Sri Lanka sees strong bondholder support in debt exchange

Sri Lanka gained extensive support from private creditors to restructure its international bonds, a key step for the country to exit an extended default. 

The Government of Sri Lanka has announced indicative results of its recent consent solicitation and invitation to exchange concerning the country’s existing bonds. 

The initiative, which launched on November 25, 2024, has seen significant bondholder participation ahead of the December 12, 2024, expiration deadline.

According to the indicative results, instructions from holders representing 96% of the principal amount outstanding of the existing bonds have been received. This includes a series of bonds with varying maturities, ranging from those due in April 2023 to those maturing in March 2030.

The exchange invites eligible holders of the aggregated collective action clauses (CAC) existing bonds and non-aggregated CAC existing bonds to swap their current holdings for new securities or substitute consideration. The invitation also extends to holders of 2022 bonds, which showed a lower participation rate of 73%.

For the aggregated CAC existing bonds, participation rates were high, with the $1.25 billion 5.750% bonds due April 18, 2023, receiving 98% participation, and the $1.5 billion 7.550% bonds due March 28, 2030, garnering 99% participation. The non-aggregated CAC existing bonds also saw strong support, with the $1.5 billion 6.850% bonds due November 3, 2025, achieving 98% participation.

The Republic expects to announce the final results of the invitation on December 16, 2024, including whether the settlement conditions have been satisfied or waived.

The consent solicitations and invitations to exchange are part of Sri Lanka’s efforts to restructure its debt amidst economic challenges. The success of the initiative is indicative of the bondholders’ willingness to support the country’s economic recovery.

Investors representing 96% of the country’s $12.6 billion in dollar bonds 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 on Dec. 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% 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 $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% threshold for each note. For three bonds, the voting threshold was set even higher, at 75%.

The debt rework with private creditors was a necessary step under a $3 billion loan the country secured from the International Monetary Fund. 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 weren’t made public. 

The debt rework with private creditors took so long that it was mainly negotiated with the previous government, then finalized under the current presidency of Anura Kumara Dissanayake after he was elected on Sept. 21. 

--With Agencies Inputs 

Sri Lanka Announces the Successful Expiration of its Consent Solicitation and Exchange Offer Related to its... by Adaderana Online on Scribd