© Reuters. Nandalal Weerasinghe, newly appointed governor of the Central Bank of Sri Lanka, speaks during a news conference amid the country’s economic crisis in Colombo, Sri Lanka, on April 8, 2022. REUTERS/Dinuka Liyanawatte/File Photo
by Uditha Jayasinghe
COLOMBO (Reuters) – Sri Lanka is asking foreign investors in its international sovereign bonds to write down the value by 30 percent and is seeking similar concessions from holders of its other dollar bonds as it seeks to restructure its huge debt, the governor of the Bank of Sri Lanka said. Thursday.
While unveiling details of the long-awaited plan, which will cover part of the island nation’s $42 billion domestic debt, Nandalal Weerasinghe told a news conference, the government will also exchange treasury bills into long-term bonds as part of a domestic debt restructuring programme. .
Sri Lanka is suffering its worst financial crisis since its independence from Britain in 1948, after the country’s foreign exchange reserves hit their lowest levels and triggered its first foreign debt default last year.
Sri Lanka has pledged to put its massive debt burden on a sustainable path, and closed a $2.9 billion bailout from the International Monetary Fund in March. Domestic restructuring is needed to help the country reach the IMF program’s goal of reducing total debt to 95% of GDP by 2032.
Meanwhile, the government is pushing ahead with rewriting its foreign debt with bondholders and bilateral creditors including China, Japan and India.
Weerasinghe said that under the domestic debt renewal, holders of locally issued dollar-denominated bonds such as Sri Lanka’s development bonds will be given three options.
The first would be similar treatment for investors in the country’s international sovereign bonds – a 30% capital reduction with a maturity of 6 years at a 4% interest rate, he said.
“We are asking external debt holders for a 30% reduction but this is still under discussion,” Weerasinghe said.
Sri Lanka currently has $12.5 billion in international sovereign bonds.
Wierasinghe did not comment on the ongoing talks with the bilateral creditors. Sri Lanka has set a target of ending debt restructuring talks by September to align with the first review of the International Monetary Fund’s programme.
China wants multilateral lenders such as the International Monetary Fund and the World Bank to absorb some of the losses, which those institutions and many developed countries, particularly the United States, are resisting.
More international support
The local restructuring program will be presented to parliament on Saturday for approval.
Earlier on Thursday, the World Bank approved $700 million to support the country’s budget and social welfare, the largest tranche of financing for the island nation since the International Monetary Fund agreed in March. About $500 million of the money will go towards budget support while the remaining $200 million will go towards social welfare support intended for those hardest hit by the crisis.
A source in the president’s office told Reuters that the cabinet approved the domestic debt program at a special cabinet meeting on Wednesday.
Local bond holders will be given two more options:
– Similar treatment to that being proposed to bilateral dollar creditors: no principal reduction, with a maturity of 15 years and a grace period of 9 years at an interest rate of 1.5%.
– Exchanging their holdings for local currency denominated instruments: No principal depreciation with 10-year maturity at SLFR (Sri Lanka Permanent Lending Facility Rate) + 1% interest rate.
Weerasinghe added that the local currency bonds held by pension funds, including pension funds, will be replaced by new bonds that will have an interest of 9%.
But local currency bank bonds were excluded from the plan to avoid increasing pressure on the financial sector
Sovereign US dollar bonds in Sri Lanka were higher in early morning trading, with maturities in November 2025 and March 2024, gaining 0.77 cents, by 0627 GMT, according to Tradeweb data.