Sri Lanka sells 5-yr, $500 mln sovereign bond at 5.125 pct yield

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COLOMBO, April 8 (Reuters) - Sri Lanka sold a $500 million, five-year sovereign bond at a yield of 5.125 percent, the island nation's central bank said on Tuesday.

It was the second eurobond the $67 billion economy sold this year. In January, it sold $1 billion, five-year sovereign bond at a yield of 6 percent.

The Indian Ocean island nation's 2014 budget approved a $1.5 billion overseas borrowing to finance some infrastructure projects.

The latest bond issue, the seventh by Sri Lanka since the first eurobond in 2007, was priced at a yield of 5.125 percent after a 5.5 percent initial price guidance. This is the lowest yield Sri Lanka has got for a five-year paper.

"This tighter yield reflects the continued confidence that international investors have placed in the sovereign bond issuance of Sri Lanka," the central bank said in a statement.

Citigroup (NYSE: C - news) , HSBC, and Standard Chartered Bank were the joint lead managers and bookrunners for the bond issue, which was oversubscribed by 8.3 times.

Ajith Nivard Cabraal, the central bank governor, said the entire proceeds will be absorbed by the central bank and the $500 million inflow is unlikely to have an impact on the overall exchange rate.

"It will have a positive outlook because our reserves will probably increase beyond $8 billion," Cabraal said.

Sri Lanka's previous five-year issuances in 2007, 2009 and January 2014 were priced at yields of 8.25 percent, 7.40 percent and 6.00 percent respectively. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Anupama Dwivedi)