Controversial bond issue oversubscribed by more than 3 times

Sri Lanka’s controversial debut international sovereign bond issue has been oversubscribed by more than three times after completing successful pricing of the benchmark size of US$500 million. The bonds have a 5 year maturity and a coupon of 8.25% per annum, the Central Bank said, weeks after the issue drew flak from the opposition UNP and other groups.

The UNP has accused the government of raising funds for ‘other’ reasons and not the stated ones and urged international banks not to get involved.

Over the past week, a team from the Central Bank and the Ministry of Finance and Planning led by Governor Ajith Nivard Cabraal conducted a global investor roadshow through Asia, Europe and the United States. “The roadshow raised Sri Lanka's profile with international investors and developed broad investor interest in the offering, resulting in an order book that was more than 3 times oversubscribed. Distribution was 30% to investors in Asia, 30% to investors in Europe and the Middle East, and 40% to investors in the USA,” the bank said. Barclays Capital, HSBC and JPMorgan acted as Joint Lead Managers to the debut bond issue. Bank of Ceylon was co-manager.

The banks said net proceeds of the bond issue will be utilized by the government to supplement available concessional funds to develop infrastructure projects that have been previously approved by the government and included in the current 2007 budget, including in areas such as electricity generation, water supply, roads, port facilities and railway lines.

Senior economist R.M.B. Senanayake said this was good news but asked whether the pricing was a fixed price bond with only a coupon rate of interest or were bids at discount accepted? “ If so what was the average yield and what was the quantity offered at the average yield? Over-subscription has a meaning only if the quantity offered exceeds the demand at the fixed or weighted average yield,” he said in an email to the Central Bank after its statement was issued.He also asked whether offers were at a fixed price of $100 or whether discounts were accepted.