Sri Lanka is facing foreign debt repayment spikes in 2019 to 2021 period and the island changed its borrowing laws to allow extra money to be raised early to stretch repayment.
Earlier in 2018 China Development Bank easily beat offers from Western international banks for a syndicated loan to win the mandate to syndicated a billion US dollar loan for Sri Lanka both in rates and tenor (Sri Lanka may get China Development Bank loan within two months).
While private international bank offered three year money, CDB offered 8-year funds with a 3-year grace period at around 5.25-5.35 percent.
In April 2018, Sri Lanka sold a 5-year bond for 5.75 percent.
"This is actually extraodinarIly good terms that we have got," Central Bank Governor Indrajit Coomaraswamy said.
The first 500 million US dollar tranche of the syndicated loan will arrive in Sri Lanka at the end of August, Coomaraswamy said. The balance would come in October.
China is also helping Sri Lanka sell a 250 million dollar equivalent Panda bond (Yuan denominated bond) at the end of 2018, in yet another move to fund Sri Lanka.
The People's Bank of China has just set up joint task force to help Sri Lanka with the Panda bond, Governor Coomaraswamy said.
Twin deals seem to indicate that China is going out of its way to bail out Sri Lanka, which until China's entry to the scene had an impeccable debt repayment record.
Coomaraswamy says China has always had friendly relations with Sri Lanka.
"During consultations it was clear that they see us as a key strategic partner as far as the BR (Belt and Road) initiative is concerned, given our location," he said.
"So that is a factor. And of course Sino-Sri Lanka relations have been excellent right through the Rubber-Rice Pact of 1952, they have always been with us."
"You remember during the conflict they were pretty much the main partner Sri Lanka had in terms protecting the territorial integrity. So China has always been supportive of Sri Lanka."
China has come under fire for funding so-called vanity projects in ex-President Mahinda Rajapaksa's hometown in Hambantota without proper feasibility studies. (Colombo/Aug03/2018)