An Echelon Media Company
Thursday May 23rd, 2024

Hopeful of Sri Lanka ISB restructuring deal despite ‘some setbacks’: IMF Official

ECONOMYNEXT – There was hope for a deal with Sri Lanka’s sovereign bond holders despite “some setback” Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund has said.

Sri Lanka had the first round of direct discussions with sovereign bond holders in London, where a deal was not finalized, but the government agreed to bonds linked to economic performance.

“So my sense is that there are some setbacks on the private sector restructuring, but again, the both parties are talking,” Srinivasan told reporters in Washington.

“So I’m hopeful that there will be some conclusions down the road.”

Bondholders have also proposed a governance linked bond in exchange for defaulted bonds, after asking Sri Lanka.

Future Model

Bondholders are keen on getting an underlying bond linked to economic performance in a new model for defaulted ISBs than a separate warrant (value recovery instrument) used in past restructurings elsewhere, that could serve as a model for future debt workouts.

“We provide, you know, input to the partners who are in the negotiation, both on the macro framework and what’s falling ahead,” Srinivasan said.

A Sri Lanka government statement said an initial IMF analysis showed that a March proposal was not in line with its debt path but a revised proposal in April was not yet assessed.

Investors have broadly proposed a 28 percent haircut for the default-exchange bonds, and an a 1.8 percent upfront fee. The so-called state-continent or economic link will now be “centered on the IMF baseline’ with up or down returns based on whether economy performs better than the past.

Bondholders have proposed an additional standard (plain vanilla bond). Bonds would start to mature from 2029.

Coupons are 4.25 percent on the so-called 4.25 percent bond, but 6.0 percent on the standard bond.

However, interest on the late maturing bond are set to rise steeply after the program ends, which analysts say could also be a sticking point.

Haircuts would steeply reduce from 2028 to as much as 7.3 percent (principles would be clawed back) if GDP is higher than IMF projections and further haircuts and reduced coupons will follow if output (measured in US dollars) falls below the baseline. Coupons would also fall.

However, bondholders are proposing the structure in the conviction that the IMF baseline projection is too low. Sri Lanka has tended to be resilient to various shocks including a civil war.

Sri Lanka country defaulted in 2022 after 10 years of aggressive ‘macro-economic policy’ deployed in the belief that money printing (rate cuts enforced with reserve repo or standing liquidity facilties) can boost growth (target potential output) despite having a reserve collecting central bank.

Currency crises came in rapid succession from 2013 (within an IMF program) 2016, 2018 (within an IMF program) leading to rapid rise in foreign borrowings, amid benign external conditions (US quantitative easing) which flushed US and global markets with dollars.

The US 10-year yield hit 4.69 percent this week, higher than the initial coupon of 4.25 percent proposed for Sri Lanka’s default-exchange bonds based on economic performance.

Foreign debt after reserves grew steeply at the end of each potential targeting output crisis, analysts have shown, with tax cuts also added to the macro-economic policy mix from 2019 December. (Colombo/Apr19/2024)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka plans to expand Bingiriya export zone to 1,100 acres

ECONOMYNEXT – Sri Lanka is expanding an export processing zone in Bingiriya in Kurunegala and plans to link the area with Puttalam with roads and other infrastructure, Minister Bandula Gunawardana said.

A task force of ministerial secretaries will be appointed to carry out the tasks speedily, following a cabinet paper submitted by President Ranil Wickremesinghe said.

The Bingiriya zone already has 157 acres and another 282 acres is being developed by the Board of Investment, he said.

Steps would also be taken to acquire 666 acres.

There was no information whose lands would be acquired. (Colombo/May23/2024)

Continue Reading

Sri Lanka has power breakdowns amidst extreme weather

ECONOMYNEXT – The state-owned power utility, the Ceylon Electricity Board has reported over 36,900 breakdowns resulting in power interruptions to more than 300,000 consumers in the last three days due to inclement weather in the island, the power minister said.

“Additional service staff has been assigned to attend the breakdowns and the CEB management & service staff are working 24 hours to restore power to the affected consumers,” Minister of Power and Energy, Kanchana Wijesekera said on social media platform X (twitter).

Wijesekera said consumers could report power interruptions through the CEB hotline 1987, via SMS to 1987 with BD and the electricity consumer number to follow, or use the CEB Care app, or through http://cebcare.ceb.lk.

The South-East monsoon has seen floods, landslides and strong winds do damage to the utility provider’s infrastructure in the last week. (Colombo/May23?2024)

Continue Reading

Sri Lanka President calls for unity, sacrificing for a better tomorrow on Vesak day

ECONOMYNEXT – Sri Lanka President Ranil Wickremesinghe has recalled a sermon from the Buddha about sacrificing for a better tomorrow, and called for unity to heal and rebuild the country, as Buddhists celebrate Vesak.

Buddhists celebrate Vesak as commemorating the birth, enlightenment and passing away of the Buddha.

“At this challenging moment, we as a nation should cultivate the same great zeal for enlightenment that Buddha exemplified, inspired by his sermon, “Maththasukha parichchaga- passé che vipulan sukhan” – to sacrifice today for a better tomorrow,” President Wickremesinghe said in his Vesak day message.

“We must remember the advice of Lord Buddha, “Sabbattha Sammanaso,” to treat everyone equally and ensure we put it into practice as a country. This is the greatest offering we can present to the Buddha on this Vesak day.

“Regardless of race, religion, caste, or political affiliation, we must all unite to heal and rebuild our country. ”

The full statement is reproduced below:

The Vesak festival is a profoundly sacred day for Buddhists worldwide, commemorating the Buddha’s birth, enlightenment, and passing. Buddhists in Sri Lanka, along with their brethren around the globe, celebrate Vesak with deep devotion. They spend this period engaging in religious observances and venerating the Buddha with fervent devotion.

At this challenging moment, we as a nation should cultivate the same great zeal for enlightenment that Buddha exemplified, inspired by his sermon, “Maththasukha parichchaga- passé che vipulan sukhan” – to sacrifice today for a better tomorrow.

We must remember the advice of Lord Buddha, “Sabbattha Sammanaso,” to treat everyone equally and ensure we put it into practice as a country. This is the greatest offering we can present to the Buddha on this Vesak day. Regardless of race, religion, caste, or political affiliation, we must all unite to heal and rebuild our country. The principles of Lichchavi Raja Dharmaya will guide us in this endeavour.

Let us keep in mind that the primary aim of the Vesak festival is to foster spiritual growth and character development in a world rapidly advancing physically. I wish everyone a blessed Vesak festival.

Continue Reading