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Monday June 27th, 2022

Sri Lanka sued by holdout Hamilton Reserve, other bondholders form group

ECONOMYNEXT – More than 30 bondholders said they have formed a group to negotiate with Sri Lanka after it defaulted on its foreign debt. Still, at least one holdout has sued the country in a US court demanding payment.

Hamilton Reserve, a St Kitts and Nevis based bank, has filed suit in the Federal Court of New York Southern District, advised by lawyers Bleichmar Fonti & Auld against Sri Lanka.

Some Sri Lanka bonds, especially those issued before 2015 have ‘single series’ collective action clauses which allow one bond holder with a large position to hold out and sue for full payment.

Hamilton Reserve had built up a 250 million US dollar ‘blocking minority in a July 2022 bond which is part of a debt suspension.

Later, bonds have aggregate collection action clauses which require a large position to be held in all bonds making, holdouts more difficult.

Bonds with collective action clauses allow a large majority of bondholders to accept a settlement which is binding on all.

Sri Lanka has 12.6 billion US dollars of bonds.

Sri Lanka defaulted on foreign debt in April 2022 after seven years of aggressive macro-economic policy involving monetary and fiscal stimulus to close an ‘output gap’.

Sri Lanka has hired Clifford Chance and Lazard as legal and financial advisors to restructure its foreign debt.

The Clifford Chance team is being headed by London-based partner, Deborah Zandstra, who has advised Argentina, the legal news portal law.com has reported said.

Other bondholders have formed a steering committee made up of Amundi Asset Management, BlackRock Eaton Vance Management, Grantham, Mayo, Van Otterloo & Co. LLC, HBK Capital Management, Morgan Stanley Investment Management, Neuberger Berman, T. Rowe Price Associates Inc, and Wellington Management, legal advisors White and Case LLC said in a statement.

Rothschild & Co is the financial advisor for the group.

The bondholders said they welcomed the “ongoing engagement with the International Monetary Fund (the “IMF”) and encouraged the authorities to formulate and implement a package of meaningful reforms and fiscal adjustments to restore the conditions for sustainable and inclusive growth and support the long term prosperity of Sri Lanka.”

“The Group is ready to interact swiftly with the authorities and the IMF to help achieve a timely resolution of Sri Lanka’s debt-related challenges.

“To this end, the Group expects that the forthcoming process will be conducted in a manner consistent with the G20-endorsed Principles for Stable Capital Flows and Fair Debt Restructuring, which emphasise transparency, good faith negotiations and fair treatment among creditor classes.” (Colombo/June22/2022)

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