ECONOMYNEXT – Sri Lanka has accepted valid offers for 37 percent of all eligible treasury bonds and 84 percent of bonds held by superannuation funds to be exchanged for new bonds as part of a domestic debt restructuring (DDR) exercise, with Thursday September 14 declared as date of settlement.
According to a statement issued by the Treasury on Tuesday September 12, the government will issue new bonds to eligible holders on Thursday September 14, the settlement date, in accordance with the exchange form submitted by each holder.
The percentage of the “aggregate outstanding principal amount of eligible bonds for which valid offers have been accepted” is 37 percent, the Treasury said in its statement. The same for eligible bonds held by superannuation funds as of end June 2023 is approximately 84 percent.
The percentage of the “aggregate outstanding principal amount of eligible bonds for which valid offers have been accepted by the government from superannuation funds necessary to achieve the participation threshold” is 100 percent, subject to the final determination of the Inland Revenue Department (IRD), the statement said.
The government sent out Invitations to Exchange for specific treasury bonds following a Treasury Bond Exchange Memorandum dated July 04.
In Tuesday’s statement, the Treasury said the success of the Invitation to Exchange will enable the government to reduce gross financing needs (GFN) over the next 10 years, thereby contributing to achieving Sri Lanka’s GFN target in line with the ongoing International Monetary Fund (IMF)-supported programme.
Treasury Bonds with ISINs LKB01123I017 and LKB01023I019 matured on 01 September 2023 and were paid in full by the Republic (the government of Sri Lanka) and have been defined as excluded bonds in the third extension notice announced by the government on August 25, and are therefore are excluded from the above table, the statement said.
On the settlement date, the Treasury said the government will issue new bonds to eligible holders in accordance with the relevant exchange form submitted by each such eligible holder to the extent that the republic (government of Sri Lanka) has accepted the offers set out therein.
The government will also pay to each eligible holder of accepted offers the interest accrued and unpaid up to (but excluding) the settlement date on such eligible holder’s eligible bonds in LKR.
In the exchange invitation on July 04, President Ranil Wickremesinghe in his capacity as Minister of Finance said the invitation formed part of the government’s DDR programme, which it has been referring to as a domestic debt ‘optimisatin’ (DDO).
Wickremesinghe said the DDO will allow Sri Lanka to restore sovereign debt sustainability following the ongoing economic and humanitarian crisis.
“The Invitation to Exchange is an arrangement through which Eligible Holders of Eligible Bonds can submit their holdings of Eligible Bonds governed by Sri Lankan law and denominated in Sri Lankan Rupees for a basket of new Treasury bonds to be issued by the Republic with the same aggregate principal amount but extended average maturity compared with the Eligible Bonds. The interest rate has been calibrated to maintain existing returns in the first years and will step down afterwards as inflation pressure abates. The structure was designed to provide a positive projected real return for beneficiaries of the Superannuation Funds in the medium-term whilst being mindful of the need to reduce the Republic’s gross financing needs
and close the financing gap.
“This transaction is a vital element of the measures which, together with economic reform programme, we are undertaking consistent with the Extended Fund Facility agreed with the International Monetary Fund (IMF) in March 2023. In the 75 years of the Republic’s independence, there has never been a more critical period for our economic well-being and future development. That is why we have introduced a robust reform agenda aimed at achieving sovereign debt sustainability, strengthening governance, widening the social safety nets supporting the most vulnerable and ensuring we can grow an inclusive economy attractive to international business. This is how we will improve the lives of our people and ensure they are first in line to benefit
from improvements in our economic conditions,” he wrote.
“The IMF’s debt sustainability analysis has determined the Republic’s public debt to be unsustainable and the IMF Programme is critical to achieving our vision for our country. Hence, this new era starts with the full implementation of IMF Programme and the resolution of our external debt situation with our external official and commercial creditors.
“However, in addition to the resolution of the Republic’s external public debt situation, a domestic public debt optimisation – of which this Invitation to Exchange is one element – is necessary to, among other things, bring down the Republic’s gross financing needs and restore long-term sovereign debt sustainability.
“The successful completion of this domestic debt optimisation is a critical component of both the debt resolution programme and the IMF Programme; it will contribute to unlocking the support of the Republic’s external creditors and will allow the Republic to reach debt targets agreed with the IMF. We need the full participation of the Superannuation Funds in accordance with the Participation Threshold (as defined in the Exchange Memorandum) in order to achieve these goals and I therefore urge you to give it your full consideration,” he said. (Colombo/Sep13/2023)