(Adds loan details)
By Shihar Aneez
COLOMBO, Jan 15 (Reuters) - Sri Lanka is considering an offer from Bank of China for a loan of $300 million, which could be raised to $1 billion, to help it meet repayments during coming months, two sources in Colombo with knowledge of the offer told Reuters on Tuesday.
A series of credit rating downgrades and a political crisis have made it harder for Sri Lanka to borrow as it faces record high repayments of $5.9 billion this year, $2.6 billion of which fall due in the first three months.
“The risk premium has gone up after the recent political crisis and the borrowing cost is expensive after the rating cuts. This loan will be used to repay some loan repayment in the first quarter,” one source said.
As of the end of 2018, nearly a quarter of Sri Lanka’s total foreign debt was owed to China, which has lent some $8 billion while building ports, highways and planning other major investments in the South Asian island state.
There was no immediate comment from Sri Lanka’s finance ministry, which is on holiday for a local festival, and calls to the Bank of China in Colombo were also unanswered.
But a second source said Sri Lanka’s cabinet had already asked Finance Minister Mangala Samaraweera to negotiate the loan, which has been offered at 6-month LIBOR plus 260 basis points. It has to be repaid within three years, the source said.
The 6-month LIBOR <USD6MFSR=X > was at 2.865 on Tuesday.
Writing by Krishna N. Das; Editing by Sanjeev Miglani & Simon Cameron-Moore