Banks await Sri Lanka’s sovereign bond mandate

Debt bankers are waiting for the Sri Lankan sovereign to mandate banks for its upcoming dollar benchmark. The sovereign sent out RFPs three weeks ago and is expected to mandate three or four banks during the next week or two.

Sri Lanka last tapped the bond market in July 2011, when it issued a $1 billion 10-year bond. Bank of America Merrill Lynch, Barclays, HSBC and Royal Bank of Scotland were joint bookrunners. Bank of Ceylon acted as a co-manager.

During the past few years, the once war-torn country has regularly tapped the dollar bond market and has successfully built a following among investors since issuing its debut bond in 2007.

According to one source, the sovereign could issue a 10-year bond to raise about $1 billion — similar to its last issue. The sovereign has largely stuck to the same crew of banks, though it has occasionally added one more bank. Bank of America Merrill Lynch, HSBC and Royal Bank of Scotland have acted as bookrunners for its past two bond deals.

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. Many expect that HSBC, which is a major employer in Sri Lanka, is expected to land a role on its upcoming deal.

Under the stewardship of the country’s central bank governor, Sri Lanka has successfully tapped the dollar market and set up an offshore yield curve. It has typically used part of the proceeds to pay down expensive domestic debt — some of which is said to be in the 20% area.

However, currently, market conditions are challenging. “Outside of the poor risk sentiment because of Europe, Sri Lanka has its own problems — a large current account deficit which is weakening its currency and a low level of foreign reserves after unsuccessfully defending its currency a few months ago,” said one investor.