Sri Lanka’s Bondholder Discussions: No Agreement Reached

COLOMBO (News 1st); The Government of Sri Lanka has disclosed that it engaged in exclusive discussions with a select group of bondholders over a three-week period regarding the restructuring of its International Sovereign Bonds (ISBs).

These discussions involved nine members of the steering committee representing the Ad Hoc Group of Bondholders, which collectively controls approximately 50% of the outstanding ISBs, said the government in a statement. 

Sri Lanka was supported by legal and financial advisors from Clifford Chance and Lazard, respectively, while the steering committee members were assisted by advisors from White & Case and Rothschild & Co.

Despite constructive dialogue, an agreement on restructuring terms was not reached during this period, and the steering committee did not opt to extend the discussions beyond the specified timeframe.

The discussions centered on proposals exchanged between Sri Lanka and the steering committee.

Sri Lanka presented its own debt treatment proposal, which was rejected by the steering committee.

The island nation is asking foreign investors in its international sovereign bonds to take a 30% haircut and is seeking similar concessions from holders of its other dollar-denominated bonds as it seeks to restructure its debt

Conversely, the steering committee provided its own proposal, which was discussed during a two-day session in London on March 27 and 28, 2024.

Prior to these meetings, both parties received a preliminary assessment from the International Monetary Fund (IMF) regarding the consistency of their proposals with Sri Lanka's IMF-supported program.

During the meetings, the primary focus was on the steering committee's proposal, particularly its Macro-Linked Bond (MLB) concept.

Sri Lanka expressed reservations about certain aspects of the MLB, such as its calibration and the distribution of risks between Sri Lanka and bondholders.

Discussions also touched on the possibility of introducing a Governance Linked Bond, with further details provided to Sri Lanka's advisors on April 3, 2024.

While progress was made on some aspects of the MLB proposal, including baseline parameters and risk distribution, differences remained regarding trigger tests and allocation of additional value in certain scenarios.

The steering committee indicated willingness to accommodate Sri Lanka's concerns on key structural aspects, contingent on Sri Lanka accepting a consent fee and agreeing to the committee's proposals on trigger tests and value allocation.

The Steering Committee is proposing a fee of 1.8% of the outstanding principal amount of the
ISBs.

Subsequently, the steering committee presented an updated proposal on April 3, 2024, addressing some of Sri Lanka's concerns. However, Sri Lanka maintained reservations regarding certain aspects of the proposal.

Sri Lanka aims to reach a consensus in the coming weeks, ahead of the IMF Executive Board's second review of Sri Lanka's IMF-supported program.