CB offers zero-cost swap facility to private sector borrowers of foreign currency

The Central Bank yesterday announced a number of measures encouraging the country’s private sector to borrow from offshore sources, as the debt-ridden island nation remains hungry for dollars. 

Following is the full press release issued by the Central Bank.

“The Central Bank of Sri Lanka (CBSL), with a view of encouraging foreign currency inflows to the country, invites the private sector to pursue avenues to raise offshore funding leveraging on its strengths, with the consent of the Finance Minister and in line with the provisions of the Foreign Exchange Act No. 12 of 2017 (FEA).

In this regard, to hedge the foreign exchange risk of offshore borrowing, a zero cost swap facility would be made available by the CBSL for the private sector borrowers of foreign currency for the duration of the said borrowing, which may be reviewed and renewed annually.

Alternatively, the private sector could invest the US dollar funds raised offshore in Sri Lanka Development Bonds (SLDBs), matching the tenure of the offshore borrowing, in line with the Weighted Average Fixed Rate/Weighted Average Margin determined at the immediately preceding SLDB auctions or at levels mutually agreed through Designated Agents (DAs) appointed to market SLDBs.

In terms of the general permission granted under the Regulations made under the FEA, companies incorporated in Sri Lanka under the Companies Act, No. 7 of 2007 are permitted to obtain loans/issue debt instruments from/to non-residents in compliance with the procedures introduced under such regulations.

In the event, companies incorporated in Sri Lanka wish to pledge local assets and issue corporate guarantees to secure loans to be obtained from overseas, such requirements may be accommodated as a special permission under the provisions of the FEA upon a written application made to the Director, Department of Foreign Exchange.
Further, the private sector entities who borrow from abroad may sub-lend such funds to their subsidiaries in Sri Lanka, subject to terms and conditions specified in the Order issued under Section 4 (2) (c) of the FEA published in the Government Gazette (Extraordinary) Notification No. 2229/5 dated May 25, 2021.

Any corporate entity interested on the above may access all relevant regulations and orders published in the Government Gazette (Extraordinary) Notifications via www.dfe.lk/downloads. In addition, they may contact their banker or the Foreign Exchange Department for further information with regard to the existing foreign exchange regulations.”