Sri Lanka to receive $1 billion Bank of China loan this quarter

By Shihar Aneez

COLOMBO (Reuters) - Sri Lanka will receive a loan of $1 billion from Bank of China before the end of the January-March quarter, the chief of the central bank said on Thursday, to help the country meet repayments in the coming months.

Sri Lanka is struggling to repay its foreign loans, with a record $5.9 billion due this year including $2.6 billion in the first three months.

The island nation is a key battleground in the tussle for influence in South Asia between China and traditional regional power India.

"We will get the $300 million before end of this month and upsize it to $1 billion. The whole loan will be taken in the first quarter," Indrajit Coomaraswamy told Reuters.

Coomaraswamy said the interest rate for the $300 million loan is around 5.5 percent.

"This is a sovereign loan and does not require any collateral."

Details of the loan have not been previously released.

Officials from Bank of China were not available for immediate comment.

Coomaraswamy said the 5.5 percent interest rate is attractive compared to the country's sovereign bonds in the market.

A series of credit rating downgrades amid a political crisis have made it harder for Sri Lanka to tap international capital markets.

Earlier, speaking at a forum in Colombo, Coomaraswamy said the country aims to borrow $2 billion in a combination of dollar denominated sovereign bonds and bonds issued in Chinese renminbi and Japanese yen in the first quarter.

Three state-owned banks are in a deal to borrow around another $950 million.

"We need to boost the reserves to maintain investor confidence," he said. "Now there is pretty much enough money lined up to meet repayments."

Investor confidence took a hit when President Maithripala Sirisena abruptly sacked Prime Minister Ranil Wickremesinghe in October, replaced him with pro-China former president Mahinda Rajapaksa and dissolved parliament.

Sri Lanka's top court then ruled the dissolution of parliament was illegal and Wickremesinghe was restored to power in December. The seven-week-long crisis hurt the rupee and drove sovereign bond yields higher, straining state finances.

(Reporting by Shihar Aneez; editing by Alasdair Pal and Jason Neely)