UPDATE 1-Sri Lanka's NSB to sell minimum of $500 mln 5-yr bond- sources
By Shihar Aneez and Umesh Desai
COLOMBO/HONG KONG Aug 26 (Reuters) - Sri Lanka's state-run National Savings Bank (NSB) plans to raise a minimum $500 million through the sale of a likely five-year bond with a target yield around 7 percent, sources close to the deal told Reuters on Monday.
The bond would offer investors a similar yield compared with the Bank of Ceylon bonds due 2018 with a mid-point yield of 7 percent, although analysts say the NSB paper should offer a higher yield.
According to the sources a final decision on size of the NSB bond and tenure will depend on market appetite.
"It will be a minimum of $500 million with minimum five-year tenure, but depending on the market appetite, the size and tenure will be decided," one source said on condition of anonymity.
"Currently the markets are highly volatile. Our current bonds in the secondary market are trading around 7 percent. That gives some kind of a signal on the yield."
The U.S. Federal Reserve's plan to trim its stimulus, perhaps as early as next month, has seen a selloff in emerging market bonds with cash flowing out toward dollar-denominated assets amid a rise in U.S. treasury yields.
Corporates selling global bonds are having to offer higher yields in order to attract capital.
"It could also appeal to investors looking to move down the spectrum," said a Singapore based fund manager referring to fixed income investors looking to increase returns by buying higher yielding, lower rated bonds.
The bank, which had originally targeted $1 billion, 10-year bond, has appointed Citibank, Barclays, and HSBC as the lead managers for the lender's first global corporate bond and will start roadshows on Monday in New York and will meet investors in Boston, Los Angeles and London this week.
The roadshows will end on Sept 3 in Singapore after meeting investors in Hong Kong next week.
A second source confirmed the NSB's bond sales plans and details. The capital is being sought to fund the Sri Lankan government's infrastructure projects.
The bonds offer an additional choice to investors who have exposure to debt from Sri Lanka while the indicated yield would give investors a pick-up over current bonds from sub-investment grade banks, fund managers said.
"It is a high yield lender which will appeal to investors who are looking at bonds that pay a premium over other savings bank, commercial bank or state banks and besides there aren't too many banks in the high yield space," said the fund manager in Singapore.
At a yield of around 7 percent the bonds would not be competitive against Bank of Ceylon's existing 2018 bonds and analysts say NSB would be expected to pay a premium because of its smaller profile relative to Bank of Ceylon.
"BOC commands a finer pricing because it is the largest bank. In this environment you need to give 20-30 bps new issue premium and if it is not as strong as BOC, it will be another 20bps," said a Singapore based credit analyst.
Although the banks have similar ratings, Bank of Ceylon is the bigger of the two and analysts say investors would expect NSB to pay a higher yield on that count.
Bank of Ceylon is rated BB- by Fitch and B1 by Moody's. NSB is rated BB- by Fitch. All ratings have a stable outlook.
The bank's decision to tap the international market comes at a time the Sri Lankan government has decided against going for an international sovereign bond this year after selling eurobonds for three consecutive years.
NSB is the only bank whose deposits are fully guaranteed by the government.
The bank's investments in government securities accounted for 72 percent of its total deposits of 422.06 billion rupees ($3.31 billion) as of Sept. 30, 2012