Sri Lanka to declare ‘end to bankruptcy’ next week

Sri Lanka to declare ‘end to bankruptcy’ next week

 By Bandula Sirimanna Sunday Times 24-06-24

Sri Lanka is to declare ‘end to bankruptcy’ next week following an agreement reached with bilateral creditors and private bond holders on external debt restructuring at the end of second round of talks with them, highly informed official sources confirmed.

The government will sign a MoU with the official creditor committee of the Paris Club of Nations and an agreement with the Export-Import Bank of China and Ad Hoc Private Bondholder’s group will be reached on Wednesday June 26, a top government official closely associated with negotiations told the Business Times.

Sri Lanka will announce the country’s freedom from bankruptcy status on Thursday June 27, 26 months after declaring a preemptive default in April 12, 2022 suspending external debt repayment at a time where the country’s gross official reserves stood at just US$ 20 million, he disclosed.

India and China have expressed willingness to continue to work with relevant countries and international financial institutions to support Sri Lanka’s debt sustainability and agreements with bilateral creditors have been assured, he added.

Earlier the Ministry of Finance stated in a media release that despite “constructive discussions” in London with some of the Steering Committee members of the Ad Hoc Group of Bondholders, which consists of some of the country’s biggest private holders of debt, the two sides could not reach agreement on “restructuring terms on April 16.”

The Steering Committee comprises 10 of Sri Lanka’s largest bondholders and the Ad Hoc Group consists of “approximately 50 per cent of the aggregate outstanding amount of (international sovereign bonds) ISBs.” These bondholders hold around $12 billion of Sri Lanka’s total debt.

The government is now focusing on its $25 billion debt with sovereign bondholders. The bondholders’ proposal was on the introduction of a Macro-Linked Bond (MLB).

Their March 2024 proposal suggested a 20 per cent haircut on the minimal amount of existing bonds.

The revised proposal in April 2024 increased the haircut to 28 per cent with no haircuts on public debt interests (PDIs) in both March and April proposals.

However, minute discrepancies cropped up between the proposals of the Ad Hoc Group and the government during the first round of discussions regarding baseline parameters, risk balance, trigger tests, and the allocation of additional value in various MLB scenarios.

Following discussions, the bondholders revised their proposal in April 2024 to address some of the government’s concerns.

The agreement will be reached on a debt restructuring proposal favorable for private external creditors and Sri Lanka, he disclosed.⍐