US$ 500 Million Chinese Loan Results In Bond Yield Decline
Posted 19,April

By Chaveendra Dunuwille

In Local News

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The US$ 500 million 2nd tranche loan of a total loan of 1.2 billion dollars from  the Central Bank of China has resulted in the falling of secondary market yields of Sri Lanka issued International Sovereign Bonds (SLISB’s) 

The latest data available from the 12th of April shows a significant about turn  across many maturities including nearest maturing bond on the 27th of July, 2021 and the other maturities of SLISB’s dated for the 18th of January, 2022 and  the furthest being the 28th of March, 2030 saw similar declines. 

The 27th July bond with a yield of US $ 1 billion which had an increase of 18.55%  in the week ended on the 9th of April saw a decline by 16% by the 12th of April.  The bond was issued at a coupon rate of 6.25% 

The first tranche of US$ 500 million arrived at the London Interbank Offered  Rate (LIBOR) of 2.51% which included a 1.25% upfront fee, with a 10 year tenor  accompanied with a 3 year grace period.  

Sri Lanka received US$ 500 million in the first tranche, following the planned  visit of President Gotabaya Rajapaksha to China the remaining US$ 200 million  will be disbursed. The loan will see China firmly placed as a leading bilateral  lender overtaking the long term leading lender Japan. 

The loan was obtained by the government in order to bolster the recovery process of the economy that has been greatly affected by Co-vid 19.  

Investors both local and abroad were unsettled by the fact that the nation’s  Foreign Exchange Reserves dropped from US$ 4.58 billion to US$ 4.06 billion  but however the Central bank continue to reassure investors regarding the  matter.  

Sri Lanka is en route to reduce its foreign debt to 1/3rd of the total public debt  from the 43% achieved in 2020 to 33% total government outstanding debt which  is to be achieved within a few years. The planned reduction of debt is to carry out through commercial borrowings by way of ISB’s raised continuously since  2007 all the way to 2019.  

2021 recorded the country’s debt as $3.3 billion and the government has already  settled $1.1 billion. The next big settlement of billion dollar sovereign bonds is  to take place in July.