Sri Lanka’s freshly issued sovereign bonds start trading

• Majority bonds were trading at yields slightly above its final maturity period coupon
• 4 % PDI bond due in 2038 was trading at 6.06% in its first week of trading
• Sri Lanka swapped 6 new bonds for 11 bonds in default on Dec 20
• New bond issuances followed sovereign rating upgrades from Fitch & Moody’s

A week after the conclusion of the exchange of International Sovereign Bonds (ISBs) for a collection of fresh set of bonds linked to its economic growth and governance, Sri Lanka has started trading in the secondary market this week, the data showed.

Accordingly, the Macro-linked bond due in 2030, the bond with the earliest maturity with its step-up feature, has traded at 7.43 percent while the bond with the 2033 maturity was trading at 7.85 percent at the end of last week. The first bond carries a coupon of 3.10 percent up to 2027 which then steps up to 3.35 percent during the remainder of its maturity.

The second bond carries a coupon of 3.35 percent up to 2027 which then steps up to 3.60 percent before rising further to 8.75 percent in the final year under its step-up feature.

The other two step-up macro-linked bonds due in 2036 and 2038 were trading at 8.34 percent and 8.55 percent respectively.

The 2036 bond carries a coupon rate of 3.60 percent till 2027, before rising to 3.85 percent until 2032 and again to 9.50 percent in the remainder of its maturity.

The 2038 bond carries similar coupons to that of the 2036 bond during its first step-up periods through 2032 before rising again to 9.75 percent in the remainder of its maturity.

Another step-up bond due in 2038, but not-linked to the macro, was trading at 6.18 percent.

Meanwhile, the governance-linked bond due in 2035 was trading at 9.38 percent, slightly above its 9.25 percent coupon applicable during its final stretch of its maturity.

The Past Due Interest (PDI) bond due in 20238 which has a coupon rate of 4.00 percent started trading at 6.06 percent.  

After obtaining consent for the exchange of bonds during a two week period which ended on December 12 for which the authorities received a 98 percent participation rate with the exception of a one bond series matured in 2022, Sri Lanka on December 20 issued the new debt instruments.

The exercise converted 11 ISBs and accumulated PDI into a mix of four macro-linked bonds, one governance-linked bond, and one PDI bond, effectively normalizing Sri Lanka’s relationship with their majority of creditors, to signal reduced risk on new and future issuances of bonds.

This soon followed with a rating upgrade by Fitch Ratings to CCC+ from ‘RD’, pulling Sri Lanka officially out from the default status, followed by Moody’s Ratings which delivered a three notch upgrade to its sovereign to Caa1 from Ca with a Stable outlook.