Fixed Income Funds to attract foreign investment

Sanjeevi JAYASURIYA

The removal of restrictions on foreign investment into fixed income Unit Trusts, has opened a new avenue for overseas investment into Sri Lanka due to the prevailing global economic environment, Ceylon Asset Management Managing Director Dulindra Fernando told Daily News Business.

The gazette notification (No:1719/22) published in August allows foreigners to invest in fixed income Unit Trusts via a Securities Investment Account (SIA) and repatriate capital and profits back in foreign currency.

Foreigners were only allowed to invest in the stock market and government securities in the past.

The Ceylon Income Fund (CIF) was the top performing fixed income Unit Trust for the financial year 2010/11 providing tax exempt returns of 12.38 percent. The CIF invests only in corporate debt instruments issued by finance companies, rated “investment grade”, (BBB- or better) by Fitch or RAM ratings.

Deutsche Bank acts as the Trustee and Custodian of the fund. The ongoing credit crisis in the EU and US combined with poor yields and depreciating currency of the West, earns a return in excess of 10 percent in Sri Lanka attractive for foreign investors.

Judging from the international demand for sovereign bond of Sri Lanka, foreign capital will flow to the next level of rated corporate bonds that can be accessed via Unit Trusts.

The Central Bank Governor recently stated, “Sri Lankan banks should reach out to international markets and utilize their credit ratings to attract foreign funds”.

In addition to banks, the finance companies can now use their ratings to attract foreign capital via unit trusts.

“We expect the fixed income market segment of Unit Trusts to be one of the largest sources of foreign capital into Sri Lanka over the next decade. This could eventually influence corporate interest rates in Sri Lanka, if these trends continue. Most foreign investors have lost their appetite for stock market investments globally and therefore we can expect more capital to flow into fixed income opportunities across emerging markets in Asia,” Fernando said.