$1.5 bln sovereign bond issue dropped

Sri Lanka has dropped plans for an up to $1.5 billion sovereign bond issue scheduled for April, its finance minister said on Friday, days after parliament rejected his bid to raise government borrowing limits ahead of national elections.

Ravi Karunanayake flagged the issue in February to take advantage of lower borrowing costs to reduce outstanding commercial loans.

But the bond was no longer necessary, he said.

“We have cheaper sources and enough funds… Our reserves are going up and our interest rates are coming down, so why should we be worried about it,” Karunanayake told reporters in Colombo.

Analysts said the bond, which had been due by the end of this month, had met with reluctance from some fund managers during roadshows, given uncertainty surrounding the outcome of parliamentary elections expected by June.

“The government has promised to dissolve parliament after April 23 and there is no assurance of a stable government coming into power … So (investors) …will have to pay a higher premium,” one analyst with knowledge of the road shows said.

Parliament rejected on Tuesday Karunanayake’s plan to increase the borrowing limits by 400 billion rupees ($3 billion) following a surge in public spending.

Karunanayake said the heavy spending was due to infrastructure projects initiated by the previous government and that he was still “very confident” of achieving a 38-year-low budget deficit target of 4.4 percent of GDP this year.(Reuters)