ECONOMYNEXT – Holders of Sri Lanka’s defaulted sovereign bonds have sufficient incentives to participate in an exchange launched this week, leading to a high take-up, Central Bank Governor Nandalal Weerasinghe said.
“What we can see, from the bondholder’s point of view, it has sufficient incentives to participate, in terms of the exchange fee, in terms of the macro-linked bonds they were asking,” Governor Weerasinghe told reporters Wednesday.
“A lot of incentives and encouragement for them to participate and get new bonds and get new bonds in exchange for the bonds they are holding.
“I do not think it would be in the best interests of anyone to holdout.”
Sri Lanka has issued bonds linked to gross domestic product, so-called macro-linked bonds which allows both capital appreciation and coupon increases if GDP grows faster than expected in a new type of so-called ‘state-contingent’ bonds.
It would be in the best interests of all to participate in the exchange and complete the restructuring he said.
In successful exchanges in other cases, exchanges have gone close to 100 percent, he said.
Sri Lanka will have a marketing exercise to persuade investors to exchange and meet thresholds, he said.
Foreign bondholders who negotiated deal who hold about 40 percent of the securities, and local holders who hold about 12 percent have said they will take up the offer to exchange 12.55 billion dollars of bonds.
There is a holdout investor who has 250 million dollars, owning a so-called single series collective action clause, which were issued before rules changed to include all bonds.
IMF Managing Director has also urged private investors to take up the offer and complete the restructure quickly.
Sri Lanka is restructuring debt under a re-jigged debt sustainability framework for middle income market access countries.
Sri Lanka officials have also conducted the surgical domestic debt restructuring to meet IMF statistics, with the central bank itself taking a hit on its balance sheet, avoiding a larger induced default of rupee bonds.
As a result interest rats fell around 1,000 basis points on the day of the local debt announcement.
Amid deflationary monetary policy from the central bank, which also allowed currency appreciation, unlike in past IMF programs, interest rates are continuing to fall and economic activity is resuming. (Colombo/Nov27/2024)