Colombo, January 20:

Sri Lanka plans to raise one billion dollars through bonds issued to international investors this year to pay for key infrastructure projects, Treasury Secretary P B Jayasundera said on Friday.

The first tranche of the issue could be out as early as next month.The government plans to build roads, power and railroads spending nearly $1.5 billion, Jayasundera said. “We will issue between 500 million to a billion dollars worth of bonds in the international market this year,” he said addressing a meeting of business leaders.

Sri Lanka’s central bank is talking to local commercial banks on structuring the issue. Bankers close to the deal have suggested that the government start off with a 100-million dollar issue, test the market and then go for a higher issue.

In December, two international rating agencies — Fitch Ratings and Standard and Poor’s — assigned speculative, or junk bond, ratings to Sri Lanka which is battling a Tamil separatist campaign that has seriously dented the economy. Fitch gave Sri Lanka a BB-minus rating while Standard and Poor’s awarded it an even lower B-plus sovereign rating.

“It (sovereign rating) was not a great rating. But both rating agencies have given us a stable outlook which I take positively,” Jayasundera said.

Citibank N.A. last month helped Sri Lanka raise $100 million through a syndicated loan, which was priced at 95 basis points above the London Interbank Offered Rate, or LIBOR.

Bankers close to the issue said the Citibank deal had been the most attractive for the government so far.

Jayasundera is keen to issue lower denominations to encourage overseas resident Sri Lankans to subscribe to the bond issue. Opinion is divided, but bankers have suggested the government opt for a straight syndicated loan as opposed to a small-denomination issue, which will increase costs.

Nearly a million Sri Lankans who live and work overseas remitted around 1.7 billion dollars to the island last year, according to Central Bank figures. Despite the “junk” grades, president Mahinda Rajapakse, elected in November, said the ratings marked a “respectable beginning with the universe of rated sovereigns.” The island is anxious for cash to meet growing oil and tsunami-related reconstruction costs that have strained the nation’s finances.