Fri 01/07/2022 04:31 AM
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The Democratic Republic of Sri Lanka’s shorter-dated $1 billion 5.875% notes due July 2022 were indicated in the 71.5-75 range this week, 5-6 points higher than last week, two buyside sources said, on news that the country had signed a deal with the local unit of Indian Oil Corp (IOC), Lanka IOC, to lease 75 oil tanks and was moving closer to securing a $500 million fuel credit line from India, according to a Times of India report on Jan. 6.

According to the new pact, Lanka IOC will have 14 tanks on a 50-year lease while its joint venture with state-run Ceylon Petroleum Corporation (CPC), the Trinco Petroleum Terminal, will develop 61 oil farms.

IMF Funding, 2022 Budget, Restructuring Potential

Market sources have continued to flag the potential of Sri Lanka's debt curve being restructured, especially in the absence of an International Monetary Fund (IMF) program. The rest of Sri Lanka’s bond curve, its notes due 2023 through 2029, were indicated in the range of high 40s to low/mid-50s today, the buyside sources added.

The benchmark 7.55% $1.5 billion notes due 2030 were also quoted at 49/51 today, dropping from the low-60s quoted in October 2021, echoing the market’s concerns of a potential restructuring, the buyside sources explained.

Sri Lanka’s revised gross USD reserves stood at $1.588 billion as of Nov. 30, 2021, according to the Central Bank of Sri Lanka (CBSL). However, the CBSL’s official reserve assets do not include the $1.5 billion swap facility signed with the People’s Bank of China (PBoC). Together with the PBoC swap line, Sri Lanka’s reserves will total $3.088 billion as of Nov. 30, 2021.

Further, the CBSL disclosed that a “large” portion of the IMF’s allocation of Special Drawing Rights $554.8 million to the country was converted into USD.

The official revised reserve assets from CBSL’s website is below:

Upcoming USD bond maturities of Sri Lanka are shown below:

Bloomberg reported on Dec. 30 that Sri Lanka’s federal Cabinet was to meet on Jan. 3, 2022 to decide whether or not to seek bailout funds from the IMF. However, local news agency reported Jan. 4 that the Cabinet had failed to reach a consensus on Jan. 3 to seek a fresh IMF funding program.

At the Budget 2022 presentation in November, finance minister Basil Rajapaksa had said it was “important to discuss about our foreign reserves, management of the foreign exchange rate, and the country’s current debt position. As a government, we acknowledge that our foreign reserves are being challenged, with the frequent fluctuations in the Rupee, which lead to the imposition of certain restrictions on the use of foreign exchange.”

Rajapaksa also noted that annual earnings from tourism of almost $5 billion had not been available in the last two years, and foreign direct investment inflows had not been adequate, while worker remittances inflows have also been limited.

“The gap between the export income and the import expenditure is not simply a national challenge during the past several decades, but it is an unsolved economic problem,” Rajapaksa said.

The minister also said in the same speech that the government will cut its budget deficit to around 8.8% of gross domestic product in 2022. The deficit target for 2021 was revised to 11.1%.

– Nidhi Pandurangi
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