By: Staff Writer
December 22, Colombo (LNW): The Government of Sri Lanka has requested the US District Court for the Southern District of New York to extend its stay of proceedings in a lawsuit filed by Hamilton Reserve Bank (HRB). The case revolves around HRB’s claim for $250 million in principal and interest on International Sovereign Bonds (ISBs). The Government has pledged to update the court by 6 January 2025, by which time it anticipates concluding its ongoing debt restructuring efforts.
Sri Lanka’s legal team argues that an extension is vital to ensure the success of its restructuring program, a core component of the country’s economic recovery plan under the IMF-supported framework. The Government reports significant progress, with over 95% of bondholders across most series participating in its debt exchange offer launched on 25 November. However, HRB, which holds 25% of the 2022 Bonds, has refused to participate, maintaining its legal claims and filing a partial opposition to the Government’s motion.
In its submission, Sri Lanka highlighted that previous court stays have been instrumental in facilitating negotiations with creditors and aligning agreements with IMF requirements. The country’s restructuring efforts earlier in 2024, which involved bilateral and private creditors, laid the groundwork for the current debt exchange. The Government contends that continuing the stay would prevent disruptions and ensure an equitable resolution for all stakeholders.
HRB, however, argues that an extension is unwarranted after the 12 December 2024 debt exchange deadline, as most bondholders have already made their decisions. The bank asserts that post-deadline procedures, such as announcing results and issuing new bonds, are unrelated to the litigation. HRB further emphasizes that its holdings of the 2022 Bonds remain unaffected by the restructuring, and the Government has acknowledged that their terms remain unchanged. As a result, HRB insists that its claim for $250 million should proceed without further delay.
Sri Lanka’s legal team counters that premature litigation could derail the broader restructuring process and deter other creditors, creating legal uncertainty. They argue that HRB will not suffer harm from a delay, as accrued interest will compensate the bank for the wait.
Domestically, the successful completion of the debt restructuring is critical for Sri Lanka’s economic recovery. It aims to stabilize public finances, create fiscal space for development, and restore confidence among both domestic and international stakeholders. However, critics have raised concerns about inefficiency and corruption within state institutions, questioning the Government’s ability to deliver on its promises.
Analysts note that the court’s decision will have far-reaching implications. A ruling in Sri Lanka’s favor could enable the Government to complete its restructuring process and set a precedent for handling sovereign debt disputes. Conversely, denying the stay could accelerate HRB’s litigation, potentially complicating Sri Lanka’s recovery efforts.
The Government’s proposed update on 6 January 2025 is expected to confirm the restructuring’s completion, marking a significant milestone in Sri Lanka’s economic recovery. Analysts suggest the outcome of this case could shape future approaches to sovereign debt disputes, balancing individual creditor claims with broader economic stability goals.
