Sri Lanka is moving closer to completing its debt restructuring, announcing plans Tuesday to issue new bonds to holders of its defaulted dollar-denominated debt, Bloomberg reports.
The Ministry of Finance revealed that holders of approximately $12.55 billion in existing bonds will be able to exchange their holdings for new securities until December 12.
This exchange marks a significant milestone in Sri Lanka’s efforts to recover from its 2022 debt default and regain access to international financial markets. President Anura Kumara Dissanayake urged private sector creditors to participate, stating that the restructuring is crucial for securing a brighter future for the nation.
The announcement follows last week’s securing of initial approval for the next loan tranche from a $3 billion International Monetary Fund (IMF) bailout package. The IMF has emphasized that final approval hinges on sufficient progress in debt restructuring.
According to Philip McNicholas, Asia sovereign strategist at Robeco Group (a holder of Sri Lankan debt), the new bonds are attractive to investors. He suggested the IMF might show flexibility in its program, potentially allowing the Sri Lankan government to ease some fiscal austerity measures to stimulate private consumption and economic growth.
Sri Lankan dollar bonds showed stability following the restructuring announcement, having already delivered investors a nearly 30% return this year – one of the best performances in Asia.
The Ministry of Finance statement highlights that the debt exchange will reduce Sri Lanka’s debt servicing payments by $9.5 billion over the four-year IMF program. Specific terms of the exchange, however, were not detailed in the release.
