Wednesday, July 6, 2022

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Sri Lanka sued by holdout Hamilton Reserve, other bondholders form group

More than 30 bond holders said they have formed a group to negotiate with Sri Lanka after it defaulted on its foreign debt while but at least one holdout has sued the country in a US court demanding payment.

Hamilton Reserve, a St Kitts and Nevis based bank, has filed suit in the Federal Court of New York Southern District, advised by lawyers Bleichmar Fonti & Auld against Sri Lanka.

Some Sri Lanka bonds, especially those issued before 2015 have ‘single series’ collective action clauses which allow one bond holder with a large position to holdout and sue for full payment.

Hamilton Reserve had built up a 250 million US dollar blocking minority in a July 2022 bond which is part of a debt suspension, Bloomberg Newswires reported.

Later bonds have aggregate collection action clauses which require a large position to be held in all bonds making holdout difficult.

Sri Lanka has 12.6 billion US dollars of bonds.

Sri Lanka defaulted on foreign debt April 2012 after seven years of aggressive macro-economic policy involving monetary and fiscal stimulus to close an ‘output gap’.

Sri Lanka has hired Clifford Chance and Lazard as legal and financial advisors to restructure its foreign debt.

The Clifford Chance team is being headed by London-based partner, Deborah Zandstra, who has advised Argentina, the legal news portal has reported said.

Other bond holders have formed a steering committee made up of of Amundi Asset Management, BlackRock Eaton Vance Management, Grantham, Mayo, Van Otterloo & Co. LLC, HBK Capital Management, Morgan Stanley Investment Management, Neuberger Berman, T. Rowe Price Associates Inc, and Wellington Management, legal advisors White and Case LLC said in a statement.

Rothschild & Co is financial advisors for the group.

The bondholders said they welcomed the “ongoing engagement with the International Monetary Fund (the “IMF”), and encourages the authorities to formulate and implement a package of meaningful reforms and fiscal adjustments to restore the conditions for sustainable and inclusive growth and support the long term prosperity of Sri Lanka.”

“The Group is ready to interact swiftly with the authorities and the IMF to help achieve a timely resolution of Sri Lanka’s debt related challenges.

“To this end the Group expects that the forthcoming process will be conducted in a manner consistent with the G20-endorsed Principles for Stable Capital Flows and Fair Debt Restructuring, which emphasise transparency, good faith negotiations and fair treatment among creditor classes.”


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