large government debt overhang and remaining, though, diminishing, external financing risks," Mitra said.

The end of Sri Lanka's civil conflict and a structural improvement in its economic prospects were important considerations for the ratings decision, Moody's said.

The rating agency said monetary management was "reasonably strong" relationships with official creditors and bilateral partners were strong setting the stage for a sustained rebound in the economy.

The agency had noted "moderate" rankings for rule of law and government effectiveness by the World Bank.

Fitch Ratings lifted the outlook for Sri Lanka 'B+' speculative rating to 'positive' from stable Tuesday and Standard & Poors' upgraded the underlying rating to 'B+' earlier. Sri Lanka is now in the market for a billion US dollar sovereign bond.

Government officials are taking part in an investor meeting in New York this week.

Moody's said government financial strength was low, with a large debt and debt service largely due to a war, but investor interest was improving. Sri Lanka's national debt is about 80 percent of the economy.

"There are also proposed fiscal reforms which are expected to lower future budget deficits," Moody's said.

"Moreover, the country's improving growth prospects and a downshift in local interest rates will also support the government's debt dynamics."

Ratings could be upgraded if budgets improve and inflation is low and less volatile, foreign reserves and foreign direct investment improves, Moody's said.

But ratings could be downgraded if there is no progress in improving budgets, there is loss of inflation control and foreign currency liquidity worsens, or recent political instability worsens local or foreign investor confidence.

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S&P Raises Sri Lanka’s Ratings. B+ for Foreign Currency Debt with a Stable Outlook

Fitch Affirms Sri Lanka's LTIDR B+. Revised Outlook to Positive from Stable

Fitch Affirms Sri Lanka's LTIDR B+. Revised Outlook to Positive from Stable

22nd September 2010, www.dailynews.lk

Fitch Ratings yesterday affirmed Sri Lanka’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘B+’, and simultaneously revised the Outlook to Positive from Stable. Fitch also has affirmed Sri Lanka’s Short-term IDR at ‘B’ and Country Ceiling at ‘B+’.

The Outlook revision is in large part a reflection of Sri Lanka’s economy benefitting from the end of a war in 2009, from a more disciplined policy framework put in place under the Stand-By Arrangement (SBA) with the IMF, and from an improved external liquidity position bolstered by the IMF program.

Fitch believes these developments support the prospects for Sri Lanka to achieve sustained medium-term growth, without a resurgence in inflation or another bout of external liquidity stress (as experienced over end-2008 to early-2009). Foreign exchange reserves stood at USD5.8bn at end- July 2010, well above the low of USD1.1bn in March 2009, bolstered by USD1.0bn of IMF funds.

Sri Lanka has made headway in rebuilding and integrating the two war-torn Northern and Eastern provinces into the rest of the local economy, which is helping to boost Sri Lanka’s productive capacity, particularly in the agriculture and tourism sectors.

This is highlighted by real GDP growing 8.5 percent yoy in Q210, from a 7.1 percent yoy rise in Q110. Fitch is forecasting real GDP growth to average 7.2 percent in 2010-2012, versus an average of 5.1 percent over the last 20 years.

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S&P Raises Sri Lanka’s Ratings. B+ for Foreign Currency Debt with a Stable Outlook

S&P Raises Sri Lanka’s Ratings. B+ for Foreign Currency Debt with a Stable Outlook

15th September 2010, www.dailynews.lk

Standard & Poor’s Ratings Services raised its long-term foreign currency sovereign credit rating on Sri Lanka to ‘B+’ from ‘B’, and the long-term local currency rating to ‘BB-’ from ‘B+’.

At the same time, Standard & Poor’s affirmed the ‘B’ short-term rating on the sovereign. The outlook on the ratings is stable.

Standard & Poor’s raised all the issue ratings on Sri Lanka’s senior unsecured debt accordingly.

Standard & Poor’s affirmed its transfer and convertibility assessment of ‘B+’, and its recovery rating of ‘4’ on Sri Lanka’s senior unsecured foreign currency debt, which signals the expectation of an average recovery of 30 percent - 50 percent in the event of a distressed debt exchange or payment default.

“The rating upgrade takes into account the continued strengthening of Sri Lanka’s balance-of-payments position, and reflects Standard & Poor’s expectation that the Government’s planned revenue reforms will improve public finances, such that fiscal deficits and public debt will decline again in a sustainable manner,” Standard & Poor’s credit analyst Agost Benard said.

These positive factors are balanced against ongoing risk posed by excessive public and external leverage, and the risk of a rebound in inflation.

The stable rating outlook reflects our expectation of swift progress in addressing structural fiscal weaknesses mostly on the revenue side and the strong growth prospects.

“We may raise the ratings on Sri Lanka on evidence of more comprehensive fiscal or structural economic reforms resulting in faster-than-expected reduction of vulnerabilities posed by the high debt and interest burdens, and still-narrow economic profile,” Benard said. Standard & Poor’s may lower the rating in the event of substantial deviation from the IMF program, or if expectations on recovery in Sri Lanka’s growth prospects and revenue improvements disappoint, he added.

Speaking to Daily News Business Central Bank Governor Ajith Nivard Cabral said this rating upgrade has been a predictable reaction to the constantly improving macro economic fundamentals of our country.

“We are pleased that S and P have done this upgrade although it would not have come as a surprise to the many investors and stakeholders. We are quite sure that Sri Lanka’s rating will continue to improve in time to come,” the Governor said.

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Sri Lanka Road Show to Sell $1bn Sovereign Bond Late September

14th September 2010, www.lankabusinessonline.com

Sri Lanka has kicked off a road show to sell a billion dollar sovereign bond later this month, a media report said.

Officials and investment banks promoting the issue will meet fund managers till September 24, a Bloomberg newswires report said.

Investor meetings will be held in Singapore, Hong Kong, London and the United States, the report said.

The government has hired Bank of America Corp., HSBC Holdings and Royal Bank of Scotland to help it arrange meetings with credit investors starting September 15, it quoted a person familiar with the matter as saying.

The road show comes just as Sri Lanka's long-term foreign currency sovereign credit rating was raised by Standard & Poor's to 'B+' from 'B' with a stable outlook.

The rating agency has said the upgrade takes into account the strengthening of Sri Lanka's balance-of-payments position and plans to cut the fiscal deficit.

However, the rating agency warned that there were ongoing risks posed by excessive public and external borrowings and the risk of a rebound in inflation.

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Sri Lanka to Seek Ratings from Moody's, Standard & Poor’s & Fitch Before $1bn Sovereign Bond Issue

10th August 2010, www.bloomberg.com

Sri Lanka is seeking a rating of its sovereign debt from Moody’s Investors Service ahead of a planned $1 billion overseas bond sale, central bank Assistant Governor C.J.P. Siriwardena said.

The South Asian nation last month announced plans to sell the bonds, with maturities of as much as 10 years, by the end of 2010 to help refinance expensive loans. Moody’s doesn’t have a credit rating for Sri Lanka, while Standard & Poor’s and Fitch Ratings place the country’s long-term foreign-currency debt at non-investment grade.

“This is the ideal time to get a rating from all the three agencies,” Siriwardena said in a telephone interview today from Colombo. He said the economy is poised to grow more than 7 percent this year after the end of the country’s civil war.

Sri Lankan troops defeated the separatist Liberation Tigers of Tamil Eelam in May 2009 and ended their 26-year struggle for a separate homeland, boosting growth prospects.

S&P and Fitch raised their outlook on Sri Lanka’s debt in October last year. S&P revised it to positive from stable, and assigned the nation’s long-term foreign-currency debt rating at B, five levels below investment grade. Fitch changed the outlook to stable from negative. It affirmed Sri Lanka’s rating at B+, four levels below investment grade.

Moody’s Visit

Representatives from Moody’s are in the island nation this week to meet with senior government and central bank officials, Siriwardena said. He said Fitch and S&P officials will also visit Sri Lanka this month to assess the economy.

“Sri Lanka should get a rating upgrade of at least one notch since the economy is now very robust,” said Sarath Rajapakse, director of research at Capital Trust Securities Ltd. in Colombo. “The bond offering will attract strong demand.”

The benchmark Colombo All-Share Index rose 4.1 percent to 5063.98 at 1:53 p.m. local time. The yield on the benchmark four-year bond was little changed at 9.3 percent, according to Standard Chartered Plc.

This year’s overseas debt sale will be the third by the nation since its debut offering in October 2007.

The nation’s last global bond sale in October attracted bids for more than 13 times the $500 million offered.

President Mahinda Rajapaksa’s government is aiming to accelerate growth to at least 7 percent in 2010, the fastest pace in four years.

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

Sri Lanka to be Rated by Moody's to Assess Sovereign Rating

06th August 2010, www.news360.lk

Sri Lanka has invited international rating firm Moody’s to assess the country’s “Sovereign Rating”.

Deputy Governor of the Central Bank K.G.D.D. Dheerasinghe citing reasons for the latest move said “We want to have ratings from all 3 top rating agencies”.

Accordingly Moody’s will join Fitch Ratings and S&P who is already assessing Sri Lanka’s sovereign rating.

A team from Moody’s will visit Sri Lanka next Monday to hold discussions with the Government officials including the Central Bankers.

Apart from the team from Moody’s, rating teams from both Fitch and S&P also will arrive in Sri Lanka during the next week to hold discussions with the Government officials.

All 3 are expected to come out with their annual country ratings on Sri Lanka following the planned meetings.

Sri Lanka is also looking to get a rating upgrade before it enters the international capital markets next month to raise US$ 1 billion via a sovereign bond.

An official of the Public debt department said “having a rating upgrade will help the country to be in a sound footing, when it start to raise dollars from the global market place”

In 2009 October Fitch upgraded Sri Lanka’s Sovereign rating to “B +” and announced the outlook as “stable” while S&P too in the same month upgraded the country rating to ‘B” and converted the outlook from “stable” to “positive”.

Report By: Prasanna C. Rodrigo, Email him on: news360@sltnet.lk

Sri Lanka to Upgrade Sovereign Rating to Investment Grade

12th June 2010, www.dailynews.lk

As announced in the Central Bank Road Map 2010 and beyond, the Central Bank of Sri Lanka (CBSL) will take the necessary steps to upgrade the country’s sovereign rating from the current B+ (stable)/B (positive) to an investment grade of BBB- or higher over the next four year period.

Towards this end, a carefully designed, forward looking and effective strategy with the participation and co-operation of the all stakeholders, country authorities, private sector business leaders, chambers and rating advisors, will be implemented.

For this purpose, the CBSL has now appointed the following high level Sovereign Rating Committee, which will make regular reviews on the developments of the economy and convey these improvements to the rating agencies through rating advisors to upgrade the country’s rating level.

The committee comprises Chairman - CBSL Deputy Governor, K.G.D.D. Dheerasinghe, Deputy Chairman - CBSL Assistant Governor, J. Mampitiya, CBSL Chief Economist and Economic Research Director, K.D. Ranasinghe, CBSL, Public Debt Superintendent, C.J.P. Siriwardena, Treasury Deputy Secretary, U.R. Seneviratne, Public Debt Additional Superintendent C.N. Wijayasekera, Brandix Lanka Ltd, Chief Executive Officer, Ashoff Omar, Nestle Lanka PLC, Managing Director, David Saudan, Ceylon chamber of Commerce, Chairman, Dr. Anura Ekanayake, Sri Lanka Banks’ Association, Secretary General Upali de Silva, Triad Advertising, Managing Director, Dilith Jayaweera and Lanka IOC Ltd., Managing Director K.R. Suresh Kumar.

Sri Lanka Offers US$100mn Bonds with LIBOR + Premium as Fitch and Standard & Poor's Raised Sri Lanka's Rating Outlook

15th March 2010, www.lankabusinessonline.com

Sri Lanka is offering 100 million US dollars in two and three year floating rates bonds, paying interest every six months mainly targeting the domestic market with bids closing on March 18, the government's debt office said.

The government's debt office, which is a unit of the Central Bank, said it is offering 50 million US dollars each in 2 year and 3-year bonds which will pay a coupon based on the 6-month London interbank offered rate (LIBOR) plus a risk premium.

The bonds are tax-free and can be bought by foreign investors and local firms that can have foreign currency assets with approval from the state investment promotion agency.

Bids opened on March 12, the debt office said.

In 2010 Sri Lanka is also hoping to go for a longer tenor 500 million US dollar sovereign bond.

The bonds have been popular among Sri Lanka's banks and other investors.

Sri Lanka last sold 2-year bonds in August 2009 at 4.50 percent above LIBOR. The last 3-year sale was 4.25 percent above LIBOR in September 2009.

But analysts expect risk premiums to come down sharply this year.

In October 2009 both Fitch and Standard & Poor's raised Sri Lanka's rating outlook.

Sri Lanka is rated 'B+' with 'stable' outlook by Fitch and 'B' with a 'positive' outlook by Standard & Poor's.

Lloyds Registry May Remove War Risk Rating on Sri Lanka Soon

15th March 2010, www.island.lk, By Devan Daniel

Officials from Lloyds Registry are due in Sri Lanka after the general elections next month to evaluate the possible removal of the war risk rating imposed on the country due to a decade- long war.

The London-based Joint Cargo Committee of Lloyds Registry had reduced the war risk rating on Sri Lanka from 3.4 to 3, changing the status by one notch from ‘severe’ to ‘high’ after the war ended in April last year. Since then authorities have been trying to remove the war risk rating altogether.

The war risk rating makes it expensive for ships to call on Sri Lanka as insurance premium are high, unwanted cost considering that many vessels operate with excess space because of the fall in trade levels caused by the global financial crisis, which lowered freight rates considerably. (But shippers say ship owners have formed cartels to keep rates unreasonably high).

The Lloyds war risk premium also made it expensive for domestic insurance companies to maintain reinsurance policies outside the country.

According to the Insurance Board of Sri Lanka, during the war years, insurance companies remitted out a little more than Rs. 10 billion by way of reinsurance premiums while the value gross written down premium retained in Sri Lanka amounted to about Rs. 34.5 billion.

But since the war ended, many reinsurers have reduced their premiums, which the Chairman of the Insurance Board of Sri Lanka Udayasri Kariyawasam could not quantify as he did not have the numbers at hand when he met journalists recently.

Kariyawasam said officials from Lloyds Registry would visit the island after the general elections.

"They would visit the port and other locations in Sri Lanka to determine whether or not the war risk premium should be lifted," he told journalists.

Sri Lankan Hydro Power Producer Rated 'BBB+' by Agency RAM Ratings Lanka

22nd December 2009, www.lankabusinessonline.com

Private power producer Vidullanka PLC has been given a short term financial rating of P2 and a long term rating of BBB+, by agency RAM Ratings Lanka. The long term rating has a stable outlook.

The rating is supported by the company's sound project economics and financial strategy, the rating agency said.

It was also helped by the improving credit profile of the company over the past three years due to a strategy of retiring debts through internally generated funds.

As a result of this, gearing levels have been eased to 25 percent of company capital as at end September 2009. Debt service coverage ratio stands at 7.09 times.

"Going forward, the management intends to broaden its revenue base within the renewable-energy sector via joint-venture investments," RAM Ratings said.

"While these are positives over the longer term, Vidullanka’s credit metrics are expected to moderate in the interim, until these new ventures come on-stream."

Vidullanka is an independent power producer, listed on the Colombo Stock Exchange. It is in renewable energy generation, while its subsidiary Vidul Construction specialises in building mini-hydro power projects.

Vidullanka owns two power plants of 2 and 3.2 MegaWatts, supplying power to state-run Ceylon Electricity Board grid under 15-year power purchase agreements.

The company is a working partner in another power plant and manages two other projects. A new power plant is to be commissioned in March 2010.
Dec 22, 2009 (LBO) – Private power producer Vidullanka PLC has been given a short term financial rating of P2 and a long term rating of BBB+, by agency RAM Ratings Lanka.

The long term rating has a stable outlook.

The rating is supported by the company's sound project economics and financial strategy, the rating agency said.

It was also helped by the improving credit profile of the company over the past three years due to a strategy of retiring debts through internally generated funds.

As a result of this, gearing levels have been eased to 25 percent of company capital as at end September 2009. Debt service coverage ratio stands at 7.09 times.

"Going forward, the management intends to broaden its revenue base within the renewable-energy sector via joint-venture investments," RAM Ratings said.

"While these are positives over the longer term, Vidullanka’s credit metrics are expected to moderate in the interim, until these new ventures come on-stream."

Vidullanka is an independent power producer, listed on the Colombo Stock Exchange. It is in renewable energy generation, while its subsidiary Vidul Construction specialises in building mini-hydro power projects.

Vidullanka owns two power plants of 2 and 3.2 MegaWatts, supplying power to state-run Ceylon Electricity Board grid under 15-year power purchase agreements.

The company is a working partner in another power plant and manages two other projects. A new power plant is to be commissioned in March 2010.