• Says bondholders of January and July ISBs not ready to sell unless prices are at par or closer to par
• Says this shows investor confidence about govt.’s ability to honour its obligations

With a vast majority of bondholders of Sri Lanka’s January and July 2022 International Sovereign Bond (ISB) issuance are determined to hold the ISBs to maturity, the Central Bank (CB) has scrapped the proposed ISB buy-back initiative, announced recently.

The move, which was announced in the CB’s six-month road map, was aimed at gaining reasonable cost benefit from buying back these ISBs trading at deep discounts in the secondary market. The CB had announced plans to consider the possibility of buying back the entire issue of ISBs maturing in January 2022 and/or July 2022, given the high discounts were prevalent in 
the market.

After having explored the possibility of executing a buy-back exercise in consolation with a number of international banks and lead arrangers, the CB in a statement yesterday concluded  that a buy-back would not result in any significant price or coupon benefit to the government.

“It is clear that the large majority of ISB holders are not ready to part with the above GOSL ISBs, unless the prices are at par or closer to par.

Hence, a buy-back initiative will also not result in any significant price or coupon benefit to the issuer,” it stated. The CB noted that there was no tangible interest from the bondholders to sell the January 2022 ISB maturities at the discounted price that prevailed during the latter part of last month, with inquiries revealing that not even 5 percent of the outstanding ISB maturity was available for sale at the discounted prices that were quoted. The January 2022 ISB maturity, which peaked to 69 percent yield levels on September 24, gradually reduced to 47 percent levels as of 1st of this month and further it has came down to 40 percent levels at present. Meanwhile, the CB opined that the investor behaviour was an indicator of the continuing confidence of the ISB holders regarding the ability of the government to honour its obligations and maintain its unblemished record of debt servicing. “Therefore, the concerns raised by certain quarters regarding a possible vulnerability in 2022 are clearly not reflected by this investor sentiment,” it said. However, according to Advocata Institute, 36 percent of the country’s issued ISBs have classic collective action clauses, including both January and July 2022, which are harder to restructure.