State-run Bank of Ceylon requests early repayment of loans from SriLankan

ECONOMYNEXT – State-run Bank of Ceylon had requested early repayment of a 12.9 billion rupee loan taken by SriLankan Airlines while the Treasury wants the loans to be extended for another year, until an investor is found, a witness told a commission of inquiry.

The Treasury had given ‘Letters of Comfort’ to cover the principal of the loans in arrears, while the airline keeps paying interest.

Bank of Ceylon (BOC) Offshore Banking Division Chief Manager Upul Wijegunawardena testified at the Presidential Commission of Inquiry into irregularities at the national carrier.

"The government wants to extend the Letters of Comfort for one year,” he said. "The board of directors have decided to extend the debt for only another 6 months,” he said.

The Letters of Comfort for the loans expired on 30 June 2018, he said.

Wijegunawardena said that although the Treasury wants to issue new Letters of Comfort, which are less acceptable for the bank than Treasury Guarantees, BOC wants the payments in full.

He said letters have been written to the Public Enterprise Development Ministry as well as the Treasury requesting repayment.

Wijegunawardena said that the government has requested BOC to fund SriLankan until an investor can come in through a public-private partnership.

In the past the government had given Treasury Guarantees, but since 2015, only Letters of Comfort have been issued for SriLankan Airlines debt, he said.

For three loans totalling 12.9 billion rupees extended since 2014, the airline had repaid 4.2 billion rupees of interest, while the principal amount has been renewed through Letters of Comfort, he said.

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“We can’t do portfolio matching,” Wijegunawardena said in response to a question on the effect of SriLankan not repaying the loans.

“We can’t extend the funds to another company since SriLankan hasn’t repaid them.”

BOC has provided another 100 million US dollars of foreign currency loans to SriLankan, of which Letters of Comfort have yet to expire, he said. For these loans, SriLankan had repaid 7.6 million US dollars of interest, he said.

Last week Wijegunawardena testified that BOC was giving special treatment for SriLankan as it was a state owned entity, since other clients are not allowed to just repay interest and continuously renew their principal loans. (COLOMBO, 27 August, 2018)
 

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