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SL-bondholders talks on restructuring terms fail

17 Apr 2024 - {{hitsCtrl.values.hits}}      

  • Restructuring of the debt is a mandatory requirement set by the IMF
  • The government said it looks forward to continued engagement in good faith
  • The Steering Committee comprises ten of the largest members of the Group of bondholders

By Shabiya Ali Ahlam
Government officials continued to sound upbeat in striking a deal with the bondholders, however, authorities this week failed to reach a consensus regarding the terms of restructuring.
Despite “constructive discussions”, authorities and the bondholders did not agree on restructuring terms, Sri Lanka said in a regulatory filing to the London Stock Exchange.
The restructuring of the debt, amounting to over US$ 12 billion, is a mandatory requirement set by the International Monetary Fund (IMF) for the island nation to continue in its efforts to come out of the debt crisis.
According to the filing, Sri Lanka rejected the ‘Macro-Linked Bond’ (MLB) proposal as it still had concerns, whereas the members of the Steering Committee articulated the reasons why they believed the terms of their MLB proposal were fair and reasonable.
The Steering Committee suggested the possible introduction of a Governance Linked Bond, which Sri Lanka said it would consider subject to being provided with more details of this proposal.

Pointing out that the discussions narrowed down to four features of the MLB, the government stated that among the concerns was the baseline parameters of the instruments proposed by the bondholders not being in line with Sri Lanka’s IMF-Supported Programme baseline.
The island nation also asserted that although the original MLB structure was updated to include a scenario where Sri Lanka might underperform IMF-Supported Programme GDP projections, a structure that would extend “greater protections” is expected.
Sri Lanka is also looking for a test for triggering upward and downward adjustments in the MLB, and share of additional value in an upward adjustment scenario.
The government said it looks forward to continued engagement in good faith as soon as feasible, to reach common ground in the next few weeks, ahead of the second review of the IMF-Supported Programme being considered by the IMF Executive Board.
The restricted discussions were held over the past three weeks with nine members of the steering committee who agreed to take part in the restricted discussions of the Ad Hoc Group of Bondholders.

 Sri Lanka was joined by its legal and financial advisors, Clifford Chance and Lazard, respectively, and the restricted members of the Steering Committee were joined by the Group’s legal and financial advisors, White & Case and Rothschild & Co.
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.