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Reserves over US$ 4 bn, exceeds IMF target
US$ 41 mn raised through SLDB issue

The three year US$ 50 million Sri Lanka Development Bond (SLDB) issue was oversubscribed by 1.3 times the offer attracting about US$ 63 million, of which, US$ 41 million was accepted to settle maturing bonds amounting to US$ 35 million.

The issue was handled by the debt managers to the government, the Central Bank, and the bids were accepted at the six-month London Inter Bank Offered Rate (LIBOR) which was 0.6775 last Monday with a weighted average margin of 425 basis points (= 06775 + 4.25).

"The margins of the past three auctions held during the year for SLDBs with a two year maturity period were 540 basis points in March, 497 basis points in June and 450 basis points in August," the Central Bank said in a statement.

The basis points, or the weighted average margins, are determined by the market at the auctions through competitive bidding. Dealers said the reduction in the margin since March to the latest offer was an indication of positive sentiments.

"There are signs that micro and macro economic fundamentals are improving and that is why there was demand for lower credit risk premiums," a dealer said.

Last March, SLDBs for US$ 200 million attracted only US$ 184 million at six-months LIBOR plus 5.40 percent.

Last June, however, an SLDB issue had been oversubscribed by 135 percent, raising US$ 115.8 million of which US$ 50 million was to be rolled over while the balance went in to replenish reserves of the Central Bank after a US$ 125 million loan repayment was made in June.

The offered SLDBs in this issue amounted to US$ 50 million with a two year maturity period at the 6 month LIBOR for US Dollars plus 4.97 per cent.

Then again last August, the Central Bank issued US$ 190 million Sri Lanka Development Bonds (SLDB) at a rate of LIBOR 6 month rate for US dollars plus 449.8 basis points (4.49 percent) to pay-up maturing bonds amounting to US$ 175 million.

The Central Bank on behalf of the government offered two year SLDBs for US$ 150 million on August 6 and the offer was oversubscribed 1.3 times with bids from local and foreign commercial banks amounting to US$ 195.5 billion.

The Central Bank said the latest bond issue was within the annual borrowing limit approved by parliament for 2009.

This issue was open for bids on Monday and was oversubscribed and closed on the same day.

The bank announced last Monday that total gross official reserves surpassed US$ 4 billion as at September 10, enough to finance 4.4 months of exports, exceeding the IMF target. According to the agreement with the IMF, Sri Lanka was expected to build enough reserves enough to finance imports for 3.5 months by 2011.

The Central Bank said reserves are expected to increase further.

Dealers said the Central Bank was maintaining the exchange rate at Rs. 114.80 against the dollar and continues to purchase dollars from the market.

"The Central Bank is keeping the exchange rate stable because there is a lot of hot capital flowing in and the rupee must not be allowed to appreciate because it would hurt exporters badly," a dealer said.

"Despite reports of a possible turn around in the global economy, exports are still finding it tough to compete with demand levels which are still too low," he said.

Meanwhile, the Central Bank is also planning to issue Sovereign Bonds for US$ 500 million to international markets.

Representatives of six international banks and investment houses were in Colombo last week to make presentations in a bid to secure the position of lead manager for Sri Lanka’s US$ 500 million Sovereign Bond issue, an official of the Central Bank said.

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