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Sri Lanka and Official Creditor Committee resume bond restructure talks next week

By: Staff Writer

The International Monetary Fund (IMF) has granted access to US$ 330 million from its Extended Fund Facility and the government’s putting the country’s economy on a firm footing as Sri Lanka is nearning on finalising in-principle agreement with bondholders and the completion of such an agreement with China.  

The issue with external bondholders on debt restructuring proposal will also be resolved soon following the latest meeting with the country’s Official Creditor Committee next week.

State Finance Minister Shehan Semasinghe announced that the Government is focusing on finalising an in-principle agreement with bondholders and is nearing the completion of such an agreement with the China Exim Bank.

Addressing a media briefing, Semasinghe indicated that while a specific timeline cannot be outlined, both parties are eager to finalise an agreement.

“We are very hopeful of reaching consensus with bilateral creditors soon, possibly by the end of this month,” he stressed.

Having encountered “some setbacks in the first round of sovereign bond restructuring talks in LondonIn April , the Steering Committee” of the Ad Hoc Group of Bondholders and the Sri Lankan official negotiators will continue dialogue to arrive at a consensusnext week , finance ministry sources confirmed.    

The IMF supported program explicitly assists Sri Lanka’s efforts to restore macroeconomic stability and debt sustainability, safeguard financial stability, and enhance growth-oriented structural reforms.

Moreover, the nation’s impending presidential election exerts pressure on the government to fast-track the negotiation process, raising concerns about the sustainability of any deal struck with bond holders hastily under such circumstances.

In this context, there is a possibility of reaching an adverse agreement for the country he said adding that if t happens the debt repayments agreed may become a difficult task for Sri Lanka in the coming years which could lead to a second default.

However Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund, has expressed optimism regarding the prospect of a deal with Sri Lanka’s sovereign bond holders following further discussions.

The first round of direct discussions in London has ended in a dead lock, he confirmed disclosing that the Sri Lanka government has expressed willingness to explore bonds linked to economic performance.

Bondholders have submitted a proposal for governance-linked bonds as an alternative for defaulted bonds towards finding mutually beneficial solutions, he disclosed.

Sri Lanka has proposed a 28 percent haircut with a 1.8 percent upfront fee, aligned with the IMF baseline, with alterations based on economic performance a former treasury secretary divulged

He said that bond holder’s proposal of governance-linked bonds would be an issuance of cash coupons commencing from 2028 with interest rates ranging between 8 and 9.5 percent, conditional on the maturity.

According to indicative term sheet for Macro-Linked Bonds put forward by the bond holder’s side private creditors will get a high interest rate if the country is gained high GDP growth during the period of 2025-2027.

This is because of the interest rate is proportionate to the GDP, a former treasury secretary disclosed pointing out that Sri Lanka side rejected it as debt restructuring process is aimed at reducing  the interest rates paid to creditors.

Under this set up the steering committee did not agree to an extension of the restricted discussions upon expiration of the current restricted period finance ministry sources said.   

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