Govt. goes for US $ 1bn foreign currency term financing facility

• FTFF announced amid delay in going for US $ 2bn sovereign bond already announced 
• No advance notice given for latest FTFF unlike in past two years
• Says FTFF for approved budget expenses; but analysts speculate fiscal stimulus targeting elections 

The Sri Lankan government will be raising US$ 1 billion via a foreign currency term financing facility (FTFF) denominated in US dollars, Japanese yen or euro from domestic and international banks and investment banks in order to finance expenditure approved in the 2018 budget.

The government is opting for the FTFF amid an apparent delay in going for a US$ 2 billion sovereign bond, which had been planned for early 2018 after calling for proposals from managers for the issue this January.

The government had made advanced notice when opting for FTFFs over the past two years, which was not practiced with the latest FTFF.
Although the FTFF is for approved expenditure in the 2018 budget, analysts are expecting the government to divert from the set plans and provide a significant fiscal stimulus to the public in the run up to the 2020 elections.

The Finance Ministry said that it is expecting the FTFF funds to be raised at a fixed rate, or a floating rate linked to the 6-month London Inter-bank Offered Rate (LIBOR) or its successor rate, with a maturity period exceeding 3 years. While the US$ 1 billion can be raised in any combination of dollars, yen or euro, the government is requesting proposals made in yen or euro to be accompanied by a swap mechanism to dollars for the entire tenure of the facility.

The government is open to making bullet or tranche payments for the principal amount, with interest payments made biannually.

The government requested interested banks and investment banks to submit proposals for the facility, with the qualifier being an AA (lka) rating from Fitch Ratings Lanka Ltd for domestic banks and being rated by any of the three major ratings agencies Fitch, S&P and Moody’s for investment and foreign banks for at least 5 years.

Lenders are able to provide funding in a stand-alone basis or as a syndicate.

Sri Lanka currently has two FTFFs—one taken in 2016 for US$ 700 million and another in 2017 for US$ 1 billion under similar terms but intended for paying the import bills for development projects.

(CW)