Sri Lanka raises new debt despite warnings

Colombo - Sri Lanka on Saturday sought investors to buy $200 million worth of bonds despite warnings from credit rating agencies and international lenders that the island is depending too much on debt.

The latest debt-raising move comes as Sri Lanka, locked in a long-running ethnic conflict with separatist Tamil Tiger rebels since 1972, has been on an overseas borrow spree to pay for development projects.

The new securities, known as Sri Lanka Development Bonds, will be offered in maturities ranging from two to five years to local and foreign investors, the central bank said.

Proceeds from the offer will be used to develop health, road, airport, education and energy projects, the bank said in a statement.

Sri Lanka has poured a record $1.5 billion into the war effort this year, hoping for a quick end to the conflict that has left tens of thousands of people dead.

This has left little money for public works.

Colombo, which is battling soaring inflation running at nearly 27 percent and slowing growth, has pressed ahead with debt-raising measures to fund domestic projects despite a recent warning by the International Monetary Fund that it could be headed for a foreign debt crisis.

The new issue came a day after the central bank said the island raised $150 million through a syndication loan arranged by Standard Chartered Bank Plc.

Under the terms of the loan agreement, the government has an option of raising another $100 million. Eight foreign banks took part in the syndication.

"Some international banks have already expressed their interest to join the present group of lending banks in upsizing the transaction," the bank said.

On Thursday, the government also announced plans to borrow $100 million from India's Export Import Bank, to upgrade the island's dilapidated railway network.

In addition, Sri Lanka has tapped Deutsche Bank to arrange a $50 million five-year loan.

Last October, the island raised $500 million through a five-year sovereign bond issue.

Sri Lanka's debt composition has changed for the worse, said credit ratings agency Standard and Poor's in a recent note. It has assigned the island a "junk" or below investment grade B-plus rating.

"The rising share of external debt, estimated at about 49 percent of total, and within that, the proportion of more expensive and shorter-maturity commercial funds, is gradually eroding what has so far been a relatively favourable debt profile," the risk evaluator said.

Sri Lanka has never yet defaulted on its debt repayments. - AFP