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Sri Lanka completes landmark sovereign debt restructuring
View(s):By Bandula Sirimanna
Sri Lanka has completed the more complicated part of its international bond restructuring agreement, a milestone toward recovering from bankruptcy.
“We are very pleased to see this vote of confidence from our international and local bondholders,” President Anura Kumara Disanayake said in a statement.
“The past few years have been challenging for the Sri Lankan population, but our collective efforts are now paying off,” he pointed out.
“This debt exchange, the product of two years of intense negotiations, will indeed yield real and substantial relief to Sri Lanka,” he said.
This means the country is finally back on track to restore financial stability, according to Treasury Secretary Mahinda Siriwardana. “The debt restructuring gives Sri Lanka sizeable debt relief, for which we must rebuild fiscal and external buffers for economic recovery and growth,” he added.
The final outcome of the restructuring is due to be announced on December 16, while the exchange of bonds is expected to be concluded on December 20.
This comes in an attempt by the government to deal with its financial woes after its default on external debt in 2022, amid unsustainable macroeconomic policies that included aggressive tax cuts and excessive money printing.
Indeed, the country was faced with more than US$13 billion in sovereign bonds and syndicated loans, mainly piled up during recurring currency crises alongside inappropriate monetary policies, by 2022.
The restructuring also features an exchange programme for bonds, aimed at shaving debt service payments by about $9.5 billion over four years under the IMF-supported Sri Lankan economic recovery plan.
These are GDP-linked and governance-linked bonds, in which the payments are indexed to economic performance and governance reforms.
These have gained broad-based support from creditors, including large stakeholders such as BlackRock and Amundi, who collectively hold more than 50 percent of the outstanding bonds.
Their creditors came aboard notwithstanding the scepticism earlier expressed about Sri Lanka’s ability to pull off the deal. They met the December 12 deadline to accept the bond exchange offer.
This restructuring package encompasses $12.5 billion of bonds in default and back interest, to be exchanged for new instruments, including macro-linked bonds.
This agreement will further reduce the net present value (NPV) of the restructured bonds by 40.3 percent, whereas the IMF programme is expected to include debt relief of $17 billion.
Most importantly, China has agreed to support the plan for equal treatment of official creditors and private bondholders, as required by the terms of the IMF.
The package includes reductions in bond coupon rates of 31 percent, extending the maturity periods of bonds for over five years, and shaving $9.5 billion in debt servicing payments during the period of the IMF programme.
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