Sri Lanka raised $1bn on Thursday after its 10-year bond sale was seven times subscribed, in a sign that investors remain confident that the island’s sustained economic recovery is on track.
Sri Lanka’s successful dollar-denominated bond sale – the third since the devastating civil war ended in 2009 – reflects the strong economic comeback of the island following 26-years of political, economic and humanitarian strife
The 10-year bond was priced at 6.25 percent, which is a 332.2 basis points premium over the benchmark 10-year US Treasury, said Ajith Nivard Cabraal, Sri Lanka’s central bank governor.
“In a sea of uncertainty, volatility and global complications we stand out,” said Cabraal. “The hard work we put in over the last three years to get our macroeconomic fundamentals into shape is now paying off and many people have really latched on to the country’s overall growth story.”
Sri Lanka’s growth rate has rebounded sharply since the end of civil war in May 2009, with annual gross domestic product growth expected to reach a new record of 8.5 per cent this year. This comes after reaching a record 8 per cent in 2010 and just 3.5 per cent in 2009. Stocks on the local Colombo Stock Exchange have soared from a immediate post-war low of 3,000, to a current 6,500.
The island’s third overseas debt sale attracted $7.28bn, with 27 per cent of sales coming from Asia, 30 per cent from Europe and 43 per cent from the US, according to a person familiar with the matter.
Cabraal said that most of the money raised via the bond sale would be used to invest in upcoming infrastructure projects and to refinance exiting debt.
Investors’ backing follows that of international rating agencies. Standard & Poor’s and Moody’s recently upgraded Sri Lanka’s long-term foreign currency rating, while Fitch upgraded the island’s sovereign rating to BB-, three notches below investment grade.
“We revised our outlook on the foreign currency rating to reflect the improving external liquidity, progress in addressing structural fiscal weaknesses, the government’s effort to keep inflation near that of trading partners,” said Standard & Poor’s credit analyst Takahira Ogawa. “The ratings incorporate our expectation of gradual improvement in public finances, via tax reform and better management of government-owned companies, he added.
Art Woo, Director in Fitch’s Asia Sovereign Ratings group, said: “The upgrade reflects the stabilization and recovery of the economy under the country’s IMF programme and increased efforts to address the chronic budget deficit position.”
All in all it looks as though the only way is up for the island of Sri Lanka.