Bids for Sri Lanka dollar bond over $ 2.5 b

Sri Lanka has received bids of more than $2.5 billion for its 10-year dollar bond, and the deal looks set to price tighter than the expected 6.5 percent, sources said on Monday.

Sri Lanka is the latest emerging sovereign to venture into bond markets as investors’ risk appetite has returned with a vengeance this month, and its offer has met with solid demand.

Fund managers reported that the book size was at $2.5 to $3 billion so far, compared with the expected $1 billion to be sold. Books have closed in Europe and Asia.

Sources had earlier told Reuters the deal would price around 6.5 percent. Sri Lanka plans to use the bond’s proceeds to fund the budget and to pay short-term debt.

“Given the books are at these levels already and the U.S. is yet to put in (orders), 6.375 percent (yield) looks likely,” one fund manager in London said. Asian orders had been around $1 billion. The Sri Lankan central bank had said earlier it planned to issue $1 billion of sovereign bonds. A source with knowledge of the deal said Colombo would likely cap the issue at $1 billion.

This will be the island’s third global debt issue since 2007, when it issued a maiden $500 million, five-year bond.

The government sold another $500 million, five-year bond in 2009. Bank of America Merrill Lynch , HSBC Holdings Plc and Royal Bank of Scotland Group Plc are managing the sale.

“We are seeing considerable interest for emerging market bonds, and Sri Lanka will play right into that,” said Scott Bennett, who manages $1.5 billion in Asian fixed income as head of Asian Investment at Aberdeen Asset Management in Singapore.

The sale comes a week after Standard & Poor’s raised the country’s sovereign credit rating by a notch to B-plus from B, citing growth prospects and government efforts to narrow the budget deficit.

Reuters