The Maldives: Why investors face trouble in paradise

The island nation may be a beautiful destination for tourists, but investors who piled into its maiden sovereign bonds could be forgiven for feeling a little travel sick.

For sun-loving tourists, the Maldives is a top destination for an amazing holiday experience. But for bond investors, the country’s growing political unrest is a reminder of the added investment risks that exist off the more-beaten track.

In June last year the Indian Ocean nation used the occasion of its 45-year friendship with Beijing to issue its first sovereign bond to help fund infrastructure projects. State-owned lender Bank of Communications was sole bookrunner on the deal.

The Reg S bond issue, which was increased to $250 million through a $50 million tap late last year, traded above water until February 1, when a court surprisingly ordered the...

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