Tuesday, 12 July 2016 - 14:06
Sri Lanka’s Two-Tranche Eurobond Order Hits $ 6.6 B; Govt. Borrows $1.5 B



Orders for Sri Lanka’s first dual-tranche sovereign bond hit around $6.6 billion, more than four times the $1.5 billion offered, Finance Minister Ravi Karunanayake told Reuters on Monday. The island nation raised $1.5 billion in two-tranche sovereign bonds at yields lower than initial guidance, taking advantage of strong risk appetite for emerging market debt.

Karunanayake did not comment on the specifics of the yield but sources said earlier it was much lower than predicted.

“It was luck. Had we gone last week, it (the yield) would have been much higher than this. The order book saw $6.6 billion and we got $1.5 billion in both bonds,” he told Reuters.

The government borrowed $500 million in a 5-1/2-year tranche and $1 billion in a 10-year tranche, he said.

The $82 billion economy launched the $500 million, 5-1/2-year bond at a yield of 5.75% and the $1 billion, 10-year bond at 6.825%, a source close to the deal told Reuters.

The aggregate bond orders exceeded $6.6 billion as investors were attracted to a sovereign that has been one of the best performers in Asia this year.

The final guidance for the 5.5-year tranche was 37.5 basis points lower than initial guidance in the area of 6.125% and for the 10-year bond final guidance was 25 bps lower than the initial guidance of around 7.125%.

In comparison, bonds due in 2021 and 2025 are trading at a yield of 5.5% and 6.6% respectively.

“It may be absorbed given the lack of supply. We are yet to see if it will perform well in the secondary market, given the valuation,” said a Singapore-based analyst.

He said the 10-year tranche looks fairly valued on the current levels and the 5-1/2-year bond yield will be attractive for investors as long as it does not fall below 6%.

Three sources close to the deal said the island nation could raise up to $1.5 billion, as book building began in Asia early on Monday.

Karunanayake earlier told Reuters the government saw an opportunity in the capital market through dual-tranche bonds.

“After the Brexit, investors are looking for safe havens and I think dual tranche is an opportunity to get these investors attracted to our bond deals.”

Moody’s assigned a B1 rating to Sri Lanka’s global bond offering provisionally, and said it expected to remove the provisional status of the rating upon the closing of the proposed issuance and review of final terms.

Asian sovereign bonds have rallied this year as investors looked for yields in a low rate environment. According to JACI benchmarks, dollar bonds issued by Sri Lanka produced total returns of 10.11% in the year to date, more than established issuers such as the Philippines.

A global collapse in bond yields has gained momentum since Britain’s vote to leave the European Union, a potential shock to the world economy that has put the onus on central banks to deliver further monetary stimulus.

German debt with maturities out to 15 years is yielding below zero and Dutch 10-year government bond yields fell below zero for the first time on Monday.

Citigroup, Deutsche Bank, HSBC and Standard Chartered are joint bookrunners for the Sri Lankan issue. The deal is expected to be rated B1/B+/B+, in line with the issuer, and should price on Monday.

Last October, Sri Lanka sold a $1.5 billion 10-year bond at 6.85%.


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