Nearly two-thirds of development bond repayments rolled over so far: CB

• Says has raised US $ 800mn with latest issue ended on April 30
• Sri Lanka has US $ 1.3bn SLDB repayments due this year 
• Says encouraging demand seen from banks and other financial institutions 

Funds to settle nearly two-thirds of Sri Lanka Development Bonds (SLDBs), which are due this year, have been raised, as these bond issuances are continuously seeing active demand from banks and other financial service sector entities, the Central Bank said. 

Sri Lanka has US $ 1.3 billion worth of development bond repayments due in 2021, of which nearly US $ 800 million has already been raised with the latest issue ended on April 30.

Sri Lanka offered US $ 750 million in development bonds in an auction held during April 22 to 28, which ended raising US $ 652 million to repay US $ 694 million bond maturities on May 1. 

The Central Bank raised a further US $ 42 million through a subsequent private placement through April 30, making up the total required but concerns were raised whether these bonds struggled to attract enough subscriptions, as the last auction fell short of being fully subscribed.  

In January, the Central Bank offered US $ 200 million in development bonds but that too fell well short of being fully subscribed, as it received bids worth of only US $ 62.64 million, although the Central Bank accepted only US $ 43.6 million. 

Responding to these concerns, the Central Bank said that the development bonds continue to see demand, led by the banks and broader financial services sector. 

“With respect to SLDBs, we are seeing a continues general demand from market participants, particularly from the domestic banking and finance sector and also from other foreign currency earnings entities,” said Central Bank Public Debt Department Superintendent and Registrar Dr. M.Z.M. Aazim. 

Dr. Aazim said the moneys raised via the SLDBs so far during 2021 had been raised at an average cost of 7.47 to 7.50 percent. 

Weighing in on the matter, Central Bank Economic Research Department Director Dr. Chandrananth Amarasekara said that banks are currently operating with adequate foreign currency resources to buy SLDBs, as they raised over a billion dollars in foreign currency deposits between 2019-end and March 2021. 

“We see that from the end of 2019 till the end of March, the collection of foreign currency deposits of banks has increased by more than US $ 1.0 billion. And I think that there should be some avenue to invest those funds also for the banking sector,” Dr. Amarasekara said. 

Meanwhile, other foreign currency liquidity via foreign currency borrowings by banks and finance companies can also be parked in SLDBs until they find opportunity for lending such funds. This also provides them a natural hedge on foreign currency exposure. 

The Central Bank recently said they intend to ease certain regulations for banks and finance companies to mobilise foreign currency funds for their capital requirements, which in turn strengthen the country’s external reserves and thereby the exchange rate.