Wednesday, September 28, 2022
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S&P Global downgrades Sri Lanka Bonds to ‘D’ after missed payments

Global ratings agency S&P Global on Monday slashed its rating on Sri Lankan bonds to ‘D’, representing default, following missed interest and principal payments

As foreign reserves dried up, unable to make interest payments on the loans, the country defaulted on the debt of USD 51 billion in May 2022.

After suspending all debt payments, the government took steps to restructure the country’s debt as a prerequisite for bail out loan from the International Monetary Fund (IMF), official sources said.

Sri Lanka succumbed to an embarrassing “hard default” as the grace period for the International Sovereign Bonds (ISB) Coupon payment lapsed.

Sri Lanka announced a pre-emptive negotiated default of all outstanding debt as of 12 April.

On 18 April ISB Coupon worth $ 78 million fell due and those had 30 days to obtain “Consent Solicitation” from all ISB holders for payment suspension by 18 May.

Creditors were hoping that Sri Lanka would get its act together to appoint financial advisors and legal consultants for debt restructuring. This process could have enabled the Government to obtain “Consent Solicitation” from all ISB holders for non-payment.

Soon after the Government announced a pre-emptive default, rating agencies downgraded Sri Lanka to ‘C’ from ‘CC’. It said Sri Lanka will be further downgraded to restricted default ‘RD’ once a payment on an issuance is missed and the grace period has expired.

As per the Ministry of Finance debt suspension list, apart from $ 78 million ISB Coupon that fell due on 18 April, some of the others that fell due until 11 May included $ 51.38 million ISB Coupon 3 May, and $ 46.5 million ISB Coupon 11 May.

Those falling due from 20 May includes $ 19.9 million ISB Coupon on 3 June, $ 15.88 million ISB Coupon on 28 June, a further $ 34.13 million on 18 July and $ 1 billion ISB Maturity on 25 July. Debt suspended include IMF debt repayment and those due to other lenders.

Under this set up Global ratings agency S&P Global on Monday slashed its rating on Sri Lankan bonds to ‘D’, representing default, following missed interest and principal payments.

The South Asian nation, which had defaulted on a bond payment earlier this year and has $12 billion in overseas debt with private creditors, has been battling the worst financial crisis in its independent history.

Sri Lanka’s external public debt freeze prevents payment of interest and principal obligations due on the government’s international sovereign bonds.

S&P said it did not expect the Sri Lankan government, which remains in default on some foreign currency obligations, to make the bond payments within 30 calendar days after their due dates.

The ratings agency affirmed its ‘SD’ long-term and ‘SD’ short-term foreign currency sovereign ratings on Sri Lanka, as well as reiterated the outlook for the island nation at ‘negative’.

The country is considering a restructuring of local and foreign debt. It is due to restart bailout talks with the International Monetary Fund (IMF) in August in the hope of securing $3 billion in funding.

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