Sri Lanka fails to reach deal with Ad Hoc Bondholders on ISBs
April 16, 2024 03:16 pm
The government of Sri Lanka has concluded the initial restricted discussions with nine members of the Steering Committee of the Ad Hoc Group of Bondholders regarding its international sovereign bonds (ISBs).
During the discussions, which spanned over the past three weeks (Restricted Period), Sri Lanka was joined by its legal and financial advisors Clifford Chance and Lazard, respectively, while the restricted members of the Steering Committee were joined by the Group’s legal and financial advisors, White & Case and Rothschild & Co., respectively.
The Steering Committee as a whole comprises ten of the largest members of the Group, with the Group controlling approximately 50% of the aggregate outstanding amount of ISBs.
In a statement, Sri Lanka’s Finance Ministry said that the parties failed to come to an agreement on restructuring terms, despite the constructive discussions. Bloomberg said the failure to arrive at a deal puts pressure on Sri Lankan authorities who need to make progress on debt restructuring to keep funds flowing from the IMF.
Further, the Steering Committee has not agreed to an extension of the restricted discussions upon expiration of the current Restricted Period, according to the statement.
During this period, Sri Lanka, the Steering Committee and its advisors met during a two-day working session in London on 27 and 28 March to discuss the Group’s latest debt treatment proposal. Prior to the meetings, on 25 March, Sri Lanka had also sent its own debt treatment proposal to the Group’s advisors which was rejected by the Steering Committee.
Prior to the meetings, staff at the IMF had provided their preliminary and informal assessment of both parties’ proposals’ consistency with Sri Lanka’s IMF-supported program parameters and debt sustainability objectives.
The IMF staff assessment included an analysis of the sum total of restructuring proposals (for official and private creditors) based on agreed deals with certain creditors and the Sri Lankan authorities’ restructuring scenario for other creditors.
On that basis, the IMF staff concluded that the debt treatment scenario included in Sri Lanka’s proposal was consistent with the IMF-supported program debt sustainability targets, while the scenario included in the Group’s March proposal was not. IMF staff noted that these were preliminary assessments and the IMF staff would provide final assessments only after the parties had reached a tentative agreement in principle.
During the Meetings, it was agreed that the primary basis for the discussions would be the Group’s March proposal. Sri Lanka articulated the main reservations it had in relation to the Group’s proposed Macro-Linked Bond (MLB) - while members of the Steering Committee articulated the reasons why they believed the terms of their MLB proposal were fair and reasonable.
The Finance Ministry said the Sri Lankan government looks forward to continued engagement and to ‘reach a common ground’ in the next few weeks, ahead of the review of the IMF-supported program by the Executive Board.
The global lender has yet to assess the Group’s revised debt treatment proposal submitted by the bondholders on 3 April.
