Sri Lanka central govt need not take-over all of SriLankan Airlines debt: Minister
ECONOMYNEXT – Sri Lanka’s central government is not likely to take-over all debt of loss-making SriLankan Airlines but the balance sheet will be strengthened sufficiently to make it attractive for prospective partner, a minister said.
An earlier cabinet decision indicated that the government would take-over 461 billion rupees (3.252 billion US dollars) of debt.
"There has been some confusion about this matter," Deputy Public Enterprise Reform Minister Eran Wickremeratne told Sri Lanka’s Foreign Correspondents Association.
"The government will take over some of the debt, the amount will be decided with advisors that will be appointed."
If 461 billion US dollars of debt is taken over by the government Sri Lanka’s national debt will rise by around 4 percent of gross domestic product to around 83 percent.
The 3.2 billion US dollars of ‘debt’ include lease repayments to be made on aircraft in to the future. Such payments are legitimate operational expenses of an airline that must ideally be settled from future revenues.
But SriLankan has also raised a 150 million dollar syndicated loan on which there is a 50 million dollar sovereign guarantee. It had also sold 175 million dollar bond with a sovereign guarantee to fund past losses made during the Rajapaksa regime.
State-run People’s Bank and Bank of Ceylon had given it a 30 billion rupee loan to fund losses.
Any new partner is unlikely to agree service such legacy debt.
SriLankan Airlines said it had 64.9 billion rupees (about 440 million US dollars) of debt on its books by March 31.
By January 2016 SriLankan had an 81 billion rupee hole in its balance sheet (negative net assets) and analysts say that enough debt will have to be taken off or capital injected to make the balance sheet positive.
Meanwhile Wickremaratne said the balance sheet could be re-structured as part of negotiations with a prospective buyer or a finalized restructured balance could be offered.
Analysts say offering an already-restructured balance sheet will eliminate window for corruption that an open-ended offer to take-over government will necessarily create.
If a larger volume of debt is take off, there would be more takers and a higher price could be expected. If lower amount of debt is taken-off, it will also be reflected in the purchase price. (Colombo/May15/2016)