ECONOMYNEXT – Sri Lanka’s main opposition has warned against the government against giving foreign bond holders so-called state contingent restructuring debt instrument (SCDI) whose payout is linked to future economic performance.
Opposition legislator Harsha de Silva said domestic bonds were restructured due to pressure from foreign private creditors, according to what was told in parliament.
Sri Lanka bond-holders have proposed to exchange bonds which will start off with a higher value but whose principal and interest will reduce (a downside bond) if the economic growth is as low as 3.1 percent predicted in an International Monetary Fund debt sustainability analysis.
Sri Lanka has rejected the proposal for a down side bond (labelled) a ‘macro-linked bond’ but has said a value recovery instrument (upside security) could be discussed provided it is does not violate comparable treatment principles.
Value recovery instruments have now become a feature especially of private creditor as a means to tide over disputes about economic projections, leading to a faster conclusion of restructuring.
“Let it be known if anyone is to be over compensated, that group must be those that took the biggest beating in this whole restructuring exercise,” opposition legislator Harsha de Silva told parliament during a 2024 budget debate.
“And those are the workers whose EPF (Employment Provident Fund) was the hardest hit
“So we urge the authorities to bind any future administration into an unfair deal with ISB holders. The days of this government is numbered. Please be transparent in any deal you enter, so that we are all on the same page.”
De Silva said the 3,000 billion rupees was set aside to restructure bonds, which at about 9 billion US dollar indicating a 30 percent haircut.
“We are saying a 30 percent hair cut is not sufficient,” de Silva said. “If you link a macro-linked bond to it, that is a sweet deal that no one can even expect.”
De Silva said parliament was told that EPF bonds were re-structured due to pressure from foreign bondholders.
The macro-linked bond started off with a 20 percent hair cut with what is believed to be higher coupons that Sri Lanka may be willing to give, but hair cuts will if growth remains low.
State Minister for Finance Shehan Semasinghe said all deals will be comparable as promised to creditors by President Ranil Wickremesinghe in writing.
“External deb restructuring, discussions are taking place very positively,” Semasinghe said. “I also want to give another assurance to you.
“His Excellency the President gave an assurance to all creditor in writing, that when the external debt restructuring resolution is being finalized that our treatment will be comparable.
“That is the principle which we are negotiating on.”