A man counts Sri Lankan rupees in a money exchange in Colombo. On September 29 Sri Lankas central bank said it was allowing foreigners to buy into government securities again, a day after the rupee currency appreciated suddenly
IMF standby facility committed to Sri Lanka
Good receptionThe central bank and the three leads were unable to discuss the bond because of legal and regulatory restrictions but Euromoney understands it will launch at an appropriate window before the end of the year and will be five or 10 years in duration depending on investor appetite at the time. Sri Lanka does have some sense of what reception it should expect, for it was taken on a non-deal roadshow across Europe, the US and Asia by HSBC and JPMorgan in July.
"Today we are in the happy position of being able to say: these are the underlying economic fundamentals of the country, and there is no war. That makes a huge difference"
The message appears to have been getting through. Just weeks after the roadshow, in August, the central bank announced that an unnamed US fund manager purchased $875 million of four-year and six-year treasury bonds, which almost trebled foreign reserves in a single hit. This comes alongside an IMF standby facility that committed $2.6 billion to Sri Lanka in instalments over the next two years, with about $325 million. Today, total reserves stand at about $4 billion.
Thats a far cry from earlier this year, when an outflow of foreign funds by managers hit by the financial crisis brought reserves to eight-year lows of about $1.2 billion barely enough to cover a months imports. A closer look at the contribution of foreign money to government securities (foreigners can hold up to 10% of these securities) is starker still: Herat says that it went from $750 million in July 2008 to just $19 million by February. "Pretty much everything had gone."
Growth rate targetedSri Lankas subsequent revival, underpinned by peace but supported by the IMF facility and more recently an outlook upgrade by Standard & Poors, has been impressive. Its expecting to log 3% to 3.5% GDP growth for 2009 and deputy minister of finance and planning Sarath Amunugama tells Euromoney that "8% is quite doable" in the medium term.
Thats the story the central bank will be putting to world investors that appear to be rediscovering appetite for high-yield securities.
The next issue of Euromoney, with full central bank and finance ministry interviews, will include a feature examining Sri Lankas new proposition and whether it stacks up.