Maldives sells debut US$200m sovereign bond

The Maldives has raised US$200 million from the sale of its debut sovereign bond issue in the international finance market.

The US dollar-denominated five-year maturity bond was listed Wednesday on the Singapore Stock Exchange. It will pay a seven percent yield to investors.

“The response from the market was extremely encouraging: the order book was oversubscribed by double,” the finance ministry said Thursday.

“With this strong debut, the government believes the bond will open the door for public and private companies in the Maldives to tap into international markets.”

The bond was rated B2 by Moody’s and B+ by Fitch Rating, representing a stable outlook based on tourism-driven growth, low institutional strength, and a high debt burden.

“Given this was our first international sovereign bond issuance, this is a superb result. This is as strong of an endorsement of economic policy as any government could hope for,” said Finance Minister Ahmed Munawar.

“With this debut bond issuance for the Maldives, the country has taken a significant step forward. The ability to raise financing from international markets indicates the maturity the country has reached since graduating from Least Developed Country (LDC) to a middle-income economy.

“It is a testament to President [Abdulla] Yameen’s sound policy framework, diversifying the Maldivian economy and securing our citizens with a prosperous future. This is another stride in the right direction.”

According to media reports, the deal was arranged by BoCom International and marked the first time a Chinese investment bank was the sole lead bookrunner of an international sovereign bond issue.

“It seems odd to have only one Chinese bank in this kind of emerging markets sovereign bond offering,” a fund manager told Reuters.

“The deal looks more like a private placement, or at least it seems to have had anchored orders before the launch.”

An official from a Chinese investment bank also questioned BoCom International’s global distribution capability. “Given the weak appetite of Asian investors for non-investment-grade sovereign dollar bonds, I’m wondering who bought the bonds,” he was quoted as saying.

Some 83 percent of the notes were reportedly sold to Asian investors and 17 percent went to European accounts. Asset managers took 85 percent while banks and private banks bought 10 and five percent, respectively.

Reuters suggested that the choice of a Chinese investment bank for the sole global coordinator reflects growing Sino-Maldives economic ties.

The Maldives, which straddles major shipping lines in the Indian Ocean, is an “important link on the so-called Maritime Silk Road” as China pushes ahead with its One Belt, One Road initiative, a massive campaign to finance infrastructure projects to connect China with countries in Asia and beyond.

The Chinese EXIM Bank has loaned US$373 million to finance the expansion of the Velana International Airport and US$66 million for the construction of a bridge to connect the capital with a new urban centre under development in Hulhumalé.

Global Capital Asia also suggested that the appointment of BoCom International was “a sign of China’s backing, and in line with its Belt and Road initiative.”

As Sri Lanka’s similar rated bonds were trading at six percent last week for a US$1.5 billion offering and around 4.7 percent for a US$500 million bond, a credit analyst in Shanghai told Global Capital Asia that the Maldives’ bonds were “priced with a ‘meaningful’ yield pick-up as compensation for higher risk”.

The government announced plans to sell sovereign bonds last year to help raise finances for its ambitious infrastructure scale-up programme.

Opposition figures called the move “bad economics” and reiterated criticism over growing debt.

The International Monetary Fund warned last year that the Maldives is facing “a high risk of external debt distress” due to financing the large-scale projects entirely with external loans.

The IMF and the World Bank predicts debt to reach 121 percent of GDP by 2020.

At a press briefing last month, Munawar defended the government’s accumulation of debt to finance the flagship projects as “necessary investments” with longer-term payoffs.

The economic committee of the Maldivian Democratic Party meanwhile contended last week that the bond issue would worsen the country’s “unsustainable” debt levels.

As a result, the government will increase taxes, cut social security spending and sell off more islands for resort development, the main opposition party warned.

Ibrahim Ameer told reporters Thursday that the usable reserve position of US$220 million is also misleading because US$100 million is owed to India’s central bank and US$75 million to the State Bank of India.

The US$100 million was secured in a currency swap deal to shore up foreign currency reserves, which was severely depleted after the central bank bought a US$140 million bond from the state-owned airport company to help compensate GMR. The Indian infrastructure giant was paid US$271 million in damages for the cancellation of its contract to develop the main international airport.

“When you deduct this, our own reserve is US$50 million. What’s in our reserve is money taken on loan. The RBI agreement will be over at the end of June and SBI will not roll over or renew any further,” Ameer said.

“This is why the government is now planning to sell a US$200 million bond.”

Ameer also contended that the seven percent interest rate will become a “benchmark” and make borrowing more expensive for the private sector.

The opposition economist said the government was unable to enlist Germany’s Deutsche Bank as the lead manager as previously announced because of political instability and “failed” economic policies.

Former Auditor General Niyaz Ibrahim, who went into exile after appearing on an Al Jazeera corruption expose, meanwhile told the Nikkei Asian Review in March that official statistics cannot be trusted “because the numbers are made public to give a positive image of the president.”

He added: “This is what is worrying about the sovereign bond.”