Sri Lanka moves closer to maiden sovereign Sukuk issuance just before political turmoil starts

Before its suspension in the wake of a deep political and constitutional crisis that has been unfolding since the 26th October 2018 leading to the death of one, the parliament passed a resolution to raise LKR310 billion (US$1.79 billion) through Sukuk, samurai or panda bonds, for liability management purposes. MARC ROUSSOT has the story.

If the government opts to sell Islamic papers, it would be Sri Lanka’s maiden sovereign Sukuk issuance as well as its first auction under the Active Liability Management Act enacted by the parliament in March and institutionalizing a legal framework for managing the country’s public debt profile in a prudent manner.

“The Liability Management Strategy of the government is planned to be implemented to ease the repayment of debt in the future and ensure that such repayments are done at the lowest possible cost in line with the government’s cash flow, prevailing and expected interest rates and the future maturities of public debt,” the Central Bank of Sri Lanka said in a statement.
Although no timeline was shared, the pricing of the issuance is likely to be impacted by the ongoing constitutional crisis, which could also deter investors from buying the Shariah securities.

Sri Lanka’s political climate deteriorated quickly when Ranil Wickremesinghe refused to leave Temple Trees, the official residence of the prime minister, after being sacked by President Maithripala Sirisena who appointed former president Mahinda Rajapaksa as Sri Lanka’s new chief of the government.

This is not the first time that President Sirisena has triggered a cabinet reshuffle just before a potential Sukuk issuance. In May last year, he switched the portfolios of foreign minister Mangala Samaraweera and finance minister Ravi Karunanayake a few days before Sri Lanka’s debut sovereign Sukuk issuance planned in June.

The authorities have been looking at Sukuk since 2016 when the then-finance minister Ravi Karunanayake announced that the government was considering raising up to US$1 billion from the international Islamic debt capital market. However, the auction has been repeatedly postponed.

Even if no sovereign Sukuk have been issued to date, the island is no newcomer to Shariah securities as Lanka Orix Finance printed a three-year Ijarah facility worth LKR500 million (US$2.89 million) in October 2016.

This article first appeared in IFN Volume 15 Issue 44 on the 31st of October 2018

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