ECONOMYNEXT- Sri Lanka had reached a deal with foreign bond holders and local banks to restructure defaulted sovereign bonds, according to a statement.
Foreign bondholders would get bonds linked to gross domestic product (macro-linked bonds) with an initial haircut of 28 percent part of which will be reversed if economic growth exceeds expectations,
Local banks would be able to exchange 70 percent of their ISBs into dollar bonds with a 10 percent haircut.
The statement said the initial joint framework was not consistent with the IMF
The balance 30 percent would be exchanged for rupee securities.
Download re-structuring framework sri-lanka-bondholder-isb-restructure-EN
Past due interest will become a bond with an 11 percent hair cut. The same treatment is given to past due interest of foreign bondholders.
Sri Lanka banks had written down their holdings by 50-pct but would still suffer a ‘one-day’ hit, analysts said.
China Development Bank has also restructured its debt.
Sri Lanka reached a framework agreement with bondholders in July which was discussed with the IMF and the official creditor committee.
“During these consultations, IMF staff determined that the JWF was not consistent with the parameters of Sri Lanka’s IMF-supported Program and the OCC expressed concerns regarding the consistency of the JWF with the comparability of treatment principle (“Comparability of Treatment”),” the statment said.
“It became clear, during these consultations, that further work was necessary to arrive at an agreement in principle between the parties which would receive a favourable assessment from both IMF staff and the OCC.
“Following an iterative process with IMF staff at technical level and taking account of the feedback received from the OCC regarding the terms of the JWF, Sri Lanka and its advisors designed a revised debt treatment,” the statement said.
“The revised debt treatment was based on the JWF, with amendments designed to ensure compliance with the parameters of Sri Lanka’s IMF-supported Program and the Comparability of Treatment principle, while preserving the Group’s and Sri Lanka’s interests to the fullest possible extent.”
The revised debt treatment was presented to and discussed with the Restricted Members of the Steering Committee, in conjunction with the terms of an alternative restructuring option (the “Local Option”), which was concurrently presented and discussed with with members of the Local Consortium of Sri Lanka.
“The Local Option was developed in response to a request by the LCSL over a number of months in which Sri Lanka, its advisors, the LCSL and its advisors exchanged alternative proposals,” the statement said. (Colombo/Aug19/2024)