Sri Lanka reaches agreement to restructure $12.6b in bonds

Sri Lanka has reached an agreement to restructure $12.6 billion in bonds, moving closer to finalising its debt overhaul after defaulting two years ago. Creditors agreed to a 28 per cent reduction in bond principal, with new notes linked to economic growth and a potential governance-linked bond.

“This agreement is a crucial step in our efforts to restore debt sustainability in the country,” Junior Finance Minister Shehan Semasinghe posted on X. “This marks another key milestone in our journey towards economic revival and strengthening.”

The deal, which took over a year of negotiations, is expected to help Sri Lanka regain access to international capital markets and secure further IMF funding. The bondholder group, holding about 50 per cent of the overseas bonds, includes Amundi SA and BlackRock Inc.

“Initial estimates suggest that the new recovery values for the investors will be lower than the April proposal but still closer to or over 60 cents on the dollar, which is a good outcome for the bondholders,” said Saurav Anand, South Asia economist at Standard Chartered Plc.

Sri Lanka’s dollar bonds due 2030 rose 1.7 cents to 59 cents on the dollar, with its dollar debt being among the top performers in emerging markets.

The government has also secured debt restructuring deals with official creditors such as China, India, and the Paris Club, alongside local debt holders. Frontier markets like Ghana and Zambia are also making significant progress in their debt restructuring efforts.

Sri Lanka’s deal with bondholders requires formal confirmation from official creditors and IMF staff. “We expect the process to be largely formalities and not disrupt the timelines,” said Avanti Save, analyst at Barclays Plc. “We have a constructive view on the Sri Lanka bond complex.”

Attribution: Bloomberg.

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