Sri Lanka hoping to continue talks with bondholders after consulting IMF

The Government of Sri Lanka says it hopes to continue discussions with the bondholders with a view to reaching common ground ahead of the International Monetary Fund (IMF) board consideration of the second review of Sri Lanka’s Extended Fund Facility (EFF) program.

The Finance Ministry, yesterday, issued a statement announcing that the government 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).

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 its statement, Sri Lanka’s Finance Ministry said that the parties failed to come to an agreement on restructuring terms, despite the constructive discussions. Bloomberg reported 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 statement elucidated that the Steering Committee had not agreed to an extension of the restricted discussions upon expiration of the current Restricted Period.

However, issuing a statement on Wednesday (17), State Minister of Finance Sheahn Semasinghe clarified that Sri Lankan authorities continue to engage all debt restructuring negotiations in good faith, within principles of equitable treatment among creditors, and with maximum transparency within the norms of such negotiations. 

He said it is standard practice when a representative group of bondholders is formed, to entertain confidential discussions with such group and its appointed advisors. In the case of Sri Lanka, the Ad Hoc Group of Bondholders represents holders controlling more than 50% of the bonds, which make them a privileged interlocutor for Sri Lanka, he said.

The State Minister added: “It is well understood that given the price sensitive nature of the negotiations, and according to market regulations, discussions with the Group and its advisors are to be conducted under non-disclosure agreements. This evidently restricts the ability of the Government to unilaterally report about the substance of the discussions.

The cleansing statement, which was issued on the 16th of April, at the conclusion of this first round of confidential discussions with members of the Group, aims at informing the Sri Lankan people, market participants and other stakeholders to this debt restructuring exercise, about the progress in negotiations. It provides the highest possible level of transparency within the internationally accepted practices in such circumstances.

As informed in this statement, confidential discussions held in recent weeks with bondholders’ representatives proved constructive, building on the restructuring proposals presented by both parties. During the talks both sides successfully bridged a number of technical issues enabling important progress to be made. Sri Lanka articulated key remaining concerns that need to be addressed in a satisfactory manner. 

The next steps would entail further consultation with the IMF staff regarding assessments of the compatibility of the latest proposals with program parameters. Following these consultations, we hope to continue discussions with the bondholders with a view to reaching common ground ahead of the IMF board consideration of the second review of Sri Lanka’s EFF program.”