SL to get US$ 1 billion from China this week | Sunday Observer

SL to get US$ 1 billion from China this week

7 October, 2018

The pressure on Sri Lanka’s currency is expected to abate with the anticipated receipt of US$ 1 billion through a syndicated loan from the China Development Bank (CDB) this week followed by projected inflows of another US$ 1.5 billion in the coming months boosting reserves, a top Central Bank official told the Sunday Observer yesterday.

According to Central Bank Governor, Dr. Indrajit Coomaraswamy, Sri Lanka is likely to go for a sovereign bond issue of around US$ 1 billion as soon as possible before the US hikes interest rates again, and seeks to generate US$ 500 million through the sale of two bonds in Chinese and Japanese denominated currencies.

“So there is plenty of money that’s going to come in terms of reserves.

The Chinese were on holiday last week and the US$ 1 billion should come within the course of this week,” the Governor said, referring to the week-long break in China from October 1 on account of the Chinese National Day celebrations.

Noting that the loan from the CDB will be provided at an interest rate of 5.25% and hold an eight-year tenure, Governor Coomaraswamy described the deal as ‘phenomenally good’ for Sri Lanka given that the secondary market for dollar-denominated International Sovereign Debt is presently trading at rates of above 7%.

“Given the fact that interest rates have gone up a lot, it is an excellent deal we have got,” the head of the country’s monetary authority said.

Meanwhile, commenting on the pricing of the CDB loan, Executive Director, Research/Strategist at CT CLSA Securities Ltd., Sanjeewa Fernando said the deal is a favourable one for the island at this point in time since the current external negative impact could be substantially mitigated.

“Yes, right now it is a good deal because the worse thing that can happen is someone hiking dollar debt rates (given the rising international interest rate scenario).

The flow of money will also help to keep money markets liquid and reduce any significant upward interest rates pressure in the near term while helping to strengthen Central Bank’s Foreign Exchange reserves,” said Fernando. According to recent official statistics, during the year, up to Friday October 5, 2018, while the Sri Lanka rupee has depreciated by 10.1% against the greenback, the country’s gross official reserves were estimated at US$ 7.18 billion as at September 28, 2018.

The Central Bank said Sri Lanka’s average rate against the USD during the past week stood at Rs. 169.74 while it has spent US$ 200 million on a net basis in defending the currency so far.

“The exchange rate has depreciated, but the real effective exchange rate is now 100. So if we are serious, the only way is to increase exports so that we can repair this external debt burden which is a major millstone around the economy,” the Governor told a press conference last week. On the other hand, elaborating on the US$ 250 million issuances each from the Panda bond and a Samurai bond, Central Bank Governor said this would take time given the necessity to obtain Parliamentary approval under the recently passed Liability Management Act. The Panda Bond is a Chinese renminbi-denominated bond from a non-Chinese issuer, sold in the People’s Republic of China. The Samurai bond, on the other hand, is a yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

“The two issuances have already received Cabinet approval, but Parliamentary approval might take one or two months,” Dr. Coomaraswamy said.