Sri Lanka has gained extensive support from private creditors to restructure its international bonds, a key step for the country to exit an extended default, Bloomberg reported yesterday.
Investors representing 96 percent of the country’s US$ 12.6 billion in dollar bonds have agreed to swap their securities for new notes, the Government said, citing indicative results of its consent solicitation for the exchange.
Once confirmed with official results tomorrow, December 16, the widespread support would mean that the debt restructuring should be completed before year-end.
The agreement after the South Asian economy defaulted in April 2022 marks a resolution of the debt revamp following several rounds of negotiations after which the parties agreed to a 27 percent haircut on the nominal amount of existing bonds.
The agreement pushes back due dates for the bonds and reduces interest rates, while introducing so-called macro-linked bonds for the first time in a debt rework. After a one-time single test, four notes maturing between 2030 and 2038 could generate lower or higher payments for investors depending on the country’s economic performance.
The deal also includes a governance-linked note, from which the country could get a 75 basis-point coupon reduction on more than US$ 1.5 billion of debt if it meets certain governance targets, including increasing revenue collection.
Holders of at least two-thirds of the outstanding debt had to agree on a deal for it to be binding for all creditors, with a minimum 50 percent threshold for each note. For three bonds, the voting threshold was set even higher, at 75 percent.
The debt rework with private creditors was a necessary step under a US$ 3 billion loan the country secured from the International Monetary Fund (IMF). Sri Lanka also restructured its debt with bilateral creditors such as China, India and Japan as part of its IMF program, but the details of those agreements were not made public at that time.
