Sri Lanka strikes restructuring agreement with bondholders
The deal marks the culmination of more than a year of difficult negotiations between Sri Lanka and its bondholders
SRI Lanka struck a deal to restructure US$12.6 billion of bonds with its creditors, bringing the South Asian nation closer to completing its debt overhaul two years after it defaulted.
Investors agreed to take a 28 per cent nominal reduction on the bonds’ principal, according to a statement released on Wednesday (Jul 3) at the conclusion of the second round of talks. The deal included the issuance of notes whose payouts are linked to economic growth and a potential governance-linked bond.
The deal marks the culmination of more than a year of difficult negotiations between Sri Lanka and its bondholders as officials took steps to rehabilitate the nation’s fiscal health. It will help restore Sri Lanka’s access to international capital markets after the island nation fell into a default in 2022, and allow the nation to tap further funding from the International Monetary Fund.
“This agreement is a crucial step in our efforts to restore debt sustainability in the country,” Junior Finance Minister Shehan Semasinghe posted on X. “This marks another key milestone in our journey towards economic revival and strengthening,”
The ad-hoc bondholder group holds about 50 per cent of the outstanding overseas bonds and includes Amundi and BlackRock.
“Initial estimates suggest that the new recovery values for the investors will be lower than the April proposal but still closer to or over 60 cents on the dollar, which is a good outcome for the bondholders,” said Saurav Anand, South Asia economist at Standard Chartered.
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Dollar bonds due 2030 rose 1.7 cents to 59 cents on the dollar on Thursday. The nation’s dollar debt made up the top six out of 10 best performers in emerging markets on the day, data compiled by Bloomberg show. Sri Lanka’s dollar bonds were among the best performers in emerging markets last year, delivering returns of almost 70 per cent.
The government had already struck debt restructuring deals with official creditors, including China, India and the Paris Club as well as with the holders of its local debt.
Frontier markets suffering from a sovereign default are making strong progress in restructuring their debt in recent weeks. Ghana in June reached a deal with bilateral creditors to rework US$5.1 billion of obligations and US$13 billion with private creditors. Zambia this year ended nearly four years of default on its dollar bonds.
The terms Sri Lanka has agreed with bondholders need to be formally confirmed by its official creditors and IMF staff for comparability of treatment and compliance with debt sustainability targets, the government said in a statement.
“We expect the process to be largely formalities and not disrupt the timelines,” said Avanti Save, analyst at Barclays. “We have a constructive view on the Sri Lanka bond complex.” BLOOMBERG
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