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Fidelity Among Big Sri Lankan Debt Holders Staring Down Risk

Global asset managers including Fidelity Investments and T. Rowe Price Group could be staring down the risk of default in Sri Lanka in the face of a deepening economic crisis.

Fidelity Investments’ parent FMR LLCLord Abbett & Co. and T. Rowe Price Group were among the largest overseas holders of the island nation’s $12.6 billion in foreign debt, according to holdings most recently disclosed by investors in data compiled by Bloomberg. FMR held $114.3 million of the debt, Lord Abbett had about $78 million and T. Rowe owned $32.6 million, followed by Payden & Rygel and SEI Investments, the data show. 

Sri Lanka’s investors are growing concerned about whether the country will be able to keep up on its foreign debt obligations as inflation and protests hit the family that’s ruled the nation with an iron fist for most of the last 15 years. Anger over hours-long power cuts and food and fuel shortages has spilled unto the streets, leading President Gotabaya Rajapaksa to replace his cabinet and appoint a new central bank head this week. The nation is also struggling with a cash crunch that’s triggered capital controls and import curbs. 

SRI LANKA-UNREST-ECONOMY-POLITICS
A protest against the surge in prices and shortage of fuel and other essential commodities near the parliament building in Colombo on April 5.Photographer: Ishara S. Kodikara/AFP/Getty Images

Such global investors owned nearly 4% of the nation’s outstanding sovereign dollar debt, according to the latest available data via filings disclosed at different points in time. For Fidelity, for example, one of the most recent sources of data available is for an exchange-traded fund as of April 4, while some of the firm’s other funds last disclosed holdings on Feb. 28 or earlier.

Sri Lanka Default Seen ‘Inevitable’ as Bond Losses Deepen

“Recent unrest and political uncertainty mean any investor now is attempting to catch a falling knife,” said Charlie Robertson, global chief economist at Renaissance Capital Ltd. “We think most investors will wait on more political clarity and evidence of an IMF deal, which does improve recovery values, before taking the plunge into local assets.”

A spokesperson for Fidelity declined to comment on specific holdings, as did a spokesman for SEI. A spokesman at T. Rowe said Sri Lankan holdings accounted for 1% of its Emerging Market Bond Fund as of the end of 2021. Spokespeople for Lord Abbett and Payden & Rygel did not respond to requests for comment. 

Sri Lanka Bondholders

Source: Holdings disclosed by investors, compiled by Bloomberg

Note: Data is as-of latest filings, which range in date

The next key test for Sri Lanka’s bondholders will be on April 18, when the government must pay $36 million in interest on a bond maturing in 2023 and $42.2 million on a 2028 note, according to Bloomberg data. The government also has to pay $1.03 billion in principal and interest on a maturing note on July 25.

Sri Lankan debt slumped over the past years as cities were shuttered and tourism — the nation’s main industry — skidded to a halt. Dollar bonds due in July 2022 were indicated 2 cents on the dollar lower at 55.5 cents Wednesday morning. 

The extra yield investors demand to hold Sri Lanka’s sovereign debt, on average, over U.S. Treasuries have widened to 29.99 percentage points, according to JPMorgan Chase & Co. data, well above the 10-percentage point threshold for distressed debt.

Bloomberg’s search for top holders includes holdings of passive funds, such as ETFs, which have little choice in what they buy or sell. It’s also worth noting that Bloomberg’s data doesn’t necessarily include holdings by investors that aren’t required to disclose their debt transactions.

Bloomberg

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