CB launches Us$1bln bond amidst concern against process

The Central Bank last week successfully launched a US$1 billion bond issue at an attractive yield, drawing offers up to $10.5 billion but questions are being raised as to the process that was followed.

The Treasury has expressed concern over the appointment of the same banks (as in earlier issues) as joint Lead Managers/Bookrunners for the transaction, a senior Finance Ministry government official said.

Issuing a media release, the Central Bank said that Bank of America, Merrill Lynch, Barclays Capital, Citigroup and HSBC acted as joint Lead Managers/Bookrunners on the transaction.

The previous two bond issues too have gone to the same banks, the official said, raising issues of transparency in the transaction. Eight banks had been shortlisted.

He said the UBS Investment Bank which offered a high yield of around 6 per cent expressed its concern on the selection process in a letter written to the Central Bank Governor recently.

Bankers point out that with sovereign deals, factors such as a bank’s investments in a country and whether it has a meaningful banking presence are expected to play an important role.

When contacted, a senior Central Bank official said that they selected 10 top banks (global bond issuers) in the Bloomberg listing and requested them to submit proposals. UBS was not in the top 10 and furthermore a Finance Ministry representative was on the 12-member technical evaluation committee that went through these proposals and short-listed eight of them

“The foreign loans to be borrowed under the sovereign bond must not be spent on financing the regular budget deficit of the government, but on large infrastructure projects that offer scope for revenue earning,” the Ministry official urged.

CT Stockbrokers Research unit said in a report that under the new bond, Sri Lanka’s risk premium has increased 4.35% in July 2012 from 3.32% in July 2011.

It said part of the bond proceeds will be used to repay the country’s maturing 5-year US$500 million Eurobond (issued in 2007) and other short term debt used for infrastructure projects