Big picture of figures: Maldives to pay for Sukuk; no default
Maldives owes about $25 million (MVR 385.5 million) for the Sukuk by October 9.
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By
Ahmed Naaif
Fitch recently downgraded Maldives' rating to 'CC' and the rate of Maldives' $500 million bond sold in 2021 has fallen by more than 70 cents. This is a record low. Because of this:
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The security's yield to maturity (the return demanded by investors) has risen to 33.5%; When it was first sold, the yield was around 10%
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The higher yield will increase the amount of repayments or coupon payments and return payments to investors
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The yield on future securities will be higher and the country will earn less money from selling a security
The world's largest news agencies such as Bloomberg, which covers business and economic news, have also made headlines. The agencies quoted investors as saying that Maldives' Sukuk may be the first to default.
Those who bought the Sukuk are in fear. Some investors are also trying to sell their securities to make money as soon as possible. Large commercial banks that have invested in the securities have sold a large portion of the securities.
Maldives is due to make its second coupon payment to investors on October 9. The biggest fear of investors is that the Maldives may not be able to make the payment before the deadline.
If so, it will be the first time a Sukuk will default in the global financial markets.
According to Maldives' finance ministry, Maldives owes about $25 million (MVR 385.5 million) for the Sukuk on that day. The question is whether Maldives' foreign exchange reserves will be able to pay the money before the deadline.
Finance minister Dr Mohamed Shafeeq gives hopeful assurance to the investors.
When asked by Atoll Times, Shafeeq said Maldives would pay about $25 million for the coupon payment on October 8. That is his assurance to investors and the global financial market.
"We will hopefully be able to pay that money [about $25 million for the coupon payment for the Sukuk]. I give that assurance to investors," he said.
Shafeeq also gave an optimistic response to the concern about the decline in Maldives' foreign exchange reserves.
He said he expected the central bank, the Maldives Monetary Authority (MMA), to release the latest foreign exchange reserve figures by next Sunday. The finance ministry expects the reserves to be much better than last month, he said.
"The reserves are improving beyond our forecasts. With the reform measures, the reserves and the financial situation are expected to improve," Shafeeq said.
"We won't default."
In July, MMA data showed that Maldives' official foreign exchange reserves stood at $395.4 million, with the usable foreign exchange reserves at $43.6 million. In addition, the Sovereign Development Fund (SDF), which Maldives uses as a sink fund, had $60.2 million available at the end of July.
The MMA has also recently assured that reserve numbers will improve.
The numbers underscore the government’s assurance that the country can be saved from going into default.
