Sri Lanka’s dual-tranche bond deal could raise up to $1.5 billion: Sources

By: | Published: July 11, 2016 12:52 PM

Sri Lanka's dual-tranche sovereign bonds could raise up to $1.5 billion, three sources close to the deal told Reuters on Monday, as book building began.

"The target volume is up to .5 billion," a source who has knowledge of the deal told Reuters. (Reuters)“The target volume is up to .5 billion,” a source who has knowledge of the deal told Reuters. (Reuters)

Sri Lanka’s dual-tranche sovereign bonds could raise up to $1.5 billion, three sources close to the deal told Reuters on Monday, as book building began.

The dual tranche 5.5-year and 10-year offering was launched early on Monday.

“The target volume is up to $1.5 billion,” a source who has knowledge of the deal told Reuters.

Two other sources confirmed the size of the deal.

Finance Minister Ravi Karunanayake told Reuters the government saw an opportunity in the capital market through dual-tranche bonds.

“After the Brexit, investors are looking for safe-heavens and I think dual tranche is an opportunity get these investors attracted to our bond deals.”

Asian sovereign bonds have rallied this year as investors looked for yields in a low rate environment. According to JACI benchmarks, dollar bonds issued by Sri Lanka produced total returns of 10.11 percent in the year to date, more than established issuers such as the Philippines.

Yield guidance for the 5.5-year tranche is indicated in the area of 6.125 percent and around 7.1256 percent for the 10-year.

In comparison bonds due 2021 and 2025 are trading at a yield of 5.5 percent and 6.6 percent respectively.

“It may be absorbed given the lack of supply. We are yet to see if it will perform well in the secondary market given the valuation,” said a Singapore-based analyst.

He said the 10-year tranche looks fairly valued on the current levels and the 5.5-year bond yield will be a attractive for investors as long as it does not fall below 6 percent.

According to Thomson Reuters data, hard currency bond primary issuance volumes in Asia ex-Japan ex-Australia are down 11.3 percent in the first half of the year with high yield volumes down 56.4 percent.

Citigroup, Deutsche Bank, HSBC and Standard Chartered are joint bookrunners. The deal is expected to be rated B1/B+/B+, in line with the issuer, and should price on Monday.

Last October, the sovereign sold a $1.5 billion 10-year bond at 6.85 percent.

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