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UPDATE 1-S.Lanka to decide soon on $500 mln bond -c.bank

[Reuters, Friday, 31 July 2009 12:17 No Comment]

Sri Lanka is considering a $500 million sovereign bond issue among possible fundraising options and expects to make a decision in the next few weeks, central bank governor Ajith Nivard Cabraal said on Friday.

The island nation is looking to raise funds to help rebuild its economy after a 25-year civil war ended in May.

"We are considering several options, one of which could be a $500 million bond, it could be a syndicated loan, it could be an extension of the bills and bonds that we have already opened out for foreigners," Cabraal told Reuters by telephone between meetings in Mumbai.

Earlier this month, the country inked a $2.6 billion loan deal with the International Monetary Fund.

Cabraal said on Friday he was confident of meeting a target to maintain a 7 percent budget deficit in 2009, one of the conditions Sri Lanka agreed to meet as part of the IMF loan.

Some economists and analysts have said the target is ambitious, after Sri Lanka’s budget deficit rose to 7.7 percent last year, from 7 percent in 2007.

"We are confident that the 7 percent is a manageable target," Cabraal said.

Sri Lanka’s central bank has held a series of meetings with asset managers around the world, organised by JPMorgan (JPM.N: Quote, Profile, Research) and HSBC (0005.HK: Quote, Profile, Research)(HSBA.L: Quote, Profile, Research), to update investors on the post-war situation in the country.

The country made its debut in international debt markets in October 2007 with a $500 million five-year sovereign dollar bond sold with a 8.25 percent coupon. It raised $300 million through a syndicated loan in March 2008.

Fitch Ratings said earlier this month that the IMF loan is a positive development but by itself would not be sufficient reason to raise the country’s rating outlook.

Cabraal has said that the country was not satisfied with current credit ratings as they do not fully factor in the end of the war.

Fitch rates Sri Lanka at B-plus with a negative outlook, while Standard & Poor’s has a B rating with a negative outlook for the $40 billion economy.

Investor confidence has risen due to the end of war and the IMF loan deal, although political analysts say sentiment could change if the government does not implement economic reforms agreed with the IMF before it faces a parliamentary election and a possible presidential election early next year.

Amal Sanderatne, chief executive officer of Frontier Research in Colombo, said Sri Lanka should act quickly to raise funds.

"They should go for either one of them before things deteriorate. The only issue is the rating, as the rating agencies have not updated the country’s sovereign rating," he said.

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