SL’S remaining foreign currency debt falls under US$ 500mn this year

CB settles US$ 1bn ISB due on Oct. 4 with due coupon payments SL has US$ 438.6mn in remaining foreign currency debt maturing from Oct. 5 to Dec. 31 SL has US$ 4.6bn in foreign currency debt repayments due in 2021 SL’S foreign reserves of US$ 7.4bn as of endAugust expected to have dwindled due to debt repayments

Sri Lanka’s remaining foreign currency denominated debt due for repayment during the remainder of the year falls below US$ 500 million as the Central Bank last week settled its US$ 1.0 billion sovereign bond, which was due on October 4, including the coupon payments due at the time of settlement.

“On 02 October 2020, the Central Bank of Sri Lanka successfully completed the settlement of the maturing International Sovereign Bond (ISB) of US dollars 1 billion along with the due coupon payments, on behalf of the government of Sri Lanka,” the Central Bank said in a statement issued on Friday.

With this settlement Sri Lanka now has US$ 438.6 million in remaining foreign currency debt maturing from October 5 to December 31, which alleviates concerns over the country’s ability to meet its foreign currency debt amid impaired access to international capital markets to roll-over such debt caused by the pandemic-induced market unease.

Moody’s Investors Service last week delivered an unusual two-notch downgrade on the Sri Lankan sovereign to Caa1 from B2 with the revision in the outlook to stable from negative, citing Sri Lanka’s elevated debt refinancing risks, stretched fiscal deficit and governance and institutional weaknesses. The fact that the rating downgrade came on the eve of a billion dollar bond settlement and despite the government’s repeated guarantees of its ability and willingness to honour debt obligations, when they fall due, surprised many, including the private sector.

“This settlement reconfirms the government’s unwavering commitment to honour its foreign liabilities, thereby bolstering investor confidence and dispelling any concerns foreign investors may have in relation to the government’ s ability and willingness to maintain its unblemished debt servicing record,” the Central Bank said.

“The domestic foreign exchange market has already reacted positively to this settlement and other recent positive developments in the Sri Lankan economy. With the envisaged inflows to the domestic foreign exchange market supported by proactive measures taken by the government and the Central Bank of Sri Lanka, the market sentiment is expected to further strengthen in the period ahead,” it added.

Sri Lanka has US$ 4.6 billion in foreign currency debt repayments due in 2021, the data showed. This includes US$ 3.6 billion of principal payments and US$ 996 million of interest payments.

Sri Lanka had US$ 7.4 billion foreign currency reserves by the end of August, but the debt settlements may have dented their position as there were US$ 991.2 million in debt repayments during September and the US$ 1,031 million bond settlement made on October 2.

However, the narrowing deficit in the merchandise trade account due to fast recovering exports and the slowing imports and the US$ 700 million due to be received from the China Development Bank as the second tranche of a US$ 1.2 billion syndicated facility could partly offset the full effects on the reserves arising from the debt repayments.

The government projects a US$ 2.2 billion saving from the trade deficit contraction in 2020. At the same time, the government also expects up to US$ 1.2 billion from multilateral and bi-lateral funds and another US$ 500 million from alternate bond issuances in Samurai and Panda markets, while talks are currently ongoing for another US$ 1.0 billion swap facility with Reserve Bank of India.