Wickremesinghe loses face on his claim of no losses to EPF

In response to a question from Frances Harrison, Director of the International Truth and Justice Project, regarding the Employees’ Provident Fund (EPF), the former President asserted that no one has lost even a cent in the ‘EPF’ due to debt restructuring.
FactCheck.lk consulted the Ministry of Finance publications related to Domestic Debt Restructuring to verify the claim.  
There are three methods used to restructure debt: (i) nominal reduction of the maturity value (face value haircut), (ii) interest rate reduction (coupon haircut), and (iii) maturity extension (reprofiling).
The former president claims that the EPF was subject to only a maturity extension (third method); hence, members’ savings in the EPF had no reduction in value. However, he is wrong on two counts: first, reprofiling was not the only method used, and second, reprofiling not resulting in a loss.

First, the bonds were not simply subject to reprofiling but also a coupon haircut. Calculations on the published data show that the weighted average coupon on the bonds that were subject to restructure was 12.1%, while the weighted average coupon on the replacement bonds issued was 9.7%. Therefore, it is incorrect to say that the restructure was limited to a maturity extension. 
Second, reprofiling can result in a loss if the restructured debt was purchased at a price below its face value (referred to as a price below par). If bought at par, the overall rate of return on the bond is the coupon rate. But when bought below par the yield depends on when the maturity is paid. Therefore, extending the date of payment (that is reprofiling) reduces this yield—meaning bondholders get a lower rate of return.
The data shows that the restructured bonds were equally accessible in the government auction to all market participants, including the EPF, and were sold at prices below par. Therefore, reprofiling them also caused an additional loss (reduction in the rate of return) to EPF members on top of the reduction in the rate of return caused by the coupon haircut.
The former president is wrong in asserting that there was no reduction in the coupon, and wrong also in asserting that the maturity extension on those bonds did not cause a loss. 
Therefore, we classify the former president’s claim as BLATANTLY FALSE.
*FactCheck.lk’s verdict is based on the most recent information that is publicly accessible. As with every fact check, if new information becomes available, FactCheck.lk will revisit the assessment.

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